Guiding Lines: Big and Small are not Enemies

Two years ago there was an uprising against the state owners of premises in the capital, such as open joint-stock company Moskva and the property department of the city, over an increase in prices by private companies renting offices in these buildings. At the end of August 2007, the tenants of the trading areas representing small businesses organized a meeting under the slogan "Against the owners of trade real estate" on Pushkin Square.

So called class C trade premises, though precise classification in Moscow does not exist, is always left out of the reviews of trading real estate market advisers. There are several million square meters of such premises in the capital, they might be separately standing, built-in or extended, temporary or permanent constructions. They make up the main stock of trade real estate (approximately 20,000 premises with areas from 20 to 1,000 sq.m, according to the estimations of the city administration).

On the other side of the barricades is the elite class real estate - a subject of interest for large investors, brokers and tenants. These are the areas in shopping centers and the main 12 shopping streets of the capital, where rental rates start from $1,500 per sq.m, and the sizes of shops start from several thousand sq.m. In total there are 3-4 million sq.m of such premises. In this segment there is a constant deficit. The unmet demand is estimated at 1.5 million sq.m. Therefore it is possible to understand some large trading companies like Seventh Continent, which buy up premises for the future.

But if big businesses in pursuit of areas are ready to acquire shops by wholesale, not blinking at the cost, the question of cost for small enterprises can be fateful. Which is why representatives of small business arranged to meet at Pushkin square, in order to express their extreme discontent at rental rates for approximately 15 per cent of the capital's premises. They complain that rent has increased 3-4 times, and lay the blame on large businesses which have become owners of their premises.

Previously, buildings under shops were the property of city but they have allegedly been sold to large shopping chains. So it is possible to understand the essence of the message sent to the mass media by the Union of Right Forces. However nobody and nowhere has concrete figures. And information on the true owners of premises remains confidential family information – in such cases, should we really blame Seventh Continent, which acquired trading areas from the city by means of joining an open joint stock company.

But we should not exclude that rising rental rates may just be another mini-reform of municipal premises that the city administration so likes to do. If there was a deal, the formulation of the Union of Right Forces’ press release, that the city tries to use large companies that “collect levies” from smaller companies, is incorrect. Chances are, however, by selling premises, the city has thus fundamentally solved the problem of getting profit from them. But what happens after rental rates, is a private relationship between the new owner and tenants.

In truth the problem that led representatives of small business to come together is not a special case, but is more of a reflection of the general tendencies of the market and business processes in the country.

It seemed like several millions of square meters of Moscow premises that were suitable for trade, are under the direction of the "small fish." Unlike large companies they are less concerned about premises that carry image and dazzling new shopping centers. Even if a big and evil proprietor redeemed a building and increased the rates then what, in this case, is stopping the small fish from finding other premises? But it's not that simple. Each premises has "good" quality and "poor" quality characteristics.

First of all, premises that are located in unsuccessful and poorly populated places lose competitiveness. The dream of almost every trader is shops on busy streets straight onto the main road. But such premises have high rental rates and the tenders for free premises are competitive. One known way - to redeem and change the profile of apartments in residential buildings - is not always possible for economic and administrative reasons. Secondly, everyone is trying to get into the city center. But the Central Administrative District is already filled with shops, and areas to the east and southeast are not so popular among traders. Thirdly, city authorities have declared war on temporary premises for trade. So it is not that easy to find premises, and that's why tenants keep the premises they have.

Almost the same happens in all sectors of commercial real estate. For example, in the office segment. Respected analysts note that there is a deficit in the supply of small-area premises within the average price range for rent and sale.

Competition between small and large business discussed during a meeting, at which attended members of the League of Freedom trade union (businessmen) was largely exaggerated. Large businesses and small enterprises have different turnovers. All over the world reforms in economy and business, no matter if it is a federal reform or a local reform they are first of all felt by small enterprises. But the sharks of big business have always, since olden times, eaten the smallest fish.

However European countries have for a long time realized the importance of supporting small businesses without which there will be no foundation for bigger projects. Besides various economic and legal privileges for small fish in EU countries, a program of building business-incubators in which companies, including traders, are cultivated, is very successful. In Moscow, the business society has been waiting for such incubators for more than 10 years, and foundations for one have at last been dug on the Nagatinsky floodlands. But this is the only project that has been started. And there are still no programs in Moscow in support of small trade enterprises.

Finally, it is necessary to mention once again the actions of the city authorities. At times, they give with one hand and take with the other. For example, they create funds that give guarantees to small companies in order to receive credit for development. In Moscow such a fund has existed since 2006, and in St. Petersburg in 2006 such a fund was also created, but within a year under an order of the authorities about 2,000 trading premises were removed.

As for the Moscow situation, superfluous attacks on the government are unfair. In fact, everyone has got used to the fact that state premises have low rental rates (four years ago they were 690 rubles per sq.m). But why would the city provide charity for everybody? And this is why raising the price to $450 per sq.m seemed logical. However, when the government will decide to carry out its next reforms or to conclude deals with large businesses, it could take into consideration the consequences for the most numerous and vulnerable class of businessmen. All the same, thanks to the small fish the city treasury is annually replenished without the funds from rent.