RETAIL PROPERTY MARKET

Moscow

RETAIL PROPERTY MARKET REVIEW

MOSCOW Q1 2012

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2 / COMMERCIAL REAL ESTATE / RETAIL / Q1 2012

Moscow

OLGA ZBRUEVA Head of Retail Department Tenants Division at ASTERA an alliance member of BNP Paribas Real Estate

TRENDS

Business activity on the Moscow commercial real estate market remains high.

The situation in the mall segment can be characterized as stable. The low

supply volume and high demand for retail space keep the vacancy levels of

retail properties on a close-to-zero level. Rental rates level did not change

significantly in the considered segment.

Under the existing conditions of a new supply deficit, the appeal of already

functioning shopping malls for prospective tenants is growing. Mall owners

aim actively at increasing the effectiveness of their business at the expense of

tenant rotation, marketing and loyalty programs.

The low volume of the new quality supply in mall properties makes retail

operators consider street retail. The demand in the street retail segment

focuses on the premises which not only meet operator’s particular

requirements, but also do not drain the budget.

When it comes to street retail properties with high income potential, retail

chains are rapidly replacing their non-chain competitors. In particular, non-

chain shops, pharmacies, and cafés are being replaced by chain retailers with

the same business profile. Low marginal operators (for instance, children’s

goods and service operators) are displaced from major highways and

substituted by retailers working in more profitable segments.

Rental rates level for street retail premises has reached its maximum.

Notwithstanding the long-time market exposition, a lot of properties do not

find their clients because of incompatibility of rental level with the actual

market expectations. As a rule, it is a compromise on rental rates between an

owner and a tenant which leads to an actual deal.

Considering the high operator activity and increasing demand for retail

properties, rental rates in retail sector have a 5-15% growth potential,

especially those for liquid premises in shopping malls and street retail

segment. However, taking into account that requirements to premises are

also tightening, no serious rental rate growth is expected

The deficit of quality retail space and high level of competition in Moscow

encourage retailers to explore Moscow suburbs and regions. Satellite cities of

Podmoskovye become a development platform for retail chains: banks, food

stores, pharmacies, house goods shops, public catering businesses, which

rent both in malls and street retail.

SUPPLY

VACANCY

RENTAL RATES

CAPITALIZATION RATE

KEY INDICATORS

Key indicators of Moscow retail market development (shopping malls),

Q1 2012 Total stock of retail premises in Moscow at the end of Q1 2012

Total area, sq.m 6,028,090

Leasable area, sq.m 3,296,550

Stock commissioned in Q1 2012

Total area, sq.m 119,079

Leasable area, sq.m 41,047

Source: ASTERA, an alliance member of BNP

Paribas Real Estate

Key indicators of Moscow retail market

development (street retail), Q1 2012

Average rental rates*, USD/sq.m /p.a.

Inside the Garden Ring 1,900-2,500

Between the Garden Ring and the Third Ring

1,400-2,000

Between the Third Ring and Moscow Ring Road (dormitory districts)

700-1,300

Source: ASTERA, an alliance member of BNP

Paribas Real Estate

*Rent levels and sale prices are influenced by different factors such as proximity to subway stations, size and condition of premises etc., which are not reflected in the chart


Moscow

SUPPLY

New retail real estate projects commissioned in Q1 2012

In Q1 2012 Moscow quality retail space volume increased by 119,079 sq.m due

to the commission of Kaleidoscope shopping mall. The volume of the new supply

in Q1 2012 is in line with Q1 2011. However, this supply is not sufficient to meet

the existing demand for quality retail space in Moscow.

New supply of retail space, Q1 2012

Name Type Address GBA, sq.m GLA, sq.m

Kaleidoscope Shopping

mall Khimkinsky Boulevard, 7-23

119,079* 41,047

TOTAL 119,079 41,047

Source: ASTERA, an alliance member of BNP Paribas Real Estate * The mall is commissioned, official opening is expected in June 2012

According to the official plans announced by developers, commission of 12 new shopping malls with a total area of 481,935 sq.m is expected in Moscow by the end of 2012. Commission terms of several projects (River Mall, Outlet Village Kievsky) were shifted to 2013 in the beginning of 2012. If the commission terms of all the announced projects are complied, the total volume of quality retail space in the capital will amount to 6,515,000 sq.m (GLA – 3,614,000 sq.m).

Mall projects expected to be commissioned by the end of 2012*

Name Type Address GBA, sq.m GLA, sq.m

Goodzone Shopping mall 12 Kashirskoe av. 120,000 70,000

RIO Shopping and entertainment

centre 109 Leninsky pr. 76,000 45,000

Otrada, 2-4 phaes Shopping and entertainment

centre 5 Pyatnickoe av. 55,000 50,000

Outlet village Belaya Dacha

Outlet Kotelniki 40,800 38,000

Fashion House Moscow

Outlet Leningradskoe av. 38,800 28,765

Parus Shopping mall 1 Novokurkinskoe av. 35,500 18,000

Moscvorechye Shopping and entertainment

centre 52 Kashirskoe av. 30,000 19,780

Panfilovsky Shopping mall Panfilovsky pr., Zelenograd

24,820 13,300

Sviblovo Shopping mall 27 A,B,G Snezhnaya st. 18,215 6,200

MC Shopping mall 36 Mikloukho-Maklay st. 18,000 12,400

Sombrero Shopping mall 152А Varshavskoe av. 17,000 6,500

Shopping mall on Profsouznaya

Shopping mall 118Profsouznaya st. 7,800 5,500

TOTAL 481,935 313,435

Source: ASTERA, an alliance member of BNP Paribas Real Estate * Provided data is based on the plans officially announced by developers at the time of the publication

Dynamics of new retail space commission, 2008 – Q1 2012

Source: ASTERA, an alliance member of BNP Paribas

Real Estate

A new shopping mall in Moscow, Q1 2012

Kaleidoscope shopping mall

Classification of Existing shopping malls in

Moscow by retail space volume,

Q1 2012


Real Estate

790

10461196

349

119

0

200

400

600

800

1000

1200

1400

2008 2009 2010 2011 Q1 2012

13%

47%

18%

21%

Super regional

Super community and regional

Neighborhood

Community

Moscow

DEMAND

Most of the commercial real estate market players continuously demonstrate a high level of activity. Chain retailers actively search for new areas to develop their business, plan new store openings; some of them experiment with new retail formats.

New plans of entering the market

In Q1 2012 some companies announced their plans to enter the Moscow market:

Miratorg group (Russian meat processor) plans to launch a supermarket

chain in Moscow.

Former co-owners of Lenta supermarkets plan to open 30 wholesale stores

similar to American shops Costco and Sam's Club.

X5 Retail Group announced its plans to resume the development of its

convenience store chain Kopeyka.

Eldorado’s acquisition of Beringov retail chain became a major event on

the home electronics market.

Brands planning to enter the market in Q1 2012

Brand name Business category

Miratorg Public catering

Novaya Gollandiya Flowers

Enel Warehouse

Cosi Public catering

Cosmopolitan Fine Jewellery & Accessories Accessories

Kari Footwear

SIA Home Fashion Home goods

Toridoll Corp Public catering

Source: ASTERA, an alliance member of BNP Paribas Real Estate

Search for new formats

In early 2012 the tendency of trying new formats continued among retailers.

36.6 company plans to launch a new brand Aptechny sklad for a part of its

existing pharmacies

OTP Bank announced the opening of circa 50 new mini-offices OTP-light in

2012

Meat processing factory Pavlovskaya Sloboda (under Velkom brand) has

started developing two new chains: retail stores and fast-food restaurants

Real-hypermarket presented the first store in the new format of a “city

hypermarket” in Shchyolkovo city of the Moscow region.

New ground for development Retailers continue with their ambitious development plans in Russia’s regions

A5 group creates a franchising program for its pharmacies aiming to enter

regional markets

Detsky mir plans to open new stores in the Moscow region as well as the

oil and gas regions

Kira Plastinina clothing brand plans to enter small cities

In the spring of 2012 Svyaznoy plans to open flagship mobile stores under a

new brand Enter in the Moscow region as well as in Voronezh and Tver

Demand structure

Properties under 100 sq.m remained most popular in Q1 2012 (53% of total demand). At the same time, an increase of demand for 100 – 250 sq.m premises in shopping malls is observed (23% of total demand volume).

Tenants demand distribution

according to the retail premises format in shopping malls in Q1 2012


Real Estate

Public catering companies were the most active tenants of street retail segment premises located on the major retail zones. In dormitory districts there is a continuous development of lower-to-medium price segment restaurants and food supermarkets, pharmacy chains and childhood goods shops.

Tenants’ demand distribution in Moscow by type of business in street retail segment,

Q1 2012


Real Estate

4% 5%

15%

23%27%

26%

over 1000 sq.m. 500-1000 sq.m.

250-500 sq.m. 100-250 sq.m

50-100 sq.m. under 50 sq.m

Public catering

24%

Banks4%

Clothing and

footwear 16%

Consumer goods

8%

Services11%

Foods17%

Miscella-neous13%


Moscow

Key leasing deals

Major deals in mall segment. Moscow. Q1 2012.

Tenant GLA, sq.m

Shopping mall

Address

Inditex 5,000 Vesna Altufyevskoe highway

Kronverk Cinema 4,000 Vesna Altyfyevskoe highway

O’KEY-Express 2,000 Sombrero 152А Varshavskoe highway

MaxFitness 1,400 Erevan Plaza 13 Bolshaya Tulskaya st.

Domarket 1,000 MC 36 Mikloukho-Maklay st.

Kanzler 1,500 Mega Belaya Dacha Kotelniki


RENTAL RATES

Rental rates level for street retail premises in Moscow has reached its maximum.

Notwithstanding the long-time market exposition a lot of premises with prime

location don’t find their clients because of incompatibility of rental level with the

actual market expectations. As a rule, it is a compromise on rental rates between

an owner and a tenant that leads to the actual deal.

Rental levels in shopping malls remain stable for both anchor tenants and trade

gallery operators.

Vacant area

The stable demand for retail space and lack of new supply in the city centre lead

to a further decrease of vacancy level in Moscow. Given the current construction

speed, this can cause a considerable deficit of retail properties in Moscow in a

two-year prospective.

Vacancy rate dynamics in Moscow shopping malls,

Q1 2009 – Q1 2012, %


Anchor tenants’ rental rates by business category in Moscow shopping malls

in Q1 2012

Business category Rental rate*, USD/sq.m/p.a.

Cinema 120-250

DIY 100-150

Foods 120-400

Home goods 250-400

Children’s goods 300-600

Home electronics 200-400

Clothing and footwear 400-600

Source: ASTERA, an alliance member of BNP Paribas Real

Estate * Rent rates are indicated excluding VAT and operational

expenses

Major tenants of trade galleries in Moscow shopping malls in Q1 2012

Business category

GLA, sq.m Rental rate*,

USD/sq.m/p.a.

Public catering 50-300 800-3,000

Clothing and footwear

50-200 700-3,000

Cosmetics and perfumes

50-300 1,500-3,000

Accessories 30-60 1,500-3,000

Mobile phones 30-80 2,500-4,000

Source: ASTERA, an alliance member of BNP Paribas Real

Estate

* Rent rates are indicated excluding VAT and

Operational expenses

Average rental rates for street retail premises

in major Moscow trade zones in Q1 2012

Trade corridors Rental rate,

USD/sq.m /p.a.

Tverskaya st. 2,000-7,000

Petrovka st. 2,000-4,200

Arbat st. 1,800-3,000

1st

Tverskaya-Yamskaya 1,700-3,000

Kutuzovsky av. 1,700-2,800

Leningradsky av. 1,300-3,000

Mira av. 1,300-2,100

Maroseika st. 2,000-2,800

Bolshaya Dmitrovka st. 1,800-3,000

Pyatnickaya st. 1,200-2,000

Leninsky av. 1,100-3,000

Kuznecky Most st. 1,800-2,900

Myasnickaya st. 1,200-2,800


Real Estate

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Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012


Moscow

ABOUT ASTERA

ALEXEI FILIMONOV Managing Director [email protected]

ALEXANDR SHELUKHIN Investment director [email protected]

ALEXEI RYABICHEV Head of Office Real Estate Department [email protected]

OLGA ZBRUEVA Head of Retail Department Tenants Division [email protected]

Office in Moscow Office in St. Petersburg Office in Kiev

Tel.: +7(495) 925-00-05 Fax: +7(495) 981-05-65

Tel.: +7(812) 703-00-03 Fax : +7(812) 703-00-04

Tel.: +380(444) 501-5010 Fax: +380(444) 501-5011

www.asteragroup.ru [email protected]

ASTERA an alliance member of BNP Paribas Real Estate, an international consulting company, provides professional services in commercial and élite residential real estate. The company has been operating on the Russian market since 1992.

ASTERA has offices in Moscow, Saint-Petersburg and Kiev.

BNP Paribas Real Estate is a leading international real estate company. BNP Paribas Real Estate is among the top European consulting companies by turnover.

The alliance with BNP Paribas Real Estate gives ASTERA an opportunity to represent its clients abroad and bring foreign investments to Russian development projects.

ASTERA – LEADERSHIP BASED ON QUALITY AND PROFESSIONALISM

Over 500 implemented projects of strategic and investment consultancy

‘In-house’ exclusive data base comprising 30,000 projects of retail, office, warehouse and elite residential real estate

Over 6,000,000 sq.m of commercial real estate space have been realized by ASTERA consultants since 1992

Over 8,500 transactions concluded on the commercial real estate market of Russia and Ukraine

Over 4,000 companies, including the major international and Russian financial, investment, retail and industrial corporations and chains are now clients of ASTERA

mailto:[email protected]

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