Trading Centers in Saint Petersburg
St. Petersburg has become number one Russian city in terms of retail; it has even shot ahead of Moscow by per capita retail space, drawing very near to European capitals. Developers have stopped at that, none of them announcing big projects nowadays.
As for the shopping and leisure center Leto on Pulkovo Highway due to be commissioned this spring, all areas have almost been let there. In this situation the only thing left for retail operators is to wait for reconception of outdated retail properties and a gradual rise in rental rates.
Leader of supply
In 2006-2008 investments in retail real estate kept growing as Western, Moscow-based and regional investors were entering the Petersburg market. Local investment-construction companies would diversify their business at the expense of non-core assets in this sphere. In 2009 these processes halted and the market slowed down. Only by late 2010 the situation changed for the better.
CEO of Knight Frank SPb Nikolai Pashkov describes the past year as a turning point for the retail real estate market. “Already last summer positive trends became apparent on the market while the end of the year was marked by successful grand openings of long-awaited facilities, big investment deals, and the unfreezing of several projects launched prior to the crisis,” he illumines.
As reported by Knight Frank, last year the amount of commissioned retail areas in Saint Petersburg four times exceeded the level of 2009 – 10 shopping malls with the cumulative GLA of 268,000 sq m opened their doors.
They figured at Colliers International that at the turn of this year 159 retail properties with the aggregate area of 4.25 million sq m functioned in St. Petersburg, of which shopping and entertainment centers account for 57% of total retail space, according to NAI Becar, shopping centers and freestanding grocery hypermarket – for 12-16% of the market, whereas furniture and DIY hypermarkets account for 8% and 7% of the total retail space, respectively.
“By the end of 2010 per capita retail space in St. Petersburg reached 658 sq m of GLA per 1,000 residents (compared to only 350 sq m in Moscow), which is the highest index in Russia, states Vladislav Fadeev, director of consulting and marketing at GVA Sawyer SPb. This figure well conforms to the standards of minimum required retail space adopted by the Russian government in 2010. ASTERA experts calculated that last year per capita retail space in St. Petersburg grew by 12% to 931 sq m per 1,000 residents, which is quite in line with European standards, although specialists still complain about the quality of retail properties in the city – way below the European level.
Center rushes ahead
Hopefully new shopping malls will change the generally deplorable situation. Thus the inauguration of two large retail properties, Galeria and Stockmann Nevsky Center, in central Petersburg which has until recently been crippled by the apparent dearth of quality retail space has a special significance for further market development. Now the downtown closes the leading quartet in terms of per capita retail space (2,256 sq m per 1,000 residents), being next only to Primorsky, Moskovsky and Vyborg districts.
According to ASTERA, about 350,000 sq m of areas within shopping malls were put into operation in 2011. True, projects scheduled for opening as early as last year account for about a half of the expected accretion. Among them is the design center Aura at the outskirt of St. Petersburg that lost tenants during the crisis, or the retail-office center Zvenigorodsky above the eponymous metro station that did not open its doors to buyers for technical reasons. The list of potential retail openings in 2011 also includes two functional objects: furniture center Great and shopping center Rybatsky which will be reconcepted by the new owner and later reopen in a renewed format.
Taking into account the said announced projects, total supply in St. Petersburg retail real estate market will reach 4.6 million sq m by the end of this year.
Trade picks up
The contraction of consumer demand in times of crisis forced many retailers to review their expansion plans, but already from the second quarter of 2010, burgeoning demand among the tenants for highly liquid retail areas could be observed. “Although about 270,000 sq m of rentable areas were delivered to the market during 2010, the occupancy of shopping centers in early 2011 is still in excess of 90%," asserts Roman Evstratov, director of retail real estate department, Colliers International SPb.
As reported by Petrostat, from January to October of 2010 the retail turnover in Saint Petersburg amounted to 564.3 billion rubles, up 13% against the same time in 2009. The most vibrant segments today are clothing and shoes, public catering, and grocery retail. The activity of former gaming companies which entered the market in a new business format is also on the rise.
As regards the shopping malls, last year operators gave preference to the most successful centers boasting high footfall. For instance, not only are vacant areas lacking in such shopping malls as Sennaya, PIK, Grand Canyon and Raduga; they even keep “waiting lists” of tenants. A low vacancy rate (2-5%) is also maintained at MEGA Dybenko, MEGA Parnas, Continent, and Atmosfera malls.
Stockmann Nevsky Center and Galeria that opened in late 2010 are almost 100% occupied.
According to GVA Sawyer, the number of tenants keeps growing in less successful objects which were only half full at the height of the crisis – Fiolent, Miller Center, Promenade and some others. Now their occupancy exceeds 85%. Felicita, Masshtab, Pulkovo-3, Cosmopolis and Northern Mall are occupied by 50-70%,” add the experts of NAI Becar.
The average occupancy of shopping malls open for visitors was about 90-92% at the end of 2010 (as informed by GVA Sawyer). Low demand for some facilities can be explained by their lame location, difficult access, high competition in the surrounding area, or inadequate concept.
Prices stop being discounted
By the end of 2009 the base rent for retail areas had stabilized and in mid 2010 it started growing slowly. As a result, the rental rates for anchor tenants grew by 5–10% during the year, on average, and for shopping gallery operators they rose by 20–30%. Yet almost in all shopping centers large anchor tenants are still delivered from paying the fixed rent and their payments depend on their retail turnover. It’s quite symptomatic that the rates at one and the same center may greatly vary for new and already existing tenants: the average gap is 20%.
Experts forecast burgeoning demand for quality retail areas in the months to come, explaining this dynamics by swelling retail turnovers, entry of new operators to the market, and the mounting scarcity of quality retail areas. And the demand coupled with the high occupancy of shopping centers will entail a gradual climb of rents. According to Colliers International, their growth in 2011 can be as high as 10–15%.
CRE North-West #3 (39), March, 01 2011
