Money-Growing: The Gorky Showcase

Tverskaya Street ascends from Moscow’s first-ever underground shopping center, Okhotnyi Ryad, towards Pushkin Square and further on towards Mayakovsky Square. Hundreds of boutiques, restaurants, jewelers and multi-brand shoes and clothing stores are situated along the bustling thoroughfare. The volume of their daily receipts – if analysts ever took the trouble to calculate them – would easily compare to the proceeds of street retailers of the largest world cities.

So far no such research has been carried out, and given the lack of transparency in Russian business, it is impossible to talk of Tverskaya’s true average yield. Yet, one thing is for sure – that yield is considerably higher than in any other shopping area of Moscow

Tverskaya attracts consumers with its famous brand shops, many of which are ‘mono-brand’, not to mention the fact that city landmarks such as Red Square, the Moscow Kremlin and Teatralnaya Square are situated in the immediate proximity.

In addition to all the above factors Tverskaya’s location is notable for its proximity to other major streets and pedestrian routes in the city center, such as Petrovka, Dmitrovka, Neglinnaya, Bolshaya Nikitskaya Streets and the Boulevard Ring Road.

Some time ago Tverskaya was viewed mainly as the prime location for promoting brands, for showrooms, for enhancing prestige and promoting trade marks. Many were firmly convinced that trade, as such, brought no profit to entrepreneurs and no marketing projects could cover the cost value of goods, let alone create profits, says Vladimir Kudryavtsev, leading analyst with Paul’s Yard.

As that prejudice spread the popularity of Kutuzovsky Prospekt and Leninsky Prospekt [avenues] grew. Yet, neither of those shopping areas has a significant passing pedestrian flow and the quantity of impulse purchases there is not as high as Tverskaya, holds Kudryavtsev. The shopping business can produce enormous profits, according to the latest research by Paul’s Yard.

Retail Space for Rent

Lately Moscow’s main shopping street has seen an increase in rents by approximately 15 to 20 per cent, according to Jones Lang LaSalle, the reason being the emergence of new brands seeking to open their flagship stores in one of the city’s main thoroughfares.

Hence, the high demand for retail space here enables landlords to increase their rental rates. According to Paul’s Yard, some 10,000 sqm of retail space are available for rent on the first floors of Tverskaya, about 3,000 sqm on second floors, and 1,500 sqm on basement floors. However, taking into account the space available in the side streets adjacent to Tverskaya, means the volume of existing retail space in the area can be considered to be quite high.

According to ABN-Realty, with the Tverskaya retail area expanding into the adjacent streets and lanes, the volume of retail space could exceed 100,000 sqm. This, beyond doubt, increases the chances of a new store, a cafe or a showroom to set up shop in the immediate proximity of the fashionable shopping street.

Many tenants – not only retail centers but offices as well – willingly take advantage of that fact. For instance, the Nicole cafe, Masterbank, Mobile Centre and a grocery store have opened at the intersection of Tverskaya and Nikitsky Pereulok [lane]. A representation office of MIAN realty, a Sberbank branch and a McDonalds restaurant are located at the intersection of Tveskaya and Gazetny Pereulok. A branch of Guta-Bank, several restaurants and fast-food cafes are situated in the pedestrian area of Kamergersky Pereulok.

Rent rates in Tverskaya and in the adjacent lanes differ substantially, according to realtors. Shops and cafes with windows facing Tverskaya pay up to $4,500 per sqm per year, VAT excluded, according to Colliers International, and $3,700, according to Jones Lang LaSalle. According to Blackwood, the highest rent ever paid in Tverskaya was $5,500 per square meter per year. Rates are considerably lower – about $2,500 – in adjacent streets and for longstanding tenants of Tverskaya.

Most tenants seek to sign a long-term lease agreement (5-10 years), notes Mikhail Gets, head of the commercial real estate department at Blackwood. “Demand for space in that retail corridor is super-high,” claims Gets. “Many tenants are willing to overpay for space in Tverskaya. While a tenant pays $600 per square meter in other streets, in Tverskaya the same tenant is ready to pay $3,000 and even more.”

Interestingly, rental rates are higher on the even side of Tverskaya, where the Podarki shop, the historic Yeliseyevsky food-store, and the Moskva bookstore are situated. This phenomenon, mysterious as it may seem, is because the pedestrian flow is higher on the even side.

Popular retail areas like Stoleshnikov and Kamergersky Lanes, for example, are situated to the right off Tverskaya, says Kudryavtsev. Other major streets, such as Petrovka, and Kuznetsky Most, also lead to such areas. “Hence pedestrian flow and traffic on the even side of the street is heavier than that on the odd side, and rent rates on the even side are on average $500 higher.”

The sides of the thoroughfare differ in terms of customers’ preferences and expectations, the reasons being, firstly, the difference in intensity of road traffic in the morning and evening hours, and the potential congestion and intensity of traffic, according to Paul’s Yard experts. The second reason is the location of metro stations, and, thirdly, the proximity of pedestrian areas, landmarks, restaurants, movie theatres and casinos. Finally, the distance between pedestrian subways, too, plays an important role.

At the same time, rent rates do not differ as greatly ‘in time’ as they do ‘in space’. Analysts note that rent rates in such unique retail corridors are not subject to any drastic fluctuations.

While rent rates tended to decrease in city retail centers that failed to meet modern standards in 2003, rent rates in the city center underwent practically no changes, according to Paul’s Yard. “The decisive role in that belongs to the factor of prestige, since many companies prefer opening shops and boutiques in the city centre for the purpose of maintaining their image. The rent rate in this case is not the key factor for choosing retail space,” holds Kudryavtsev.

Retail Space for Purchase

With deals for the purchase and sale of retail space in Tverskaya being quite rare, real estate agents and consultants believe it is inappropriate to even talk of an average price for such deals. “We have seen deals where the price of one square meter amounted to $8,000 and $13,500,” says Kudryavtsev. “We do not rule out the possibility of even higher prices.” Roman Cheptsov says the purchase of space at a price of $7,000 per square meter is a rare piece of luck, as more often than not the sale price nears $10,000 to $12,000.

Such a high price for the street retail sector, as well as high rental rates, is explained by the acute shortage of vacant space, which, according to some estimates, amounts to only 1.5 to 5 per cent.

No Construction Sites Available

To the regret of Moscow’s real estate firms, Tverskaya offers virtually no opportunities for the development and expansion of retail space. In comparison with, say, Novyi Arbat, another bustling thoroughfare in western Moscow, which offers vast retail space in shopping centers like Moskvichka, Yupiter, Vesna, and the Novoarbatsky supermarket, Tverskaya is restricted, firstly, in terms of expanding retail space, and secondly, in terms of their modernization, says Kudryavtsev. Changing any of the residential and office buildings in Tverskaya, especially their configuration and building additional entrances is virtually impossible.

Hence, expanding retail space or changing the format of trade here is impossible. New projects imply the development of new buildings, and as of today the only available construction sites along Tverskaya are those previously occupied by the demolished Inturist and Moskva hotels and the Minsk Hotel, which is to undergo renovation shortly.

Development of underground space – such as the construction of retail outlets on territory adjacent to metro stations – offers certain opportunities for expansion. For instance, since the late 1990s the company Ingeokom has been involved in the construction of a second entrance to the Mayakovskaya metro station under what is supposed to become a new shopping center. Projects for the development of underground space also offer a chance to expand retail space.

Pit Street

Construction of an underground retail center in Tverskaya Square is one such project, conceived by the city authorities in the mid 90s and due to be launched shortly.

Vedomosti has learned that Turkish firm Gyunal Inshaat tijaret va Sanaii A.Sh is one of the co-investors in the project. The developers were expected to begin construction this summer so as to complete the work by 2006.

The 96,500-sqm shopping center will offer 35,000 sqm of retail space, with the rest to be occupied by parking lots and tunnels, designed to relieve the traffic-congested area around Tverskaya. In such cases the investors bear the cost of constructing flyovers and tunnels, says Moscow’s chief architect Aleksandr Kuzmin.

Another major ‘pit’ is to emerge at the square where the Belorussky train station is located. The area is to undergo reconstruction by Lev Levayev of the Leviev Group. The Soviet-born Israeli businessman is set to spend $200 million on reconstructing the square. To all appearances, the firm Stroiinkom-K, which is part of the Leviev Group, will act as an investor for the reconstruction of Tverskaya Zastava Square. Stroiinkom-K has invested in the construction of nearly 400,000 sqm of residential and commercial real estate in Moscow since 2001.

Stroiinkom-K’s projects include the famous Muravyov’s Chambers, a top-class residential compound on Ostozhenka Street, and the reconstruction of a residential block at Patriarshiye Ponds. Academician Boris Bode prepared the design for the restoration of the Belarussky train station square (Tverskaya Zastava), including the layout of road junctions, way back in 2001-2002. The plan stipulates the construction of a multi-storied underground complex with a total space of some 100,000 sqm, of which 50,000 sqm will be occupied by a parking area, with the rest to be used as a retail area and auxiliary premises.

Yulia Nikulicheva, deputy director at Jones Lang LaSalle, who worked on a preliminary concept for the project, said the underground complex cannot have more than four levels because of the metro system. As an encumbrance to the city, Stroiinkom-K will have to build a second tunnel under the square. The square in front of the Belorussky train station, with its monument to Maxim Gorky, is not to be affected by the development. The company plans to complete construction work in 2008. Incidentally, once all those projects are implemented Tverskaya and 1st Tverskaya-Yamskaya will turn into the street of “three pits”, with Okhotnyi Ryad at the beginning, a three-level underground site at Tverskoi Boulevard in the middle and a ‘cave’ at the Belarussky train station. Experts hope that development of the underground site will include repairs of worn-out service lines under Tverskaya.

Tverskaya Lease Deals

While interested investors and retailers wishing to set up in Tverskaya are negotiating grandiose underground projects, others have nothing left to hope for but the departure of old tenants. According to the results of a survey carried out by Vedomosti to evaluate the vacant space in Tverskaya, most of the premises are leased with the mediation of Alexim-Invest, initially founded as a management company focused on real estate asset management.

Later the company acquired the status of a real estate firm, but without entering all spheres of the market – Alexim-Invest specializes mainly in street-retail in the city center. Today the company has no rivals in terms of offering premises for rent on Tverskaya; Alexim-Invest’s contact numbers can be found on the bright adverts posted in most gateways and lanes in and around Tverskaya, where the company offers premises of 100 to 300 square meters for rent to shop- and cafe-owners. The company also offers space in one of the most famous and spacious projects in Tverskaya – the building occupied years ago by the Kosmos cafe, and until recently by the Kosmos-Zoloto jewelry store.

While building 4, Tverskaya was a caf?, the ice-cream paradise was popular with all young Muscovites and even more numerous armies of fans arriving from other Russian cities. Kosmos was the only cafe in Moscow where its clients, having spent many hours queuing up just to enter, were offered a rich choice of over 10 ice-creams in beautiful bowls. Those who wanted could have their ice-cream with champagne. The caf? paradise was closed in 1995, when ice-cream was replaced by rings, chains and other pieces of jewelry.

Kosmos-Zoloto, once Europe’s largest jewelry store and Russia’s distributor for the world-renowned Spanish company Carrera y Carrera, opened on 25 December 1995. The premises it occupied are now vacant and await a new tenant, who, considering the history of the site and its proximity to the Kremlin, should be ready to pay the highest rent rate in the city.

The latest Tverskaya deals include the recently opened Svyaznoi cell phone store (17, Tverskaya), youth-oriented clothing store Company’s, and a Bang & Olufsen boutique. A Kofe-Haus cafe is due to open at the same address shortly. The Ile de Beute retail chain has also opened a new outlet on the premises previously occupied by Global USA (6, Tverskaya).

No Concept

Unlike modern retail centers, shopping streets have no particular concept. “Owners and tenants of the premises differ, but with time they adjust to each other,” notes Kudryavtsev. “They compete and supplement one another. The concept of the street is being formed as time goes by under the influence of market realities and various factors, such as location, environment, competitive environment, historic past, the emotional component. Tverskaya Street is a retail corridor with its own recognizable style that shapes the format of the operation of various shops, restaurants and entertainment centers.”

In many respects, the specifics of a shopping street itself determine the ratio between the businesses occupying premises there. For instance, Novyi Arbat is occupied mostly by entertainment centers, Kamergersky Lane belongs to restaurants, Teatralnyi Proyezd is a street of boutiques, explains Natalia Sazonova, market research consultant with Colliers International.

“A large segment – 20 to 60 per cent of the total retail space – is occupied by clothing, accessories and shoes stores. The share of food stores and household shops in Tverskaya, like in most other central streets, drops rapidly; moreover, they even tend to completely disappear, explained by their failure to afford the high rates.”

Tverskaya is occupied, for the most part, by manufactured goods stores, boutiques, cafes and restaurants, their share estimated at around 65 to 70 per cent. The shops here include world-renowned brands such as Dikaya Orkhideya (Wild Orchid) lingerie, Benetton, ModArt, Sach, Glenfield, TJ Collection, Geox, Baldinini, Ecco, Parad, f.f., Fabi, Company’s, Mexx, and Hugo Boss. Many banks also have branches operating on Tverskaya.

“In fact, almost every more or less major bank has a branch in Tverskaya,” says Roman Cheptsov. They are Rosbank, Alfa-bank, Sberbank, Vneshtorgbank.

A History of Famous Tverskaya Shops

Tverskaya’s concept as a ‘delicious’ street was formed over the course of many decades. Today not a trace has been left of that concept and only the history of certain buildings brings back memories of the city’s main thoroughfare as that of a gourmet realm.

One of the striking examples is the Yeliseyevsky store (14, Tverskaya), Moscow’s Soviet-era food-store No.1, and still earlier, Yeliseyev’s Store and Cellars of Russian and Foreign Wines, as it was called in 1901, at the time it was first opened.

1992 saw the creation of JSC Yeliseyevsky Magazin (store), with 100 per cent control being transferred to its staff. In May 2002 Yakov Yakubov, a co-owner of the casinos Korona and Golden Palace and of several real estate assets in Tverskaya, assumed control of the store, according to market insiders. However, according to the Moscow Registration Chamber’s official reports, Yeliseyevsky’s staff still holds the entire 100 per cent stake in the company.

The fate of Yeliseyevsky remained unclear until May 2002. It was then that its premises were first offered for rent, attracting numerous tenants. One of the halls of the store, facing Tverskaya, is now occupied by the restaurant Etazh.

In autumn Yeliseyevsky’s management invited bids for the supply of equipment for a top-class supermarket to be opened on the main shop floor of 750 sqm. But the tender was soon forgotten, bidders being informed that the store would be transformed into a shoes and clothing outlet. The plan was rejected by the city government, which insisted that the only food-store in Tverskaya must be preserved.

In summer 2003 Yeliseyevsky underwent renovation. As a result the over-the-counter shop was transformed into a 1,000-sqm self-service supermarket. At the same time, the interior of the store was restored in keeping with its pre-revolutionary designs.

The cost of the Yeliseyevsky project is estimated at $2 million. The newly opened store now caters for some 3,000-3,500 people per day, with its monthly turnover, according to retailers’ estimates, being nearly $1.5 million.

The Filippov bakery is another ‘delicious’ store, situated next door to Yeliseyevsky. The bakery was among the first of Moscow’s doomed bakeries to be transformed into a typical cafe. In bygone years the bakery was patronized by cream of Moscow society, with people making appointments to meet there.

The clientele was a motley gathering ranging from young students to old officials in expensive coats. Thanks to Filippov, Moscow kalatchi (small padlock-shaped white loaves) became very popular in Russia. The dough, once it was mixed, was placed in the cold and the kalatch acquired its special taste due to a process of fermentation. The Filippov bakery also had a confectionary, kalatch and baranka bakeries, zwieback and caramel shops and a fruit jelly shop.

When renovation of the building began the first to protest were residents from the neighboring houses. Then the city authorities received indignant letters from prominent artists and theatre workers, including Oleg Yefremov, Mark Zakharov, Yuri Solomin, and actors from the MKhAT and LenKom theatres. Novella Zhurina, a great-granddaughter of the famous baker, also joined the protesters.

Today, the Filippov bakery bears practically no trace of its former glory. A Kofe Bin cafe was opened in the premises. The bakeries at 5 and 4, Tverskaya were also closed. All the baker’s shops in the area have been replaced by new tenants. After all, bread may be cheap but the rent in Tverskaya is high.