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News Release


Moscow street retail market sees pick up in demand

​Increase in banks’ and cafes’ activity as well as in rental budgets has been recorded in the end of Q1

​​Moscow, 21 May, 2015 – According to JLL experts, Moscow street retail market is characterized by revival of demand and by some increase in rental budgets in comparison with the end of 2014. By the end of Q1 2015 an increase in banks’ and cafes’ activity has been registered in term of leasing new premises.

“For instance, the average rental budget of banks for premises of 100-200 sq m has increased by 34% QoQ to 800 thousand roubles per month, whereas both catering and electronics segments have upgraded their budgets by 11% in Q1 2015. But the current rental budgets for street retail are still below the levels of early 2014.” – Svetlana Yarova, Head of Street Retail Department, JLL, Russia & CIS, comments. – “It can be explained by the fact that in the end of 2014 tenants have sought the prices significantly below market average, but in almost all cases they have not agreed to the asking price, and some of them have lost attractive locations. As a result, at the end of March the majority of companies who still have appetite for street retail premises have revised their rental budgets slightly upwards.” At the same time, the companies are trying to reduce the entry costs by choosing the special premises released by equal segment. In addition, they are asking for decrease of indexation, free-rent periods and so on.

Tenants’ rental budget dynamics

Tenants’ rental budget dynamics_21052015.png 
Source: JLL

In the beginning of the year the main demand drivers were transactions suspended at the end of 2014 and completed by the end of Q1 2015. Also, new players accounted for about 30% of total demand on the Moscow street retail market (for instance, chains from other cities of Russia and CIS), who are just working in a test mode and sometimes are unprepared for Moscow leasing conditions. Nevertheless, some deals have already been closed. First of all, newcomers are considered central most popular locations, including pedestrian zones.

In Q1 2015 the demand was mainly driven by the catering segment (34%) while the previous quarter leader – grocery stores – has made 22% of total demand. JLL experts believe that reduced activity of grocery retailers is a temporary due to a time needed to open the stores at all premises rented in 2014.

“Demand of banking sector has been significantly improved by the end of Q1. In Q1 banks share constituted 16% of total demand, while in 2014 banks demand used to be only 3.5%,” - Svetlana Yarova explained. – “For example, some state banks finalized the lease deals and the banks that received state support began to look for the premises.”

Tenants’ expansions strategies
Tenants’ expansions strategie_21052015.png 

*low and medium segments

Source: JLL

The main demand is created by selective expansion amongst retailers. The majority of street retail tenants leasing premises consider the current economic situation as an opportunity, so they took advantage in establishing their business in an attractive location with better conditions. Based on JLL experts’ expectations, demand is to remain targeted in 2015, while the majority of tenants will prefer selective expansion.

Only grocery retailers have an active development strategy, mostly convenience store development, seeking for the street retail premises. Due to changing consumption pattern towards cheaper and basic goods, they have improved their operational results in 2014. Besides, the representatives of restaurants and cafes sector continue their expansion, awaiting demand recovery.

According to Maria Shpakova, Retail Research Analyst, JLL, Russia & CIS, during Q1 2015 no changes in vacancy rates on the main Moscow street retail corridors were observed. “The level of demand was stable and landlords, who prefer the sustained revenue than the capital value of their real estate in the short-term perspective, have tried to save tenants by offering the short-term agreements at affordable conditions. As a result, the vacancy rate on primary corridors has remained at 9%.” - Maria Shpakova commented. 

Due to the most companies plan to close deals by Q3 2015 and the decent demand from new street retail market players, JLL experts forecast that Moscow street retail vacancy rate is likely to stay flat through to the end of the year. But the increase in availability might be observed in some individual streets.

Despite the fact that the prime rental rate1 for the main corridors remained unchanged and equaled to 250,000 RUB/sq m/year, both positive and negative price fluctuations were registered in certain streets of Moscow.

Top Moscow Prime Street Retail Corridors

Top Moscow Prime Street Retail Corridors_21052015.png

​*rents are given for rectangular form premises of 100 sq m, RUB/$ exchange rate of 55

Source: JLL

According to JLL rating, the position of the most expensive and prestigious street is still held by Stoleshnikov Lane. Maximum rental rate here is at 300,000 RUB/sq m/year for 100 sq m premises. Kuznetsky Most Street has ranked the second where high quality expensive premises located opposite to TSUM have entered the market. By the end of Q1 2015 maximum rental rate for Kuznetsky Most was at 250,000 RUB/sq m/year.

Petrovka Street has lost its ranking dropped from 2nd to the 3rd place because of current vacant supply quality being underrepresented in comparison with the premises on other top streets. Maximum rental rate here is 120,000 RUB/sq m/year. The extraordinary high demand moved to Patriarshie Prudy District. This interest was mainly supported by the restaurateurs with a unique concept. As a result, the rental rates in Malaya Bronnaya Street and its neighbourhood have become very high, reached the level of 120,000 RUB/sq m/year that allowed Patriarshie Prudy took the 3rd place.

Moreover, a correction of stated prime rental rates was observed on Pyatnitskaya Street – maximum rental rate decreased to the level of 115,000 RUB/sq m/year. Previously the significant growth of the price owed to re-development and opening of new pedestrian areas. Today the excitement about this street has shrunk and as a result Pyatnitskaya Street went down from 3rd to 4th position in rating. Nevertheless, a tender among restaurants was organized regarding some individual premises.

Due to the Tverskaya Street maximum rental levels has been moved to the level of 100,000 RUB/sq m/year, it went down to the 5th place in Top Moscow Prime Street Retail Corridor rating sharing this place with Myasnitskaya Street and Garden Ring. “Tverskaya vacant areas have been gradually absorbed but only under discount lease conditions,” - Svetlana Yarova noticed. – “Tverskaya Street which has lost its status as the major touristic street of Moscow is expected to win fame as a vibrant downtown. The current tenants have registered the increase of traffic which supported mainly by people from neighboring offices. As a result, we have observed the increasing demand from catering segment. However not all available premises are suitable for the opening of restaurant or café.”

​1Rents are given for rectangular form premises of 100 sq m with a separate entrance and a showcase on the first floor inside the Third Ring Road. For multi storey buildings and larger premises rents might be revised downwards.

The highest rate fixed in a reporting period among the Moscow prime street retail corridors is used as a guideline for determining maximum rental rate. Stoleshnikov Lane is not considered in the selection due to the historical significant difference from the rest of prime 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 $4.7 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 $55.3 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, 2014  and 2015 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg; Consultant of the Year at the RCSC Awards in 2015, and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013.

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