Money-Growing: Street Retail Outcasts
“In most European cities embankments, which are reserved largely for pedestrians, are quite successfully used by retailers, forming special retail corridors where small shops and large malls usually co-exist, catering both to locals and foreign tourists,” says Yulia Dalnova, head of retail real estate at Knight Frank.
Those centrally located retail zones account for intensive customer flow and are quite popular in Europe. But, in the opinion of Konstantin Kovalyov, managing partner at Blackwood, in Moscow the situation is different, with retailers showing little interest in properties situated on the embankments. “The Central Administrative Okrug offers virtually no opportunities for expansion,” he says. “Outside the city center, on the contrary, there are plenty of more favorably located sites, along the highways, next to metro stations, etc.’
“Today, Moscow’s main zones of street retail have already been established. For example, there are such zones near metro stations. As to the embankments, they are seen rather as favorable office locations. Many companies open their head offices there. For example, Rosno has offices on Ovchinnikovskaya Embankment,” Nina Novikova, head of retail real estate at NG/CBRE agrees.
Historical Injustice
Most experts see historical reasons in low popularity of embankments with developers and retail operators. “Originally Moscow embankments carried the functions of [auxiliary] roads. Besides, many of them were part of industrial territories, occupied with production facilities, so as to shorten the spillway. That is why well-developed embankments are few. Some of them are used as recreation zones and forest parks, for example, the Central Park of Culture and Recreation (Gorky Park), Neskuchny Garden, Fili forest park, etc. Embankments today are used chiefly by hotels and office buildings,” says Sergei Blokhin, leading commercial real estate management consultant at Miel Realty.
Roman Cheptsov, development director at Prime City Properties, notes that industrial territories have almost entirely robbed the Moscow River embankments of their appeal. “Far from all the banks of the Moscow River and Yauza within the city boundaries may be referred to as embankments in the true sense of the word. Beyond the Third Ring Road there are many derelict areas, warehouses, industrial zones, wastelands or even dumps along the embankments. Those lands have a great potential, as waterside location is an advantage both for a residential estate and an office center. But that factor alone is not enough to boost the development of street retail in the area. Also of importance is high attendance. Although, some of the districts have developed waterside parks – Gorky Park, Moscow’s 850th Anniversary Park, Fili Park, retail operations there remain underdeveloped due to insufficient people flows,” the expert says.
Konstantin Kovalyov sees no sense in comparing Moscow’s leading retail corridors to the city embankments. “Their history is different – retail streets were designed with a view to optimize transport flows. In Moscow, they are built in the form of the ring-radial network. Embankments are often winding, which does not always meet to the city’s demands,” he says. Vladimir Zhuravlyov, head of commercial real estate and investment at NAI Global, says that Moscow already has a number of established retail zones, which creates serious obstacles for development of retail zones along the Moscow River embankments. “Embankments are not used as main thoroughfares. Those are auxiliary by-pass roads, though, of course, they are important,” adds Konstantin Kovalyov.
Moscow embankments are characterized by low people and car flow, as well as poor transport accessibility. “Most embankments in the city center are situated at a certain distance from main transport facilities – metro stations and major road junctions, that is why people flows are less intensive there. At the same time retail corridors themselves are busy roads with several metro stations available; hence, stable attendance,” Roman Cheptsov adds. Thus, most embankments in Moscow have turned into “relatively quiet public roads where retail projects do not pay back,” says Olga Kisarina, head of research and analysis at Praedium.
A Longed-for Shore
Moscow has quite a few embankments, but far from all of them may prove attractive to developers, even in the distant future. “Developers show interest chiefly in the embankments situated within the borders of the Central Administrative Okrug,” says Vladimir Zhuravlyov. “For example, first floor properties of residential estates on Savvinskaya, Frunze, Prechistenskaya and Taras Shevchenko embankments could be redesigned to house boutique shops; new retail construction is possible only where built-up sites have already undergone redevelopment.” Such is the approach assumed by the authors of the plan to develop retail projects as part of reconstruction of Rossia Hotel and build a shopping and business center Tretiy Rim (The Third Rome) on Luznhentskaya Embankment, he says.
Other experts report however that retailers show interest only in riverside locations within the Garden Ring. “Street retailers have established a considerable presence along centrally located embankments where travel agencies, bank branches, shops of all formats, mobile phone shops, clubs and restaurants are operating. Those are Kadashevskaya, Ovchinnikovskaya, Raushskaya, Sadovnicheskaya, Yakimanskaya, Sofiiskaya, Ozerkovskaya and Prechistenskaya embankments, as well as Frunzenskaya,” says Cheptsov. Sergei Lobkaryov, head of commercial real estate at MIAN Realty, agrees. “All embankments within the Garden Ring offer good prospects, in terms of street retail development. Those are Frunze, Savvinskaya, Luzhnetskaya and Krasnopresnenskaya embankments.” Olga Kisarina says that street retail zones on Moscow embankments are much narrower. The only two embankments worthy of mentioning are Frunze and Savvinskaya, she believes.
Examples are Few
“Retail outlets operating along the Moscow River embankments are, for the most part, individual projects, situated in the Central Administrative District,” holds Vladimir Zhuravlyov. Perhaps, the only large riverside project in the city is the Bagration shopping center, measuring 13,500sqm, near the Moskva City business center.
It is worth noting that only 2,572sqm of space have been let at Bagration. The Crazy Ball bowling alley holds an anchor tenancy. Other tenants are the restaurants Rio-Rio, Tri Tovarishcha (Three Comrades) and a coffee house Vensky Dvor (Viennese Yard), a beauty parlor City Studio and Ice Fili. But Bagration is rather an exception, analysts are convinced. According to Vladimir Zhuravlyov, “over 70 percent of riverside retail projects are properties on the first floors of residential buildings.”
The largest concentration of such properties is to be found on Taras Shevchenko Embankment between Kutuzovsky Prospekt and Dorogomilovskaya Street, where boutiques Pro Vino and Viva Exclusive and interior design shop Chudo Sveta are situated. Shops Carpet House, Salon Interior, Ligne Roset and Stantsia Dizain (Design Station) are to be found on Frunze Embankment.
“On Frunzenskaya, retail outlets are situated on first floors of apartment houses. Furniture stores have the widest presence. There are a number of grocery stores and a drug store. Shops offering other goods have failed to succeed. Earlier, for example, there was a specialized fishing tackle shop, a bookstore, an opticians’ but all of them closed down fairly soon, due to low takings,” Olga Kisarina agrees.
Another potential riverside retail corridor is Savvinskaya Embankment where shopping centers Diskont, Braude, and Bosco di Ciliegi’s Rimanenze Dolci discount outlet are situated, she says. Each of those shopping centers runs a shuttle service for their buyers from Sportivnaya and Kiyevskaya metro stations. But such discount stores can hardly be classified as street retail as most shoppers arrive there purposefully.
“All of the retail centers operating on Savvinskaya occupy former production facilities redesigned for retail use. That is why at the moment the supply of retail space for lease is scarce in that area, while properties, which are available, require considerable investment in their re-equipment. Rates they are let at are quite low,” Kisarina adds.
According to Sergei Blokhin, there are two main riverside retail corridors in the city. As an example he cites a group of shops operating on Taras Shevchenko Street between Novoarbatsky and Borodinsky bridges, and another row of retail outlets on Frunze Embankment, between Krymsky Bridge and the Third Ring Road.
“They constitute a rather chaotic set of specialized goods, offering upmarket items. Stores on Taras Shevchenko sell goods by leading fashion houses, expensive motorcycles and accessories, jewelry, etc. Smolenskaya Embankment houses a similar set of shops, selling luxury carpets, expensive bathroom equipment, and beauty studios. It is difficult to judge on their success, as yet. Given the narrow range of goods and services, they have their patrons who arrive there from other parts of the city. Judging by the fact that they have been for several years no, it appears that they bring good returns to their owners,” the expert says.
There is already at least one example of a failed project, market experts say. The Sadko Arkada store, on Krasnopresnenskaya Embankment not far from the ExpoCenter exhibition center, was launched in 1993. One of the co-founders was the owner of the S.P.I. distillery concern Yuri Shefler. Properties at the 1-storied 1,500-square-meter project were rented by Dimensione Danza, Organza, La Borsetta, Angelic, Via Rom and Madam Chik. The shop was closed in the summer of 2002 after the project had gone bankrupt as a result of low attendance and unfavorable location, Olga Kisarina says.
Rates Fluctuate
The size of rents charged at scanty shops operating along the embankments depends largely on location. “Rents on embankments are lower than on the main streets, as transport flow there is not as heavy. Besides, embankments have properties only on the one side of the road,” Konstantin Kovalyov says. Experts’ estimates of the average cost of waterside facilities vary considerably.
Vladimir Zhuravlyov notes that most expensive properties are on Smolenskaya and Prechistenskaya embankments, where shops are rented at $2,000 to $3,000 per 1sqm per meter, all extra costs included, - which is quite comparable to charges in the city’s main retail corridors. On Taras Shevchenko and Frunze embankments that figure goes as high as $2,500 per 1sqm, while properties on Savvinskaya are let at $2,100. Annual rents on Kotelnicheskaya and Krasnopresnenskaya embankments could stand at $1,500 per 1sqm.
According to reports by other analysts, rents for retail properties situated along the quays are considerably lower than in the main retail zones of the city. “Retail space is let at $1,200 per 1sqm on Taras Shevchenko,” says Sergei Blokhin. “On Frunze Embankment, where shops operate in Stalin-era developments, that figure stands at $650 to $900 per 1sqm.” Olga Kisarina says that shops on Frunze are rented at $800 to $1,500 per 1sqm. Properties at Bagration are rented at $525 to $1,100 per 1sqm per year, excluding service costs ($35 per 1sqm), utility payments and VAT. Thus, the annual rent of 1sqm may run as high as $1,350 per 1sqm. Shops at Sadko Arkada were let at $600 to $1,000.
Everything is Changing
Regardless of the fact that street retail on Moscow embankments remains largely underdeveloped, market analysts do not rule out that the situation could change in the future. In particular, the city hall’s ambitions projects may contribute to the process. “Moscow has seen rapid development of new space; in the near future the city government and investors will begin to pay attention to the unused territories along the riverbanks. For example, the active development of the Nagatino Island is already underway, where over 1 million square meters of office space and public amenities are planned,” Roman Cheptsov notes.
Another project of the city hall, which may alter the situation, according to Cheptsov, is the Golden Island project, aimed at transforming Bolotny Island into a tourist and recreation zone featuring office, retail space and upscale apartments. “That project will boost the development of street retail along Bolotnaya, Bersenevskaya and Soffiskaya embankments,” the expert is convinced.
Perhaps, the most important project included in that plan is the creation of the Moskva City business center. Even skeptics agree that the ambitious project is likely to boost the development of street retail along the embankments. “The development of a pedestrian route linking Neskuchny Garden and Moskva City, to be launched by 2012 as part of the Golden Ring of Moscow project, is likely to influence the development of retail on the embankments,” says Yulia Dalnova. “Retail complexes are planned on three sites where the pedestrian zone will cross over the Moscow River.”
Olga Kisarina believes that Moskva City could breath a new life into the projects such as Sadko Arkada, situated on Krasnopresnenskaya Embakment. “In a more distant future, there are plans to develop the Greater City, comprising a stretch of the Moscow River from Krasnopresnenskaya to Fili Boulevard. The plan calls for demolition of dilapidated buildings, redevelopment of the area and construction of several millions of square meters of apartments and commercial space,” Roman Cheptsov says.
At first, it won’t be easy to persuade developers and shoppers to move closer to the river. “Only after the projects Moskva City and Golden Island are finalized it will be possible to reroute customer flows from popular shopping locations Tverskaya, Novy Arbat, the Garden Ring, Kutuzovsky and Leninsky avenues to new malls,” says Zhuravlyov. “Rapid growth of retail space on the embankments is possible where riverside zones and main retail corridors of Moscow coincide.”
“Centrally located embankments near the Kremlin – Kremlyovskaya, Moskvoretskaya, Prechistenskaya and Soffiskaya – are unlikely to undergo any drastic changes in terms of their retail profile. They will be occupied chiefly with office centers and retail outlets. As to the future of embankments outside the city center, it depends on their location. Presumably, they too will focus on offices, upscale residential estates and retail facilities,” Konstantin Kovalyov says.
Vladimir Zhuravlyov believes that developers could attract customers by launching original projects. For example, decommissioned boats could be used as platforms for construction of waterside retail and entertainment centers. “Such moored vessels are quite widely used for the purpose in Europe. In Moscow, there are but a couple of dozens of such projects,” he adds.