STREET RETAIL

2020 knightfrank.com/research

Experts from Knight Frank distinguish three locations of street retail premises: ŠŠ pedestrian streets with high pedestrian traffic*; ŠŠ central retail streets with transport and pedestrian traffic**; ŠŠ main avenues. The report examines in detail the situation in each submarket. STREET RETAIL

Conclusions Supply

ŠŠ By the end of 2020 the total By the end of 2020 the total street retail In tenants structure by area the largest street retail space amounted to space amounted to 587,000 sq. m, the volume of premises in transport and 587,000 sq. m, the average average size of premises amounted to pedestrian streets with area 100-200 sq. size of premises amounted to 194.4 sq. m, the increase of new supply m is 25% and 27% respectively. More 194.4 sq. m, the increase of new was 0.5%. than 50% of premises on all types of supply was 0.5%. streets have area amounted up to 300 The volume of trade space in central ŠŠ Catering segment is the leader in sq. m. pedestrian streets of capital amounted tenants profile which has following Food & beverage operators with 47.1% to 110,800 sq. m. New supply didn’t shares: 47.1% on pedestrian share is the leader in tenants group on increase over year. streets within Garden Ring, pedestrian streets (has decreased by 0.6 38.1% on transport and Over the year the volume of new p. p. over year). Fashion retailers account pedestrian streets. supply amounted to 1,400 sq. m and for 25.2% of total space (increase by 1.3 ŠŠ By the end of 2020 the share of 2,000 sq. m respectively on central p.p.), gifts and souvenirs account for free trade premises on pedestrian transport and pedestrian and main trade 4.4%. Tenants shares in other profiles streets is record-breaking since corridors. does not exceed 4.8%. 2015. It is worth noting that buildings Within Garden Ring catering facilities at 7 and 20 Tverskaya St., as well as are mainly represented in premises with 4/5 Nikolskaya St. are undergoing area 100 to 200 sq. m. (24%) and 200 reconstruction. to 300 sq. m. (21%). The minimum

Street retail supply dynamics, 2020 to 2019

A

*On 14 pedestrian streets (or sections of streets) that are in the greatest demand from retail operators: Arbat, Kuznetsky Most (partially), Nikolskaya, Rozhdestvenka (partially), Kamergersky Pereulok, Stoleshnikov Pereulok, Tretyakovsky proezd, and several areas in Yakimanka and Zamoskvorechye districts. **On 47 central trade corridors located within Garden Ring (including streets of Garden Ring) that are in the greatest demand from retail operators. Source: Knight Frank Research, 2021

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percentage (8.9%) of restaurants is placed in premises with area of more Tenants structure by area, sq. m, H2 2020 than 1,000 sq. m. Cafes and restaurants on pedestrian, transport and pedestrian streets were mostly affected by self-isolation regime in : their share in tenants group has decreased greatly by the end of 2020. Their volume decreased by 5.5% relative to volume on the key pedestrian streets of Moscow by last year. Among the chains that have reduced their 2 outlets are Dve Palochki restaurants, Coffee House coffee shops and Burger King fast food restaurants. Cafes and restaurants not being the part of chain like «Brasserie Most» on Kuznetsky Most and several operators on Arbat were also closed. «Shokoladnitsa», «John Jolie», «Bread and Wine», «Jean-Jacques» being the part of chains shut down on transport and pedestrian streets. Fair amount of restaurant concepts shut down on Maroseika St., Myasnitskaya 11 St., Pokrovka St. and Pyatnitskaya St. On the other hand supermarkets and specialized stores have increased their presence by 6% on pedestrian streets of capital. New openings include «Vkusvill», SPAR, «Dobryninsky», «Pyaterochka», «Miratorog», «Alenka» Source: Knight Frank Research, 2021 and «Pirat-Marmelad» stores.

The tenants breakdown by profiles The tenants breakdown by profiles The tenants breakdown by profiles on the pedestrian streets, 2020 on the transport and pedestrian on the main avenues, 2020 streets, 2020 Крупные магистрали

I A S A S L

Source: Knight Frank Research, 2021

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Vacancy Dynamics of the vacancy rate on the street retail market, 2020 vs 2019 There was a significant increase in vacant Доля вакантных площадей, % street retail premises in almost all trade corridors of Moscow by the end of 2020 2019 2020 due to serious restrictive measures. The most affected were pedestrian, transport Main pedestrian trade corridors and pedestrian streets, where tourist and Arbat St. 3.3% 14.2% business traffic was concentrated, and Bolshoy Tolmachevsky Pereulok 0.0% 0.0% tenants’ profile was mainly represented Kamergersky lane 3.4% 18.8% by catering companies and non-food stores (clothing, footwear, etc.). Klimentovsky lane 3.0% 1.0% In 2020 there was an increase by 7 p.p. Kuznetsky Most 8.0% 13.0% on pedestrian streets, where the share Nikolskaya St. 10.6% 7.8% of vacant premises was 10.4% vs 3.4% Rozhdestvenka St. 11.1% 8.0% at the end of 2019. The most significant Stoleshnikov lane 7.6% 4.7% changes took place on Arbat St., in Kamergersky Lane, it is worth noting the Final total 3.4% 10.4% decrease in vacancy rate in Stoleshnikov Main central trade corridors Lane from 7.6% to 4.7%. Boulevard Ring 3.3% 9.4% The maximum vacancy rate increased Garden Ring 2.4% 12.6% on transport and pedestrian streets Central trade corridors 6.7% 16.2% by 9,6% and amounted to 16,3%, the Final total 4.9% 14.2% greatest share of vacant spaces increased on Bolshaya St., Bolshaya Main central trade corridors Ordynka St., Myasnitskaya St. and Bolshaya Lubyanka St. 16.0% 23.7% Ostozhenka St. Bolshaya Ordynka St. 20.6% 25.3% Currently the total volume of vacancies Bolshaya Yakimanka St. 26.5% 14.4% in street retail premises in city is about Maroseika St. 5.2% 13.9% 130,000 sq. m., which is equivalent to area of two large shopping centers. Myasnitskaya St. 6.5% 19.0% Neglinnaya St. 4.1% 9.3% Novokuznetskaya St. 2.1% 5.6% Rates New Arbat St., 14.5% 12.9% Ostozhenka St. 28.8% 32.4% By the end of 2020 the highest rental rates requested are equivalent to Petrovka St. 11.6% 12.5% premises located on Kuznetsky Most St. Pokrovka St. 4.5% 14.2% and Stoleshnikov lane. Pyatnitskaya St. 4.7% 13.5% The minimum rate in 2020 has not Tverskaya St. 9.0% 12,2% changed and amounted to 30,000 rubles Main streets per sq. m. per year. The maximum rate is Kutuzovsky Av. 21.6% 28.8% 235,000 rubles/sq. m. Leninsky Av. 8.8% 14.5% Decrease in upper limit of rental rate was noted in most key trade corridors of city: Mira Av. 9.6% 19.3% by 4%-26% depending on street. Leningradsky Av. 11.1% 18.4% Increase in upper limit of rental rate was Komsomolsky Av. 13.7% 11.9% noted on Petrovka St., Patriarch’s Ponds Source: Knight Frank Research, 2021 St. and New Arbat St. Increase in lower threshold was noted on Kuznetsky Most St., Nikolskaya St., Street retail vacancy rate dynamics, 2020 to 2019 Petrovka St., Novy Arbat St., Stoleshnikov Indicator 2019 2020 Dynamics Lane and Kamergersky Lane. Indicator increased due to entry into the market of Pedestrian streets 3.4% 10.4% +7 p.p. higher class premises. Transport and pedestrian streets 6.7% 16.3% +9.6 p.p. Major main streets 12.3% 18.7% +5.3 p.p. Source: Knight Frank Research, 2021

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Dynamics of the rental rate on the street retail market, 2020 vs 2019

Rental rate (thousand rubles/sq. m/year), w/o VAT

H2 2019 H2 2020 Change Name of street or trade area lower limit compared upper limit compared min max min max to previous year, p.p. to previous year, p.p.

Kuznetsky Most St. 65 220 80 235 23% 7%

Stoleshnikov Lane 100 270 120 200 20% -26%

Nikolskaya St. 70 160 90 250 29% 56%

Petrovka St. 45 120 50 170 11% 42%

Tverskaya St. (from Okhotny Ryad subway station to 45 160 45 150 0% -6% Pushkinskaya subway station)

Patriarch's Ponds St. 70 130 70 155 0% 19%

Pyatnitskaya St. 35 125 35 125 0% 0%

Arbat St. 60 125 60 120 0% -4%

Mira Av. 30 145 30 120 0% -17%

Myasnitskaya St. 65 145 65 115 0% -21%

New Arbat St. 45 105 50 110 11% 5%

Kamergersky lane 60 120 70 90 17% -25%

Garden Ring 30 80 30 80 0% 0%

Kutuzovsky Av. 35 80 30 70 -14% -13%

* Data are ranked by upper limit of 2020. Source: Knight Frank Research, 2021

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Forecasts caution after last months and decrease in Due to implementation of city authorities’ incomes of population due to consumer plan to create comfortable urban During 2020 restrictive measures to demand change. However the tenants environment it will have an impact on prevent coronavirus infection had key profile on main trade streets will remain further growth of pedestrian flows at later impact on current and future development the same: new restaurants are already date. Vacant space of transport highways of retailers in Moscow’s trade corridors: opening instead of closed ones, the same will be gradually reduced. Vacant space applies to other profiles. will be occupied by operators who are ŠŠ Restrictions on the operation of focused on consumers living in closest catering companies: take-out and It was planned in 2020 to improve proximity: food, banks and services. delivery, shortened business hours, more than 40 streets and other increased seating rates. public spaces, but due to coronavirus «My District» the new program of epidemic in Moscow the spending on ŠŠ Restrictions on the operation of the Moscow City Government for the new improvement projects has been beauty industry companies. improvement of residential areas suspended so far. In particular this year remote from the city center, which was ŠŠ Lack of foreign tourist flow. it was planned to improve Leninsky launched by the end of 2018, as well as Prospekt, Profsoyuznaya St., Krasnaya ŠŠ Reduced visiting of the central development of transport infrastructure Presnya St., Andropov Av., Entuziastov districts of capital. (subway, MCC, Moscow Central hw, alleys located between Arbat and ŠŠ Decrease in number of employees Diameters) and, as a consequence, the Prechistenka St. under program «My working in office. improvement of areas adjacent to stations Street». However some of contracts will have great impact on increase in Decrease in share of vacant premises concluded before quarantine were not new supply of street retail space. Small on basic trade streets of Moscow to pre- suspended, but some of them have been format premises in bedroom areas will crisis level can be expected not earlier postponed to 2021 as to major works. be gaining popularity among operators than mid 2021, and not earlier than In particular contracts on improving and consumers, because they will choose the end of 2021 at more pessimistic Entuziastov HW, Lipetskaya St. and a shop in the closest proximity to home forecast. Firstly this is due to decrease in Proletarsky Av., Kuskovo park, Taras against current epidemiological situation. visitor capacity because of new security Shevchenko Embn and Berezhkovskaya measures, and secondly it is natural Embn have not been cancelled.

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© Knight Frank LLP 2021 – This overview is published for general information only. Although high standards have been used in the preparation of the information, analysis, view and STREET RETAIL projections presented in this report, no legal responsibility can be accepted by Knight Frank Irina Kozina Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in Head of Street Retail relation to particular properties or projects. Knight Frank Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank [email protected]