Guiding Lines: Make use of the opportunity

It is unlikely that someone will challenge the decision of the Moscow authorities. Years of active commercial construction in the city center has resulted in non-residential blocks being overloaded with people in the afternoon, but reminiscent of a deserted stone jungle in the evening. An example is the area close to Paveletsky rail station where the Avrora and Riverside Tower office complexes and Derbenevsky business park, etc are located.

This is inefficient for the capital and negatively affects the development of infrastructure, especially transport. Perhaps, town-planners’ unsuccessful experience of the last few years, in the future will become an object-lesson of how not to act. But the builders who found their bearings in time – buying the land of no-longer operational manufacturers in the city center, obtaining buildings that have permission to be demolished - have been able to earn reasonable money from the developed situation. According to Ulyana Aliyeva, an analyst at Mayfair Properties, office buildings announced prior to the governmental order of Moscow coming into force, will be constructed at the specified addresses and in due course will come onto the market, but under conditions more favorable to developers, than tenants. For example, according to Knight Frank, key projects to be realized in 2008 in the city center include Sakharov Plaza office complex (81,800 sq.m) on Akademika Sakharova, the second phase of the Krasnaya Roza business center (61,000 sq.m) on ulitsa Timura Frunze, a multipurpose complex at 1 Arbat (31,500 sq.m), and Luch business center (30,000 sq.m) on ulitsa Bolshaya Pirogovskaya, etc.

In 2007 many companies decided to rent more space than necessary on a long-term basis, with the expectation that it will be difficult to expand in the future. According to Knight Frank, in 2007 the number of cases of increased periods of rent to 7-10 years increased. For example, PricewaterhouseCoopers rented 32,500 sq.m in Belaya Ploshchad (White Square) business center, which is under construction on Lesnaya ulitsa on a long-term basis.

Gazpromstroi bought a total of 133,000 sq.m of office space in the Mirax Plaza multifunctional complex on Kutuzovsky prospekt. By the end of the year the situation with renting in the city center became even more intense. Tenants were leasing premises exceeding the area that they needed, and were subsequently sub renting them, confirms Colliers International. The difference in the rental and sub rental rates reached 30 per cent. According to Knight Frank, in 2007 in the most prestigious areas of Moscow rental rates per sq.m increased 50 per cent - an unprecedented case for the last 10 years. For comparison, in 2006 rental rates for class A and B offices on average increased 15-20 per cent.

Unofficial horror stories

From the Editor

On February 7 at the Holidаy Inn Vinograd hotel the first day of the Food Director forum took place. It was nothing remarkable, except for an announcement about a change in the owners of Dixi group, if we’re talking about the official part of the forum. But in the unofficial periods between sessions, a lot of interesting things were said.

They say that the world crisis has affected the financial market in Russia. Retail is suffering, especially small retailers. Russian chains, especially small ones, can now only dream about foreign money as an instrument of credit, whispered financiers. And the ruble has strengthened. Before the crisis, retail could attract funds at an average rate of 11-13 per cent, but now rates have already increased to 17 per cent. And not everyone will get them – there is a crisis and its end is not near. Experts say it will not be easy for small chains to survive. In good times (before the crisis) all retail developed through attracting credits. Only large chains always had less debts. And now creditors are more loyal to them. "There was a time of cheap money, everybody developed using credit. But now not that rates have risen, they don’t just give it to anyone," explains Oleg Tsarkov, managing director of direct investment fund Renova Capital. Accordingly, the growth of large chains with large debts will slow down and they will work on their profitability and operational profitability. And small chains will be forced to be put up for sale. The paradox of the situation is that from a business point of view, sales and profitability are both good. People spend a lot of money in shops.

Retailers who will not survive more expensive credit have two options. Friendly takeover (if someone will take them), or unfriendly takeover (if they have accumulated large debts). Financiers advise not be under any delusions. Experts say that only X5 Retail Group has any real money in the market. It is clear that those who are capable of making take-overs, there is an opportunity to not only choose, but to buy up the best for a minimum. Another variant for smaller chains – is to move from quantity to quality and instead of building new shop instead improve the range and quality of goods available.

However retail representatives say that not everything is so bad. They think that someone may profit from inflating the situation with conversations about a crisis and calling the rise in prices the next horror story. For example, in 2008 retail chain Dixi intends to invest about $150-180 million in opening shops (half of which will be borrowed), informs Vitaly Klyuchnikov, president of the Dixi group. Smaller market players are also not despondent. According to the director of the Russian Union of Small Chains Irina Kanunnikova, there is always an alternative. For example, agreements with existing partners. And credit lines have been opened. Only maximum mobility of business is necessary.

"Such frightening figures as 17 per cent per annum, just three days ago, had not been heard of in Russia," says Oleg Ponomarev, chairman of the co-ordination board of the Union of Independent Chains. According to his data, rates in comparison with June 2007 have grown by 2-3 per cent, no more. The actual rate – 14 per cent - is cheap, the expert assures. The majority of chains, according to him, is adequately assessing the situation and will actively develop in the next few years.