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2013 Results in the Retail Segment: Moscow’s potential is twice that of Warsaw and market saturation remains far away

At the end of 2013 Moscow was ranked ninth among Eastern European capitals in terms of retail space per capita. At present Moscow has 352 sq m of retail space per 1000 residents. Warsaw claimed the top spot in the list, with a saturation level 2.2 times that of Moscow. Meanwhile, St. Petersburg is ranked sixth, thanks to the opening last year of nine shopping centres with a total of 346,000 sq m. Today the city has 489 sq m of retail space per 1000 residents.
In total Moscow saw the opening of 11 new retail centres with a cumulative GLA of 211,000 sqm. This relatively low volume of new completions was due to the fact that a rather large portion of projects initially planned for 2013 are now scheduled to open this year. The Moscow retail real estate market remains far from saturation, and St. Petersburg is substantially ahead of the capital in terms of its relative volume of quality retail centres.

Last year retail space in Moscow saw high demand from retailers. Operators were drawn by the high level of economic activity in the capital as well as the high level of consumer demand, which ensures high turnover at newly opened stores. Twenty-two new international brands entered the market in 2013, adding to the 18 which came to the market in the previous year. The main retail segments driving this inflow were clothing & footwear and food & beverage, which together accounted for more than 80% of the number of new brands. 

Notably, the rapid development of Moscow’s retail real estate market is driving gradual changes in the composition of street retail tenants. The share of food service providers, grocery stores and operators of service industries, especially bank branches, among street retailers is increasing. At the same time, clothing & footwear retailers are increasingly moving to shopping centres. 

A significant proportion of clothing & footwear operators will limit their street retail operations to such prime locations as Tverskaya Street, Stoleshnikov Lane and Kuznetsky Most, which continue to be the most popular locations for the opening of flagship stores. In 2013 Tommy Hilfiger, Hugo Boss and Herve Leger boutiques were opened on Kuznetsky Most. Moncler plans to open its first flagship shop on Stoleshnikov Lane in 2014.

The average lease rate for street retail premises up to 100 sqm located along the prime retail corridors of Moscow was $3,500-5,500/sqm/year. In 2013 the vacancy rate along Moscow’s main street retail corridors remains at the same level seen in 2012 – 5%. At the same time, the vacancy rate for street retail premises located in secondary locations approaches 10%.

More than 1 million sqm of quality retail space has been announced for completion in Moscow during the course of 2014. However, specialists of Colliers International anticipate that actual retail completions will not exceed 70% of this amount, implying a total of 600,000-700,000 sqm of GLA. Due to the limited number of land plots available for development in Moscow in recent years, the majority of current retail projects are now planned for development outside the MKAD. In 2013, 4 of the 11 shopping centres developed were in such locations, and in the near future the share of such projects will increase.

Anna Nikandrova, Regional Director, Head of Retail Real Estate Department, Colliers International Russia: “Over the next three to five years, the Moscow retail market will develop thanks to the establishment of transport hubs which entail the creation of new retail premises and the demolition of markets, which are to be replaced by quality shopping centres. Looking ahead, in the long term the development of the retail market will be driven by redevelopment of industrial sites. In 2014, rental rate growth will be in the range of 5% to 10% in Moscow, and due to the large volume of retail premises coming on the market, a temporary rise in vacancy rates is expected, reaching up 4% and 5%.”