Volumes of New Commercial Real Estate Continue to Fall
opened in Russia in the first half of 2018
In the first half of this year, the market of new shopping centers in Russia continued to decline. According to Colliers International, in January – June of 2018, Russian shopping centers have put into service 217.4 thousand square meters of retail space. It is only 57% to the level of the first six months in 2017, when 381.2 thousand square meters of retail space were constructed, and 44.6% to the first half of 2016 (487.1 thousand square meters). Volumes of new construction in the first six months of this year became a negative record of the last decade.
In total, in the first half of this year, 11 shopping malls were opened in the country, including 3 in Moscow and 2 in St. Petersburg. In the first six months of 2017 and 2016, the same number of new shopping malls were opened only in the regions, not counting the two largest cities. This year, only 6 shopping malls were built in the regions, and the rate of decrease in new construction here is greater than the average rate in Russia. The outcome for the first six months of this year was 119 thousand square meters, which amounts to 44.8% in comparison to the same period last year and only 32.5% in comparison to 2016.
The Capital Response
Despite the weak statistics for new construction in the regions, Samara, Yekaterinburg, Rostov-on-Don, Nizhny Novgorod, and Voronezh remain leaders among cities with the population of more than a million. “If Moscow launches all announced projects, saturation indicators in the two capitals will equalize, reaching 423 square meters per one thousand people,” Oksana Kopylova, regional manager of trade and analysis at JLL, the trade and storage real estate company said. “Therefore, for the first time in eight years, Moscow will catch up with St. Petersburg based on square footage of retail spaces.” However, neither of the capital cities will reach the level of leaders this year. We believe that Samara will achieve the best result of 684 square meters per one thousand people by the end of this year.
According to JLL, Moscow has announced 64.4 thousand square meters of new retail construction by the end of this year, and St. Petersburg announced 6.5 thousand square meters. Colliers stated that in the in the second half of this year, regions will launch 355.6 thousand square meters of top quality retail spaces. Although, some can be postponed until 2019. Colliers International estimates that, in total, all shopping centers that are being constructed in Russia, with the exception of those that were announced this year, cover 1.8 million square meters. It is 6.6% of all retail spaces in Russia in the first half of 2018.
Shopping Malls Embrace Entertainment
According to them, construction of another 1.2 million square meters was frozen. Many developers believe that the main reason for suspending construction is a longer project pay off time and decrease of consumer income. As a result, it leads to a longer sales turnover for vendors.
Experts believe that restaurants and entertainment areas are the main driving factors on the market of shopping malls. For example, at Kashirskaya Plaza, the largest shopping mall launched in the second quarter of this year in Moscow, restaurants and entertainment areas occupy 35% of GLA (lettable area).
According to Irina Tsarkova, deputy director in charge of commercial real estate at Colliers International, entertainment at St. Petersburg shopping malls is steadily growing. It now includes new concepts such as lego parks, game stores, and interactive learning areas for children. Currently, this segment covers about 15% at Saint Petersburg shopping malls. Irina Tsarkova believes that entertainment areas constitute approximately 20% of the shopping malls’ profit.
Dmitry Manlylov
