Guiding Lines: They Left But They Want to Come Back

According to the data of Russian Research Group, in cities with a population of more than 500,000 people the level of saturation of modern retail space is higher than in Moscow. According to the company’s ratings in six cities (Krasnodar, Tolyatti, Tyumen, Yaroslavl, Kemerovo, Orenburg) the quantity of shopping centers per capita exceeds Moscow by up to 27 per cent.

Large developers have been actively developing in the regions for a long time – they are attracted by the vacant land plots for the construction of large shopping centers, low competition, the loyalty of local authorities and rather fast recoupment times. To build new premises in Moscow becomes more complex every year: almost all land plots in a favourable location have been bought or developed. In addition the cost of building work is higher than in the regions, marks Sergey Bogdanchikov, director of the consulting department at London Consulting Management Company.

Many companies that have bought land plots in Moscow with the intention to construct shopping centers on them have not been able to realize their plans. In the capital the construction of many shopping centers have been planned, says Vyacheslav Katsegorov, head of the research department at Magazin Magazinov. But the realization of many of them has not started because of huge shopping and entertainment centers that have appeared, for example the first Mega. Developers have understood that compete with large formats is difficult, and have decided to build in other million populated cities where the growing incomes of the population are catching up with those in Moscow. Therefore, in Katsegorov’s opinion, there is a misbalance in the volume of retail premises per capita.

Many developers decided to start with places that seemed to them more accessible from the point of view of finance and administrative resources. The next step was to move to cities with a population from 500,000 people. In Bogdanchikov’s opinion, the most successful regions are the Novgorod and Tyumen regions, the Krasnodar and Krasnoyarsk areas. He is sure that a general characteristic of the regions is high demand, which considerably exceeds the volume of supply in all segments of commercial real estate. "Just half a year ago the markets in large and medium-sized cities were good alternative for investment and the development of business for developers," adds Ivan Podkov, a managing partner at Panfilov, Podkov & Partners. But the projects of Moscow investors do not always go smoothly. Numerous administrative approvals, the specificity of local mentality and in some cases the complete lack of a developed consumer culture hinders the realization of projects.

Currently because of the financial crisis the situation is changing. Now even building companies that have a reasonably large investment reserve, are freezing or selling off their projects in the regions, he says. They are also trying to return to Moscow and St. Petersburg.

But there nobody expects them. Developers say with anonymity that for any attractive land plot an “all-out war” usually develops.

And although the problems concerning Moscow land remain the same - high prices, a complete absence of vacant "spots" for construction, bureaucratic delays in the approval of documentation and pressure from the public to reconstruct or redevelop old buildings, Moscow, all the same remains Moscow, and guarantees stable profit even under the conditions of a crisis, Podkov approves. Katsegorov agrees: "Of course, shopping and entertainment centers under construction in Moscow will always be demanded." Podkov considers that in the next six months we should expect to see the active construction of new shopping centers.

If developers start to return to the capital’s market it will lead to an active increase in competition. In the long term it is possible to expect an increase in shopping complexes and a decrease in rental rates. But it is unlikely the price will drop for the end user: during periods of crisis inflation grows at quick rate. And you won’t have to travel across the whole city to shop in one of the few shopping centers and when you get there squeeze through the crowd of people, who, like you, live in areas with no shopping centers.