Money Growing: Central Trade

Developers only really feel at home on the periphery of classical St. Petersburg. Nevertheless today Nevsky prospekt and in its vicinities there are several shopping projects at the initial stage of realization, precedents for the city center in terms of both their scale and the construction solutions applied, in particular, with the development of underground space.

The majority of these projects have a long and difficult history - with changing investors and a train of conflicts, with a very substantial and difficult to calculate budget, and also a set of specific risks connected with work among dense historical buildings and under conditions of strict safety restrictions. However their initiators are ready to pay a high price for a notorious, prime location.

Investment gaps

With the enormous Megas and other large super-regional malls, the center of St. Petersburg looks rather poor. The main deterrent for developers is not so much how expensive it is, but the absence of free sites and a situation where practically all existing, unremarkable but profitable constructions from the beginning of the twentieth century are untouchable.

Free spaces are already being developed. For example, two modern shopping centers appeared simultaneously in 2003-2004 in the area of Sennaya metro station. The Peter commercial center was constructed on the territory of a former vegetable establishment as a classical 3-floor mall. The shopping and entertainment complex - Sennaya - has parking and a classical set of anchors of several supermarkets and a bowling alley (the total area of the complex is almost 60,000 sq.m). And literally right next door, on the other side of narrow Yefimov side street, PetroMir holding has constructed the 6-storey PIK shopping and entertainment complex (the total area is about 35,000 sq.m) with a multiplex on waste ground behind the metro. The high passability of this place allows both competitors to prosper. Although it was necessary for them to distinguish themselves from each other. For example, in the end Sennaya refused a food anchor: Paterson lost out to Perekryostok, already being located in PIK.

In 2006, on Marata ulitsa the first phase of 3-storey Planeta Neptun shopping and entertainment complex (approximately 28,000 sq.m) opened, which was also constructed from zero. The customer and main investor Rubin (an affiliated structure Central Construction Bureau of Ocean Technology Rubin) has rested its stake on a substantive anchor: a 5,000-sq.m oceanarium. The project has some distance to go. Co-investors are creating a second phase (another 70,000 sq.m) Adamant holding, which has bought 75 per cent of Rubin is acting as a co-investor of the future complex. The new building will be located next to the operating shopping and entertainment complex. "Rubin’s contribution to the joint venture are the rights to the site, and also part of the investments. We are carrying out the whole project - from the design to putting it into operation,” comments Igor Leitis, president of Adamant. During the first stage the shopping component of the complex caused some difficulties. People were going to the oceanarium, and basically just passing right by the shops. It is necessary to refresh this place with new functions. At Neptune-2 there will be a 30-lane bowling alley, a multi-storey car park with 1,000 spaces and a 7-8 screen multiplex. We roughly estimate the expenditures on this project at $100 million.”

Boutiques and the mass market

The only new shopping construction in the vicinity of Nevsky prospekt is the Vanity Opera shopping complex at 3 Kazanskaya ulitsa, built near the Kazansky cathedral and opened in autumn 2005. The 5-storey building measures almost 6,000 sq.m and was constructed in place of an old building, previously used for a kindergarten. The shopping complex consists of two parts: one building finished with marble adjoins a glass shopping gallery the same height. It is modern without any hint of classical. The complex was designed by architectural workshop Reinberg & Sharov. The initiator of the project was Korporatsiya "S", and the Moscow group of companies Baltiisky Monolit has acted as co-investor. All the shopping space (approximately 3600 sq.m over four levels) was rented out for 15 years at the stage of construction by Vanity, an elite department store. The top floor is a restaurant.

Now head of Korporatsiya "S" Vasily Sopromadze has put the shopping center up for sale as an operating business. The price is $80 million. The annual rental income from Vanity Opera, according to Sopromadze, is about 5 million s.u. (the average dollar and euro exchange rate). While there are no takers at the moment for the complex at the announced price - more than $13,000 per sq.m - Sopromadze is prepared to wait and gradually increase the price.

Another boutique department store called Grand Palace (about 10,000 sq.m) opened in 2003 in a reconstructed building at 44 Nevsky prospekt. Limited company Grand Palace owns and operates the premises. Its main founder is Nord company, the proprietor of the premises. The luxury gallery unites about 90 tenants.

An alliance between St. Petersburg holding Adamant and Moscow businessman Shalvy Chigirinskovo intends to transform the famous Passazh at 48 Nevsky prospekt into a copy of Moscow’s GUM. The team acquired the premises (13 300 sq.m) from the city through a tender in 2006 for approximately $3,800 per sq.m. Restoration of the historical gallery is already almost complete. The investors plan to expand the shopping areas to 35,000 sq.m by reconstructing the next building on Italianskaya ulitsa. Construction work is supposed to begin in 2008. The new Passazh will be a luxury center. The project is estimated to cost approximately $60 million.

Dom Leningradskoi Torgovli (Building of Leningrad Trade) on Bolshaya Konyushennaya ulitsa is already at the reconstruction stage, which is being conducted by Moscow company Mercury. This project is also oriented to boutique shopping.

Galleries of elite shops on Nevsky are also being created as part of various multifunctional complexes. For example, two floors (about 2,800 sq.m) have been allocated for boutiques in an office and shopping complex at 38 Nevsky that was put into operation at the end 2004. Approximately 3,300 sq.m will be allocated for luxury brands in the Neva Plaza multifunctional complex at 55-59 Nevsky, adjoining a 5* hotel and a class A business center. Construction of this complex will start in 2009. Expensive shops are also expected to be located in the structure of the multifunctional complex on the corner of Nevsky prospekt and Bolshaya Morskaya ulitsa, which is being created by Talion. The Esfera boutique gallery will occupy the lower levels (about 2,100 sq.m) in the Le Grand elite apartment building at 152 Nevsky prospekt, which is being constructed by RBI holding.

Another new shopping center on Nevsky prospekt is the Neva Atrium, which was completed in December 2006. This complex focuses on another sector of the public. Its potential buyers are young people that use the metro. The complex is located in the building where the entrance to Mayakovskaya metro station is located. The project was realized by a group of investors including Adamant, Bank of St. Petersburg and Nevsky Restaurant (this institution of a public catering settled down here since Soviet times). The building has undergone reconstruction and has been raised by one floor with a penthouse. The style of the interior can be characterized as "strictly techno," which corresponds to the stated target audience. However, outside everything looks quite comely. The historical view of the profitable nineteenth century building has been recreated under a project by architectural bureau Liteinaya Chast, 91. The total area of the shopping complex is 8,900 sq.m, with a rentable 5,000 sq.m. Shops occupy the four lower levels. And the fifth is allocated for a food hall. Esprit, Mexx, Naf Naf, etc, are among the represented brands.

Nord, a small 3-storey shopping center at 46 Nevsky prospekt (total area about 4,000 sq.m) that opened in the summer of 2006 is also oriented towards the mass market. Company Nord, the proprietor of the premises has converted the former Hollywood Nights restaurant and club into shopping premises. The club life in St. Petersburg is not so active, and therefore investors have preferred a more stable and predictable business.

“Boutique and mass market shops are the two most suitable formats for the city center,” considers Yuri Borisov, managing partner at IB Group. “On the one hand, Nevsky is an ideal place to form a luxury-show-window of St. Petersburg, and on the other, retailers get strong flows of people that have developed here naturally and that do not be generated specially."

"Classical department stores in their modern understanding are still not present in the city and are a very perspective niche for the center," adds Nikolai Pashkov, director of professional activities at Knight Frank St. Petersburg.

Mega long-term constructions

The quintessence of all the listed areas in St. Petersburg promises to be Ploshchad Vosstaniya, where today there are three shopping center projects that are essentially on another scale and complexity from the previous experiences of developers in the historical center. Just the rentable space of the future complexes comes close to 200,000 sq.m. All these mega construction have a long history - with characters being changed and repeated extended deadlines. The largest will become the Galeria shopping and entertainment complex at 26-38 Ligovsky prospekt, near Moskovsky station, the construction of which officially began at the end of March.

On its place a new station complex with a business center has initially been planned. The foundations of the 3.9-hectare length site on Ligovsky prospect were dug last century. However Russian Open Society Vysokoskorostniye Magistrali (High-speed Highways) went bankrupt, and the project remained just a hole. The federal government has selected this land plot for the recovery of debts and has given the property rights to VPK-Invest. This structure has concluded an investment agreement with construction company Briz (breeze), on the conditions of which the multipurpose commercial complex should be constructed. On completion, 78 per cent of its area will belong to the developer and the rest will belong to the state. Over several years the company-builder has had three different owners. Initially, control over Briz belonged to St. Petersburg holding Veda-Sistema, then it sold its share to Moscow company Nafta-Kapital. Finally in 2006 the project was bought by structures controlled by Kazkommertsbank.

However the situation did not change straight away. The town-planning committee refused to approve the architectural-design decisions of the complex developed by British studio Chapman Taylor three times. The city’s experts have found the customer’s desire to plant a bulky building actually in the "red line" area of St. Petersburg does not correspond with the building that has developed in its place. As a result, a slightly corrected project has been directly approved by the management of the city’s town-planning and architecture committee.

The total area of the super-regional mall as a result will be 191,000 sq.m. The complex will have a two-level underground car park for approximately 1,300 cars. Five floors have been allocated for shopping and entertainment. Rentable space in the complex measures about 90,000 sq.m. The cost of construction is estimated at $400 million. These are mainly Kazkommertsbank’s funds. The mall is planned to open at the end of 2009 to the beginning of 2010.

In Galeria there will be about 250 shops. The set of anchors is standard enough: a supermarket, a home appliance and electronics department store, Detsky Mir, a multiplex, etc. On the fifth level there will be a fitness center with a pool (about 5,000 sq.m). The exclusive marketing and real estate consultant of the project is Jones Lang LaSalle. The senior adviser of the commercial premises department of the company Stanislav Bilen says that Galeria will be focused on different buyers. The first floor is allocated for respectable brands. A share of the stores will have separate entrances onto Ligovsky prospekt. On the second and third floors there will be more democratic brands. Rental rates for shops (excepting anchors) will range from $1,500 to $5,000 per sq.m a year. "We are already seeing a lot of interest in the complex from retailers and consequently we expect to get the stated level of rent payments,” says Bilen. It is the only project of such a scale in the city center with a powerful entertainment component where it will be possible to spend the whole day."

The Nevsky Center office and shopping is a counterpart to Galeria, and will be located on the corner of Nevsky prospekt and ulitsa Vosstaniya. The investor is Finnish company Stockmann. Now on the land plot initial stage works are being carried out. The history of the project goes back as far as 1994 when joint stock company Znamenskaya acquired the complex of historical buildings for reconstruction. The concept of the future commercial centre repeatedly changed and the deadline for its opening was constantly changed due to problems with financing. In 2005 the project was bought by Stockmann and once again was changed. The Finns managed to increase significantly the parameters of the future complex. Instead of 45,000 sq.m stipulated by the initial architectural bureau Zemtsov, Kondiain & Partners, from the spot of the building it will be possible to squeeze out 100,000 sq.m due to the development of underground space. Stockmann will create four levels. The three lower levels will be allocated for parking (roughly 550 places), and in the socle Stockmann will be placed. The complex will be 5-9-floors. The investor promises to recreate all historical facades.

Shop and office space will total 50,000 sq.m. Stockmann will make occupy almost 18,000 sq.m of trading area, having placed a line of shops including Seppala, Bestseller, etc. Another 24,500 sq.m will be offered for rent. Some more anchors renting 2,000-4,000 sq.m each have been stipulated (a children's department store, fitness center, etc.) and a gallery mono-branded shops. The top two levels (approximately 5,800 sq.m) have been allocated for a class A business center.

"One of the main problems we have come across is the preservation of the neighboring historical buildings. There are no tested technologies for work under conditions of dense buildings in a city. Therefore the state examination of the project alone took about a year, and only after the piles had been inspected was our underground construction approved," Nikolai Maksimov, the consultant for the project say.

Works are planned to be completed at the end of 2009. The cost of construction was preliminary estimated at 120 million euros but the investor will more than likely exceed this figure.

The creation of an underground shopping complex under Ploshchad Vosstaniya promises to become the most expensive project. The construction is also "historical." The idea of developing the local "underground" arose during Soviet times. Then Otkrytye Investitsii (Open Investments) tried to realize it, but rejected the project after carrying out research. The new investor became Aditum. However its main founder Alexander Dymov also preferred to leave the game, reselling the company to brothers Boris and Mikhail Zingarevicham, the co-owners of Ilim group.

In March this year the project was presented to the court of the public town-planning committee, having caused lots of problems. The investor plans to create a three-level complex measuring a total of 87,000 sq.m: part of the first underground level will be used for pedestrian crossings, and other space is allocated for shops, the second level - shops, and the third level - parking for 630 cars. Rentable space measures about 30,000 sq.m. Investment in the project are estimated at $500 million - $1 billion. Aditum admits that it does not yet know how much the underground construction will cost. Under optimistic forecasts, the complex may be ready in five years.

According to the preliminary concept different types of shops will be located underground. "In the complex there should be a place for the passengers of Moskovsky station, for businessmen with meetings in the center, and for the everyday pedestrians who live or work nearby. Separating the transit and target streams is another, not simple matter," says Vitaly Malykh, the managing director of the project.

In the center of St. Petersburg several more extremely complex projects for the creation of multipurpose complexes with a trading component have been announced. The most risky and capital-intensive is the reconstruction of Apraksinsky Dvor. In January the results of an architectural-investment tender was announced, the winner of which became Moscow company Glavstroi. Over five years it will transform a 12-hectare territory in the center of St. Petersburg, within Sadovaya ulitsa, the banks of River Fontanka, Apraksiny pereulok ulitsa Lomonosova. The area is currently divided between numerous proprietors, the largest of which is the city. A market was formed here in the middle of the eighteenth century, and now the renovated buildings adjoin a huge trade area. Between the buildings there are open spaces. Thus all the buildings located in Apraksiny dvor (in total about 180,000 sq.m), and also the historical complex as a whole are cultural heritage premises of regional value. Therefore the developer will need to work under conditions of strict safety restrictions.

It was the city administration’s idea to create a modern multipurpose complex with wide promenades and extensive underground parking in the place of Aprakinsky dvor. For this purpose the city has decided to attract an investor through a tender. The winner will receive the rights to the city real estate, and will have to agree on buying the individual buildings and premises independently with the private proprietors who occupy approximately 37 per cent of the area. By Glavstroi’s estimations, the total cost of reconstruction may reach 40 billion rubles. The investor will need to buy about 60,000 sq.m of premises from private owners at a guide price of $5,000 per sq.m.

The project is to create a multifunctional complex with elevated space of almost 260,000 sq.m. Approximately 80,000 sq.m will be allocated for shopping and service premises (including cultural premises), 70,000 sq.m for offices, the same again for elite residential apartments, and 40,000 sq.m for several 4-5* hotels. The two-level underground car park will have 2,500 spaces. Large-scale underground construction is planned in the area up to Moika nabarezhnaya, ulitsa Glinki and ulitsa Dekabristov. Swedish investment company Ruric is starting to build the Teatralny multifunctional complex here, with a total area of 216,000 sq.m of which approximately 90,000 sq.m will be underground. The investor intends to build six floors. The first and second underground levels are intended for a shopping and entertainment complex measuring 55,000 sq.m. Four more underground floors will be for parking with a minimum of 2,000 spaces. On an elevated floor, 35,000 sq.m will be allocated for habitation, and the rest of the space will mainly be occupied by offices.

Location requires a sacrifice

"Projects providing for the creation of large underground spaces, by definition are high risk because there is simply no corresponding experience in St. Petersburg. It is too early to argue about their economic efficiency. The question is still about the basic realizability of these ideas,” says Alexei Tchizhov, director of consulting at Praktis CB. “In general, it is difficult to predict the expenditures of projects in the city center.”

By Pashkov's calculations, the cost price of constructing a shopping complex in the city center is approximately 1.5 times more than a similar premises on a free land plot on the periphery of the city. If it concerns underground works, it could be 2-3 times more expensive. "It is obvious that the appearance of large shopping and entertainment complexes in the center such as Galeria on Ligovsky prospekt or the Stockmann project, will complicate the transport situation further. But as the city will sooner or later come to the conclusion that it needs to limit the entrance of cars to the historical part of the city, probably large, expensive underground car parks will not be necessary for such complexes,” Pashkov argues.

"The length of time for the recovery of outlay of large shopping projects in the center will be approximately 1.5 times longer than a “usual” shopping center, for example, at the KAD,” believes Boris Yushenkov, general director of Colliers International St. Petersburg. “Rental rates, which can exceed suburban rates by 1.5 times, will not counterbalance the longer time it takes to get approvals for the construction and the higher cost price of the works. But there is also good news for the developer. Correctly conceived and constructed projects in the center will carry much smaller risks, and consequently, have a greater investment value at sale."

"The shopping areas in the center of St. Petersburg are a special submarket with their own laws of a supply and demand. And if the city’s retail market comes near to the point of saturation the developers working in vicinities Neva, should not be worried because nothing beats the center. But when there are several large projects in one place being realized at the same time, like on Ploshchad Vosstaniya, they can only be successful if they take each other into consideration," Borisov assures.