Money-Growing: Weekend Shopping Corridor

But in the past three years alone the Moscow outer ring road, commonly known by its acronym MKAD, has turned into a key retail corridor of the capital. Few residents of Moscow and the countryside prefer weekend shopping in other locations. Realty analysts have even nicknamed MKAD the weekend corridor.

“The past two years have seen a strong tendency towards expansion of leisure component within shopping malls on MKAD, which clearly means that the Moscow ring road is turning into a weekend shopping corridor,” says Alexei Mogila, head of retail real estate at Penny Lane Realty. Prime City Properties CEO Sergei Kolegov sees the reason for it in “gradual changes in the consumer culture that becomes increasingly similar to the European and U.S. type.”

“Nowadays, with retail property market growing developers and tenants show keen interest in the MKAD belt,” he concludes. Most realty analysts agree with Kolegov.

Pilgrims of Retail

First retail centers emerged in the MKAD zone in 1998. Those were Tvoi Dom at the 24th km of MKAD and Tri Kita at the 2nd km of Mozhaiskoye Shosse, Olga Kisarina, head of research and analysis at Praedium reports. In 2000, Crocus International opened the Crocus City – Tvoi Dom mall at the 66th km of MKAD.

In June 2002, Waymart shopping center was launched at the 26th km of MKAD, and in November of the same year the 61,000-square-meter Crocus City Mall opened, Olga Yasko, head retail real estate analysis at Colliers International, says. But most analysts believe that none of those companies may be regarded as a ground-breaker, as none of their projects launched in the MKAD area had established the tendency.

Analysts agree that the Mega Tyoply Stan mall built at the intersection of MKAD and Kaluzhskoye Shosse remains the only truly major and largely unsurpassed by competitors. “Mass construction of shopping centers on MKAD began in 2001 with the development of a complex comprising Auchan, Mega and IKEA on a plot located at the intersection of MKAD and Profsoyuznaya Street. The success of that project inspired other developers and as soon as by 2002 most shopping centers operating on MKAD today were built,” says Alexei Samsonov, development director at ITF Development.

“The success of that shopping center has prompted other developers to consider MKAD as a favorable location,” says Elina Zanina, head of commercial real estate and development at Miel-Nedvizhimost realty. “Back in 2002 the idea of building retail centers on MKAD seemed very strange but the past years have seen a revolution in consciousness,” recalls Nina Novikova, head of retail real estate at NG/CBRE. At about the same time the celebrated Ramstore City opened at the intersection of MKAD and Pravoberezhnaya Street. The year 2002 was marked with the opening of Auchan’s first Russian store, in Mytishchi, a town outside Moscow.

In 2003, Liga (League) retail center was built at MKAD/Leningradskoye Shosse, Grand II – the second-largest mall after Mega in terms of stock of retail space, Auchan Marfino and a small shopping center Arfa at the 73rd km of the ring road, Yasko has reported.

The landmark event of 2004 was the opening of a new Mega store in Khimki, measuring a total of 270,000sqm. Other malls launched in 2004 were Waypark at 71st km of MKAD (Putilkovo) and another Auchan store in the neighboring town of Krasnogorsk. 2005 saw the arrival of Europark on Rublyovskoye Shosse and XL III at the 1st km of Yaroslavskoye Shosse.

Not Everyone Is So Lucky

Experts believe that the MKAD malls still have not paid back as the average payback period for such projects is 5 to 7 years. “But most of them will most likely pay back, after all,” holds Nina Novikova. Ramstore City and the first Auchan store, in Mytishchi, are nearer to that target than the others, given low cost of construction and soaring buyer attendance.”

Although MKAD’s history of retail development is relatively short, as early as now it is possible to say which retail centers have failed to succeed. In the opinion of Yulia Dalnova, head of retail real estate at Knight Frank, Europark, launched less than a year ago in the area, is one of such.

“Originally, the project targeted residents of neighboring communities but with no convenient entry driveways to the mall visitors are now forced to go a long way round to get back to the motorway,” she says. As a result, one of the largest anchor tenants at Europark – the Turkish retail chain Ramstore – moved out of the complex. But chances to succeed still remain as the French Auchan is planning to open its new store on the premises vacated by Ramstore, Yulia Dalnova says.

Dalnova also notes flaws in Waypark’s concept. “With no convenient junction available it is difficult for the buyers to get to the shopping center; the most part of the complex is hidden from the sight of motorists passing by behind the parking facility,” she says.

“One of the least successful projects, perhaps, is Gvozd, given its poor transport accessibility and erroneous positioning,” says Alexei Samsonov. Nina Novikova, too, cites that example adding: “[Gvozd] has earned a bad reputation in the beginning, then there were problems with letting space on the 3rd floor and afterwards the owners tried to rename it, to no effect.”

Alexei Samsonov believes that “a slump in activity is possible only where the concept is poor, as unsuccessful placement of tenants within the mall may reduce buyer attendance.”

“The success of a modern retail center depends on a number of factors, primarily, on location, i.e. proximity to major motorways and large residential areas,” says Yulia Dalnova. “Buyer attendance and, subsequently the size of rentals and composition of tenants depend on those factors.”

Most analysts are unanimous in their positive assessment of certain projects. Those are Mega Tyoply Stan, Ramstore City, Crocus City and Auchan. “Speaking of the largest shopping centers I would like to mention the retail zone comprising Mega, IKEA and Auchan at the intersection of MKAD and Profsoyuznaya Street, and Crocus City Mall. Those two may be regarded as the most successful,” holds Alexei Samsonov.

Glory to Congestion

What makes MKAD especially peculiar is that heavy congestion caused, among other things, by its role of a transit route for heavy cargo vans bypassing downtown Moscow, is by no means a disadvantage. On the contrary, it is an indisputable advantage of that retail corridor.

“Dense traffic constitutes a flow of would-be buyers of shopping complexes on MKAD, the popularity of that route is an additional stimulus for developers in that area. Besides, large shopping centers on MKAD themselves create traffic jams,” says Sergei Leontiev, general director at Vesco Realty. “Sometimes those [jams] may contribute to increased attendance at retail centers,” Alexei Samsonov adds.

Yulia Dalnova agrees. “MKAD is one of the key transport routes of the capital, with heavy car flow. Shopping malls situated in proximity to the ring road may bring good yearly income to their owners,” she notes. Large grocery chains Mosmart, Auchan, Metro C&C and others have been especially successful on MKAD, as well as home furniture and household goods chains IKEA, OBI and Leroy Merlin. “Popularity of retail complexes with unusual concepts is likely to grow in the future. For example, large car salons combined with shopping or office zones,” Yulia Dalnova concludes.

MKAD shopping malls are patronized not so by motorists tired of jams as people heading there on purpose, says Elina Zanina. “A characteristic feature of shopping centers on MKAD is that after all they are a venue for targeted shopping,” she says. In that case heavy congestion is not likely to ward off buyers, Blackwood analysts say.

“Jams are common not only on MKAD but all across the city. Heavily congested Tverskaya, the Garden Ring, Leningradsky Prospekt, Prospekt Mira are still highly popular with street retail, even notwithstanding soaring rents,” they say. Furthermore, “most buys at MKAD shopping centers are made on weekends when car flow is not as heavy as on workdays,” says Olga Yasko.

Boiling Point

All experts agree that successful shopping centers of MKAD see no outflow of tenants. “Despite their remote location at a considerable distance from residential areas, retail centers on MKAD are popular with buyers, given good transport accessibility, availability of parking areas and a wide range of goods and services offered,” says Olga Yasko. “Besides, it has to be taken into consideration that the city center still suffers an acute shortage of such malls.” As a result, she says, “tenants still willingly move in major retail centers on MKAD.”

“There has been no slump in tenants’ activity on MKAD also because they are eager to take root in successful malls,” notes Olga Kisarina. Blackwood’s analysts put the tenant turnover in on MKAD at only 3 to 5 per cent. “MKAD is of interest to any tenant, considering heavy car flow and a somewhat limited supply in the city center,” Nina Novikova adds.

Buyer attendance on MKAD remains high. Elina Zanina has reported that according to a survey by VatCom the average density of buyer flow at the shopping centers on MKAD is 4 to 6 times lower on workdays than at retail centers operating in commuter areas but on weekends it nearly doubles. “Retail centers on MKAD have high attendance especially on weekends. Patrons visit them once in every 1 or 2 weeks. The wide range of goods in various price categories attracts buyers,” she explains.

“In the West there are many large retail centers designed not only as a shopping venue but also as a place for a pleasant pastime. In addition to a wide range of goods of all categories they feature a variety of leisure facilities, multi-screen theaters, food courts, etc.,” Sergei Kollegov adds.

Tenants’ loyalty and buyers’ activity have turned MKAD into one of the most popular sites in terms of retail development. “Construction of shopping centers on MKAD has good prospects, and a large number of new projects proves that. The composition of tenants is not likely to change radically. MKAD will be popular with retail operators, with new companies arriving from time to time,” Alexei Samsonov reports.

Yulia Dalnova believes that the areas around MKAD have good potential in terms of retail development and “developers, being aware of that, will actively build large shopping centers in that area within the next two to three years.”

A number of new malls are slated to be commissioned on MKAD this year. Those are, in particular, Mega Belaya Dacha at 14th km of MKAD (240,000sqm) (source: Colliers International); Chas Pik shopping and leisure center between 87th km of MKAD and Korneichuk Street; and a new Mosmart store on Borovskoye Shosse. Several major projects are currently on the drawing boards – Mosmart on Shosse Entuziastov (109th km of MKAD), Reutov mall and another shopping center on the site of Emeral market at the 25th km of MKAD. One more project that is likely to be launched in near future is the construction by Marktauf Rus of Marktauf shopping center and a motel in eastern Moscow between the 4th km of MKAD and Suzdalskaya Steet, Alexei Samsonov reports.

With so many new projects in the offing MKAD may as well get “overheated” leaving future developers without any vacant building plots available, analysts believe. “Perhaps, there are still a number of small vacant sites in the east of the capital, but western part [of MKAD] has already become fully saturated with retail centers. MKAD as a retail corridor has already been formed, in a couple of years all sites will be occupied and the time for redevelopment will come,” says Nina Novikova.

Yulia Dalnova says “the sites offering the best prospects for such developments lie where MKAD meets with major transport motorways, i.e. Varshavskoye, Kashirskoye, Shchyolkovskoye, Shosse Entuziastov.” “Naturally, sooner or later the market will reach the point of saturation and large shopping centers occupied by major tenants will enjoy an advantage if they are located not merely on MKAD but at the intersection of MKAD and major city routes. A professional mall attracts buyers regardless of its location,” Olga Yasko adds.

Blackwood has registered the highest retail activity in the areas where major motorways flow into MKAD. Most of the above-mentioned malls, indeed, are situated at crossroads. More sites with good prospects for retail development are likely to emerge after new roads dubbing Moscow’s key motorways are built, for example, on the site where MKAD will meet with the new dubbing route of Shcholkovskoye Shosse.

Would-be Rivals

Despite the ever-nearing market saturation on MKAD most analysts believe that no other major route in the city – not even the Third Ring Road, a freeway facility with uninterrupted traffic flow – is able to vie with the city’s outer ring road.

“It is hard to name any rivals to shopping centers situated on MKAD, chiefly because those have their target audience and also because there is a shortage of retail space. Development of retail complexes on the Third Ring Road will of course attract part of the buyers who patronize MKAD stores but those new malls will not become full-fledged competitors due to the shortage of retail space,” says Olga Kisarina.

“Moscow’s retail corridors vary in terms of supply, prices, predominant retail profiles and target audience. In these terms MKAD has practically no rivals. There are major retail centers within the city limits, in commuter areas between MKAD and the Third Ring Road but they do not make up such specialized retail corridors as MKAD,” Sergei Kollegov agrees. Sergei Leontiev explains: “The Third Ring Road runs mostly through industrial estates and is suitable rather for office development.”

But, Yulia Dalnova notes, in addition to shopping centers already operating near the Third Ring Road a number of new interesting projects have already been launched in the area. One of those is the Sheremetievsky retail and office complex, measuring a total of 70,000sqm, at the intersection of the ring road and Sheremetievskaya Street, slated to be commissioned in 2008. “Considering the shortage of retail space in that area we anticipate a high demand on the part of tenants,” the analyst says. Besides, the Third Ring Road is more appealing to retail developers than MKAD as it runs through many commuter areas.

Realty analysts believe that the key rival MKAD is likely to face in the future will be the Fourth Ring Road as the new freeway, currently on the drawing board, is likely to combine the advantages of all other trunk roads. “The new road will run through most commuter areas of Moscow and in terms of transport accessibility will be more convenient for most Muscovites,” says Sergei Leontiev.

Nina Novikova believes that developers take keen interest mostly in building plots along the eastern part of the future ring road, for that is where the construction is to begin. But she says, the prospects of the new route are vague. “What we witness today is Moscow merging with suburban areas that is why in about a decade the outer ring road (running across the Moscow countryside) is likely to become as attractive as MKAD is nowadays,” she adds.