Street Retail Is Expected to Be Enhanced in the Long Term with the Construction of Car-Free Zones in Moscow

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Street Retail Is Expected to Be Enhanced in the Long Term with the Construction of Car-Free Zones in Moscow RUSSIAN RETAIL PROPERTY MARKET REPORT H1 2013 HIGHLIGHTS Retail Property Market Report by MAGAZIN MAGAZINOV H1 2013 The most significant event in the Moscow retail property market was the launch of outlet centers, Fashion House Moscow Outlet Centre and Vnukovo Outlet Village. Three outlet projects announced to be carried out in the capital have started actively competing for customers. Within the next year this segment is unlikely to see any new names. The first half of 2013 can be considered as a relatively stable period for shopping centers in Moscow. The largest projects announced for 2013 are expected to be opened only by the end of the year, the vacancy rates have slightly decreased while average rental rates have experienced certain growth similar to the last year’s dynamics. Developers in Moscow are actively trying out small formats: most of the retail schemes opened or those to be opened in 2013 are community centers. In early June paid parking was introduced in the center of Moscow. In our opinion, this may lead to a short-term decrease in the popularity of some central retail corridors among tenants. Development of street retail is expected to be enhanced in the long term with the construction of car-free zones in Moscow. Twenty pedestrian zones are expected to be completed by late 2013. The most active participants in the street retail market remain restaurants and cafes, banks and food chains. International premium brands show their growing interest in Moscow high-streets . The vector of development of the Russian retail property market keeps shifting towards smaller cities. A significant number of shopping centers announced to be opened in 2013 are located in cities or towns with the population of below 500,000 people. This year may become record-breaking for Russia in terms of commissioned retail spaces as part of quality shopping centers – provided that all the announced objects are opened by the end of the year. In the first half of 2013 Russian retail property market saw landmark investment transactions – with Metropolis in Moscow and Aura in Novosibirsk sold. SHOPPING CENTERS | MOSCOW SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV H1 2013 SUPPLY During the first half of 2013 the capital’s retail property market acquired four DYNAMICS OF LEASABLE SPACES COMMISSIONING IN MOSCOW SHOPPING CENTERS new up-to-date objects with the total leasable area of 77,800 sq m. The centers 2006-2013 that underwent commissioning were Tropa and RIO, as well as the first phases of Vnukovo Outlet Village and Fashion House Moscow Outlet Centre. Tropa’s GBA is 7,800 sq m, GLA is 5,500 sq m. The shopping center is located within a walking distance from Akademicheskaya and Profsoyuznaya subway stations. Tropa has three shopping levels and includes a surface parking lot for 117 cars. Among the center’s anchors are Perekrestok and Sportmaster. RIO’s GBA is 75,000 sq m, while GLA is 40,000 sq m. It is located at Leninsky Avenue 109. The technical commissioning took place on June 21, while the official commissioning will be in August. RIO includes 5 levels, and the parking lot provides enough space for 800 cars. The project developer is Tashir Group. Undoubtedly, among the landmark events that happened in the first half of 2013 is the appearance in the market of two new outlet centers. Vnukovo Outlet Village opened in May. It is located in Kievskoye Highway, the first phase has GBA of 29,700 sq m and GLA of 16,600 sq m. Fashion House Moscow Outlet Centre opened on June 27. It is located on Leningradskoye Highway, the first phase has GBA of 22,300 sq m and GLA of 15,700 sq m. The total supply of leasable spaces in the capital’s modern shopping centers, BREAKDOWN OF LEASABLE SPACES AT MODERN SHOPPING CENTERS PER ADMINISTRATIVE as of early July 2013, is 4.068 mln sq m (127 operating objects). The market DISTRICTS OF MOSCOW saturation rate for residents of Moscow (considering modern retail space) has reached 340 sq m GLA per 1,000 inhabitants. The commissioning of new objects in mid 2013 has made slight changes to the breakdown of leasable spaces at shopping centers by Moscow Administrative Districts. As we can see, the biggest amount of useful spaces in modern shopping centers is still located in the Southern, North-Eastern and Northern Administrative Districts (16.7%, 13.5% and 12.1%, respectively). The smallest amount of useful spaces is located in the Eastern, Troitsky and Novomoskovsky Districts (New Moscow) and in Zelenograd (3.8%, 3.2% and 0.2% respectively). SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV H1 2013 DEMAND During the first half of 2013 the capital’s market saw high demand on the part of INTERNATIONAL BRANDS WHO OPENED THEIR FIRST STORES IN MOSCOW potential tenants – federal and international retail chains. Russia still remains one of the top-priority markets for international retailers. It Brand Segment Location is customary for these players to open first Russian stores in Moscow. For The North Face Clothes Mega Belaya Dacha example, from January to June 2013 a number of stores like The North Face, Lavazza Espression, Takko Fashion, Trollbeads, Marugame Seimen, Johnny Lavazza espression Dining Pokrovka St. Rockets, Brook Brothers, REDValentino, Boardriders and Herve Leger opened Takko Fashion Clothes Zolotoy Vavilon Rostokino in the capital. Besides, among the landmark entries to the market we can name the opening of a Tiffany boutique at GUM by the brand’s owners, without the Trollbeads Accessories (Jewellery) Atrium participation of Russian partners. Marugame Seimen Dining Pyatnitskaya St. Among the entries anticipated in the second half of 2013 – early 2014 are REDValentino Clothes GUM Agnona, Paule Ka, Krispi Crème, By Malene Birger, SFIZIO, Heavenly Yogurt, Brooks Brothers Clothes GUM WFSmith, Forever 21, Shake Snack, Penty, Collezione, Defacto (will start Kapitoliy in Vernadskogo expanding from the south of the country) and others, about 20 new international Johnny Rockets Dining brands in total. Avenue Herve Leger Clothes Kuznetsky Most St. In the first six months of 2013 there was a decrease in average vacancy rates Boardriders Clothes Mega Belaya Dacha at shopping centers. As of June 2013, vacancy rates reached 2.5% (-0.5% YoY). At present, in Moscow retail property market, the overall demand on the part of potential tenants is higher than the new supply growth rate. VACANCY RATE DYNAMICS INVESTMENT TRANSACTIONS In the first half of 2013 the largest investment transaction in the history of Russian commercial property market was closed. Morgan Stanley Real Estate Investing purchased Metropolis shopping and entertainment center in Moscow from Capital Partners. The asset GBA is 205,000 sq m and GLA is 82,000 sq m. The transaction volume totaled USD 1.2 bln. This spring shopping and entertainment center Shchuka (GBA 100,000 sq m, GLA 42,000 sq m) was once again put up for sale. The asset's approximate price is USD 450 mln, and the current owner is DS Development. SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV H1 2013 RENTS AVERAGE RENTAL RATES AT SHOPPING CENTERS IN MOSCOW In the first half of 2013 rental rates at shopping centers in Moscow grew YoY 7– 10% on the average. Average rates, USD/sq m/year (excl. VAT and At present, rental rates for anchor tenants vary from USD 170 to USD 600 per operating cost) sq m/year (VAT and operating cost-exclusive), depending on the unit size, Type of Tenant Space, sq.m profile and other criteria. Lease contracts are signed for 10 to 25 years. July 2012 July 2013 Maintenance payments for larger anchors average USD40 to 60 per sq m/year before VAT. For smaller anchor tenants, it is USD80 to 120 before VAT. Food Hypermarket >8,000 150 – 250 170 – 300 The rental rates growth was noted in a number of segments like food Food Hypermarket (City 4,000 – 8,000 200 – 280 250 – 350 hypermarkets (in July 2013 rates made USD170 to 300 per sq m/year), city Format) food hypermarkets (USD250 to 350 per sq m/year), food supermarkets DIY >10,000 180 – 250 180 – 250 (USD400 to 600 per sq m/year), kids’ goods stores (USD350 to 600 per sq m/year) and multiplex cinemas (USD180 to 270 per sq m/year). Food Supermarket 1,000 – 4,000 300 – 500 400 – 600 Rental rates for larger clothes stores range from USD300 to 500 per sq m/year. Electronics and Home 1,500 – 4,500 300 – 600 300 – 600 Average rates for fashion gallery tenants, however, remained stable. Rates vary Appliance Store from USD2,200–3,200 for smaller (under 50 sq m) shops to USD600–800 for larger (500–1,200 sq m) stores. Contracts with fashion galley tenants are Sports Goods 4,000 – 6,000 250 – 350 250 – 350 typically concluded for lease periods of 3 to 5 years. Maintenance costs for these tenants usually range from USD150 to 200 per sq m/year before VAT. Sports Goods 1,200 – 2,500 350 – 550 350 – 550 Lease rates average USD700 to 900 per sq m/year for restaurants, USD1,200 Kids' Goods 1,000 – 2,500 300 – 500 350 – 600 to 1,800 for cafés, and USD1,800 to 2,300 for food court eateries. These tenants normally sign contracts for five years with maintenance costs ranging Clothes 1,500 – 2,500 280 – 500 300 – 500 from USD170 to 220 per sq m/year before VAT. Multiplex Cinema 2,500 – 4,000 150 – 220 180 – 270 500 – 1,200 600 – 800 600 – 800 250 – 500 800 – 1,200 800 – 1,200 Fashion Gallery 100 – 250 1,200 – 1,700 1,200 – 1,700 50 – 100 1,700 – 2,300 1,700 – 2,500 <50 2,200 – 3,200 2,200 – 3,200 Restaurant 300 – 600 600 – 800 700 – 900 Coffee Shop 150 – 300 1,000 – 1,500 1,200 – 1,800 Food Court 50 – 100 1,700 – 2,000 1,800 – 2,500 SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV H1 2013 FORECAST In the first half of 2013 the volume of new retail space supply in Moscow is SHOPPING CENTERS TO BE COMMISSIONED IN 2013 22.5% of the annual volume forecasted.
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