RESEARCH H1 2018 RETAIL MARKET REPORT Moscow HIGHLIGHTS Based on results of the first half The dynamics of decrease of the Low activity of international retailers Lease rates for commercial premises of 2018 in Moscow three shopping share of vacant areas remains is observed: 13 new brands have in shopping centres in the capital centres were commissioned with stable. During the first half of the entered the market, which is didn’t change significantly and total leasable area of 97,500 sq m. year the vacancy rate in the 1.5 times less than half the number overall remained at the same level. shopping centres of the capital of openings compared to the same decreased by 0.8% and amounts period in 2017. to 7.7%. RETAIL MARKET REPORT. MOSCOW Retail Market report Moscow Evgenia Khakberdieva Key indicators. Shopping centres*. Dynamics Shopping Mall Leasing Director, Knight Frank Stock (GBA / GLA), million sq m 12.3/6.3 “The first half of 2018 was marked Scheduled for opening in 2018 (GBA / GLA), thousand sq m 254.5/97.5 by relative stability on the market 7.7 Vacancy rate, % of shopping spaces. The most (0.8 p. p. 6)** important event of this period was the commissioning of the shopping Fixed rent: centre “Kashirskaya Plaza”, which opened with high occupancy rate not Retail gallery tenants***, rub./ sq m/year 0–120,000 only by area but also by number of stores. We are very glad that we were Anchor tenants, rub./ sq m/year 0–23,000 directly involved in this event and helped to occupy the maximum volume Operating expenses: of area in this project. We are sure that the trend of moderate development Retail gallery tenants, rub./ sq m/year 6,000–10,000 and progressive commissioning of the indicated shopping centres will Anchor tenants, rub./ sq m/year 1,500–3,000 remain. Demand for quality shopping projects remains as many tenants feel GLA in quality shopping centres per 1,000 citizens 502.3 relatively confident and plan their further expansion”. * The table refers only to high quality, professional retail properties. A shopping centre is a standalone building or a group of buildings sharing the same architectural style, concept and under common management, with a total area of more than 5,000 sq m ** Compared to Q4 2017 *** Lease rates indicated without VAT and operating expenses Source: Knight Frank Research, 2018 Volume of opened shopping centres and vacancy rate dynamics 800 13.1% 12.9% 700 600 8.5% 500 7.7% 7.1% 400 6.0% 300 4.0% 4.0% 3.5% 3.0% 200 2.5% 2.5% 2.0% 2.5% 1.6% 100 2.6% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F H1 H2 Source: Knight Frank Research, 2018 2 H1 2018 RESEARCH Supply Based on results of the first half of 2018 Shopping centres opened in 1H 2018. Largest shopping centres scheduled for in Moscow three shopping centres were opening in 2H 2018 commissioned with total leasable area of 97,500 sq m: “Kashirskaya Plaza” (GLA – GLA 70,200 sq m), “Milya” (GLA – 18,800 sq m) S A 1000 and “Petrovsky” (GLA – 8,500 sq m). Taking 800 0000 into consideration the new commissioned 00–800 00–00 shopping centres the overall area of quality 0000–0000 spaces in the capital currently amounts to less 00 12.3 million sq m (GLA – 6.3 million sq m). 0000 Metromall NAD N-EAD As compared to the same period for the Petrovskiy previous year the volume of retail proper- N-WAD ties coming onto the market in the capital A increased by 4.5 times. For instance, dur- EAD ing the first half of 2017 two shopping CAD centres were commissioned (“Zeleny” and “Proletarsky”) with a total leasable area of SC H R SC H 22,000 sq m. WAD By the end of 2018 the opening of six Milya more facilities is scheduled with the total S-EAD leasable area of 87,100 sq m, the largest A among which are the shopping centres Galeon S-WAD “Yuzhny” (phase II, 20,000 sq m), “Skazka” S 2 (18,600 sq m) and “Arena Plaza” (17,200 sq m). SAD All facilities scheduled for opening are locat- ed outside the third ring road. All new shopping centres that entered NmAD the market during the first half of 2018 S 2018 and scheduled for opening before the end of 2018 have a leasable area of up to S 20,000 sq m, the only exception is 2018 “Kashirskaya Plaza” shopping centre Source: Knight Frank Research, 2018 (GLA – 70,200 sq m). The trend for decrease of the average area of leasable area has Shopping centres opened in H1 2018 been noticed since the beginning of 2017, meanwhile earlier in 2014–2016 the aver- age area of shopping centres entering Object Address GBA, sq m GLA, sq m the market was double the size – aprox. 40,000 sq m. Kashirskaya Plaza 61, Kashirskoye highway, bld. 2 195,000 70,200 Continuing the given trend of development Milya Aviakonstruktora milya st., prop. 7 38,000 18,765 of community-centres, in the mid-term as part of the project of ADG Group for recon- Petrovskiy Novopetrovskaya st., prop. 6 20,982 8,500 struction of Moscowcinemas, 39 facilities of Source: Knight Frank Research, 2018 the mentioned format with average leasable area of 8,500 sq m will enter the market. Total stock of shopping centres by districts. Retail space per 1,000 citizens Taking into consideration the new volume the indicator of availability of quality shop- 1,200 1 011 ping areas for Moscow residents amounts to 1,000 502.4 sq m per 1,000 persons. Based on this 800 638 628 640 697 600 542 indicator Moscow occupies the 5th place 487 473 468 400 336 among the Russian cities with a million-plus 231 200 population behind Ekaterinburg, Samara, 0 Nizhny-Novgorod and Saint Petersburg. SA EA A SA A CA SEA EA A A A Broken down by administrative districts of ntre A 638 A 1000 “old Moscow” the districts with the most centres are central, south and north part Source: Knight Frank Research, 2018 of city. 3 RETAIL MARKET REPORT. MOSCOW Demand The volume of retail space and the vacancy rate in the administrative districts During the first half of 2018 a decrease of vacant areas was observed across the 1,200 capital while the rate of vacant space remained low. For example, based on 1,000 25% results of the first half of 2018 the rate 800 of vacant areas in shopping centres of Moscow decreased by 0.8% compared to 600 the same period of the previous year and 12% 12% 12% 400 amounted to 7.7%. 9% 7% The total vacant space across shopping 200 5% 5% 4% 5% 4% centres in the capital amounts to aprox. 420,000 sq m. The biggest volume of 0 SA EA A SA A CA SEA EA A A A vacant space was recorded in the South ntre A 2 administrative district: 1.1 million sq m shopping spaces available here with over Source: Knight Frank Research, 2018 Vacancy rate in retail facilities 800 5% 700 600 12 1 7% 500 4% 400 3% 3% 4% 9% 7% 7% 1 300 10 200 1 35% 100 4% 0 200 200 200 200 200 2008 200 2010 2011 2012 201 201 201 201 201 H1 2018 Occupied premises mises Source: Knight Frank Research, 2018 International retailers who opened their first store in Moscow in H1 2018 Brand Country Profile Price segment 1 Adolfo Dominguez Spain Apparel / Footwear / Lingerie Upper middle 2 Karl Lagerfeld France Apparel / Footwear / Lingerie Upper middle 3 Liu Jo Italy Apparel / Footwear / Lingerie Premium 4 Coach USA Accessories Upper middle 5 Lipault France Accessories Middle 6 GEOX Kids Italy Goods for children Middle 7 Coccodrillo Polish Goods for children Middle 8 Flormar Turkey Cosmetics / Perfumeriy Middle 9 Panco Turkey Goods for children Low 10 Skinfood Korea Cosmetics / Perfumeriy Middle 11 Modern Easy Kids Italy Goods for children Middle 12 Dushka Ukraine Cosmetics / Perfumeriy Low 13 Dino Zoo Czech Republic Pet supplies Middle Source: Knight Frank Research, 2018 4 H1 2018 RESEARCH 104,000 sq m of vacant space, which The structure of brands on the Russian market over the past 10 years classified by corresponds to 25% of the total volume of price segment vacant areas in the capital. Since the beginning of the year 13 new international retailers have entered the Russian market, which is 1.5 times less as compared to the same period in 2017. Among them are retailers such as GEOX Kids, Coach, as well as premium Italian brand 'Liu Jo'. As before, retailers prefer to open their flagship stores in shopping centres such as “Megapolis”, “Atrium”, “Evropeysky” and ”Afimall city”. 59% Since 2014 the profile structure of new 43% 40% 44% 42% 44% 30% 1 brands has remainedunchanged: aprox. 25% 25% 25% 54% of brands are positioned in the 0% segment “clothes/footwear/underwear”. 200 2008 200 2010 2011 2012 201 201 201 201 201 H1 2018 However, the price bracket of new retail has changed: the share of retailers operating in High-price segment Low-price segment the mid-range segment, based on results Source: Knight Frank Research, 2018 of the first half of 2018, amounted to over 50%. In 2017/last yearretail brands with an “above average” price bracket dominated Volume of new international retailers opened in 2007-2018 with 63%.