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A strong start to the year:  Volume of new shopping centre supply for the first quarter of 2015 in Moscow reached the same level as FY 2013

The shopping centre vacancy rate has risen to 6.5%

​Moscow, 31 March, 2015 – First quarter of the year was marked by a high level of shopping centres completions – about 250,000 sq m entered the Moscow market, which is a record first quarter volume, JLL experts reported. This result exceeds annual completions in Moscow in 2011, 2012 and 2013, and also is four times higher than Q1 2014.

During the first 3 months of 2015 such shopping centres as Columbus (136,000 sq m), Kuntsevo Plaza (66,000 sq m), Outlet Village Belaya Dacha, Phase II (12,700 sq m) were opened, and on the last day of the quarter Centralny Detsky Magazin on Lubyanka (34,000 sq m) welcomed its first visitors.

According to JLL analysts, about a half of all projects forecasted for 2015 have already been opened in Q1. In total, more than 850,000 sq m are announced for Moscow, however, according to JLL expectations, only a half of this amount, 450,000 sq m, is likely to be completed.

Retail completion dynamics in Moscow

Retail completion dynamics in Moscow_31032015.png

Source: JLL

“The same situation was observed in 2009 when projects which have been started before the crisis were finished. At the beginning of 2009 a record number of Q1 completions had been seen in the Moscow retail market (156,000 sq m). Including, one of the most successful, Metropolis SC, had been opened in this period”, - Tatyana Kluchinskaya, National Director, Head of Retail Department, JLL, Russia & CIS, comments. – “Given the economic challenges and construction delays, we expect the projects which are at an advanced stage of construction to be delivered, though their opening could be postponed to the next year. Planned ‘paper’ projects will be frozen until the economic stabilization and retailer demand increase.”

Rental rates in Moscow shopping centres are still under pressure of the economic situation, which influence even the most popular locations. For the first time since 2008-2009 crisis JLL experts registered a decrease of the prime rents in the top shopping centres: they decreased by 15% and today are ranging at USD2,000-3,800 per sq m per year. 

At the same time average rent remains at the level of previous quarter, USD400-1,450 per sq m per year. “It should be mentioned, that this numbers are only indicative figures, and the market is heavily fragmented. For example, turnover rent is widely used now. In addition, the new term ‘Ratchet’ has appeared on the market for the first time, which represents the use of the tenant’s turnover volume for a certain period (for instance, one year) as a fixed rate. Thus, developer and tenant reach a balance of interests: on the one hand, the developer establishes rent at a certain level, on the other hand, the tenant sets a rental level which fits into its business model.” - Tatyana Kluchinskaya emphasized.

Vacancy rate and prime rent dynamics in Moscow

Vacancy rate and prime rent dynamics in Moscow_31032015.png

Source: JLL

The SC vacancy rate has continued to increase. According to JLL experts, vacancy rate increased from 1% to 1.5% in successful shopping centres with high traffic and conversion rate. Despite the high level of deliveries, the overall vacancy rate posted a very marginal increase (vacancy rate has reached 6.5%).

It should be noted, that many objects that entered the market were almost fully let, but only 30% of stores were opened on average. “Low visual occupancy of shopping mall at the opening date is a trend in the market – the share of tenants, which open their doors together with the shopping centre, does not exceed 40%. At the same time, we should realize that recently completed objects were under active brokerage in the good times and were less affected by the limited retailer demand than future projects − Tatyana Kluchinskaya notes – The projects under construction have to be more flexible with potential tenants to be competitive in the current market conditions.”

According to JLL forecasts, the vacancy rate in Moscow shopping centres is likely to reach 8% by the end of 2015.

“Currently we are seeing the transformation of a market that favours the landlord to a market which favours the tenant. The uncertain economic situation has forced retailers to analyze their operating activities more thoroughly and review development plans, and increased competition among high-quality shopping centers has given them more choice. Today, retailers who plan to enter the Russian market and boost their presence have a good opportunity to take premises in the successful shopping malls at reasonable prices. Developers have become more professional in managing difficult negotiations with retailers.” - Elena Zadorozhnaya, Head of Retail Tenant Representation, JLL, Russia & CIS, comments.

“It is clear that now is a difficult time for retail business with brands reviewing their relationship with the Russian market, - Elena Zadorozhnaya added.  – However, we hope that current environment will eventually improve the market. Indeed, we recall that some well-known international retailers appeared in the Russian market during the previous crisis.”

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 $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316.0 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 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.

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