MONEY-GROWING: Countryside Shopping & Leisure Opportunities

Residents at elite countryside settlements would hardly be pleased by the influx of outsiders attracted by a supermarket. As demand for comfortable country homes at reasonable prices grows, the infrastructure at country house compounds is developing with what was once a small shop, a restaurant, a gym or a laundry service ‘for insiders only’ transforming into multi-functional shopping and retail centers outside the settlements but in immediate proximity to them.

For the time being the development of large shopping malls or office centers near rural residential areas is unprofitable because they fail to attract many buyers and the range of services is limited, according to commercial real estate market analysts.

In certain areas, though, shopping malls catering for countryside residents could prove to be quite successful. However, market experts are very cautious about developers’ plans to build commercial properties in the countryside, especially in what concerns the development of office buildings. Experts at Jones Lang LaSalle and ABN Realty share those misgivings

The factors that make rural areas attractive for commercial real estate developers are the developed residential infrastructure and the quality of roads.

“[Developers of] shopping malls and office centers are attracted by roads that run through the satellite towns of the capital. Main roads and federal motorways have a clear advantage compared to dead-end roads,” says Ilya Shershnev, development director at Swiss Realty Group.

In these terms, Dmitrovskoye Shosse [motorway], with its yacht-clubs, alpine ski resorts, residential compounds and towns, has a lot of potential for the development both of shopping and leisure malls and office and retail centers, Shershnev believes. The Minskoye, Yaroslavskoye and Novorizhskoye motorways, too, have a lot of potential.

To the northwest it is Leningrandskoye Shosse that holds the lead in terms of commercial properties – mostly, shopping outlets. Developments along the Kievskoye and Novoryazanskoye motorways, too, may prove to be a success.

Interestingly, in areas where country housing construction is booming development of commercial properties stands little chance, analysts say. This is true for the Rublyovo-Uspenskoye motorway, the most prestigious and expensive part of the Moscow environs, commonly referred to as Rublyovka.

But the expansion of shopping malls across the countryside is inevitable. Shopping, entertainment and office facilities are emerging and will continue to emerge in the areas where residential construction is on the rise, most companies involved in rural housing development are convinced.

Moreover, not all the land in the Moscow Region is good enough for individual housing construction. In the opinion of Andrei Mazharov, general director of Terra-Nedvizhimost realty, land plots close to major roads and outside residential areas are the best for developing public facilities.

Second Wave

With cottage settlements mushrooming across the Moscow Region very soon their residents will feel the dire shortage of public amenities including retail outlets and office centers, market players believe.

Sergei Khramov, development director at the 4 Rent Estate firm, notes that the demand for local shopping outlets situated not further than a 20-minute drive from a compound is high.

Even the residential areas along the Rublyovo-Uspenskoye motorway, despite the local infrastructure being highly developed, require additional commercial properties. Commercial developments account for only 2-3% of all the properties in the area, says Khramov.

Aleksandr Dyachenko, managing partner with the company Usadba and a Rublyovka resident himself, says there is no cause for complaint about the shopping and leisure facilities along the Rublyovo-Uspenskoye motorway, though other areas of the Moscow Region experience serious shortages of shopping and entertainment facilities.

Construction of entertainment facilities catering for consumers of premium class goods and services is appropriate along the Novorizhskoye, Kaluzhskoye and Kievskoye motorways, in other words, in areas traditionally popular with country real estate developers, market experts say. “Those are the most expensive areas inhabited by people who consume more goods and services than anybody else,” Dyachenko explains.

The transit routes of the Leningrandskoye, Volgogradskoye and Yaroslavskoye motorways are better locations for the development of commercial properties targeting mass buyers. For such properties it is far more important to be close to busy roads than to residential settlements.

It is by no means a coincidence that the largest retail-entertainment centers, such as Mega and Auchan, are situated next to the Moscow Ring Road (MKAD), primarily targeting Muscovites traveling along that road.

“Each countryside area should have a single center of public infrastructure offering a well-thought-out range of options, in a location that would satisfy the majority of those residing in the area,” believes Andrei Patrushev, public relations director at Knight Frank.

“With competent consulting support, an interesting development located within 5 kilometers of the Moscow Ring Road and in the immediate proximity to a motorway is more likely to attract retail chain operators who are extremely cautious in accepting tenancy offers in the country.

“Moreover, surveys show that even the most popular brands running outlets in prime countryside locations rarely report sales as high as in the capital. But tenancy within the mall which is able to attract additional buyers is likely to their boost sales.”

“Moscow is becoming too small for retail chains and some of them have already begun active expansion into the countryside,” notes Georgy Dzagurov, general director of Penny Lane Realty. For example, Perekryostok has opened an outlet in Gorki-2 and plans to launch another in Gorki-10.

However, chains are not interested in running malls where the clientele is limited to the residents of a couple of rural residential compounds.

“It will take three to five years before countryside settlements have enough residents for tenants in shopping malls outside Moscow to earn a sufficient income,” says Yulia Nikulicheva, deputy director at Jones Lang LaSalle. Local town residents and villagers cannot afford regular shopping sprees in these kinds of retail centers.

“The hope that someone will drive all the way from Moscow to a shopping mall at Rublyovka are not really justified unless, of course, its scale is similar to that of Mega or if it is a unique facility offering services unavailable in other locations. Everything else can be found in the city center,” Patrushev adds.

Sergei Pushkin, head of out-of-town real estate at Novoye Kachestvo, says the situation west of Moscow is different from that in the eastern parts of the region. “Western areas of the Moscow Region will undoubtedly see the active development of public infrastructure which has already begun. The Krasnogorsk, Khimki, Solnechnogorsk and Odintsovo districts of the region are likely to experience the fastest growth,” he says.

The land to the eastern of the capital will be used largely for development of economy-class cottage settlements, Pushkin predicts, and he anticipates no active development of public amenities there. The lack of shopping and entertainment facilities will be felt in those areas, but expanding them makes little sense, as the owners of cheaper country houses are hardly the most attractive target audience for the malls.

“The quality and the development of the infrastructure should conform to the class of a residential area,” says Anzhelika Bylskaya, head of out-of-town real estate at Vesco Realty, who agrees with Pushkin.

“At best, economy-class areas in the east and south of the region, where prices are within the range of $100,000 to $200,000 per house, may have a minimum supply of facilities; at worst, residents are forced to drive to a food store in a neighboring village to buy milk.”

Rublyovka Oasis

A directory with useful Rublyovka addresses contains 50 A5 pages. This countryside oasis has banks, a civilian registrar’s office, a tax inspectorate, as well as bathhouses and saunas, restaurants, shopping malls, including Perekryostok in Gorki-2, boutiques selling perfumes, jewelry, lingerie and antiques in Zhukovka, telecom shops, florist’s shops, beauty studios, and even museums and temples for spiritual needs.

In the near future nine new shopping centers and 10 restaurants are expected to open along Rublyovka, according to 4 Rent Estate. New projects include the 13,000sqm shopping mall Dream House at the intersection of the Rublyovskoye and Podushkinskoye motorways, and Luxuri Village near Barvikha.

Construction of the ‘boutique village’ was recently launched by Mercury, a company that has outstripped other developers wishing to open expensive brand shops in an area they consider highly attractive for doing business, says Yulia Nikulicheva. However, Nikulicheva herself does not subscribe to that point of view.

As for business centers, they will not really be in demand in rural residential areas, Swiss Realty Group experts believe. However, since many company executives live in the countryside along the Rublyovskoye and Novorizhskoye highways office buildings here could well attract some tenants, but it must be remembered that that most employees live in Moscow, Yulia Nikulicheva says. Companies with offices in the country would have to arrange for free-of-charge shuttle buses running between the nearest metro station and the office, with the journey taking no more than 20 minutes.

Wimm-Bill-Dann owners David Yakobashvili and Gavriil Yushvayev plan to build an alpine skiing facility worth $60-70 million, a business center of 22,000sqm and a 25,000sqm shopping mall in the village of Usovo, worth about $52 million.

Considering that there are practically no offices along Rublyovka and the office center under construction in Barvikha has already been fully leased out, the office project has potential, Maksim Ardeyev, managing director at Zeta Realty, told Vedomosti.

S-Holding is currently working on the design of a multi-functional retail and entertainment center in the village of Uspenskoye in the Odintsovo district. The 28,000sqm mall of two levels above ground and one level underground, will be built on a plot of 1.18 hectares at the intersection of the Rublyovo-Uspenskoye road and Proezd Shmidta.

“When choosing the area for my future country house, perhaps, the main thing I took into consideration was the infrastructure. And I came to the conclusion that no other settlement could compare to Zhukovka on the Rublyovo-Uspenskoye Shosse,” says Aleksandr Dyachenko. “If all the facilities that I now have in Zhukovka were taken away from me I would feel uncomfortable.”

The wide choice of shopping and entertainment facilities along the Rublyovo-Uspenskoye motorway makes the task easier for out-of-town housing developers, notes Andrei Mazharov, of Terra-Nedvizhimost.

“A settlement can be self-sufficient even without bowling alleys or golf courses if such facilities are available in the vicinity. Given the rich amenities of Rublyovka concentrated mostly around Zhukovka, providing alternative facilities within one’s settlement makes no sense whatsoever. People will still go to Zhukovka anyway,” says Anzhelika Bylskaya.

“On the contrary, it is a crime to build a rich infrastructure within a cottage settlement only because it is ‘in’. At the same time, minimal facilities such as a children’s playground and a shop, should be available at any settlement whether economy or deluxe.”

But “no settlement is able to make commercial facilities pay. That is why developers are forced either to let the residents assume maintenance costs or cover the losses themselves,” says Mazharov.

In his opinion, the only means of making such facilities profitable is to make them cater for residents of several different settlements in the neighborhood. But for that the location of a mall has to be successful in terms of accessibility.

Newcomers

Novorizhskoye Shosse still has no top class shopping or entertainment facilities, but large-scale development has already begun, Andrei Mazharov reported. For example, the Pavlovo Podvorye mall is currently under construction on a 17-hectare site near the town of Pavlovo, 14 kilometers away from the MKAD. The mall will house a World Class fitness center, the Cosmik bowling alley, outlets of the popular restaurant chains Il Patio and Coffee House.

“The insufficient supply of public amenities in most of the neighboring settlements in that area and Pavlovo’s proximity to the Moscow Country Club golf course at Nakhabino means the mall is likely to be highly profitable. Its emergence will boost development in the whole area along Novorizhskoye,” Mazharov is convinced.

Inkom-Nedvizhimost plans to develop a large recreation center near the settlements Riverside and Sherwood and a new 300-house compound 30 kilometers away from Moscow along Novorizhskoye Shosse. The center, to be erected on a plot of 8 hectares, will offer a broad variety of shopping and leisure outlets, says Aleksei Korotkikh, head of sales at Inkom-Nedvizhimost.

The concept of the center is currently being developed. Inkom-Nedvizhimost plans to develop some of the future facilities itself while most plots will be offered to investors for the development of commercial properties.

A hundredth of a hectare of arable land reclassified as land for individual residential construction in this area is valued at least at $5,000. Five years from now when the entire area along Novorizhskoye is inhabited, the demand for shops and leisure facilities will pay back on the project that by that time should be completed, Inkom representatives say.

Furthermore, major landowners are nurturing plans to develop large residential estates in the Moscow Region that will need modern commercial properties of high quality, notes Georgy Dzagurov.

The most impressive example cited by market experts is the $3 billion project by Nafta-Moskva to develop 2.7 million square meters of prime residential properties and public amenities including leisure facilities, restaurants, shops, offices, movie theaters, etc., on a plot of 430 hectares on the Novorizhskoye motorway.

“With commercial real estate development and the transport situation in and outside Moscow deteriorating, consumers are less and less willing to drive to a shop at the other end of the world, which is why the movement of malls towards the consumers is inevitable,” Dzagurov is convinced. “The development of commercial properties outside Moscow is, on the whole, effective as long as the parameters of the project are correct. That sphere of activity has a lot of potential both in terms of consulting and of the traditional realty business.”

But, Dzagurov says, developers of top-end retail centers cannot hope for a payback in less than five years. Other experts, for the most part, share this opinion. “The payback period for commercial properties is longer. Of course, some projects do pay faster, but they are exceptional cases,” says Sergei Khramov.

As such, the commercial real estate market in the Moscow Region has not been formed yet, with only a few large projects being commissioned, notes Mikhail Gets, head of commercial real estate at Blackwood. Out-of-town real estate analysts at Blackwood evaluate the return on commercial developments at 18 to 20%.

Of course, a certain range of amenities is necessary along practically every motorway, but a great number of factors should be taken into consideration, adds Andrei Patrushev.

For example, the development of a health and sports facility on Kaluzhskoye Shosse may fail to bring any return as that part of the region already has a variety of health resorts highly popular with the residents of nearby homes. The prospects for the construction of a reasonably large shopping mall on Kaluzhskoye are also vague, as its potential customers may be intercepted by Mega (at the intersection of Kaluzhskoye and the MKAD).

“While within the city limits practically any property is situated near customer flows inevitably attracting potential buyers, an unsuccessfully located shopping mall outside the MKAD may never see any customers,” Patrushev warns.

The Retail and Housing Mix

Shops, restaurants, and sports facilities within cottage settlements are of little interest as business ventures if they cater for local residents only. “Those facilities are likely to bring much higher profits if they are open for the public at large,” says Svetlana Kondachkova, head of out-of-town real estate at MIAN.

While developers attach importance to securing a return on their investment, residents are interested in amenities and they do not really care whether those facilities are available inside their compounds or outside in the immediate proximity to their homes, says Bylskaya.

Meanwhile, the charges for maintaining public facilities are likely to make potential buyers of cottages in such settlements think better of their decision, realtors say. According to Blackwood, the monthly maintenance charge in economy-class settlements amounts to $200-300, in business-class it is $300-500, and $500 and over in top class settlements.

“Even by building a small restaurant on the territory of a settlement, the developers push up monthly charges to $300-400 because the outlet will be available only to the narrow circle of residents and their guests. A swimming pool, a restaurant, several [tennis] courts, a gym and a children’s playground may cost up to $1,000 per month,” Mazharov adds.

Gorki-1’s residents pay $1,500 for public utility services and maintenance of public amenities, he says; in Chigasovo those charges amount to $1,000; Nikolino residents are charged $500 per month.

“The availability of public and cultural facilities within cottage settlements also affects the value of the project substantially increasing the price of a square meter,” says Sergei Kasatkin, head of countryside real estate sales at Miel-Nedvizhimost.

When it concerns deluxe class cottage settlements, the availability of public amenities to outsiders is completely out of the question, Sergei Pushkin says.

Size also matters. “Building schools and ice rinks is hardly necessary for ten houses, but for a settlement of 200 to 250 houses – a small town, in fact – with a population of 1,000, it is possible to develop facilities in full without even worrying about the risks. A vivid example is the Residences Benelux,” says Anzhelika Bylskaya.

However, Alyona Melnikova, vice-president for the conceptual development at Residences Benelux, said that the entire complex of public amenities including shops, a restaurant, spa and fitness center, a dance hall and even a theater, on the territory of the Amsterdam Residence, lies beyond the area of the private properties and is open to everyone.

Apparently, that means those who find themselves nearby, at the 17th kilometer of Novorizhskoye Shosse, considering that the settlement is linked to that motorway by a separate road bypassing other villages in the neighborhood. Melnikova puts the cost of that part of the project at $20 million.

“Our residents will not bear any of the maintenance costs; they will only pay for the services used and club membership cards,” she said. The company plans to attract market leaders to manage the Residences’ amenities, but Melnikova would not elaborate on who they would be, saying only that talks were in progress.

Yekaterina Semikhatova, a spokesperson for Kapital Group, said that the company plans to build a wellness and spa center with a restaurant, children’s recreation center and a shop in the cottage settlement Barvikha Hills – Capital Group’s first out-of-town real estate project – at the entrance to the settlement. The facility will be open to outsiders as well as to permanent residents without disturbing the peace and quiet of the settlement.

Pallada City is a residential compound under development on the shore of the Klyazma reservoir. The developers plan to erect a 33,000sqm multifunctional shopping center on a site between the residential area and Dmitrovskoye Shosse. The complex will include a supermarket, a multi-level parking area, a two-story mall featuring retail outlets, restaurants, cafes, and probably also a movie theater and a roller skating rink.

The shopping center will provide local residents with all the necessary goods and services and serve as a noise shield and an “architectural calling card” for the settlement, says Valery Barkov, deputy head of the company Pallada City.

It will be open both for Pallada-City residents and anyone driving along Dmitrovskoye Shosse, as the location is easily accessible from the motorway.

The settlement itself will be closed to outsiders. It will have its own 2,000sqm recreation center with a swimming pool, a kindergarten and a primary school. A yacht club, to be built on the shore, will also be open for general public access.

The company plans to attract investors to finance the development of the shopping mall, and an operator to effectively manage it. According to Barkov, leading retail operators have already expressed interest given the mall’s convenient location at the 7th kilometer of Dmitrovskoye Shosse. All the retail outlets operating along that motorway are situated near ski resorts, more than 40 kilometers away from the MKAD.

Therefore, the mall near Pallada will be convenient for skiers en route to the Volen, Yakhroma or Sorochany resorts, to the settlement of Zelyonyi Mys (Green Cape) and other residential compounds on the shores of reservoirs. Andrei Patrushev believes that cottage developments along Dmitrovskoye Shosse have reached a critical mass requiring a developed system of public amenities.

In terms of costs it makes hardly any difference whether a facility is built within or outside the settlement. A 1,000sqm shopping mall would cost $1-1.5 million, while a 200sqm wellness center would require $120,000-150,000, according to Vesco Realty.

According to Vedomosti sources, Wimm-Bill-Dann’s owners plan to spend about $10 million on the development of a 7,200sqm fitness center near Gorki-2 where they also plan the development of a 40,000sqm residential estate, worth $30 million.

“Investors may have to spend less on the project if the public facilities are built on the territory of a residential area. In particular, the expenses for securing a title to the building plot, laying engineering lines, developing the territory and building access roads are split between the entire settlement, making economies of scale possible. At any rate, the decision to develop public facilities outside the settlement is made on the basis of analysis of the location and environment,” says Marina Markarova, managing director at Blackwood.

For example, the Park Group company plans to build the $12 million countryside resort Vitro Village, 38 kilometers from Moscow, on a 14-hectare plot between the Kaluzhskoye and Simferopolskoye motorways.

The resort will include a school, a children’s recreation area, a sports and fitness center, spa, several restaurants, sports facilities, a mini-golf course and tennis courts, two swimming pools, a beauty parlor, a solarium, a movie theatre, a shop and other facilities.

General director of Park Group Sergei Fomenkov said that the company had initially considered dividing the territory into residential area accessible only for owners and an area open to general public access, with various shopping and entertainment facilities. But then it was decided that given its remoteness from other residential areas the resort should be accessible only to residents and their guests, who will be able to stay at a local hotel.

Vesco Realty’s experts say that only 45-50% of all the business-class and elite cottage settlements offer a full range of public amenities. MIAN and Miel are stricter in their assessments, setting those figures at 10-15%.

“Often at the design stage developers plan the construction of quite an impressive range of facilities, but unfortunately, those plans are not always implemented in full,” says Svetlana Kondachkova.

“Sometimes, sites initially assigned for the development of public amenities are then re-allocated for housing construction,” says Mazharov. “Indeed, what is the sense of building facilities that will be loss-making when all the plots within a settlement have already been sold and there is no need for additional advertising?”

Sergei Khramov cites the example of the Shavelkino settlement, 16 kilometers from the MKAD along Shchelkovskoye Shosse, fully devoid of any public amenities.

“The developer – Guild Group – had initially planned to build several shops and cafes there, but gave up on the idea,” Khramov said.

“Shavelkino is a small settlement for club members only, with 25 houses worth $100,000 to $350,000, and the developer decided that it would be better to build another house there. Residents will be able to buy everything they need en route from Moscow at two hypermarkets. This is not the only case where developers and buyers fearing high maintenance costs are trying to minimize such facilities within a settlement. For example, plans for the construction of a multifunctional complex at Dmitrovskoye Shosse near Lake Krugloye were never implemented. Today, developments there are being sold for the construction of individual facilities.”

But if there is a health resort and a water-park situated in the immediate proximity to the settlement, open to both local residents and outsiders, in 99% of cases investors will claim that a water-park is an inseparable part of the settlement, Anzhelika Bylskaya says.

“As regards investors, it is unlikely that they really care about the people who live in the neighborhood; rather they are interested in returns and the expediency of developing certain public facilities on the territory of their own settlements. Retailers are far more interested in the development of various public amenities close to cottage settlements such as fitness centers and beauty parlors targeting the local money-bags.”

But Artyomy Avvakumov, chief architect at Pallada-City, notes that public amenities should cater not only for the residents of rural cottage settlements. It can make the task easier for operators and management companies and speed up negotiations with local authorities. Municipal and regional bodies realize that the implementation of such projects improves the local infrastructure, makes the area more attractive for other investors and creates jobs.