Money Growing: Business in Front of Stations

Regional small towns attract market players with the low competition in commercial real estate, not having to compete with modern format enterprises, and the goodwill of the local authorities needing tax payments. In the last few years at stations outside Moscow a wave of mass reconstruction has begun. It is true that not every city is ready for modern offices, shopping centers and hotels. But developers are convinced, that now is the time to construct such buildings.

The Face of a Town

The 90s came, but the areas around stations in towns in the Moscow suburbs for a very long did not change shape. Everyone who went on a regular basis to the regions probably remembers the broken down areas in front of the stations at Chekhov, Podolsk, Domodedovo, Odintsov, Mytishchi, etc. - unmodernized since the 1970s it seemed. This was the impression passengers getting off of trains got.

Except for the cracked asphalt, the bus stop that tilted sideways and the lonely cafe with the traditional name "Meeting" in the spirit of Soviet canteens, there was nothing more on areas outside stations.

But in the 2000s came a wave of modernization, and a law of the Moscow region "About the regional target program "Development of the General plan for the development of the Moscow region until 2020" and "The Scheme of territorial planning of the Moscow region - the main conditions of town-planning development." Local administrations undertook projects for the complex reconstruction of these areas.

For the last five years premises worthy of attraction have appeared at Domodedovo, Odintsov, Orekhova-Zuyeva, Mytishchi, Solnechnogorska, Sergiev Posad, Zelenengrad, Serpukhov and many other towns. Practice shows that if a large premises is built on the area, for example a shopping center, then the area changes entirely. Often these projects are complex reconstructions of the station that include not only the construction of shopping centers but also the modernization of roads and the construction of additional structures like new waiting rooms and car parks etc. As a rule, private investors bear all the expenses at all stages of reconstruction. Local administrations and city architects are responsible for the project itself and organizational support during construction.

In Russia the attitude to areas at stations is ambiguous. Traditionally real estate market experts consider commercial premises without fail to go down in class if it is under construction near a station. Railway stations in Russia have never had an ideal reputation. But now, when in the country a building boom has been ignited, station areas too have started to be improved. For example, the Atrium shopping center in Moscow managed to overcome the negative influence of the image of a station.

Experts do not yet have a common opinion about which premises should be near to stations and which would be influenced by a railway. For any commercial building location plays a key role, and it is no wonder, that developers place shopping centers in locations where there is a large volume of passenger traffic, say experts at Cushman & Wakefield/Stiles & Riabokobylko (C&W/S&R). However it is also the same with hotels or offices, the atmosphere of a station is not a business environment. As far as towns in the Moscow suburbs go shopping complexes near to stations should be oriented to those who use trains, considers C&W/S&R. However Elizabeth Estrina, head of the consulting department at Praedium does not quite agree with this. In her opinion, the man audience of any shopping center should be the buyers that come to purchase things purposefully, not simply passers-by. At first sight, according to the general director of Mytishchi-Plaza Vladislav Korolev, the areas outside Moscow are good for various types of commercial real estate - of course shops, but also restaurants, entertainment facilities, and even hotels and offices. In each case everything depends on the concept of the project and whether or not the chosen format for the premises is appropriate in the town or city.

"Around the areas in front of stations in Russia, on the one hand, there is a specific [negative] aura. At the same time in such places a constant stream of visitors every day is guaranteed," argues vice president of Torgoviy Kvartal, Elza Rozental, on building shopping complexes.

Мytishchinsky's Whale

As practice shows, on areas in front of stations near to Moscow shopping centers are being built first and foremost, and are followed by restaurants, cafes and entertainment facilities either separately or within the structure of the shopping center. According to Torgoviy Kvartal, the rate of return for modern shopping centers on areas in front of stations near to Moscow is 10.5-11% per year. Manager of MIAN Sergei Lobkarev agrees that the proximity to a station provides plenty of potential buyers and as a railway station is usually close to bus and tram stations any shopping center or large shop here is attractive. Lobkarev assures that retail chains and investors are currently interested in the construction of a shopping center in front of a station and are prepared to invest funds in it. The most profitable shopping centers on areas in front of stations in locations close to Moscow measure from 20,000-30,000 sq.m. Recoupment of such projects can take 7-8 years, and the rate of return is 10-12%. Lobkarev cites the Red Whale shopping center at Mytishchi station as an example.

Mytishchi-Plaza at Mytishchi railway station is one of the largest that has been built in the Moscow region by investors from the capital. In terms of volume RIGroup's project in Serpukhov and Sergiev Posad come a close second. Mytishchi is considered a successful regional city where large investors have prospects to develop shopping centers, housing and even offices, as there is demand, Estrina says. 10-15% of market players in commercial real estate in Mytishchi are organizations from Moscow. This is a similar situation to what is taking shape in Khimki.

One year ago Mytishchi-Plaza opened the Red Whale shopping center in front of Mytishchi station. As Vladislav Korolev says, this is only one of the lines of the reconstruction of 63 hectares of industrial zones in the city center next to the Mytishchi station. The territory is between Sharapovsky proezd, Ulitsa Beloborodova and Sharapovsky and Olympiisky prospekts. "In 2001 the former chief of the Mytishchi region Alexander Murashov decided to develop a project detailing the layout of this territory, says Korolev. The idea included reconstruction of the industrial zone to comprise housing, and a school to train for the Olympics. As part of this project the area near the railway station covering 17.5 hectares is being modernized, and in which we are taking part. The plan of its reconstruction was developed by Alexander Osadova, well known for Mosproject-2. The concept of reconstructing industrial zones was approved by the town-planning counsel of Mytishchi and then the administration began to involve investors in the project. After Red Whale (total area - 29,000 sq.m) the developer plans to build more premises in front of the station covering a total area of 150,000 sq.m.

Mytishchi-Plaza was created in 2002 especially for the reconstruction project in front of the station. Two Moscow companies that were previously engaged In the petrol business and already owners of 2 hectares of the land in front of the station are the shareholders of the company. The companies sold the petrol business and became engaged in development. The contract concluded with the city administration contains rather complicated obligations for the investor. For example, it was necessary to resettle and take down apartment buildings on part of the territory being modernized. The company bought apartments for those that were being resettled in other areas of the city with its own funds. Aside from this for the reconstruction of the area it was necessary to disassemble one branch of the railway lines. Investments in construction of the shopping and entertainment center according to the state commission certificate in 2006 totaled more than 1 billion rubles including all charges.

"It took us a long time to decide whether to undertake the project, says Koralev. "But from the results of market research, including that carried out by Colliers International, it became clear to us no less than 12,000-15,000 people per day would visit the shopping center near the railway station also due to a lack of competition from other shopping centers. Other modern complexes are being constructed in Mytishchi further from the station and serve the population in the regions in which they are located. Our nearest competitor will soon become the shopping center at the next station Perlovka."

Red Whale, according to developers, takes the format of a more local complex. The entertainment zone of the center includes a 600-sq.m games zone, a 5-screen, 750-seat Karo Film multiplex and an 800-sq.m slots zone. Among the anchor tenants are Tekhnosila and Perekrestok. The complex is intended for consumers with an average and above average level of income. Its visitors are not only inhabitants of the nearest areas and the Mytishchinsk district but are also from Moscow. Koralev thinks that visitors from the capital come to Red Whale due to the various entertainment events that constantly take place at the complex. For example, 40,000 people, including those from the capital came to the Fabrika and Gorod 312 concerts in 2007. Construction of the second phase of Red Whale - an outlet center - will begin soon.

Building on rails

Unfortunately, Korolev says, Red Whale is one of few European-style shopping centers at stations in towns situated near Moscow. Now in many areas, complexes in front of railway stations are very popular. There are lots more of them in the regions than in Moscow. Vice president of Moskovsky Kapital bank Anatoly Arhipkin agrees. However, in Arkhipkin's opinion, their popularity is passing. For example, in Kashira, not one of the closest towns to the capital, Moskovsky Kapital has constructed a shopping center focused on middle class consumers, and competition between market players is low. The Zvezda complex (150 million rubles, 6,200 sq.m) immediately drew attention from Moscow retail chains. Arkhipkin is convinced that developers creating shopping centers should think about how to develop them from year to year. The shopping sector of the market outside of Moscow does have positive characteristics and modern centers will appear.

Mytishchi-Plaza will need $150 million for the reconstruction of the whole area in Mytishchi, part of which will come from its own funds, while the rest will come from banking credit. After constructing the shopping center, the developer Is thinking about a hotel project on the same area called Zvezda Podmoskovy (Star of the Moscow suburbs), and also plans to build an office tower, car park and car show room. A hotel at the railway station, by the calculations of investors, should be demanded, as the town has a deficit of hotel rooms. The building will cover 37,000 sq.m. and the office complex 24,000 sq.m. and will correspond to class A standards. The new occupants in the building should first of all be banks, insurance, real estate and construction companies, of which there are many of in the city.

Market analysts skeptically look upon class A office projects near to stations. Lobkarev says that for class B centers, for certain categories of companies, a location close to a railway station might be advantageous. For example, RZhD is located close to Ploshchad Tryokh Vokzalov in Moscow and the office of Transtelecom is situated opposite to Yaroslavsky station. But Korolev says that the company is already concluding preliminary agreements with tenants and is ready to build the premises with the possibility of reprofiling. The business center, according to the developer's calculations, should break even in four years, the hotel in five years and the shopping center in 3.5 years. Colliers International provided consultancy services on all these projects. Besides the reconstruction project at Mytishchi, Mytishchi-Plaza is also going to start this year a similar project near the railway station in Solnechnogorsk. In Krasnogorsk, just outside Moscow, the company also plans to build a shopping center where Komsomolets cinema currently stands.

Developing company RIGroup announced its expansion outside Moscow two years ago. It is currently building a shopping center on the area around the station in Sergiev Posad, which has a population of more than 100,000 and in Serpukhov where the population stands at 130,000. In these projects the company is engaged only in shopping centers, instead of reconstruction of the areas as a whole, vice president of RIGroup Paul Lebedev says. The designer of the shopping centers in both towns is architect Vera Kretova. According to the terms and conditions of the investment contract with the city administration in Sergiev Posad, the intraquarter and external infrastructural networks constructed by the developer within the limits of the project, will be transferred to the city, while in Serpukhov the contract stipulates that the investor will pay the city for a share. These complexes are part of a program called Happy 7Ya to create a chain of such complexes, which RIGroup invented together with Knight Frank. Complexes are under construction in small towns of Russia with populations of 100,000 or more. In total there will be 15 such shopping and entertainment centers and in each of them - a supermarket, multiplex, children's entertainment center, home appliance store, food-court, chemist, consumer services, and galleria.

Lebedev considers that the level of income of inhabitants of small towns is also growing. At weekends people interestingly long to spend time in their towns rather than spending two hours traveling to the capital. The shopping center in Sergiev Posad (23,000 sq.m) will be the first of the Happy 7Ya chain and should open this summer. Shopping centers in Serpukhov and Klin (20,800 and 11,700 sq.m respectively) will follow. Experts at RIGroup consider the area at railway stations to traditionally be a center for trading and the public life of a town or city. And passengers are rather active buyers.

In Domodedovo where 126,000 people live, the situation is absolutely different from Mytishchi, Serpukhov or Sergiev Posad: a new railway station building has been built by local, not Moscow companies, with a restaurant, cafe and a shopping center called Domos (2,000 sq.m). Near to the area goods and grocery markets, which are popular with local residents at the weekends, operate. So the area around the station at Domodedovo has long been a traditional place for purchases. Domos will definitely not be on the same scale as Red whale in Mytishchi, on the contrary, it will be like a market and shopping center. Near to Domos a Stayer supermarket (5,000 sq.m) is under construction and soon competition for the center will come from a Torgoviy Kvartal shopping center, which is also planned to be built on the area by the railway station. This will be a center with a well thought over concept and the main thing - a unique "capital format." Its area will be 23,500 sq.m and will have 64 tenants, a food-court, parking and an entertainment zone with a cinema. The location is as you enter the town and is right next to the station. The complex will open in 2008.

There are new premises on the territory by the station in Odintsov in the form of Ordintsovsky Arbat shopping center, which opened in the fourth quarter of 2006, in Zelenengrad Kryukovo shopping center is under construction, in Podolsk a shopping center began to be built in 2006 and in Pushkin, the Pushkinsky shopping center is being worked on.

Almost like the Germans

In Russia construction on areas by railway stations is already widespread practice. Besides the Moskovsky, Atrium, Evropeisky and Varshavsky shopping centers, projects at Paveletskaya Square and Tver Zastavy Square in Moscow and similar initiatives in other cities are planned. For example, in Novosibirsk at Garina-Mikhailovsky Square reconstruction has started to realize a five-storey shopping complex (50,000 sq.m) began in the spring. Moscow's Financial corporation and Plaza Group will carry out all building works, having signed a contract with the mayor of Novosibirsk who developed a plan of the modernization of the area in 1996. Investors promise that the area will be similar to Moscow's Okhotny Ryad. Experts estimate the project to be worth $26 million.

In the world the combination of transport services with profitable real estate is widespread. For example, central railway station Promenade Hauptbahnhof in Leipzig after complex reconstruction has been transformed into a huge shopping center. At the central railway station of Frankfurt am Main and the area adjoining it the buildings of the station look no worse than any shopping center in the depths of the city. As Elza Rosental points out, areas by railway stations in Europe are gradually changing the image of the area from a place to pass by. For example, after reconstruction, the Termine station in Rome became the Center of Modern Art where exhibitions, various public events and promotions are held on a regular basis. And the territory by the railway station in Warsaw has become the trading center of the city. This year the Zlati Terraces shopping, entertainment and business complex opened and is not only visited by travelers from afar.