Money Growing: There is a place for trade

Summing up 2007, Samara experts note that in the commercial real estate market two segments - shopping and office – have traditionally lead. Igor Ryazanov, manager of Informatika, notes that in the last year the office market has dies down, and investors have started to invest in shopping real estate. "The segment of shopping premises more actively developed,” confirms Pavel Tretyakov, an independent adviser on real estate deals. “For example, Kosmoport shopping center by Victor and Ko came on the market, but in the office segment no such large projects were realized."

Shops among the leaders

Victor and Ko is the largest developer in the segment of shopping premises. It has already realized two large-scale projects – the Moskovsky megacomplex (120,000 sq.m.) and Megacity (58,000 sq.m). The total area of Kosmoport, put into operation at the end of 2007, is 130,000 sq.m, the press-service of the company has told. The investments in the project were not revealed.

After Kosmoport was put into operation the total area of shopping centers in Samara exceeded 700,000 sq.m, according to the estimations of the analytical center of Indest-Development.

According to Indest-Development, in the last year in Samara the construction of 15 large shopping centers measuring a total of 720,000 sq.m have been announced. Among them are the Mega shopping center (130,000 sq.m.), Planeta (120,000 sq.m.), a shopping and entertainment center on the junction of ulitsa Avrory and A.Ovseenko (about 90,000 sq.m.), Bristol shopping center (55,000 sq.m), a shopping and entertainment center on the junction of ulitsa Solnechnaya and 5th Proseka (53,000 sq.m), Rubin shopping and entertainment center (40,000 sq.m.) and Most on the junction between Moskovskoye shosse and ulitsa Potapova (27,200 sq.m).

According to developers, they will be put into operation in 2008-2009, and Planeta in 2011. Only two are being realized by new players: Меga by IKEA and Planeta by RosEvroDevelopment.

In the middle of 2007 a project by affiliated company RTM Development of Marta holding was also announced. According to the company, it plans to build a shopping center with an area of 48,000 sq.m in Samara. It will be constructed on the junction of three residential areas in the city - Promyshlenny, Kirovsky and Sovetsky. Investments will total $50 million.

Sergey Vintayev, the head of a department at Spectr Nedvizhimosti, says that local players prevail on the market – outsiders are confused by administrative barriers and the specificity of the market. "Samara’s developers have "approaches" to officials, and they are more informed on what is happening with the reception of land.

IKEA tried to break into Samara back in 2002," agrees Tretyakov. He believes, however, that the new government of the Samara region which came to power in August 2007, will start to carry out more active policies to attract large national investors to the region.

But experts predict that the market will already be super-saturated with shopping premises in the near future. “Once the projects announced in 2007 have been realized, competition will seriously grow,” says Vladimir Yerofeyev, assistant general director of real estate-construction center Mabis. In his opinion, developers who have created the highest quality premises will win, and the rest will have to re-orientate their business.

Vintayev also predicts a correction of the market. However, he thinks that national players will still be interested in Samara as business in the region is actively developing and the incomes of the population are growing.

Tretyakov notes that there are enough "quality premises now in Samara, but there are also shopping centers that are more like indoor markets."

"Shops like Samara or, for example, Samarochka, do not have large anchors promoting the attraction of buyers; the format and policy for attracting tenants has not been thought out, and they will have to either be re-oriented, or close for reconstruction," ascertains Tretyakov.

Victor Antipov, general director of Indest-Development, thinks that in 2008 developers most likely will not begin any large scale projects, but will sway towards the vacant niche of small regional or so-called local shopping centers. "In Samara in residential areas there are not many of such shopping centers, there really aren’t enough," confirms Tretyakov. Taking into account shopping centers that have already been built and announced projects, it is possible to say that the sharp deficit of shopping premises observed in 2005-2006 in Samara remains in the past. "In 2007 supply on the market was sufficient," Yerofeyev says.

According to Tretyakov, the rise in prices of shopping real estate in 2007 was about 25 per cent, which is 10 per cent less than in 2006. Other experts agree with his estimations.

According to Spectr Nedvizhimosti, by the end of 2007 the average price per sq.m in the city center was 50,000 rubles and in residential areas was about 42,500 rubles. In the historical city center where boutique zones are located, the price per sq.m reached 100,000 rubles.

Rental rates grew within the limits of inflation as supply was sufficient and by the end of the year in the central areas and totaled about 1,000 rubles per sq.m a month, and in residential areas about 800 rubles.

According to Yulia Chempinskaya, deputy director of real estate at the Volga Regional Center of Development, in the last year premises in the historical city center were in demand. They were in demand mainly for the opening of clothes stores and boutiques. Premises in two shopping streets of the city in the area of ulitsa Novo-Sadovaya and Moskovskoye shosse were also in demand. The same goes for premises for shops in the Promyshlenny and Kirovsky densely populated residential areas.

According to Galina Sorokina, head of the management of commercial and cottage real estate at Horizons, clients actively took premises measuring 150-200 sq.m and 30-50 sq.m for grocery shops, and 1,000-2,000 sq.m mainly for home appliance stores.

Offices at a threshold

The office segment in the last year in comparison with the shopping segment hasn’t developed so actively. only one rather large premises came on the market - the first class A office center, with a total area of 15,000 sq.m constructed by BEL Development. Other projects are being realized by local developers - the Samara office market is the same as the retail market.

"By virtue of the fact that the shopping real estate market is now close to saturation, this year investors may become interested in offices again," Yerofeyev assumes. Besides the office complex of BEL Development, in 2007 another complex with an area of 5,000 sq.m was put into operation by Indest-Development. Other office centers, which Samara developers should have completed at the end of 2006, have officially still not been put into operation. These include Lazurny business center, and office centers on the junctions of ulitsa Galaktionovskaya and ulitsa Rabochaya, ulitsa Stavropolskaya and ulitsa XXII Partsezda, Lunacharsky proezd and Avtobusny proezd, ulitsa Avrory and ulitsa Promyshlennosti, etc.

But, according to Ryazanov, the majority of premises in them have already been sold. Experts name some reasons for the delay in completing the projects: some do not have sufficient financing to finish the project, some cannot issue all documentation, and some business centers are not in very good locations and the sale of offices at the stage of construction was slow so they prefer to not officially disclose the date the project will be completed. Developers of the "delayed" projects prefer not to comment on the reasons for the delay.

In spite of the fact that in the last year on the market there were only a few new premises in business centers, experts continue to say that in 2007 the office segment did not experience the same deficit as the last few years. "A lot of quality premises were put into operation in 2005-2006, there was simply a boom of construction of business centers, and this has pretty much covered [even potential] deficit," explains Yerofeyev.

Sorokina also notes that in Samara often the ground floors of new residential buildings are used for offices. And in 2007, according to the ministry of construction, housing and communal services of the Samara region, in Samara around 600,000 sq.m of new habitation was commissioned.

According to Indest-Development, the total area of modern business centers in Samara is 70,000 sq.m. According to the cumulative estimations of market participants, in 2005-2006 about nearby 200 000 sq.m were commissioned.

Realtors and developers are unable to estimate the volume of premises put into operation in 2007. By Tretyakov’s estimations, there are an extra 100,000 sq.m on the market, but this includes offices in residential buildings and re-profiled and reconstructed old buildings.

"There was sufficient supply,” summarizes Sorokina “But nevertheless it was difficult for buyers to find an office which completely corresponded to all their requirements." According to Chempinskaya, after supply increased, buyers became more capricious and had a lot of individual requirements for their new offices.

Experts saw two main trends beginning to form in the office segment in 2007. The first is that already in the last year the prices of offices depending on the quality of the premises started to strongly differ. For example, in modern business centers with a convenient location and well thought out infrastructure, the rental rate increased 20 per cent; in worse premises rates grew at the rate of inflation; and in old re-oriented buildings they grew at less than the rate of inflation, says Tretyakov.

At the end of 2007 office real estate in the central areas of Samara cost, according Spectr Nedvizhimosti, 50,000-62,500 rubles per sq.m depending on the level of the premises, in the suburbs cost 37,500-42,500 rubles (Kirovsky and Bezymyanka areas) and in quiet areas cost 25,000-30,000 rubles per sq.m. Average rental rates in the center started from 700 rubles per sq.m a month, and in less central areas from 500 rubles.

Samara experts say that in 2008 the differentiation of prices for premises of various quality will continue. "Considering that in the central areas of the city there are many offices of a good level, this year investors may begin projects in residential areas of the city as business activity grows everywhere," predicts Vintayev.

Tretyakov and Yerofeyev agree with him and say that they have already had clients looking for qualitaty offices in remote areas of the city, for example in the Promyshlenny, Kirovsky and Sovetsky areas.

Realtors are not expecting a big increase in prices for offices this year, and say that prices reached their limits in the last few years. According to Vintayev, in 2008 the increase will be 25 per cent. As for the structure of consumer preference, 2007 saw no palpable changes, and realtors think that the same trend will continue in 2008.

According to Mabis, Volga Regional Center of Development and Gorizont, last year offices measuring about 100 sq.m were in demand. In connection with the active development of small businesses people were also looking for offices measuring up to 50 sq.m. Large offices from 500 to 1,000 sq.m were less popular.

Warehouses on top

For a long time in Samara the warehouse segment has been presented by old, mostly not heated warehouses, as a rule, re-oriented from old buildings, or grocery bases. Companies coming to the region in search of quality premises have been compelled to build warehouses. That’s what Nestle, Baltika, Pepsi-Cola, Coca-Cola, etc., did.

After the deficit in the shopping and office segments had been partially overcome, in 2006 investors finally beaome interested in warehouses. In 2007 this trend continued. In Samara at that time a number of large projects were being realized. Victor and Ko, specializing in the construction of shopping centers, built a logistics complex with a total area of 130,000 sq.m. At the end of 2006 the first phase of the complex measuring 35,000 sq.m was put into operation. In 2007 the second phase including two buildings measuring 28,500 sq.m were built."

It is impossible to call it a wave of activity in the market, but considering that up until 2006 it didn’t develop at all, it was already something," says Tretyakov. He thinks that while the other segments of the market become more saturated investors will become more actively interested in warehouses - "it is rather a free niche at the moment."

Irina Shapovalova, the press secretary of Samara corporation Versivo, agrees with him. She says that Versivo is building a large logistics terminal to "enter the very promising market." The total area of the class A warehouse complex will be 21,600 sq.m.

Experts advise investors to pay attention to warehouses, predicting that the returns from them will be no less than from shopping or office premises. According to Tretyakov, the annual rates of return for warehouses in 2008 could be about 20 per cent.

all large projects in the warehouse segment are currently being realized by Samara players. Plans of expanding to the region are continually being announced by global and Russian operators, however that is as far as they are going for now.

According to Indest-Development, plans to enter the Samara warehouse market in the next few years have been announced by logistics operator Alers, investment-industrial group Eurasia, Kashirsky Dvor, Russian logistics service, National logistics company, FM Logistics and DHL. These projects remain in plans. "The reasons for the difficulty in entering the market are the same as those in other segments of commercial real estate," says Vintayev.

In 2007 two scale projects in the sphere of logistics have been announced. According to the ministry of transport, communication and motorways of the Samara region, an international logistics center will be constructed in the region by 2012. Investments in the project will total 7 billion rubles, and construction will start this year.

Russian Railways plans to invest 18 billion rubles in the development of infrastructure of the Kuzbass-Azovo-Chernomorsky transport route with a connection point on the territory of the Samara region. The project will strengthen the trade relations of the region with other regions of the country, its developers consider. It has already received state support and is intended for 2006-2009. It has not started on the territory of the Samara region yet.

Hotels as outsiders

The most significant event in the sphere of hotel real estate in 2007 was the opening of the 4* Holiday Inn hotel with 170 rooms. The construction of the hotel was financed by Volgaburmash holding. The hotel is managed by InterContinental Hotels Group which owns the Holiday Inn Hotels brand.

Previously there was only one 4* hotel in Samara – the Renaissance-Samara, managed by Marriott International (196 rooms). Ivan Laiosh, the general manager of the Renaissance-Samara, admits that the Holiday Inn will be competition first of all to his hotel.

Also in February 2007 a second hotel of Ost-Vest opened. The Ost-Vest-city has 28 rooms. Thus, in Samara the first chain of mini-hotels was formed. Mikhail Ilyin, manager of the chain, does not yet have any concrete plans.

According to Laiosh’s estimations, in Samara there is a sharp deficit of hotel rooms. "It is necessary to construct at least five more hotels like Holiday Inn to soften the shortage of places," says Minorov. As Ilyin says, there is no competition on the market, every hotel finds clients and the hoteliers are friends.

The greatest demand in Samara is for 3* hotels, however nobody is building them yet, ascertains Vintayev. International companies do not realize projects below a level of 4*. Local players prefer to build cheaper mini-hotels. A hotel takes a long time to pay off, and probably, that is what frightens off developers.