Money Growing: Promising Rostov

Taking this into consideration, developers are investing in high quality premises. RGS Nedvizhimost offers offices for rent in the Clover House business center (class A, office space – 15,200 sq.m) on Tekucheva street (the project is being realized by Holding Company Klover Group, Clover House multifunctional complex opened in the third quarter of 2007, total area of the complex – 25,800 sq.m). According to realtors, rental rates are 1,300-1,500 rubles per sq.m. On Budenovsky prospekt there is the Gedon business center (total area – almost 6,000 sq.m, developer – Gedon).

ROSTOV - No segment of commercial real estate in Rostov remains without attention. In the previous couple of years developers preferred office and shopping projects - their construction is now active, and in the next 1-1.5 years the volume of these areas will exceed 1 million sq.m. But from this year investors are ready to also invest in warehouse complexes and logistics centers.

Chance for logistics

Consultants unanimously note that there is a deficit of warehouse real estate in Rostov and that supply is slowly growing. The existing volume of warehouse space in the city totals 400,000 sq.m, estimates Igor Dorofeyev, director of the warehouse and industrial relations department at Cushman & Wakefield/Stiles & Riabokobylko (C&W/S&R), most of which is class D, C and B premises. Rental rates, according to market participants, range from 130 to 300 rubles per sq.m.

But in the next few years Rostov has the chance to become a large logistics center in the south – in the last year several companies have announced the construction of high quality terminals.

The National Logistics Company was the first to go to warehouse real estate: in 2005 construction of the class A NLK-Bataisk terminal 10 km from Rostov (on the Rostov-Baku road) begun. The first phase of the premises, which measures 10,000 sq.m and has a capacity of 18,000 palette places, began operating in July of this year. On completion of the construction, Polina Vinokurova, a PR expert at NLK, says that the total area of the terminal will measure 50,000 sq.m and have a capacity of almost 70,000 palette places.

In the autumn of 2006 Avalon and British investment fund Raven Russia bought a 47.6 hectare land plot for almost $50 million close to the M4-Don route (Aksaisky district near to where IKEA-Mega is under construction) for an international class multimode logistics terminal in the next 1.5 years. The Logopark Don company was created for the realization of the project, which the authorities of the Rostov region concluded an investment contract with in September at the Sochi-2007 forum. According to Alexei Borisenko, general director of Logopark Don, the total area of the premises will be 220,000 sq.m, investments will exceed $200 million, and the prospective commodity turnover is calculated at 630 million rubles.

Hermitage Construction and Management also announced its purchase of a 15-hectare land plot on the M4-Don in the Aksaisky district in September. According to the company, the Hermitage-Yuzhny logistics complex will be constructed here, with warehousing occupying roughly 70,000 sq.m and the volume of investments estimated at $100 million.

Two more large companies are looking for areas. In spring 2007 the administration of the Rostov region entered into an agreement with MLP on the construction of a logistics complex project costing almost $100 million. And in September officials signed a protocol of intentions with Eurasia Logistics. According to the regional administration, construction of an industrial-logistics complex is planned to begin in 2008 and finish by 2010, and will become a point in the program of the formation of the international transport corridor Southeast Asia - China - Kazakhstan - Russia - Europe.

“Rostov is an important transportation center for the south of Russia, therefore construction of logistics park in this city is included in Eurasia Logistics’ plans for a network of projects,” its director of public relations Natalia Polukhina says. According to her, the total area of the Rostov complex will measure approximately 300,000 sq.m and will have a capacity of about 500,000 palette places. Eurasia Logistics is currently considering land plots near main routes with the possibility of organizing railway infrastructure, adds Polukhina.

If all the projects will be completed, the volume of quality warehouse space in the next 1.5-2 years will exceed 700,000 sq.m. This will satisfy the current increased demand, Dorofeyev considers. However, deadlines may change: frequently land plots outside the city’s boundaries, suitable for the construction of large warehouse premises, are on agricultural land and changing the category of the land is a long process, Evgeny Sosnitsky, general director of Titul, notes.

Meters for the locals

Unlike national companies, local companies invest in class B and C warehouse projects. Such complexes are demanded by regional businessmen, Maxim Khmel deputy director of Parus, says. Frequently former industrial areas are re-profiled for warehouses. For example, Megamarket is reconstructing a part of the former area of Rostselmash into a class C warehouse complex. According to Alexei Elnikova, head of the commercial department, unheated warehouses will occupy 34,000 sq.m, more than half of the area has already been rented out at 180 rubles per sq.m (without taking into account expenses for electric power).

Novoye Sodryzhestvo industrial alliance (which includes Rostov’s Rostselmash, Empils, Klever, etc.) will re-profile a building of the former harvest factory into the Atlant warehouse complex (class B, total area – 100,800 sq.m), Yuri Ryazanov, a member of the alliance’s board of directors, has told. The company plans to launch the first phase (35,100 sq.m) in 2008, and the complete complex in 2009. Atlant is located in an industrial zone in Rostov and is provided by good transport infrastructure, including rail, Ryazanov notes. There will also be a class B business center here in a reconstructed 9-storey office building.

This is not Novoye Sodruzhestvo’s only project. Two 4-storey buildings that are the former technical center of Rostselmash will be reoriented into the class B Forum business center. According to Ryazanov, 6,000 sq.m will be divided into 14 sq.m office areas. The center is planned to be launched in the first quarter of 2008, and rent will cost 650 rubles per sq.m a year. Investments are estimated at 85 million rubles. It is also preparing to re-profile part of the Konkord factory into a class C business center, after reconstruction of which 6,100 sq.m will be rented out. The company has calculated that its investments will be returned after 4–5 years.

The majority of potential tenants are looking for small offices up to 650 rubles per sq.m, says Kheml, but there are few of such offers. According to Stanislav Novi, manager of Realti-Lenina, there is a disbalance: clients want to be located in new, quality offices, but current new offers often do not suit them in price. As a result Rostov businessmen prefer to rent in former scientific research institutes where the rental rate can be 1.5-2 times lower than rent in modern business centers.

In addition to high prices the transport accessibility of some office centers does not suit some potential tenants, Dmitry Sarkisyan, a commercial real estate expert at Kvartal considers. It is difficult to get to, for example, Kupechesky Dvor business center (total area – 32,000 sq.m, class B, developer - Pleyada, investments - $18 million) on Serafimovicha ulitsa, which was put into operation at the start of this year. The scale of the renovations also affects the fillability of a building. Offices in the Bely Slon business center (total area – 7,200 sq.m, class C, developer - Edinstvo) on Tekucheva ulitsa are well demanded: clients are attracted by the convenient traffic intersection and the small, ready furnished offices, says Sarkisyan.

According to Svetlana Aksenova, deputy chief of the commercial real estate department at Nirlan, offices in the city center are rented for 650-900 rubles per sq.m, and in quiet areas for 400-700 rubles. The increase since the beginning of the year has been only 2-3 per cent. Rental rates in business centers have even decreased a little: at the start of the year they topped 1,200 rubles per sq.m, now the maximum is 1,100 rubles.

Class A in growth

However, market participants believe that demand for quality offices will grow. “In the city there are national and foreign companies who obligatory need to find an office in a business center,” says Aksenova. On the heels of them the people of Rostov are starting to understand the prestige of being located in quality buildings.”

In the next 1-1.5 years the opening of several more class A centers is planned: a joint project between Russkiye Fondy (Russian Funds) and construction company Mazanova to build the Pyat Morei (Five Seas) business center (total area – 37,000 sq.m, investments - $30 million) on Nizhnebulvarnaya ulitsa, the Peresvet-Regiona office and shopping center (total area – 40,000 sq.m, investments - almost $20 million), and a multipurpose center (shopping and office buildings and a hotel, total area – 48,000 sq.m, investments - $60 million) by RosEvroDevelopment and the Don Plaza congress hotel. In May, ADM Group announced the construction of two business centers with rough dates of delivery in the second quarter of 2009. On Teatralny prospekt the 16-storey, class B+ Teatralny complex with a total area of 42,700 sq.m will be constructed, and on Budenovsky prospekt near the Astor Plaza shopping center the class A Astor business center measuring 15,000 sq.m will be located.

Russkiye oteli (Russian hotels) also intends to start the construction of a business center measuring 35,000-40,000 sq.m on a 0.5 hectare land plot on the borders of Sotsialisticheskaya ulitsa and Sokolov ulitsa, which the company bought last year.

According Vladimir Litvinov, an expert at Titul, the length of time it takes to recover the outlay of an office project that is rented out is 7-8 years, with returns of 12-14 per cent per annum.

Money in shopping

Since the beginning of this year rental rates and sales prices of shopping real estate have grown 10-15 per cent, says Sosnitskaya. In the city center, according to Alexei Alekseyev, an analyst in the research department at C&W/S&R, rent for shopping premises costs on average $1,200-$3,000 per sq.m per year, and to buy costs $4,000-$12,000 per sq.m. Rent in quiet areas is $540-$600 per sq.m a year, and the lowest sale price is $1,000 per sq.m. By the end of the year rental rates will increase 5-10 per cent, and sale prices will increase 15 per cent, predicts Sosnitskaya.

At the moment, in the opinion of Alekseyev, only the Gorizont Megacenter (Prospekt Nagibina with an increased area of 120,000 sq.m) and the Astor Plaza center (Budenovsky prospekt, total area – 22,000 sq.m, investments - $18 million) can be considered high quality premises. Up to 80 per cent of shopping space in Rostov is built in and extended premises on the first floors of apartment buildings.

However, the construction of large format shopping premises is now in an active phase – shopping and entertainment complexes, grocery and specialized hypermarkets will soon appear in practically every micro district of Rostov. On Levoberezhnaya ulitsa the MegaMag shopping and entertainment center is under construction (total area – 63,000 sq.m, developer - Edinstvo, investments - $80 million), on Prospekt Nabigina, Shokolad shopping and entertainment complex is under construction (total area - more than 70,000 sq.m, developer – Mir Kombek, investments - $60-70 million), on Malinovskaya ulitsa the Kalinka-Malinka shopping and entertainment complex is under construction (total area - more than 70,000 sq.m, developer - ADM Group, investments - $80 million), and in the Aksaisky district near Rostov, IKEA and Mega are under construction (a total area - 140 000 sq.m, investments - more than 3.5 billion rubles).

In Yekaterinburg KIT-Capital has a land plot in the Myasnikovsky district (about 10 km from Rostov) for the construction of the Kit shopping and entertainment complex measuring 50,000 sq.m. The land plot has been fenced, but large scale construction work is not visible yet. Mall Management is prepping the design documentation for the Park House shopping and entertainment complex (total area – 100,000 sq.m, investments - $100 million) in the Teatralny area. And Kaliningrad group Vester, only a month ago, signed an investment contract with the mayoralty of Rostov on the construction of the Grand-Rostov shopping and entertainment complex on Lelyushenko ulitsa. The total area of the complex will be 100,000 sq.m and the volume of investments will stand at 2.5 billion rubles.

The shopping and entertainment complexes will gradually enter the market: the closest opening is of IKEA-Mega in November, and developers plan to finish the majority of the other premises by 2008-2009. After realization of all the projects the volume of shopping and entertainment space in Rostov will be close to 800,000 sq.m.

Retailer-owners

The Metro Cash & Carry chain is expanding in Rostov. Its first shopping center on Dovatora ulitsa with an area of 8,600 sq.m has already been in operation for 2 years, and now a second premises in the Aleksandrovka district is under construction. According to the company, investments will total almost 20 million euros.

Ramenka has not been lucky in Rostov: a 6,800-sq.m Ramstor hypermarket located in the Gorizont Megacenter since 2004, curtailed its activity in the spring of this year. The rental contract has expired, and a new one has not been concluded with the company due to a revision of the “general concept of the functioning” of the complex, said Murat Duran, the then deputy general director of Ramenka. According to the general director of Gorizont Dan Polonsky, the shopping and entertainment complex did not break the terms of payment of rent and there was a decrease in the sales volume of the anchor tenant. After expansion of the shopping space in the complex to 120,000 sq.m a grocery chain will offer to rent up to 15,000 sq.m, and it is not inconceivable that Carrefour will become the tenant.

O’Kei remains the only operating grocery hypermarket in Rostov (total area – 13,400 sq.m, investments - $15 million) which Dorinda Holding opened in summer 2005 on Dobrovolskaya ulitsa. Now the company is completing a similar project on Malinovskaya ulitsa. A second winter opening will be a Lenta hypermarket in the Yantarny settlement (Aksaisky prospekt). The total area of the store will be almost 12,000 sq.m, and the investments of the company are estimated at $20 million, says Svetlana Nemiro, public relations manager of Lenta.

Other grocery retailers direct their efforts on renting areas in shopping and entertainment complexes under construction: for example, Sedmoi Kontinent in the Shokolad center, Auchan in Mega, and Vester in Grand-Rostov.

Local companies are also investing in real estate. According to the co-owner of Mega-Don (58 Imperiya Produktov shops) Ashot Khblikyan, the company is building a shopping center in the city center with an area of 7,500 sq.m and costing 100 million rubles and two other shops. In addition, in 2008 in cities in the region, says Khblikyan, 5-8 Imperiya Produktov shops measuring 800 sq.m should open.

The Rostov franchise of Pyatyorochka has similar plans: Agrotorg-Rostov intends to construct supermarkets measuring 1,000-1,500 sq.m in eight regional cities and districts, says Igor Dmitrenko, director of the company. The volume of investments in each shop is 26 million rubles.

Renovation Boom

This year in Rostov a boom of DIY and house repair store openings has begun. At the start of October the St. Petersburg chain of household goods Santa House opened (it rents more than 4,000 sq.m in Gorizont). Investments totalled 80 million rubles and it will take 3-4 years to recoup the costs, Tigran Gukasyan, general director of Laventy, says. The company is carrying out negotiations with the owners of shopping space in order to open no less than 4-5 Santa House stores measuring from 2,500 sq.m.

Castorama is trying not to lag behind. But the regional service of the state construction inspectorate of the Rostov region together with bodies of the Public Prosecutor’s Office and the fire safety inspectorate suspended the operations of the shop on Malinovskaya ulitsa (total area – almost 13,500 sq.m), a day after it opened on October 3: Castorama Rus does not have the design and final examination permissions to put the premises into operation, and fire safety regulations were also broken, head of the state construction inspectorate of the Rostove region, Vitaly Vlasov, has informed. General director of Castorama Rus Oleg Pisklov says that the company is working “with the city and regional administration to open the store as soon as possible.” In Vlasov’s opinion, the approval documents require no less than a month.

In October a hypermarket of the St. Petersburg chain Maksidom opened: the company has rented space in the Mercury shopping center on Orskaya ulitsa, investments in which are estimated at $20 million. In November there are plans to begin work on the Mega shopping and entertainment complex in which IKEA and Leroy Merlin will be housed.

Kaliningrad’s Bautsentr building material superstores are looking for three areas for superstores. The company is ready to invest up to 1 billion rubles in Rostov projects.

New car show rooms

To correspond to the requirements of car manufacturers, Rostov dealers continue to invest in the creation of new car show rooms. Since spring 2007 in the Panavto show room (Mercedes-Benz, Jeep, Chrysler, Dodge dealer) on Vyatskaya ulitsa Mercedes-Benz is now the only represented brand, while other brands have moved to a new complex (1,500 sq.m) on Poimennaya ulitsa. In addition M-service has built a show room for Alfa Romeo (almost 300 sq.m.) near its Subaru center on Vavilova ulitsa

Having become a Maserati dealer in August of this year, Gedon (also the dealer and owner of Porsche, Volkswagen, Skoda, Opel, Chevrolet and Mitsubishi show rooms) will locate a show room measuring 250 sq.m on the first floor of the Gedon business center on Budenovsky prospekt. And in the district of Mechnikova ulitsa the group is building a car city with a total area of more than 30,000 sq.m where Mitsubishi, Skoda and General Motors show rooms will be located. Construction should be copmpleted in 1-1.5 years, investments will total almost $20 million, and recovery of outlay should take 5-7 years.

In 2008, Yuna Motors (Honda dealer) should open a new show room near IKEA. The area of the dealer’s center on Trolleibusnaya ulitsa is 1,200 sq.m, but an increase in sales volumes has required expansion.

Dealers reluctantly talk about the sum of investments, but by various estimations, expenditures on opening a car center in Rostov totals $4-7 million.

Formula-M (part of AAA), the Official Mazda dealer in Rostov is completing the construction of a car center with an area of 6,700 sq.m on Tekucheva ulitsa. Questioned market participants recognize that it will be the biggest single brand car center in the city. According to Yana Vodinova, marketing and advertising manager, in the new three-level complex there will be a service center, a warehouse of spare parts, a demonstration hall for 14 cars, offices, a relaxation zone for buyers and parking.

On the junction of Tekucheva ulitsa and Teatralnaya ulitsa on a 1.3-hectare land plot, ААА will construct a 2-storey Lexus car center, Mikhail Osipov, head of the autoholding group, says. The total area of the center will be 6,000 sq.m, and will include a showroom (1,600 sq.m), a service zone with 28 posts, a spare parts warehouse, relaxation zones for buyers, and a cafe. The opening is planned for 2009.

Another car center, Mitsubishi ААА, is building until the end of 2009 on Dovatora ulitsa (1.2 hectare land plot). The total area of the premises will be 4,500 sq.m, with the show room measuring 850-1,000 sq.m and the service zone with 22 posts. Evgeny Bogdanov, head of the mechanical engineering and transport branch for Russia and CIS at A.T. Kearney thinks that construction of a Lexus car center may cost $10-15 million, and for a Mitsubishi car center $7-8 million.