Money Growing: They Found Something Better

In Rostov-on-Don, demand for quality office premises considerably exceeds supply, realtors ascertain. There are no class A premises on the market and class B business centers can be counted on your hands. Analysts at Cushman & Wakefield/Stiles & Riabokobylko (C&W/S&R) consider the following business centers as class B premises: Kupechesky Dvor (32,000 sq.m, developer - Pleyada), Clover House (17,000 sq.m, Clover Group), Bely Slon (7,200 sq.m, Edinstvo), Kristal (6,000 sq.m, Elvest) and Gedeon (5,300 sq.m, Gedeon). In April 2008 the Rostovsky office complex on Ulitsa grecheskogo goroda volos (18,000 sq.m, developer - Roststroiinvest) was commissioned in the Rostov commercial real estate market.

The price of image

If before only national companies were interested in renting premises in modern business centers, now Rostov firms have started paying attention to them, says Dmitry Chebanny, head of the commercial real estate department at Nirlan. According to him, the requirements for a standard office in Rostov have risen: "Before people were satisfied with a few rooms in a former scientific research institute, but now they are looking for premises where they would not feel ashamed to invite partners."

The best quality business center on the Rostov office real estate market, according to Alexei Alekseyev, an analyst in the research department at C&W/S&R, is the class B+ Clover House business center. But not every businessman can afford premises of this level. According to Vladimir Litvinov, an expert in the commercial real estate department at Titul, the complex offers offices with large areas (from 160 sq.m), while local firms prefer average sized offices (60-120 sq.m.). Rental rates in Clover House are 1,100-1,200 rubles per sq.m a month, and it has been filled at a level of 60 per cent, he says.

Bely Slon is 80-90 per cent filled with tenants, and Rostovsky is already 20-25 per cent filled, realtors say. The advantage of these business centers is their favourable location and good transport accessibility. Kupechesky Dvor on Ulitsa Serafimovicha is in the least favourable place being on a narrow, one-way street where it is inconvenient to park. This center is finding tenants slowly. The complex is mainly interesting to companies whose work is not connected with constant travelling, says Chebanny. "A Rostov consumer is prepared to pay for comfortable conditions," says Ilona Shilina, director of the management company of Gedeon business center. According to her, two thirds of the pool of tenants at Gedeon are local companies. The complex is 80 per cent full and the rental rates are 1,000-1,500 rubles per sq.m a month depending on the floor and volume of space.

In the fourth quarter of this year the class B+ Gvardeisky business center will be put into operation (19,000 sq.m) on Dolomanovsky pereulok. The main investor is Zheldoripoteka. In 2009-2010 in Rostov the first class A office complexes are planned to open. Edinstvo plans to put the RiversideDon business center (23,500 sq.m) into operation in the second quarter of 2009; in June 11 of 16 floors of the building had been built. RiversideDon will offer offices at rental rates of 1,800-2,000 rubles per sq.m a month. Mazanova has completed the construction of the first floor of the Pyat Morei business center (37,000 sq.m). "The first clients of the class A offices will be large international companies who are opening or have already opened representative offices in Rostov, and local firms who are prepared to pay for their image," considers Chebanny.

Multifunctional complexes in fashion

Mixed projects are popular among local developers. In April of this year Uzhny Stroitelny Alliance obtained approval to construct the first phase of the Alliance multipurpose complex in the Northern residential district, which will include a shopping and office center (15,000 sq.m, 10 floors), a multi-storey car park (9,000 sq.m, five floors) and a hotel and entertainment center (13,500 sq. m, 10 floors). The first stage of the construction will be the shopping and office center. Underground and above ground car parks will provide the office premises with parking places at a ratio of 1 parking place per 24.4 sq.m. "The planned completion date of the office center, according to statements, is the first quarter of 2010. Investments in the construction of the whole complex will be 1.5 billion rubles," says Igor Hoffmann, general director of Sigma-city (the sales department of the construction company).

ADM Group wants to construct a multipurpose complex on a 1.9 hectare land plot which it owns on Teatralny prospekt. Construction will be in two stages. In 2009-2011 the company plans to build a class B business center, a 3* hotel, a fitness center and a two-level underground car park (total area of all the premises - 63 000 sq.m), and in 2011-2013 it plans to build a class A business center, a shopping and entertainment center and an underground car park (70,000 sq.m). The concept of the multipurpose complex, which will have a total area of 100,000 sq.m is being developed by Gorizont.

Plans and demand

The market of quality retail real estate in Rostov in 2008 is still small. The number of retail premises in January-June increased only slightly as a result of residential premises being transferred to the non-residential category and the construction of small, district shopping pavilions, says Litvinov.

Analysts at DTZ estimate the volume of the market at 1.25 million sq.m, including 360,000 sq.m of quality GLA premises.

Alekseyev names as quality shopping complexes: Gorizont (70,000 sq.m), Mega (130,000 sq.m) and Astor Plaza (22,000 sq.m). Vavilon shopping and entertainment center (31,000 sq.m) and Sokol shopping center (13,500 sq.m) also operate in the city. The majority of retail space is built in and attached to premises on the ground floors of apartment buildings.

With the arrival of large chains and the growth of local companies, steady demand for high class retail premises has formed, analysts say. Demand for quality premises essentially exceeds supply, which is stimulating the active development of the retail real estate market, notes Alekseyev. Operating shopping complexes are extending, and developers are trying to put new premises into operation somewhat quicker. But as far as this is concerned not everything runs so smoothly: local realtors say that in this segment it is necessary to wait until 2009 for new good quality supply.

Edintsvo has put back its date of delivery of Megamag (100,000 sq.m) from autumn 2008 to the first quarter of 2009. Megamag will have a grocery hypermarket, an entertainment zone, a food court, a DIY shop and a selection of other shops, says Valentina Polevichenko, general director of Edintsvo. Realtors note the favourable location of the complex: the general plan of Rostov-on-Don stipulates the construction of a bridge on Siversa ulitsa, from which you will be able to reach Megamag from the city centre in several minutes.

RosEvroDevelopment has also shifted the commissioning of the Fashion Center shopping and entertainment center (14,000 sq.m) from 2008 to 2009. Vester, which intended to start the construction of the Grand Rostov shopping center (100,000 sq.m) in the first quarter of 2008, is still registering the documentation on the land. On the site where Yekaterinburg’s KIT-Kapital planned to construct the KIT shopping center (50,000 sq.m), there is also no sign of construction works. Rimma Remizova, head of PR management at Vester group explains the delay by the fact that "the registration of the documentation on land is a long process and to name an exact date to start construction is obviously not possible." The PR-manager of KIT-Kapital Elena Pokrovskaya says that the date of delivery of the Rostov premises will move back, but "construction is to the working schedule."

In the first quarter of 2009 Shokolad shopping center (70,000 sq.m, Sedmoi Kontinent) is planned to be put into operation. Zolotoi Vavilon (Patero development, ADM Group, 78,000 sq.m) is being built.

Gorizont is building an additional shopping gallery with an area of 5,000 sq.m, which is planned to open in November. Vavilon will soon start the reconstruction of the entertainment center and boutiques to attract new tenants.

In street retail 90 per cent of clients traditionally look for a shop in the city centre, says Litvinov. According to Chebanny, premises measuring 30-50 sq.m on through streets are most in demand. Demand for such retail space is 3-4 times the supply, realtors ascertain. "It’s still a long time from when shopping centers will be more popular than shops on the ground floors of central streets," considers Litvinov. According to him, many brands occupy places in large shopping centers with great desire, and will take their time in looking for premises in the city centre. Dan Polonsky, general director of the Gorizont shopping center says that a boutique on a central street is an obligatory condition for many brands. Among brands that first came to Gorizont and only then opened their own shops are Savage, Promod, Carlo Pazolini, Accessorize, Polonsky gives as an example.

According to Alexei Chumakov, an analyst at Titul, rental rates vary depending on the area: in the so-called "golden square" (bordered by Voroshilovsky and Budennovsky prospekt, and Bolshaya Sadovaya ulitsa and Krasnoarmeiskaya ulitsa) it is possible to rent a retail premises for 2,300-5,500 rubles per sq.m a month, and in residential areas for 700-1,000 rubles per sq.m a month. Chebanny considers that Rostov could absorb at least five more large shopping centers. Therefore, notes Alekseyev, the projects that have been announced by developers, if their concepts are developed correctly, will be demanded.

Time for logistics

The activity of retailers is promoting the development of the logistical business in Rostov. Such companies as Auchan, Metro AG, X5 Retail Group and O’Kei have proved to be a strong impulse to the warehouse real estate market of the city, says Elena Bushmina, an adviser in the warehouse and industrial real estate department at C&W/S&R notes. "Usually a year or two after the arrival of national and foreign retail chains to the market, raised demand for the warehouse spaces begins to be observed, and in Rostov-on-Don this time has just come," says Bushmina. Local realtors are unanimous: demand for quality warehouses exceeds supply by at least ten times.

According to C&W/S&R, warehouse space in Rostov currently stands at 400,000 sq.m, of which 30,000 sq.m are good quality premises. The only class A premises in the region remains the NLK-Bataisk terminal (10,000 sq.m, capacity of 18,000 palette places), the first phase of which National logistics Company (NLK) put into operation in December 2007.

But logistics parks are actively under construction. NLK will start to build the second phase of the terminal in 2009, which will increase its warehouse space to 50,000 sq.m. Almost 200,000 sq.m of warehouses will be built 1.5 km from Rostov by Raven Russia investment fund and Avalon by way of the Logopark Megalogix Rostov-on-Don terminal. Construction will be in two stages: the first phase will be put into operation by the fourth quarter of 2008 (90,000 sq.m of warehouse areas), and the second by the end of 2009 (110,000 sq.m), says Alexander Gorbachev, head of the marketing department at Armbridge Consultancy (the adviser of the project is Megalogix).

Hermitage Construction Management Group (HCMG) will add a further 110,000 sq.m: the company owns a 18.6-hectare site in the Aksaisky district and is currently changing the category of the land from agricultural purpose to industrial. Construction of the logistics park is planned to start in the fourth quarter of this year and be put into operation in the first quarter of 2010, says Vitaly Tkachenko, general director of HCMG. Evrasia Logistics also has a site – 83 hectares in the Bataisky industrial zone - where the company will build a terminal measuring 183,000 sq.m.

All announced logistics parks will be demanded by the market, predicts Svetlana Aksenova, deputy head of the commercial real estate department at Nirlan. If national logistics operators realize their plans, they will satisfy the current demand for high class warehouse space, considers Bushmina. Not only large investors but also local businessmen are making money from promising warehouse projects. "Now many consider warehouses as a profitable investment. To construct a small warehouse measuring 3,000-5,000 sq.m and lease it is easier than finding a client for retail or office premises," notes Litvinov.

For visitors

The most significant event in the hotel business in Rostov in 2008 has been the announcement about London Regional Properties’ plans. The British investors plan to start construction of the Hilton Hotel & Business hotel and office center at the end of this year on a 0.5-hectare site it owns on Ploshchad Gagarina. According to general director of London Regional Properties David Dzheovanis, investments will total $100 million, $30 million of which will be the company’s own funds. Construction is planned to be completed by 2010. The 15-story center measuring a total of 30,000 sq.m was designed by Russian company Kvadrat. Class A offices will occupy 15,000 sq.m, and 200 rooms of the 5* Hilton hotel will occupy a further 15,000 sq.m. The rooms in the hotel will cost $250-$300 per night (currently the most expensive room in Rostov is $300 per night).

In Chebanny’s opinion, the project will be demanded. However some realtors believe that the location of the hotel has not been chosen well: next to it is the city hospital and a cemetery, and traffic on the flyovers of Ploshchad Gagarina is very bad.