Moscow s retail and entertainment real estate market, Q3 of 2009 1
Moscow s retail and entertainment real estate market, Q3 of 2009 Retail Real Estate Market Table 1. Major indicators of Moscow s retail and entertainment real estate market Major indicators 2009 2008 (09/08,%) Retail trade turnover in Jan. Aug., billion rubles Volume of premises in quality shopping centers as of the end of Q3 of 2009, k sq m GLA 1 Commissioned, 1 st half of 2009, k sq m GLA Announced for commissioning, 2 nd half of 2009, k sq m GLA Source: GVA Sawyer s research, the Federal State Statistics Service 1595.6 1690.3 (94.4% in actual prices) 3 050 2 634 (116%) 219.6 101.2 (217%) 566 247.7 (229%) Chart 1. Retail trade in Moscow, January-August, 2009 Over 3 rd quarter of 2009, the retail market of Moscow continued its trend of reducing the level of turnover with preceding lack of positive changes in the economic situation in the country on the whole. Retail trade turnover in January-August of 2009 has dropped down to 1595,6 billion rub, if compared to the corresponding time period of 2008. Index of actual volume (IAV) amounts to 94,4%. Retail trade turnover dynamics in nominal value shows positive trend, just as according to the results of 1 st and 2 nd quarters of 2009. Due to consumer price rises (8,1% at the mean around Russia) increase rate 104,6%. According to the official statistic data, during the Q3 of 2009 the share of food items in the structure of retail turnover continues to grow. As of the end of August 2009, the share of food products retail trade turnover items was 50.6% (while at the same period of 2008 it was 47,5%). Retail sale via stalls and markets also continues to grow. The share of unapproved trade in Moscow sale structure has increased by 3% over the last 12 months and now states to 21,4%. Source: GVA Sawyer s research, the Moscow City consumer market and services Department Public catering turnover in Moscow tends to decrease but at a slower pace rather than retail trade turnover. Over the period of January- August public catering turnover has come to 75,1 billion rub which is 0,8% lower than last year figures in comparable prices. As per GVA Sawyer forecasts, next year it is likely to expect less significant gap between indicators of market development of the last and current year. Implicitly some better change in the situation is evident according to Federal State Statistics Service data on Russian consumer confidence index on the basis of 3 rd quarter of 2009 results the index has grown upto 7%. 1 GLA - Gross leasable area 2
Moscow s retail and entertainment real estate market, Q3 of 2009 1. Supply Chart 1. Volume of quality supply (GLA) Chart 2. Provision of Moscow s residents by retail premises in shopping centers The aggregate supply of premises in quality shopping centers (SC) 1 in the Moscow s market 2 as of the end of the Q3 of 2009 amounted to 3 050. 000 sq. m (GLA). Provision of Moscow s residents with premises in quality shopping centers was 290 sq. m GLA per 1 000 people. During the period from January to September 2009 464.000 sq. m GLA of shopping centers premises were launched (219.600 sq. m GLA). Over 3 rd quarter of 2009 no retail property premises of quality have been commissioned. In recent years, the current quarter presents the sole case when no quality SC was open. SC Darya, Stroginskoy blvd. (12 400 sq. m GBA/4 500 sq. m GLA) was opened in Q3 2009, but it haven't been classified by GVA Sawyer as quality SC. Chart 3. Provision of residents of Moscow s districts by retail premises in shopping centers (sq.m GLA/1000 inhabitants), as of the beginning of the year NWAD CAD 1000 800 NAD 2006 600 400 2007 WAD 200 0 NEAD 2008 2010 F SWAD EAD SAD SEAD Source: GVA Sawyer s research 1 According to GVA Sawyer s definition - a quality shopping center is a set of properties dealing in the sale of universal range of goods and services (with GLA over 5,000 sq m), located on a certain territory, designed, built and managed as a whole and providing a sufficient parking area within its territory. 2 Moscow s retail and entertainment real estate market includes quality retail properties on the territory of Moscow as well as large properties outside its boundaries, which are mostly oriented towards Moscow s residents. 3
Moscow s retail and entertainment real estate market, Q3 of 2009 2. Financial terms During the Q3 2009, tenants and owners of shopping centers were trying to reach a compromise in terms of rent rates which would be acceptable for both parties. Last quarter, deals were equally well struck both on ready to be commissioned SC and vacant premises elimination in already open SC. Also certain cases on tenants relocation took place. The signs of transition from the seller s market to the buyer s market have appeared in the retail real estate market. This can be confirmed by the following facts: - lease agreements are signed primarily with the minimal deposit; - in selection of premises for lease the preference is given to the operating shopping & entertainment centers or to the centers ready for commissioning; - there are possibilities of applying rent free terms and grace periods; - the scheme of rent payments (fully or partially) as a percentage of the retail turnover becomes widespread; - owners have begun to agree to abolishing security deposits more often now, and the deposits are replaced by the bank guarantee for some groups of tenants; - in some cases owners began to agree to carry out the finishing work at their own expenses. The peak of lease agreements terms review took place in Q1 2009. According to GVA Sawyer data many large chain companies have managed to achieve the reduction of rent rates and change to the rent rates based on the percentage of the turnover on individual basis. Many tenants are negotiating on transition to the rent rate based on the percentage of the turnover, as this scheme minimizes retailers risks. Considering the fact that now it is more difficult to find a tenant than before crisis and the premises are often tenantless, the owners of shopping centers are forced to agree to such conditions. Over the quarter the average level of SC lease rates hasn t changed. Easing of rent conditions can be particularly noticed in less quality properties that are seriously struggling over occupancy reduction. However, the rates were less adjusted concerning the most demanded shopping centers. The maximum rent rates were observed in mid 2008. From then onward, the average level of rent rates mentioned in newly signed agreements has decreased by 15-30% in absolute amount. As for the currency of payments, the owners increasingly agree to the rent rates in rubles. Table 2. Average value of the turnover percentage, charged as a rent rate in shopping centers. Tenants category % of the turnover Hypermarkets (food) 2-3% Supermarkets (food) 5-7% Home appliances and electronics 4-6% Hypermarkets (DIY) 4-6% Clothes stores (lower, medium price segment) 8-12% Sports goods 10% Cinema 7-10% Bowling 7-10% Food-court operators 10-12% Mobile/electronics Up to 20% Jewelry Up to 20% Source: GVA Sawyer s research 4
3. Demand According to the results of Q3 2009, the vacancy rate level in SC has decreased. As per GVA Sawyer research, the vacancy rate level in most popular SC with good location and concept characteristics as well as oriented towards average consumers (e.g. Evropeisky shopping & entertainment center, SC Okhotny ryad, etc.), have remained at a low level (up to 0.5-1%) during last period. SC newly commissioned in 2008 and in the beginning of 2009 managed to get better results in fillability but still these SCs are still notorious for their rather high rate of vacant areas (15%). On average, the vacancy rate in quality premises stands about 3.5%. Chart 4. Customers activity index. Moscow 1200 1000 800 600 400 23 февраля 8 марта Индекс ВАТКОМ, Москва, 2007-2009 1 мая 9 мая According to the results of Q3 2009, the main factors influencing the volume and structure of tenants demand for premises in shopping centers were as follows: decision taken by American shoes chain Payless to enter the Russian market through Alshaya Group represented in Russia by subsidiary LLC Monex Trading; revival of German discount stores chain Aldi in Russia; F.D.Lab Company has decided to develop their own chain selling goods for children without British Hamleys Company share; tenants rotation in retail & entertainment chain Mega first GK Mercury TSUM Stock Outlet opening, lease agreement signing with Moscow first Strellson Sportswear store, interior design store Habitat, show-room Oriflame; lease agreement signing between St.- Petersburg stores chain selling goods for pregnant women Budu Mamoy and shopping & entertainment center Oblaka (first center opening is scheduled for November in Moscow). 200 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 5 Source: Watcom 2007 2008 2009 Using the data on attendance of Moscow s shopping centers (the data is provided by Watcom company 1 ) we can note the following changes over the past quarter: Activity decay which is so common for summer time was less significant in 2009 than in 2008. On the whole, according to the results of the Q3 2009, the level of SC attendance has dropped by 2% as compared to the last year. Over Q3, along with new Moscow stores opening notice, the bankruptcy process is in full swing and retailers and retail projects tend to exit from the market: Make up Store cosmetics and perfumery chain closing in Russia; monobrend Mustang stores closing in Russia; YAX! clothing brand outlets closing; Closing of Bookberry chain; Eto Project closing premium hypermarket chain under Eldorado Company brand 1 Customers activity index WATCOM is a system of market indicators that reflect the consumers activity dynamics. Indicators are built on the base of information about real estate objects people traffic 5
4. Forecast Table 3. Shopping centers planned for commissioning in Q4 2009. Name Address Total/leasa ble area, sq m shopping centers planned for commissioning till new year can be put off till 2010 and some others may even be only partly open. Correspondingly, the actual increase of premises for this forecast period shall be lower. Markos-Mall Tryapka Vegas Mosfil movsky 70, Altuf yevskoye highway 25, Leningradskoye highway MKAD, 24 th km 2. Pyr yeva st. 36 200 / 15 000 25 000 / 20 000 210 300 / 120 000 14 760 / 8 780 Thus, SC Gorod is planned to be commissioned December 2009 but the major part of leasable area shall be taken only in 2010. Commissioning of SC Markos-Mall has been postponed a few times starting the year of 2007 and most likely it is not to be open this year as well. This year SC Vegas is not going to make use of all its leasable area either. According to GVA Sawyer forecast, during the Q4 2009 Moscow s retail real estate market shall develop in accordance with the following trends: Mall of Russia Rechnoy, 1 st phase Krasnopresnenskaya emb., plots 6, 7, 8Б Festivalnaya st., Rechnoi vokzal metro station Golden Babylon Rostokino Mira highway, 211 Gorod Entuziastov highway 179 400 / 114 000 26 000 / 18 140 241 000 / 170 000 240 000/ 100 000* Total 972 660 / 566 000 *approximate Source: GVA Sawyer s research The total gross leasable area of SCs announced for commissioning in 2009 is around 566 k sq. m, which is almost more than 2.5 times more than in the 1 st half of 2009 and the 4Q 2008. According to GVA Sawyer data some of the 8 increase in the volume of supply of quality retail premises in the market due to commissioning of new properties; growth of the average level of vacant premises due to new retail properties entering the market; - despite a big volume of the commissioned premises, by the end of Q4 2009 and beginning of 2010, the rent rates of the newly signed agreements shall fall slower than in Q1,2 2009. The increase in disproportion of the rent rates level shall be observed in shopping centers of different level and class; further consolidation of retail trade market, increase in the share of large chain companies within the total retail turnover (probably, the entire mechanism will change once the Law on Trade is issued); the tendency for exit of the significant share of small and medium sized Russian chains (which have been actively developing lately due to the credit means) from the market shall remain. 6
Подготовлено GVA Sawyer 2009 7