The Russian retail market saw 169,000 sq m of new completions in Q1 2014, according to JLL. Moscow received more than 30%, or two shopping centres (Reutov Park and Moskvorechie) of 59,000 sq m (summarized GLA). According to JLL data, this figure is the highest Q1 result for three years. Q1 2013 saw the opening of one shopping centre (5,000 GLA) in Moscow.
At the same time the Russian retail market demonstrated negative dynamics in Q1 2014 with 45% YoY fall in completions – in Q1 2013 305,000 of new retail premises came to the market.
“The decrease does not demonstrate any reduction of construction volumes as a large amount of schemes are still under development. Low Q1 2014 completions are explained primarily by record Q4 2013 figure (more than 800,000 sq m). According to JLL estimates, 2014 completions will be at the level of 1.8m sq m which is slightly lower compared to the record figure of 2008 (1.85m sq m)”. – Tatyana Kluchinskaya, National Director, Head of Retail, JLL, Russia & CIS, said.
A key distinction of 2014 is high share of completions accounting by Moscow. The Russian capital will see 35% of the country’s new premises, or more than 600,000 sq m. In 2013 Moscow received 12% of Russia’s new premises (204,000 sq m).
Tatyana Kluchinskaya commented: “Several giant projects, each one larger than 100,000 sq m GLA, are to enter the Moscow market in 2014-2015. Among them are Avia Park, the largest retail scheme in Europe, new Vegas shopping centres and Columbus. As a result for the first time in a long period Moscow will see the largest completions in Russia regardless of continuing regional development. Additionally 35% will be a record share in Russia’s completions starting from 2005. Comparable result (33%) was achieved in 2009 when several large shopping centres including Metropolis, Zolotoy Vavilon Rostokino and Gorod Lefortovo opened.”
Shopping Centre Completions Breakdown in Russia
By the end of Q1 2014 total stock in Moscow was 3.6m sq m of quality retail premises and total stock per 1,000 inhabitants was 311 sq m which is still less than in most European capitals. By the end of 2014 this figure will reach the level of 361 sq m per 1,000 inhabitants.
Retail Stock per 1,000 Inhabitants in Moscow
“Regardless of the changing macroeconomic environment (ruble depreciation, anticipated poor growth of GDP and real income) international retailers were targeting the Russian market in Q1 2014 no less actively than in Q1 2013. Harman (electronics), Violeta by Mango (fashion), MODELS OWN (cosmetics), Sinsay (fashion), Conguitos (children’s fashion and footwear), Mio (women’s footwear) opened their first shops in Q1 2014. Pizza Hut returned to the Russian market as well.” – Andrey Privezentsev, Head of Retail Research, JLL, Russia, noted.
Rents nominated in dollars in Moscow remained stable in Q1 2014. Prime shopping centre rent in Moscow was at the level of USD3,000-4,500/sq m/year and average rent was at the level of USD500-1,800/sq m/year.
“Due to economic uncertainty many retailers insist on downgrading the rents in regional schemes and under construction projects in Moscow. However, at the moment developers are ready to negotiate alternative measures instead of decreasing the rents.” - Tatyana Kluchinskaya commented. – “In case the economic environment worsens a decrease in rental rates is possible before the end of 2014 although it will not happen in top schemes in Moscow which will still benefit from high demand.”
Real Wage Growth in Russia and Prime Shopping Centre Rent in Moscow
The average vacancy rate in Moscow shopping centres remained at the level of 2.5%. Due to the large pipeline in 2014 as well as macroeconomic changes and tenants rotation, JLL researchers are forecasting vacancy rate growth. “Current economic conditions make retailers closely examine the efficiency of each existing shop.” - Tatyana Kluchinskaya said. – “They are trying to negotiate rental terms in lower quality shopping centres and are ready to leave them for better shopping centres in case of refusal. Additionally, the vacancy rate will be influenced by the opening of new shopping centres as many of them will have considerable amount of unopened shops. As a result by the end of the year the vacancy rate might double and reach the level of 4-4.5%.”