Money-Growing: Shoppers Just Wanna Have Fun

Bowling alleys, multi-screen theaters and domestic fast-food joints are no longer seen as being exotic. A new breed of pastimes lie ahead: swimming with sharks, walking with dinosaurs, enjoying new kinds of ice skating. As competition intensifies shopping malls are trying to outmaneuver each other by hiring strong entertainment operators

As much as 28% of the shopping centers opened in St. Petersburg in 2003-2004 provide leisure facilities for their customers, Bekar Consulting reports. In 2005 that figure will clearly be much higher because projects are expanding to take in entertainment facilities, which are becoming the integral part of the developments.

Besides, some retail centers built in the early 2000s, or even in the 1990s, are currently undergoing redevelopment work and expanding to fit in more leisure anchors.

For example, in 2004, the city’s oldest retail center, Balkansky, opened a leisure center and a 7-screen 1,500-seat movie theater run by the local Kronverk Cinema chain. A 6-screen theatre and a bowling alley are to be opened in 2006 at the Nevsky shopping mall. The key shareholder in both malls is the Adamant group.

Share of Fun

Market analysts agree that there are no clear ideas as to what share of the total property leisure facilities should occupy within a shopping mall.

“Ideally, this depends on the location of the mall, its concept, as well as the competitive environment. But life dictates its own laws and often investors proceed chiefly from their financial considerations. After all, entertainment facilities cannot compare to retail in terms of returns,” says Boris Yushenkov, general director at Colliers International St. Petersburg.

According to estimates by the St. Petersburg branch of Astera, some 20% of the useful space within shopping malls currently under construction in the Northern Capital is being allocated to leisure operators, including movie theaters.

A clear-cut leisure strategy has been developed by Adamant – the group that retains the leadership on the St. Petersburg market, running 11 malls with a total space of nearly 400,000 square meters. About a dozen new projects – over 600,000 square meters – are either on the drawing board or under construction.

“A shopping mall with a total space of 15,000 to 20,000 square meters has quite a modest share of leisure facilities. There is enough space but for a bowling alley, or slot-machines. However, in fact we do not take on such projects any longer. A full-fledged retail zone, as we see it, should not be less than 9,000 to 12,000 square meters,” says Igor Leitis, president of Adamant.

“That includes a multi-screen theater with 5 to 7 halls (approx. 3,000 square meters), a bowling alley (2,500 square meters) with a billiards room (700-800 square meters), a food court (1,200 to 2,000 square meters), a children’s playroom (150-200 square meters) is a must, and a gaming arcade (up to 1,000 square meters). In shopping centers of over 50,000 square meters we plan to develop a separate amusement zone of 2,000 to 2,500 square meters for children under 12.”

The St. Petersburg leisure industry, despite of its ongoing upsurge, is still underdeveloped, most experts agree.

“The amount of time people spend in shopping and leisure centers in Europe and the U.S. ranks third after time spent at work and home, nearing several hours per day. It is clear that spending all that time on shopping alone is impossible. People are drawn namely by leisure anchors. In this country, however, they still lack diversity,” holds Yuri Borisov, managing director at IB Group.

“Besides, even large Russian cities still have not developed a tradition of lunching or dining out. While in Europe, food courts at shopping centers bring together dozens of operators so that each gets his share of customers, even on weekday afternoons.”

It is commonly agreed that entertainment facilities attract extra buyers to shopping malls. However, convincing statistics that would help to calculate that synergic effect are unavailable, and opinions differ. “Most Russians still view shopping and entertainment as a target-oriented activity. They dedicate their time either to one thing, or to another,” says Oleg Spivak, head of retail real estate at Bekar Consulting. “Combining both is very rare.”

“Much depends on the presence of competitors in the area, the quality of anchor tenants, retail space planning, etc. It is believed that no more than 10% of the visitors go to the movies there, but as many as 90% of movie audiences become shoppers. One of the strongest types of anchor can turn out to be a children’s amusement center.

“There is a well-known truth (that works not only in retail): the interests of a child come first. Besides, having left their offspring in the gaming zone parents are given an opportunity to wander through the shops without worrying. And while a multiplex or bowling are more likely to stimulate instant purchases, availability of quality amusement facilities for children at a shopping mall can play a decisive role when choosing a place to shop,” holds Irina Anisimova, executive director at Astera St. Petersburg.

Incidentally, none of the polled experts doubted the potential of children’s entertainment centers in shopping malls.

The Price of Leisure

The monthly rental rates that entertainment anchors are able to afford in St. Petersburg do not exceed the range of 12 to 18 conventional currency units (based on dollar and euro exchange rates) per square meter. “Even a supermarket is a more rewarding tenant,” notes Igor Leitis of Adamant.

The cost of decorating and installing equipment is a tidy sum for leisure industry operators, especially those running multiplex theaters. According to Astera estimates, a bowling alley requires an investment in the region of $500-700 per square meter; the cost of a children’s playground may run as high as $1,000 per square meter.

At the very early stages of the project the developer should take into account the anchor tenants’ specific requirements as to the ceiling height, bay spacing, floor load capacity, separate entrances and 24-hour elevators.

“The principle that the higher the spending on the development of an amusement zone the more sense it makes to invite operators as co-investors in the mall project does not always work in practice. All issues are solved during negotiations. Sometimes it happens that the owner of the mall is reluctant to part with their properties while the operator, whose business does not involve ownership in real estate, is not willing to see their cash frozen,” notes Yuri Borisov.

“If the developer sees a shopping center as an investment asset and plans to sell it in the future, sharing the property between several co-owners is not worthwhile. If there is no such plan, attracting co-investors will improve the financial standing of the project and alleviate risks. These days, the predominant strategy on the market is to sell properties to leisure anchors,” Boris Yushenkov comments.

There are already examples of huge investments. For example, the national cinema chain Cinema Park plans to pour about $13 million into a 9-screen multiplex at the Grand Canyon shopping center on Engels Prospekt. The Moscow-based Karo Film chain is a co-investor in several projects by Adamant, including Warsaw Express, Kontinent, etc.

Movies, Balls and Casinos

The standard set of leisure facilities in a shopping mall has already been formed. According to Bekar Consulting, 39% of St. Petersburg shopping and entertainment centers have bowling alleys. The largest of those is the 36-lane establishment of the local operator Bowling City, occupying a 4,500-square-meter property at the Sennaya mall under a 25-year lease.

This year that record is likely to be broken. A new development by the company Uyut, on Pulkovskoye Shosse, will have as many as 52 lanes. Moscow chains active on the local market include Kosmik (Nord and Skipper Mall) and Planeta Bowling at Mercury.

35% of St. Petersburg’s shopping and leisure centers have multiplex theatres (source: Bekar Consulting). Altogether, the city has 21 top-end theaters (66 screens). The St. Petersburg chain Kronverk Cinema controls nearly 70% of the local cinema market. Other operators active in shopping centers are Mirazh Cinema and Roskinoprokat. Cinema Park, Karo Film, Kinomax and others are due to arrive on the market in the near future.

Incidentally, says Igor Leits, bowling alleys and multiplex theaters tend to vie with each other, which is why they do not seek each other’s company under the same roof.

Approximately 25% of shopping centers run fitness centers. The Sport Life chain with four clubs across the town is the most active in its cooperation with retailers. Reebok has rented properties at the Kontinent mall, currently under construction, where the company plans to open a sports club with a swimming pool. There are other examples of combining shopping and sports, as well. The standard set also includes gaming arcades, billiards, casinos, etc.

The children’s amusement park at Gulliver is, so far, the only one in St. Petersburg. The 2,000-square-meter Gulliver Park houses slot-machines, merry-go-rounds, dodgems, a mini-bowling alley, a children’s caf?, etc. German animated attraction designer Olaf Mordelt (the Heimo company) took part in designing the facility.

Originally, the authors of the project had planned to build a theme park based on Jonathan Swift’s celebrated novel, but the engineering characteristics of the development – low ceilings, in particular – prevented them from implementing all their ideas. On the whole, the pilot children’s amusement project is quite modest.

An original virtual gaming center with a variety of simulators by the company Tranzas occupies a 1,000-square-meter property at Nord. For the time being, this is where leisure operators’ imagination runs out.

Creative Freedom

However, a breakthrough is expected on the entertainment market by the end of this year. The first stage of the Planet Neptune retail and leisure center on the corner of Marat and Zvenigorodskaya Streets is slated to be commissioned in late 2005. The mall will house Russia’s first-ever oceanarium.

The project is being developed by JSC Rubin, an affiliate of the central marine equipment design bureau Rubin. The total space of the 2-storied building, plus a basement, equals 68,000 square meters. The first stage is 28,000 square meters including a 5,000-square-meter oceanarium.

The unique facility was designed by Marinescape Project, a New Zealand-based company with a track record of approximately 20 marine aquariums across the globe. Marinescape’s coordinating director, Ian Mellsop, says this is the first time his company has been involved in building an oceanarium within a shopping center. 32 tanks with a total displacement of 1,500 cubic meters of water will contain some 3,600 inhabitants from seven climatic zones.

The main aquarium with a 35-meter-long acrylic tunnel carrying visitors through the underwater world, will house sharks, cramp-fish and morays. The project is estimated to be worth $2,000 per square meter.

“The entrance ticket will cost about $10 – almost the same as in Europe. We are looking to Russian tourists, and if we reach the projected attendance level of 500,000 to 600,000 per year, the facility will pay back within 4-6 years,” says Rubin’s general director, Vladimir Davydov.

The title to the property occupied by the oceanarium will be transferred to the company where JSC Rubin holds an 80% stake. Other retail and leisure facilities will be rented out. IB Group is the general consultant and broker for the project.

“Tenants have expressed enormous interest in the oceanarium,” says Yuri Borisov. “That bait enables us to lure new brands into the city. Tenancies for all the properties of the first stage are currently being negotiated. Offers have been signed for over 75% of the properties. On leaving the aquarium zone the buyer will enter a retail world, just as bright and enticing. That is why we place emphasis of affordable and original brands.”

The second floor will house a 1,000-square-meter children’s amusement center, Dino Park. Meanwhile, the developers are working on the concept for the second stage of the Planet where they plan to build a vast zone of virtual attractions for children.

The 73,000-square-meter Grand Canyon shopping and leisure center, by Solomon, is due to open in December. In addition to a great variety of indoor leisure facilities, including a multiplex, family entertainment facilities, etc., the mall will be linked to the Leader leisure club through a special gallery.

Visitors will be the choice of 76 billiard and pool tables – more than anywhere in Europe, a 30-lane bowling alley, Q-Zar, slot-machines, darts and shooting galleries, as well as a large fitness center.

In January 2006, the Warsaw Express mall by Adamant will take up the relay baton. The edifice of what was formerly the Warsaw train station on Obvodnoi Kanal Embankment has been redesigned as a shopping center by Italian architect Giovanni Bartoli. Nearly half of its properties – 17,000 square meters – have been allocated for the leisure zone that will include a multiplex, the Shangri La casino, a bowling alley, a children’s amusement zone, etc. “We are building an entertainment center on a city scale,” says Igor Leitis.

Another entertainment project by Adamant is what the company presents as a mini-Disneyland of 15,000 square meters, with an ice-rink and a variety of attractions, to be opened on the premises of the Osinovaya Roshcha (Aspen Grove) mall (the projected total space is 120,000 to 150,000 square meters), under construction on the Vyborg Motorway near the city’s Ring Road.