Money Growing: Park Frame of Mind

The construction of the first retail parks in Russia has only just begun. However, developers of such projects treat the definition of the format too freely and try to raise their income by placing shopping galleries and food court zones in such premises, which is considered inadmissible for western power centers.

The classical understanding of a retail park (or power center) are shopping complexes located in the suburbs of cities or outside a city and consisting of several "boxes," each of which is occupied by a specific operator of large retail trade. In Russia there are no existing examples of retail parks that completely correspond to the definition. The majority of projects announced as this format, are more like shopping centers with elements of a retail park.

In the meantime development of this format is favourable for everyone: developers, operators of retail trade, and consumers. The first get the opportunity to build on not the most attractive sites which are not suitable for the construction of shopping and entertainment complexes, and moreover save on the cost price of construction, which is lower for retail parks than classical shopping centers. The second can rent huge "boxes" at a low rate and by doing so increase turnover and their presence on the market. And the third get goods at the lower prices sellers can offer. But does this format have future in the Russian market, where a shopping center is perceived as not only a place for shopping but a place of leisure?

First signs

When Garant-Invest started building its retail park on Varshavskoye shosse, analysts seriously started to discuss the prospects of this segment of the retail real estate market, and representatives of the company-developer were sure that their project would become the first power center in Russia. However, when the complex had been constructed, it became clear that the project was only partly a retail park.

With the view of increasing the profitability and reducing the recoupment period in addition to the standard "big boxes" a shopping gallery has opened on the premises. "Among factors that make it not possible for a project to be classified as a retail park is the presence of a shopping gallery and public catering premises," says Olga Shirokova, head of the consulting department at Blackwood.

However, the start is not bad. Now across Russia about ten retail park projects have been announced. And there will be even more! Alexei Panfilov, president of Garant-Invest (the developer of the project on Varshavskoye shosse), recently told Vedomosti about the company’s plans to continue the construction of retail parks, including in the regions, as he sees good prospects in the development of this format in the Russian market.

If the experience of the pioneers appears successful, even half of those wanting to participate in the development of this format that have come to Russia from North America would be enough. At the moment in Russia there are retail park projects on Berdskoye shosse in Novosibirsk (60,000 GLA), in St. Petersburg within the structure of Utkin Zavod's project (60,000-100,000 GLA), and the Ufimsky Trakt project in Chelyabinsk (80,000 GLA), says Igor Chaplinsky, director of development at Magazin Magazinov. And president of Promsvyaznedvizhimost Michael Golomb can name three projects which conform to the format, though need proving: Severny Mall in St. Petersburg, Big-Box on Novorizhskoye shosse and Samolyot in Kievsky near Moscow. In turn, Shirokova cites as an example the announced retail park in Voronezh on the Don route.

Tashir group is trying to position its premises that it is building on Dmitrovskoye shosse as a retail park. The premises is a huge Rio shopping center (measuring more than 200,000 sq.m and is part of the capital’s City-Park (a huge development project of large plots of land). According to the vice president of Tashir Vitaly Efimkin, the premises on Dmitrovskoye has been announced by his company as a retail park. "It corresponds to the definition on all parameters. There will be an office center, hotel complex, car show room and car wash, and a logistics center," says Efimkin on the concept of the project. Although In his grand advertising, he has forgotten that offices, hotels and car washes are not simply not essential for a classic retail park or power center, but are more likely to be undesirable elements.

Similarly, it is not only Efimkin and Panfilov that treat the definition of a retail park too freely. It is likely that of the many regional projects positioned today in this format, a minimum of half will be representative of this segment, like the first projects of Tashir and Garant-Invest.

Simply boxes

"The first retail parks appeared in the 1960s in the US, and then the fashion was thrown into Europe,” says Maxim Karbasnikoff, director for Russia and the CIS and head of the department of retail premises at Jones Lang LaSalle. “In the 1970s such projects appeared in France, and in the 1970s-1980s in England. The main boom in the retail park segment has been observed over the last 10 years." Among the most well-known projects are 280 Metro Center (USA) and Crossroads Centre (Canada), and many similar projects in Europe. But what do they represent?

"A retail park is made up of several large format separately standing retail boxes,” says Sergey Kotov, a senior adviser in the retail real estate department at DTZ. “As a rule, they are located in residential suburbs with good car accessibility and an extensive parking zone." And according to Karbasnikoff, a classical retail park has practically no zones of general use, except for outdoor parking. "Retail parks in other countries represent a set of large operators located in separately standing buildings on one big territory (100,0000-200,000 sq.m), usually outside a city or located in the suburbs," summarizes Evgeniya Smirnova, an analyst at Russian Research Group.

In other words, on one territory, several "boxes" are constructed, each of which is occupied by a rather large specific operator. As a rule, they are DIY superstores, home appliance and electronic stores, etc. The average area allocated for each operator is a minimum of 5,000 sq.m, but is more often at 10,000-20,000 sq.m. Such objects do not have a shopping gallery, a food court or any entertainment. There should also be no offices, hotels and especially not a car show room with a carwash.

It will be expensive

So why are there no classical retail parks in Russia? There are several reasons. According to Polina Yapryntseva, an adviser for retail real estate at CB Richard Ellis, "Russians go to a shopping center not buy things but to relax. That’s why on our days off we go to shopping centers, where you can not only buy the things you want, but also have a good time, i.e. have dinner, spend a lot of time. People go to retail parks only to make purchases, and this doesn’t suit Russians yet."

Anther reason is noted by director of development at Swiss Realty Group Ilya Shershnev: "Today a major factor against the construction of retail parks is the high cost of the land plots. Developers who want to make high returns, are forced to dilute large tenants with shopping galleries, and that completely changes the ideology of projects and their concept." "While other formats and types of real estate (classical shopping and entertainment centers, warehouses) are capable of providing higher profitability, we shouldn’t expect to see a large number of retail parks," says Golomb categorically.

Really, in today's market there is no sense for developers to invest funds in the construction of retail parks which will take 7-10 years to make returns, when it is possible to construct a standard shopping center and the recoupment period be 4-5 years. According to Shershnev, retail parks are a simple, but not too favorable strategy for developers: "They are attractive only when the investor has a land plot near to which there are already good points of an attraction, whether it be other large format retailers or powerful local shopping centers."

Cautious optimism

However, retail parks do have a future, it’s just not as cloudless as in the West. "Buyers should warm the market to this format," believes Yapryntseva. And Shershnev says that retail parks are not always part of one single development project: "It is very much the other way: often retail parks arise spontaneously when one after the other land plots start to get taken up by large format retailers. They are not afraid each other even if they are in direct competition."

But why do we need such projects? "Retail parks are an alternative to the busy shopping complexes located in the city centre,” approves Kotov. “Their main advantages are their locations on main highways, the presence of plenty of parking, and large-format shops that cannot be placed within a city’s boundaries."

And Chaplinsky reminds us that retail parks are formed of so-called “killer” tenants (i.e. shops that offer a maximum assortment of goods in their given structure or category of goods), and therefore purchases in them are intentional, unlike in usual shopping centers, where up to 80% purchases are spontaneous. And Chaplinsky also says that for retail parks there are no strict requirements in terms of location, only that there are good access roads. "Locations in settlements by definition assumes lower prices for land, which is important as it reduces both the price of construction and the total investments," he says.

Yapryntseva also reminds us that the cost price of construction of retail parks is much lower owing to the simplicity of the design and use of simple, inexpensive building materials. All this allows developers to save money and achieve more acceptable time limits of recoupment. Yapryntseva also connects the future of retail parks with the development of the outlet format of shops (the sale of collections from previous seasons by famous brands at reduced prices). General director of Miel Commercial Real Estate Andrei Bushin connects the prospects of retail parks with a high deficit of land plots for construction within the city boundaries and at the MKAD: "In due course the new format of retail real estate will develop in Russia more actively, and the number of such premises will annually grow."

"In Russia the retail park format may develop, but it will not correspond completely to the world concept of the format,” summarizes Smirnova. “The format suits large operators who may be western companies. The location of the premises is most important. It may be on a highway with good transport accessibility (Novorizhskoye or Kievskoye shosse)." In her opinion, the retail park format will most likely change slightly to satisfy the existing needs of the market. Golumb also recognizes certain stipulations with which retail parks will develop: "Foreign operators are ready to come to retail parks but there are still not enough of them. For completeness and integrity of the concept domestic retail operators are necessary – clothes discounters, household good stores. Retail parks are also popular with supermarkets, DIY shops, large electronic stores, furniture stores, and sports and household goods retailers." But such operators are diminishing!

Yapryntseva thinks it is most likely that the development of retail parks in Russia will start in the regions where the cost of land is lower, and lower incomes will push people to go to the suburbs to get discounted goods. "In my opinion, retail parks will be successful in Russia in a rather large zone – where there is a high number of cars per capita, and also provided that the offers of tenants of retail parks will differ from those in standard in shopping centers, for example, will have more competitive prices," summarizes Karbasnikoff.