Guiding Lines: Two Birds With One Stone
Today, many shopping & leisure centers let office facilities; predominantly, those are upper-floor areas. The examples are the shopping centers Dom Byta and Novograd on Krasny Prospekt, Vokzalnoi Mag 16 business center, Planeta Elektrika on Petukhov Street and a shopping center under construction on Kalinin Square (by Firma Minsk). Offices are let on the upper floors of new retail centers on Chelyuskintsy Street (owned by the Bait company) and Moskva.
The logic behind the scheme is quite simple. Land in the city center is expensive and only small sites are available for development. To get a payback on their projects developers build high-rises, believing that the larger is the volume of rentable space the higher are the returns. While the most expensive space on the lower two or three floors may be used for retail purposes, upper floors are suitable only for office use. Expectations of the imminent saturation of the office space market also tell on developers’ policies. Anticipating a drop in office rents, owners of commercial properties increase the share of shops in their projects.
Property consultants’ estimates of the prospects of such developments vary. Some believe that mixed-use development makes sense. For example, offices within a large mall may appeal to a company that rents shops there. For example, offices at Kontinent retail and entertainment center are rented by the company that operates the project. Besides, office employees add up to the inflow of shoppers and guests at the restaurants operating food courts. At the same time, mixed-use projects are fraught with certain risks, the main risk being a conflict of interests of office tenants and shop owners. For convenience of visitors the office zone and the shopping area should have separate entrances, different entries to the parking lot.
Providing office tenants and retailers with different parking zones and separate driveways may considerably increase the cost of construction and in the future will tell on the payback. Also, the cost of maintenance will increase for, given the differences in operation of offices and retail properties the owner will need to hire two teams of managers. Where the interests of one of the groups of tenants are neglected, developers’ hopes for higher returns will prove futile. The tenants, increasingly fastidious as the market nears saturation, will opt for offices in traditional business centers that meet all quality criteria. As a result, certain projects will be downgraded to a lower class or will have to undergo redevelopment.
Combination of formats is most justified in case of mixed-use projects “where there are three or more property types that are subject to different levels of demand”, according to the Urban Land Institute classification. An example is the technology park project Tekhnopark in Novosibirsk. The 500,000-square-meter development estimated to be worth $15 billion will feature office space, shops and lodging facilities. Another project, where combination of formats seems quite natural and logical, is the 64,000-square-meter Sky City commercial complex that will incorporate a 30-storied class A business center and a hotel. The complex is expected to become a center of commercial activity in Novosibirsk. Sky City will provide premium class offices and a luxury hotel, that will be operated by Swissotel and cater for exacting entrepreneurs.
In Moscow, mixed-use projects were launched earlier than in Novosibirsk. The very first project – the World Trade Center on Krasnopresnenskaya Embankment – has already been finalized. Several other developments are under way. One of those is the Natatino i-Land park on the 32-hectare site of the former AMO Zil plant where 1 million square meters of office space, hotel rooms and residential apartments, shops and leisure facilities, a sports center, restaurants and cafes, and an exhibition center are to be developed.
In Novosibirsk, large complexes are still on the drawing board. One of those, in addition to the above-mentioned project, is a complex on Kamenka floodplains that will feature shops, leisure facilities, offices and hotels. By the time the project is commissioned the market situation is likely to change significantly as in early 2007 the city is to see the peak number of shops and office centers placed into operation. Possibly, Novosibirsk’s developers will have to revise the concepts of their projects if they are to adjust to the new market conditions.