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News Release

Moscow

Tveskaya no longer one in the Top 3 the most expensive retail streets in Moscow and St. Petersburg

New premium corridors and pedestrian areas are driving demand


​Moscow, 19 November, 2014 – Due to the current economic situation pressures prime rents* in Moscow and Saint Petersburg have decreased in 2014 for the first time since 2009. In Q3 2014 the prime rent** in the Moscow high street retail market slipped to USD4,000-5,500/sq m/year, which is a 10% decrease on a YoY basis. In St. Petersburg prime rent now ranges between USD1,800 and 3,100/sq m/year, which reflects about a 20% decrease over the same period last year.

Moscow and St. Petersburg street retail prime rent dynamics

Moscow-and-StPetersburg-street-retail-prime-rent-dynamics_19112014.png 

Source: JLL

Svetlana Yarova, Head of Street Retail Department, JLL, Russia & CIS, comments: “In 2014 both positive and negative dynamics were recorded in prime rents on some primary locations. For example, On Tverskaya rental levels dropped by 30% compared to last year’s figure to USD4,500/sq m/year due to active tenant rotation. The main reasons for this were as the current market environment and also other factors, for example, the recent parking ban in this street. As a result, Tverskaya Street has lost its status as the major retail street of Moscow.”

According to JLL analysts, Tveskaya Street in Q3 has fallen to fourth place in the list of top high street retail corridors in terms of prime rental levels. The leader of this rating is Stoleshnikov Lane with the maximum rent of USD7,000/sq m/year. Petrovka Street has ranked the second (USD5,500/sq m/year), whereas Pyatnitskaya Street and Kuznetsky Most Street have shared the third place (USD5,000).

“The leaders in terms of prime rental rates in the street retail market are changing,” − Svetlana Yarova notes. – “Stoleshnikov Lane is the most expensive location and is in high demand even in the current market conditions. At the moment, rental rates there vary from USD3,000/sq m/year to USD7,000/sq m/year. Previously Tverskaya Street was in high demand, but currently it was outstripped by Petrovka Street, which continues to hold the status of luxury corridor with a minimal rotation of tenants together with Kuznetsky Most and Pyatnitskaya Streets. In addition, the pedestrianisation of Kuznetsky Most and Pyatnitskaya Streets has further supported demand. These areas are particularly favoured by restaurants and fashion operators.”

A significant growth of stated prime rental rates of more than 50% YoY was observed on Pyatnitskaya Street. According to Svetlana Yarova, “such abrupt changes in rents on individual streets could be impacted by factors not related to the current economic trends, such as: redevelopment of an old front, development of infrastructure or the emergence of certain anchor that attracts flows of people to this location. In the case of Pyatnitskaya Street, an extension of the pedestrian zone was the main driver for increasing the attractiveness of the street. In our opinion, Tverskaya Street will need to reposition itself if it is going to attract demand from tenants.”

Due to quite high level of footfall the interest of tenants to pedestrian streets is reasonably enough and currently the vacancy rate on the pedestrian zones is less than 5%. By comparison, on Tverskaya Street the vacancy rate reached 11%, which is higher than the average of 8% for the market of the main Moscow prime corridors in Q3 2014.

Moscow and St. Petersburg prime rent dynamics in the main corridors

Moscow-and-StPetersburg-prime-rent-dynamics-in-the-main-corridors_19112014.png

Source: JLL

“Future increase of vacancy rates in street retail will depend on the willingness of owners to make concessions to tenants, which are reviewing their development plans now because of the economy.” − Svetlana Yarova notes. –“The major difference between the current environment and the situation in 2009 is the faster reaction of landlords to the new market conditions and their readiness to provide the terms which will fit both parties. As a result, we expect space, which now is vacant because of high expectations of landlords, to be filled by tenants gradually.”

The St. Petersburg street retail market has been impacted by the economic uncertainty as well. The level of prime rents is defined by rents on Nevskiy Prospekt traditionally. In Q3 the prime rental rates there ranges between USD1,800 to 3,100/sq m/year, this figure is 20% lower than of last year. Given the economic situation, JLL analysts do see significant downside risks on rents.

“Rents in St. Petersburg are under pressure mainly due to the sharp rouble weakening. We see increasing supply of vacant space in the city as a whole and on Nevskiy. Previously the majority of premises on Nevskiy were rented even before the end of current lease agreements whereas now we see a certain amount of space - the vacancy rate has now exceeded 5% for the first time since 2010.” − Anna Lapchenko, Head of Street Retail Department in JLL St. Petersburg, notes.

Currently, retailers are focused on optimization of their business in Russia rather than expansion, and an active rotation in the St. Petersburg and Moscow markets has been observed. “While some close their stores, others are looking to take advantage of depressed prices and lease the recently vacated premises in good locations. Tenants are becoming increasingly selective when choosing premises and prefer areas with the best fit for their business, or those where the landlord is ready to make concessions,” − Svetlana Yarova comments. – “The owners of street retail premises in Moscow and St. Petersburg are also adjusting their expectations because of the new market conditions. Those who are focused on stable relations with tenants have become more flexible and ready to negotiate. Landlords are increasingly re-considering commercial terms. Amongst the trends we see are a lengthening of rental breaks, fixing the exchange rate band for a certain period of time, combination of a fixed rental rate and a percentage of turnover, which has long been practiced in leasing transactions in shopping centres.”

* Henceforth rents are given for rectangular form premises of 100 sq m with a separate entrance and a showcase on the first floor. For multi storey buildings and larger premises rents might be revised downwards.

 ** For prime rent in Moscow we took the maximum rent of the street with the highest level in the market at the survey date (excluding Stoleshnikov Lane because it is a specific luxury location with historically much higher rents than other primary corridors).


​About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.

In Russia and CIS JLL has offices in Moscow, St. Petersburg and Kiev. JLL, Russia & CIS was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 , 2013 and 2014 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013.

For further information, visit www.jll.ru