Guiding Lines: On the Brink of Saturation

An acute shortage of building plots in Moscow, the complicated procedures for securing them, the ongoing stabilization of the market, the search for additional revenues and the thirst for growth have prompted Moscow-based and foreign retail operators to break into Russia’s provincial markets.

Summing up the results of the year 2004, most market analysts agree that the previous year saw a peak in Russia’s construction of modern shopping centers in the regions.

IKEA, with its Mega shopping center, and Metro, lead the way in terms of implemented and planned projects. Those companies, for the most part, act as developers and investors for their projects. The leaders among the domestic chains are Perekryostok, Pyaterochka, Mosmart, Sportmaster, MIR, and M.Video.

Those operators managed to open retail outlets in several cities across the country simultaneously. The companies GK Vremya, AFK Sistema, Perekryostok-Development, RosEvroKapital, Torgovy Kvartal–Region have made themselves conspicuous by their number of projects.

However, it soon transpired that the vast expanses of the regions were not infinite. The retail boom began with the development of shopping space in the cities where the population exceeded 1 million and where individual monthly incomes stood at 4,000-8,000 rubles.

Those cities included St. Petersburg, Nizhny Novgorod, Kazan, Yekaterinburg, Samara, and Volgograd. Today they are the first to see the start of a decline in the development of the retail real estate markets.

For example, by the year 2006 five new modern shopping centers will be opened in Kazan. They are Orlyonok (40,000 sq.m.), Park-Haus (54,000 sq.m.), Mega (130,000 sq.m.), Tandem (62,000 sq.m.), Spartakovsky (21,000 sq.m.). Nine more shopping centers with a total space of 177,200 sq.m. will be commissioned in 2007.

Thus, in three years from now the total retail space in Kazan, where 268,000 square meters of shopping centers are already in place, will reach 753,050 sq.m.

The figure of 1 million square meters of retail space is the limit for the city, as the level of income and the spare cash available to consumers are not sufficient to generate demand for retail space exceeding that amount.