Money Growing: The Big Eight
For now, unlike the production of logistics terminals or shopping and entertainment centers with the corresponding labels of "regional," "super-regional" and so forth, every multi-functional complex remains a piece good.
Shops at the theatre and offices on the beach
In spring 2008, Tolstoi Skver multi functional complex will open on the Petrograd side (9 Ulitsa Lva Tolstogo). It is the first commercial complex in the newest history of St. Petersburg that will have a real theatre. Licedei is acting as the developer. The investor is the Northwest investment company. The area measuring 3,820 sq.m next to the Petrogradskaya metro station has been allocated by the city government for construction by Licedei Building Corporation. The main consultant, exclusive broker and managing company is IB Group. Investments in the project are estimated at $30 million. It is expected to break even in six years.
The total area of various level buildings (9-13 floors) in a modernist style corresponding to the surrounding constructions will be almost 23,600 sq.m. Besides a theatre there will be a class A business center A (14,200 sq.m), a small shopping complex with above average priced brands (3,200 sq.m), the well-known Chaplin-Club, restaurants, a recording sound studio and an art-gallery. There will also be underground parking for 230 cars.
In the middle 2008 Talion should finish a multi functional complex on the corner of Nevsky Prospekt and Ulitsa Bolshaya Morskaya. The company already owns the Talion Club at 59 Nabarezhnaya Reki Moika, including a 5* hotel with 29 rooms (Yeliseyev Palace Hotel), a casino with several halls, restaurants, fitness center, etc.
It is intended for the commercial premises (10,500 sq.m) to be increased approximately on 14,000 sq.m by being connected to a complex of the next two buildings. The investor is planning to expand the hotel to 90 rooms, to create a modern conference center for 500 people, a gallery of boutiques, a 25-meter pool on the roof of a 6-storey building under a glass roof and so forth. The rough sum of investments is $90 million.
By the end of next year a “mix” with a prevailing hotel function at 55-59 Nevsky Prospekt, should be ready. The project entails the expansion of the operating 5* Corinthia Nevsky Palace to the neighboring and its transformation into a congress center. Two 8-storey buildings with a total area of 25,280 sq.m will appear on the spot of the disassembled emergency constructions. In one of them will be 105 high-class hotel rooms and also a conference center with a capacity of 1,000 visitors and boutique zone. In the other building on two levels 20 elite shops will be located, and on the other six there will be a class A business center (7,730 sq.m). The shopping-office complex will be connected to a multilevel car park for 250 cars. The project, costing 75 million euros is being realized with the owner of the operating hotel, Malta’s Corinthia group of companies.
Another large-scale construction in another location is the Nevsky City multi functional complex which will located on former agricultural land near St. Petersburg, in the Bugry settlement, near the КАD. The initiator of the project was Italian company Margheri Group. The approximate sum required for its realization exceeds 350 million euros. Recovering the outlay is expected to take 8-10 years. The architectural design and the concept of the complex were developed by the Italians. The general contractor, and also the co-investor is Renaissance Construction (Turkey). The complex will measure about 400,000 sq.m, and the car park will hold 10,000 cars. According to plans, the first phase – Nevsky Kolezei shopping and entertainment complex measuring approximately 100,000 sq.m will be put into operation in December 2008. More than 20,000 sq.m in it has been allocated for an indoor water park with sandy beaches and a "sea."
The outlet-format shopping center with restaurants and cafes will total 50,000 sq.m. Its interior will be decorated in Italian style. Another 20,000 sq.m has been allocated for a hotel with 110 rooms and a business center (3,500 sq.m). There will be parking for 6,000 cars. The cost of construction of the first phase is estimated at 130 million euros. For more than 60 per cent of the premises, preliminary rental agreements have already been signed. The broker of the project is Colliers International.
The second phase of the complex called Nevsky Center will include five 20-storey class A and B+ business centers with a total area of more than 100,000 sq.m. The third phase of the same size, Nevsky Retail, is intended for large trading operators and mono-brand shops. These two parts are planned to be launched in 2011.
"It is possible to consider the year 2008 as a year of preparation for the mass output of various multi functional complexes on the market which will happen in 2009-2010," considers Nikolai Pashkov, director of professional services at Knight Frank St. Petersburg.
Trading respite
"In conditions where the dates of project realization are chronically altered, it is more expedient to talk not about analytics, but about intuition,” argues Borisov, a managing partner of IB Group. “In 2008, no more than 300,000 sq.m of rentable premises in shopping premises, not including hypermarkets, will be put into operation.”
According to Colliers International at the start of this year modern St. Petersburg trade occupied about 2.7 million sq.m (includes only shopping centers measuring more than 4,000 sq.m); in 2006, the market made a huge step in development, with 1.27 million sq.m put into operation; the results for 2007 will be more modest.
In the first three quarters of this year developers have introduced about 415,000 sq.m to the market. The announced annual plan is 680,000 sq.m, 85-90 per cent of which will most likely be realized, which is approximately half last year's results.
"To build forecasts for 2008 is difficult. By tentative estimations, 1 million sq.m is possible, but it is already obvious that investors will not manage to finish such large complexes as Stockmann on Ploshschad Vosstaniya and the shopping and entertainment center on Ligovsky Prospekt, near the Moskva train station. It is actually possible to calculate approximately 0.5 million sq.m,” says Boris Yushenkov, general director of Colliers International St. Petersburg. “The cumulative gain of supply will only total about 300,000 sq.m. I am sure that in 2008 the process of the extraction of poor-quality premises from the market will begin. Either proprietors will decide to reconstruct or re-orient these complexes left by tenants, or they will slowly die out.”
"Knight Frank St. Petersburg predicts the input of 870,000 sq.m (although without delays in the launch date) in 2008. Becar Commercial Property SPb, based on development plans, names the figure at more than 800,000 sq.m, or about 35 new shopping and entertaining centers (and in reality 300,000-500,000 sq.m).
Experts concur that the epoch of rapid growth of retail when the market demanded practically any trading format, is almost over. And it is no wonder, St. Petersburg remains in first place in Russia in terms of trading premises per 1,000 people (almost 440 sq.m, according to Becar Commercial Property).
"In 2007 we have already come across the fact that some new shopping centers have not been filled 100 per cent, neither after three months, nor after half a year of opening. Liquidity in retail is not guaranteed anymore as, for example, it was two years ago," Borisov considers. In his opinion, 100,000 projects are not demanded so much anymore. This niche is substantially filled, and in a year no more than 1-2 such complexes will appear.
One of the most large-scale openings in 2008 promises to become the Leto shopping and entertainment center, which is under construction on a 17.5-hectare site, near the airport on Pulkovskoye shosse. The investor has bought the land of agricultural cooperative Leto. The total area of the super-regional mall will be about 100,000 sq.m (with approximately 80,000 sq.m suitable for rent).
There will be outdoor parking for approximately 4,000 cars. Sistema-Gals Severo Zapad is acting as the customer. The cost of the project is estimated at $137 million. Construction is financed by Eurohypo AG bank (the funds may be given for a term of 12 years). The concept has been developed by Jones Lang LaSalle (JLL) and is standard for a premises of such size: a hypermarket, large home appliance, sport equipment shops etc., a fashion store gallery, a multi-screen cinema, bowling, a large food court, cafes and restaurants.
Competition between retailers on Pulkovskoye shosse, already nicknamed "the city cemetery of hypermarkets," is still strict. It is obvious that the Leto shopping and entertainment center will only be in demand after new housing quarters have been built.
"On the outskirts of St. Petersburg and in the nearest suburbs, 35-40 territories have already been announced, and no less than 250,000 sq.m of housing in each of them is planned. Within the new housing estates or in their immediate proximity is the perspective to build shopping centers measuring 40,000 to 120,000 sq.m with strong social-entertainment anchors, spacious food courts and so forth.
“One shining example is the Nevsky Kolizei shopping and entertainment center,” says Ilya Eremenko, general director of Praktis Consulting Brokerage. Director for consulting at Becar Realty Group Oleg Spivak agrees: "Next year a segment of regional scale shopping centers measuring 30,000-50,000 sq.m located in quiet areas will be actively formed. Until now it has been underestimated by developers.”
Offices in remote places
The office sector unlike shopping in St. Petersburg is still far from saturation. According to Colliers International, at the start of 2007 in the city there was a total of 420,000 sq.m of class A and B premises in business centers; and in the first three quarters of the year 115,000 sq.m have been put into operation. The last months of the year promise to be successful, and as a result these figures may reach 300,000 sq.m. The forecast for 2008 is already 500,000 sq.m. But experts do not undertake estimating the probability of its execution.
Knight Frank St. Petersburg assumes that next year the market will replenished by approximately 400,000-420,000 sq.m of quality premises. "In the medium-term the prospects of the office segment are the most liquid,” Pashkov considers. “We see significant reserves of demand in both new companies coming to the city and in the expansion of operating businesses, and also in businessmen moving to better premises in new buildings.”
There is no significant office opening planned for 2008 in the center of St. Petersburg. Large business complexes will open on the periphery of the historical part of the city or in the suburbs. Emperiya holding will continue to build the Senator business center (class B+) on 17-18 Line of Vasilevsky Island, on the former land of the Pnematica factory. On the 2-hectare site there were factory workshops measuring almost 25,000 sq.m. Some of the constructions have been taken down. Five to sis strong store buildings, forming a square, are being reconstructed.
Inside the courtyard there will be new, different level buildings, and also a 4-level car park. Once construction is complete, the total area of the complex will reach approximately 65,000 sq.m, and the parking capacity will be for 650 cars.
In summer 2007 the first phase of the business complex, measuring almost 20,000 sq.m was put into operation. In 2008, the investor plans to double that, making the business center one of the largest in the city.
In the first half of next year, according to plans, the Aeroplaza business center will open. This is under construction on private land near Pulkovo-2 airport, on Ulitsa Startvaya (land plot 4). The customer is BusinessLink Development. The developer is Nevsky Proekt.
The class A business center will be located in a 8-storey building with a total area of 34,200 sq.m. Its rent suitable premises will total approximately 22,000 sq.m. There will be underground parking for 175 cars and outdoor parking for 125 cars. The rental rates will range from 430-450 SU per sq.m a year excluding VAT and operational charges (80 SU per 1 sq.m.). One SU in this case is defined as the average arithmetic between the rate of the euro and the dollar.
"The process of the decentralization of the office market in St. Petersburg is inevitable. Project Аeroplaza is one of the pioneers. All over the world airports are becoming centers of gravity for business and investment. Around them the most large scale and arrogant commercial projects are quite often realized,” says Anna Romanova, senior adviser of the department for work with owners of office premises at JLL (the company is the exclusive adviser and broker for Aeroplaza).
At the end of 2008 class B+ Atlantic City business center, which is part of the multi functional complex under construction in the Primorsky district, will open. Atlantic is building on a site of about 4.6 hectares a complex measuring almost 100,000 sq.m. Offices will be located in a 28-level, 250,000-sq.m tower. One potential clients has applied already for 10 floors.
Increased demand is another trend that will gain strength in 2008.
"Various office complexes including high quality ones are starting to “gravitate” towards the KАD. Already by 2010 the ring road will turn into the main center of business activity in St. Petersburg. Together with the Western High-speed Diameter it will become the intercity highway connecting housing, office and industrial-warehouse zones,” Yushenkov considers.
“Although business enclaves will continue to be formed in developed zones, first of all, at quays." In 2006-2007 developers have announced the creation of several extremely large for St.-Petersburg office quarters with closed infrastructure (Nevskaya Ratusha, Electric City, Delovoi Kvartal na Okhte, etc.), located in areas adjoining to the center on the water and the estimated square meters are a hundred thousand each. The realization of these projects will stretch to 2011-2012. However it is possible to expect some results in 2008. For example, the entire first business center within the structure of the Polustrovo business block, which is being built on the former land of the Rossiya factory (Sverdlovskaya quay), will be put into operation.
The 16-hectare area opposite Smolny cathedral was bought by Theorema. Here, the construction of 500,000 sq.m of residential and commercial premises is planned, of which more than 300,000 sq.m will be class A and B+ offices. Theorema estimates the cost of the project at $650 million.
Unpredictable warehouses
The market of quality warehouse premises in St. Petersburg is expanding at impressive rates. Although experts’ forecasts vary. According to Colliers International, at the beginning of 2007 the volume of class A and B warehouses (not including refrigerated or those used by owners for their own needs) totaled 310,000 sq.m. The results for the year are expected at approximately 250,000 sq.m (although 350,000 sq.m have been planned).
Knight Frank predicts that in 2007 the market will expand by 500,000 sq.m, with approximately 350,000 sq.m of them being class A. For 2008, the company predicts the input to the market to total 685,000 sq.m (taking into account probable changes in deadlines), including 540,000 sq.m of high-class warehouses. Colliers International believes 1 million sq.m is possible. "Many professional players now operate in the warehouse segment, including investment funds. The general picture of development looks even more civilized than in the shopping or office sectors.
The only danger is fast overstocking of the market. It is difficult to correctly estimate the capacity of demand in this segment. Its dynamics depend, in particular, on customs legislation and other external factors," Yushenkov says.
" The majority of announced projects are large, and they will be realized quickly. I am afraid that saturation of demand may be felt only in an empirical way,” Pashkov ascertains. “The risk of a decrease in liquidity is quite possible. Therefore the most far-sighted developers in 2008 will try to minimize risks by diversifying the risks. First, they will start to include within the structure of terminals specialized warehouses (refrigerated, for large-sized cargo, etc), and secondly, will allocate some of the space for industrial parks with corresponding engineering infrastructure.”
Colliers International estimate actual rental rates of warehouse premises at $115-$135 per sq.m a year (excluding VAT and operating costs) for class A premises and at $110-$120 per sq.m a year for class B. The general opinion is that they will not increase in 2008, and that even a decrease is possible.