Guiding Lines: Things Incompatible

The examples of such projects are the 63,769-square-meter 4-storied Smolensky Passazh where properties are rented at an average rate of $1,260 per square meter per year (source: arendator.ru); Arbat Center (47,225 sq.m., eight stories, $1,500 to 3,000 per sq.m. per year); Novinsky Passazh (78,000 sq.m., 8 stories); Olympic Plaza (22,000 sq.m., 9 stories, $850 to $1,500 per sq.m.); Berliner Haus (8,000 sq.m., 7 stories, $1,200 to $3,000 per sq.m.).

In addition to the variety of services retailers offer they also provide landlords with a stable income, no less impressive than the revenues from operations in office properties.

There are several reasons that prompt developers to combine retail and office components in their projects. To begin with, they seek to diversify the risks arising from a selection of tenants and future cooperation with them, and to use all the advantages each property has to offer. Lower floors are unpopular with respectable office tenants while chain operators are reluctant to rent space on the top floor, as customers are rarely willing to climb up so high.

Finally, retail companies prefer renting office space in the same building where they operate their outlets. For example, the XXL shopping mall where the Perekryostok supermarket chain runs a store also houses one of the chain’s offices.

Professional real estate consultants, however, advise against combining the two formats. In their opinion, it is easier to diversify risks by securing titles to a separate office building and a separate shopping mall, as the office and retail sectors differ in terms of the investment cycle, i.e. in terms of the timing of market saturation.

The peak of returns on office operations may fail to coincide with maximum returns on retail properties, which makes it difficult to decide when to pull out of a project. Besides, office property management differs greatly from the management of retail space, which makes it impossible for one team of managers to run both.

It is commonly believed that retail-office centers emerge primarily due to the landlords’ desire to derive the maximum current income without caring much about the future value of their properties. Neglecting specialization may prove detrimental for the landlords as competition between them grows and tenants become more selective.

Developers of office and shopping centers often hope that the shops operating on their premises will attract extra customers from among the office employees. But studies show that people usually want to leave their office buildings after work.

The architectural design of such centers is rarely well balanced. For example, it can be confusing for visitors when offices and shops are accessible from the same entrance. Parking areas are designed to cater for both office employees and shoppers, which creates additional difficulties; however, landlords usually believe it is unnecessary to divide the parking lot into separate zones.