Money Growing: Neighborhood Leisure

Majors and Minors

Until recently, the role of entertaining customers, including those arriving from the Moscow Region, belonged to the shopping and leisure malls operating in the capital. But the number of retail and entertainment facilities in the Moscow Region is growing each year.

“This is caused, firstly, by the growth of the retail property market, as such, secondly, by the ever-worsening traffic situation on the roads to the capital and back,” says Sergei Khramov, head of development at 4Rent Estate. “Most Moscow Region residents prefer shopping and leisure in their home towns to time-consuming trips to the capital.”

Mikhail Gets, head of commercial property at Blackwood, says that so far the Moscow Region has just a handful of retail centers with leisure facilities.

Modern retail facilities are already operating in the towns of the Moscow Region, situated in the immediate proximity to the capital, as well as in the one-company urban areas, such as Stupino, Elektrostal, Noginsk, Orekhovo-Zuyevo, which can be explained by the relatively high level of income of the local population, says Yanis Zhukov, deputy head of marketing at RIGroup (Russian Investment Group).

There are two types of projects being developed in the Moscow Region these days. They are large shopping and leisure malls outside the Moscow outer ring road (MKAD) and local retail centers in towns situated at the main transport hubs, Maria Stolnikova, consultant at the Jones Lang LaSalle strategic consulting department, reports.

26% of the total number of shopping centers operating in the Moscow Region are large malls measuring over 40,000sqm, Alexei Averyanov, general director at Vesco Consulting, says. Shops of 10,000 to 40,000sqm operating in the central towns of the Moscow Region’s districts and Moscow’s satellite-towns account for 21%, while the remaining 43% are small department stores of less than 10,000sqm in towns of 20,000 to 50,000 inhabitants.

In the opinion of Sergei Khramov, shopping centers situated in the immediate proximity to the Moscow outer ring road do not differ greatly from their Moscow-based rivals, in terms of structure. For example, most of the basement floor at the XL-3 mall (1 km away from MKAD on Yaroslavskoye Shosse) is occupied by a Eldorado home appliances hypermarket and Bananamama children’s goods store. The first floor houses a Perekryostok supermarket and a shopping gallery.

On the second floor there are vending stalls and a food court with nine cafes and restaurants. The upper, 3rd, floor, houses leisure facilities including a movie theater with five premium class halls and a VIP hall, as well as the Cipollino family-oriented leisure center, with bowling alleys, billiards, slot machines, a sports bar, an arts studio and a children’s caf?.

In accordance with the design of the mall, XL-3 is supposed to feature what should become one of Europe’s largest water parks, measuring 14,500sqm, with water attractions, saunas, bubble baths, a spa studio, a children’s playground and a shallow pool for toddlers. The water palace was slated to be commissioned in late 2005, but a fire on the site last fall forced the developer to postpone the opening ceremony till a later date. The owners plan to complete the development and open the water park in late 2006.

Most retail centers already operating in the towns of the Moscow Region are basic department stores with a small caf? and a children’s playground, but positioned, nevertheless, as shopping and leisure centers, seeking to meet the spirit of the times, says Irina Kirsanova, head of marketing at Astera.

“With the Moscow Region’s retail property market remaining underdeveloped, many shopping and leisure centers lack a well-thought out concept,” says Mikhail Gets. “In some stores there are no anchor tenants present, at all. There are slot machines installed on the first floors, something you will no longer see in the capital. The architectural design is notable for a certain eclecticism and misbalance of properties. It is worth noting, however, that the latter is increasingly rare these days.”

Developers Choose

Retail developers have expressed a keen interest, first and foremost, in building sites in cities with a population of over 100,000 close to the capital, and to urban areas – irrespective of location – dominated by successful production firms which ensures that the local residents have a high purchasing capacity; that will make it possible to avoid difficulties in attracting Moscow-based operators in the future, Maria Stolnikova reported. Mytishchi, Podolsk, Lyubertsy, Korolyov, Odintsovo, Stupino, Serpukhov and other towns already have numerous retail projects under development.

The cost of development in and outside the Moscow ring road – the border between Moscow and the Moscow Region – differs largely due to the value of land. In Moscow, developers have to content themselves with smaller building plots and erect costly 3-storied buildings with underground parking facilities. The higher the number of underground levels, the higher the cost of construction, Irina Kirsanova notes.

The plots available for retail development in the Moscow Region are much larger. For example, RIGroup (Russian Investment Group) plans to build a shopping and leisure mall in Mytishchi on a plot of 5 hectares; a 2-hectare plot has been allotted for the same purpose in Sergiyev Posad, as well as a plot of 2.6 hectares in Serpukhov. As a result, most developers opt for 2-storied buildings with open-air parking facilities.

During construction of a new property great importance is attached to its proximity to communication lines, because a shortage of power and water supplies is likely to cause serious problems for the projects, especially those with leisure facilities, Yanis Zhukov noted.

Unlike Moscow’s modern shopping malls, most of which have multi-screen movie theaters, provincial retail centers rarely feature such facilities. Movie theaters within shopping centers are usually built to suit certain film industry operators, and if for some reason the operator leaves the mall later on, it will be practically impossible to find a replacement, Irina Kirsanova says.

Mikhail Gets has reported that retail development in the Moscow Region is dominated by local firms with freeholds to plots of land. They either design their projects themselves or hire professional developers.

Recently, companies that previously were not involved in retail development have been showing increasing interest in commercial property development. Many of them launch their maiden projects in the Moscow Region.

Developers of shopping and leisure facilities include large transport firms with freeholds to the plots of land in the countryside, as well as Moscow-based banks. For example, the Stroinefteprodukt company and Stupino-basked Raipo (The District Consumer Society) are developing retail properties in Stupino.

Moscow companies, such as RIGroup and Novaya Ploshchad, too, are building malls across the Moscow Region. “For 60% of the developers this [retail development] is a core business; for 30% a shopping and leisure center in the region is their second project, and 10% are newcomers who regard retail property as a source of high returns,” Khramov notes.

The Novaya Ploshchad company is currently working on three projects outside Moscow. In early 2006 the company plans to launch construction of the second phase of the Vertical shopping center in Balashikha. The mall will measure 31,000sqm, once the second part of the project, estimated to be worth $15 million, is completed.

With competition growing stronger in the capital, developers are being forced to move their new projects to other big cities across Russia and to satellite towns, which do not differ much from Moscow’s commuter areas but where securing a building plot is much easier, Yevgeny Yakubovsky, general director at Novaya Ploshchad Property Management, explains. “That is the reason why our company has focused on the Moscow Region, rather than Moscow,” he says.

Alexei Averyanov puts the cost of construction of a new shopping center in the Moscow Region at $800 to $900 per square meter. Mikhail Gets estimates such projects to be worth $500 to $700 per square meter. “It all depends on the size of the project,” Sergei Khramov says. “The investment required amounts to at least $10 to $15 million.”

While most shopping centers in Moscow’s satellite towns are new developments, retail facilities in more remote towns of the region are opening on the premises of redeveloped industrial estates and administrative buildings, the Astera company reports.

For example, in Stupino a building of a local milk plant is currently being redeveloped into a shopping and leisure facility. The developer also plans to redesign part of it as offices because the building is too large for just retail use. Also, the uncompleted development of a Soviet-era House of Pioneers has been redeveloped into the Akvilon shopping center (construction had been on hold for a decade).

Luring Tenants

Anchor tenants operate their outlets in the Moscow Region, for the most part, under franchise agreements, Mikhail Gets says. The owners try to rent their properties to famous Moscow-based chain operators, but often local grocery chains, such as Lakmin and Raipo in Stupino, take over the facilities.

Anchor tenants in most malls are grocery chains (Sedmoi Kontinent, Perekryostok) and home appliances stores (Tekhnosila, M.Video, and others). Tenancies at Vertical in Balashikha are held by leading Russian operators Perekryostok, Arbat Prestige, M.Video, Planet Fitness, the restaurants Planet Sushi and Il Patio. Mytishchi-Plaza’s anchors are Perekryostok and Tekhnosila, while the leisure zone is operated by the Karo Film chain.

The choice of tenants is shaped by the format of the property, Sergei Khramov notes. The larger the shopping center is, the more likely it is to attract famous tenants. Most, however, are apprehensive about moving into shopping centers situated further than 5 to 7 kilometers away from the MKAD because they cannot be completely sure that sales will be as high as in the capital.

Alexei Averyanov says that tenancies at regional retail centers are held mostly by small clothes and grocery shops. As an example he cites the Zarechye retail center in Naro-Fominsk, with a retail area reminiscent of a covered market-place occupying 80% of the properties and a food court (20%).

The number of tenancies held by leisure operators in retail centers outside the capital is growing, although the properties they occupy are much smaller than in Moscow. Bowling alleys do not have more than 8 lanes, movie theaters do not operate more than six halls. In towns where that niche is filled, shopping centers are trying to lure in buyers with billiards, game simulators and children’s playgrounds.

The rental rates may differ, depending on the floor a tenant occupies, Astera has reported. For example, properties on the first floor at Perlovsky shopping center in Mytishchi are rented out at $1,350 to $1,800 per square meter (VAT incl., operating costs excl.) A restaurant on the second floor would pay $500 to $600 per square meter annually, a bowling alley on the 3rd floor - $350 per square meter (whether VAT and operating costs are to be included in that amount is currently under discussion).

A Look Into the Future

Approximately 20 new shopping and leisure centers will be commissioned in 2006 and 2007, market analysts report. New stores featuring entertainment facilities are to appear all across the region. Three retail centers, measuring over 66,000sqm in total, will be built in Mytishchi. The multifunctional center Mytishchi-Plaza is under construction at 18 Sharapovsky Proyezd, across the street from the local train station and a bus depot.

The 26,600-square-meter Plaza will occupy a 4-storied building (a basement floor and three stories above the ground), with 6,400sqm of shops, a hotel and a 900-space car park. Anchor tenants will include a grocery supermarket (2,700sqm) and a home appliances store (2,800sqm). The entertainment zone will feature a children’s playground, a sports bar and a food court.

The 22,000-square-meter Format 22 shopping center is being developed on Olimpiisky Prospekt in Mytishchi. The building will have four levels including the basement, and a 750-space parking facility. The shopping gallery will measure 2,000sqm. The anchors are a furniture store (8,000sqm), a home appliances store (2,900sqm) and a supermarket (2,500sqm). The entertainment zone of 1,000sqm will house a family-oriented leisure center. The complex will also feature a food court, a restaurant and a coffee house (a total space of 1,200sqm).

The Perlovsky retail center (3 Vera Voloshina Street, in Mytishchi) is being built next to a train station of the same name. The 17,500-square-meter facility will comprise a basement floor and two stories above the ground. The shopping gallery will measure 4,000sqm. Perlovsky’s prospective anchor is a grocery supermarket (1,500sqm), while entertainment facilities will include a movie theater and a bowling alley. No information on the developers (they are local privately-owned firms) of those three properties is available.

RIGroup is set to build several shopping centers in the Moscow Region within the next two years. One of those is a multifunctional complex in Klin, measuring 10,000sqm, with an underground car park, a supermarket, a shopping gallery, and a movie theater. Another 10,000-square-meter mall is to be launched in Sergiyev Posad, with a supermarket, boutiques, a caf? and restaurant.

In Mytishchi, the company is developing a 22,723-square-meter mall featuring a supermarket, a variety of shops and a food court. Leisure facilities will include a bowling alley, billiards and a children’ play zone. In Serpukhov, a 16,800-square-meter center will house a movie theater and a restaurant, as well as a supermarket and other stores. Other projects are planned in Elektrostal, Vidnoye, Kolomna, Ruza, Chekhov, Dubna, and Pushkino.

This year a small retail and shopping center will open in Korolyov, Mikhail Gets reports. The facility will house a multi-screen theater, a bowling alley and a sports center. In 2007, a 150,000-square-meter shopping and leisure center will be built in Reutov; smaller shopping centers are to appear in Elektrogorsk and other towns of the region.

The Moscow Region’s government supports the construction of new shopping centers, because such projects help to boost investment and create jobs, Alexei Averyanov notes. New malls and leisure facilities emerging in the region prompt local residents to spend their cash at home, and not in the capital.