Money Growing: Investors Are Coming Back

The office market in Kazan is now represented by 69 business centers with a total area of about 330,000 sq.m. Advisers from Cushman & Wakefield / Stiles & Riabokobylko (C&W/S&R) consider only three of the premises measuring a total of 25,000 sq.m as class In their opinion there are 31 class B+ and В- business center with a cumulative area of 119,000 sq.m. Thus, analyst at C&W/S&R, Elena Stryukova, sums up that the quality supply of offices does not exceed 144,000 sq.m.

Reassessment of surpluses

According to Stryukova, in the last year the share of vacant class A and B premises has decreased to 5.5 per cent whereas at the start of 2007 it was estimated at 17 per cent. "Demand for the qualitative premises is made by federal and foreign companies that open in Kazan branches and rent offices of a high class ", - she explains.

According to realtors polled by Vedomosti, local companies are also gradually moving from old buildings that have been adapted into offices, into modern business centers. They, however, do not choose to do this themselves. According to director of Bisness-realt Marat Nurullin, tenants choose expensive offices because they cannot find anything else at a reasonable price: "There is always a deficit of small inexpensive premises."

Nurullin says that Bisness-realt gets a lot of applications for offices with an area up to 40 sq.m with a required rate of "the cheaper the better" - the share of tenants with a limited budget in Kazan is the highest. A deficit of small inexpensive offices is also noted by Elza Abdrakhmanova, a commercial real estate expert at Urinfo. "We always have applications to rent offices measuring 20-60 sq.m. Whereas real estate agencies have to fight each other for large tenants, who are prepared to occupy 200 sq.m," she shares.

A new trend in the Kazan office market is that of an increase in the share of sales and a reduction in the share of rental transactions. A year ago, according to Abdrakhmanova and Nurullin, there was almost no demand for the purchase of offices. The realtor explains that businessmen now prefer to take out now loans to buy and construct real estate and own their offices. "Now tenants can allow themselves to buy premises in a property," agrees Yan Aizenshtat, deputy director of Bauer-Kazan.

According to C&W/S&R, the average price of 1 sq.m of office premises in the primary market in March was 52,000 rubles. Rental rates in class B premises were 800 rubles per sq. m a month and class A premises were double that at 1,700 rubles per sq. m a month. According to Bisness-realt, rental rates in premises adapted into offices were 450 rubles per sq.m a month.

Abdrakhmanova says, "Demand for purchasing offices now exceeds supply. Offices in really good places rarely come onto he market and get occupied quickly," she notes. Therefore the purchase of apartments on the ground floors of new buildings and their transfer into the non-residential fund are still widespread among Kazan businessmen," says Abdrakhmanova.

Where offices are built

In 2007 investment interest in the office segment was insignificant. According to Strukova, in the last year the supply of quality office areas has only slightly been replenished: three new premises came onto the market whereas in 2006, 15 business centers were put into operation. Investors prefer to announce multipurpose projects with an office component.

According to realtors, the most demanded offices by tenants in the last several years have been in the Novo-Savinovsky area, but "supply in this area has been limited," notes Strukova. Now developers are trying to fill this void. The majority of new premises under construction today are in the Novo-Savinovsky area. These are the Park Podeby multipurpose complex (developer - Glavinvestproektstroi), and Mostaf’s Bauer Plaza multipurpose complex (developer - Bauer-Kazan).

The Bauer Plaza complex is planned to be put into operation in the third quarter of 2008. Another of Bauer’s projects is the Azimuth multi functional complex on the Orenburgsky route in the area of Tankovoye ring. The total area of the complex will be 57,500 sq.m, with office areas of 16,000 sq.m. Park Pobedy shopping and administrative complex measuring 23,500 sq.m is planned to be put into operation in the third quarter of 2008. The Investor is real estate investment fund Park Pobedy. Not far from here Mostaf is realizing its own project. Offices will occupy 6,500 sq.m of a 16,000-sq.m multifunctional complex. This will be put into operation roughly in the first half of 2008.

Experts observe in the central and Vakhitovsky areas that tenants of existing centers complain about constant traffic jams and a shortage of parking places, notes Nurullin.

In the second quarter in the center of Kazan the Ostrovsky business center will open (total area – 8,000 sq.m, office space – 6,500 sq.m, developer and operating company - Forum-Trading).

The second phase of Koltso hypermarket (Edelweiss Group) will also include an office segment. In the city centre Klover Group will construct a multifunctional complex with an office segment called Umny Dom (Intelligent Building). In the second to third quarter Grand Plaza shopping and office center will be put into operation in the center of Kazan. The total area of the building is 3,500 sq.m, with office space measuring 1,555 sq.m. The developers are Kazan company Faust and Moscow’s STR Group.

The expansion of chains

Currently in Kazan more than 30 shopping and entertaining centers with a total area of about 722,000 sq.m operate, calculate analysts at C&W/S&R. The number of unspecialized street-retail premises, according to Stryukova, is impossible to calculate. The share of vacant premises in the segment of quality supply, in her opinion, in January 2008 was only 2.8 per cent. Rental rates for shops is growing. According to Citi-Tsenter, in 2007 they rose a minimum of 10 per cent. C&W/S&R notes that in some shopping centers (for example, in Mega and IKEA) rental rates in 2007 rose by $150-$200.

Local realtors say that shopping centers Citi-Tsenter and Yuzhny have almost lost the fight for tenants. "It is hard for small players to compete with large and successful landlords," explains Leonid Rakhimov, general director of Citi-Tsenter.

A revival was noted in the trading real estate segment in Kazan. National store chains are even more often incurring developing functions and announcing plans of expansion to Kazan. In the third quarter of 2008 the start of construction of Home Center hypermarket (6,000 sq.m, the investor - Israeli Fishman Group) is planned. As the general director of Home Center Igor Maryash has informed, the premises is planned to be put into operation in the first quarter of 2010.

St. Petersburg’s Lenta is also considering the possibility of opening a hypermarket in Kazan. Meanwhile it plans to open a shopping center in Naberezhnye Chelny, the second largest city by population of Tatarstan. According to plans, the project will be launched in July 2008. It will have a total area of 12,000 sq.m, 7,500 sq.m of which will be occupied by Lenta hypermarket. The volume of investments is estimated by the developer at 650 million rubles. According to local players, French chain Auсhan also plans to come to Kazan. They refused to comment on their plans in Kazan. K-Rauta (the Russian representative of Finnish company Kesko), which operates in the goods for the home segment has also said that it is looking for a site for a hypermarket.

"There is not currently high competition in the DIY segment in Kazan,"says Rakhimov. Currently only Obi and local retailer Megastroi work in this segment.

Local chains do not lag behind their national international counterparts. In March Bakhetle put another grocery hypermarket into operation, with its anchor being a homemade food supermarket by the same name. According Valentina Dokshina a marketing expert at Bakhetle, it is the biggest shopping center of the chain, measuring a total of 23,500 sq.m.

Real grocery chain, represented in Kazan by only one hypermarket - the anchor of Park House shopping center - is also planning to expand. According to Elena Asanova, head of the PR department of Real-hypermarket, the company is currently considering options to rent in shopping centers under construction and in parallel is looking for land with area from 2.5 hectares for its own construction.

According to Rakhimov, "complete construction" of large shopping centers in Kazan will end soon. A growth in the supply of shopping premises will occur mainly due to the opening of specialized shops of various formats and the inclusion of a shopping component in multifunctional complexes. "For example, the format of a grocery boutique where it is possible to find exotic products such as marinated black cod, does not exist in Kazan at all," Rakhimov notes. Rakhimov expects that sooner or later a retailer will appear in Kazan who "will take away Bakhetle’s piece of delicious pie under the name of “products for rich.”

Depends on the "street"

Nurullin says that the street-retail segment is developing stably enough, but that street trade is gradually conceding its position to quality shopping centers: Rental rates in built in or extended premises have not grown in two years. According to Bisness-realt, rental rates for unspecialized premises range from 400 to 3,000 rubles per sq.m per month, with the most expensive premises located in the Vakhitovsky area. Traditionally the most demanded premises are 50-150 sq.m. According to Rakhimov, rental rates for street retail strongly depend on the location of the shop and can differ by several times. "It depends on which "street",” he jokes.

The range in sale prices, according to Nurullin is also great, from 25,000 rubles to 80,000 rubles per sq.m. Premises directly on large highways and near public transport stops are still attractive for retailers. "But there are practically no such offers for sale," complains Dina Zhuravlyova, the founder of Yort.

In the opinion of Nikolai Kozin, assistant managing director of X5 Retail Group in Tatarstan, the shortage of premises measuring 100-150 sq.m in “through passages” places constrains on the development of grocery chains working in the segment of local shops.

The recent growth in supply of street-retail premises is mainly thanks to the re-profiling of ground floor premises of new buildings into shops. For example, in Solnechny Gorod almost 30 000 sq.m has been allocated for this purpose, and in Magellan about 4,200 sq.m has been allocated

"Many grocery-retailers want to buy premises in new residential buildings, and in fact the inhabitants are their potential buyers," Kozin concludes.