Guiding Lines: Tverskaya Falls Short of Top 10

The Russian capital – ranked as one of the most expensive cities in the world and having seen a real property boom since the early 2000s – has not been left out, either. Moscow’s Tverskaya Street has always been considered the most expensive in Moscow. However, it failed to make it into the top 10 most expensive shopping locations because rental rates, as calculated by the consultants, proved to be lower than usual. It had to settle for 11th place.

The survey names New York’s Fifth Avenue, where the average annual rent stands at $13,993 per square meter per year and Causeway Bay in Hong Kong ($11,653) as the world’s most expensive streets. In Moscow, Tverskaya has always ranked top on the list of the capital’s 12 shopping locations.

Even in early 2004, shop rents on Tverskaya never fell below $4,000 per square meter while sale prices ran as high as $20,000 per square meter. But Cushman & Wakefield said in the report that over the past twelve months rentals dropped by 2.9% to $3,400 per square meter.

However, in the course of the past few months the average rental rate on Tverskaya has stood invariably at $4,500, with some shops paying as much as $5,000 per square meter. Novy Arbat and Kuznetsky Most always fell much further behind, with rents costing $1,500 to $2,000 less.

No one had expected Tverskaya to fall that low. Even in terms of office rent in 2005, the Russian capital was only superseded by London, Tokyo and Paris. Naturally, the market was surprised by the Cushman & Wakefield report. And, even though it is not really that important, it is annoying, of course, that Moscow’s landmark thoroughfare has failed to make it into the top 10, especially when it was ranked 7th in 2004.

Other reasonable questions arise, such as why shop rents – as calculated by Cushman & Wakefield – proved to be considerably below the figures cited by market analysts in their reports over the course of the past year? Is that just down to the analysts copying each other’s mistakes? Or is it the first sign that Tverskaya will soon lose its leading position and become merely one of the “also rans”?

To begin with, the demand for Tverskaya properties is indeed falling. The history of the retail corridor is as follows. It was shaped in the mid-1990s by realtors and consultants who brought in numerous popular brands. In other words, a certain amount of forethought was involved when the corridor was formed.

The natural factors that have played a significant role in the emergence of expensive shops on Tverskaya are its central location, proximity to the Kremlin, the large number of offices of government agencies and major firms in the vicinity and expensive hotels patronized by foreigners. An additional advantage is the high level of pedestrian flows.

But is there a risk that Tverskaya may lose its status as a leading luxury shopping location? Perhaps, but only if the city center is moved to some other location, or if the capital gets a new district that is shaped under the influence of the same factors as those that effected the shaping of Tverskaya. Of course, there are always those who doubted the popularity of that retail corridor.

Some market participants believe that Tverskaya is more suitable for restaurants, cafes, gambling arcades, than, say, clothes shops. That is why entertainment operators show more interest in properties there. It is also said that many tenants on Tverskaya make no profits running their outlets only for the sake of maintaining their image, their incomes here being barely enough to cover high rental costs.

Another possible explanation is the seasonal, temporary fluctuations in rents. Such fluctuations happen almost everywhere but they do not mean a general drop in rates and loss of popularity.

For example, in October 2004 the average rental rate on Tverskaya dropped to $3,800 per square meter per year, compared to the February rate of $4,000. But then, a decrease was also registered on Pyatnitskaya Street while the vacancy rate there, which usually stands at 2%, went as high as 12% on certain stretches. But Pyatnitskaya is still Pyatnitskaya. And Tverskaya will always be Tverskaya.