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In 2017, the retail real estate market has passed the bottom of the development cycle
Moscow, January 15, 2018 – According to JLL, only three shopping centres entered the Moscow market in 2017: Vegas Kuntsevo (113,400 sq m*), Vidnoe Park (24,000 sq m), and the retail part of Fili Grad multifunctional complex (12,000 sq m). The resulting annual figure of 150,000 sq m was the lowest in the past five years. It is worth mentioning that there were no deliveries during the first half of 2017.
Arena Plaza (20,000 sq m), Milya (19,000 sq m), Galeon (14,000 sq m) and Petrovskiy (8,500 sq m) were among projects expected in 2017 but rescheduled for 2018. The total volume of new retail supply in 2018 is expected at 306,000 sq m, including such large projects as SC on Kashirskoe Highway (71,000 sq m) and Dream Island (65,000 sq m).
“Declining completions is the main result of low developer activity due to the economic downturn in 2014-2016.” –
says Ekaterina Zemskaya, Regional Director, Head of Retail Group, JLL, Russia & CIS. – “A lack of debt financing in 2015-2016 and adjustments of expansion strategies by a majority of retailers affected developers. The list of 2017 projects has shortened also due to postponed deliveries. Nevertheless, we expect that the real estate market will enter the new cycle next year, and developer activity will start to pick up.”
Low retail completions in 2017 mainly had an impact on the vacancy rate, which declined from 7.5% to 6.2% over the course of the year. The vacancy rate in prime shopping centres, those with high footfall and conversion rate, remained close to zero throughout the year.
“Taking into account a conservative completions forecast for 2018, we expect retailers to keep focusing on new operational shopping centres. As a result, the vacancy rate will not change significantly next year and remain close to 6.0%. However, new retail supply may increase to 567,000 sq m in 2019 and lead to an increase of the vacancy rate to 7.6%. This will happen if the three largest projects (Garden Mall SEC, multifunctional complex on Aminyevskoe Highway, and Salaris SEC), which may add 322,000 sq m to the market, are delivered." –
notes Oksana Kopylova, Head of Retail and Warehouse Research, JLL, Russia & CIS.
Shopping centre completions and vacancy rate in MoscowSource: JLL
A significant share in the new supply for 2018-2019 is occupied by neighbourhood SC projects by ADG group, which is redeveloping 39 former cinemas with aggregate GLA of 324,000 sq m. Thus, the average size of new shopping centres in Moscow will decline from 50,000 sq m in 2017 to 19,000 sq m in 2018 and 22,000 sq m in 2019.
New retail supply structure and average size of SCSource: JLL
“While Moscow is running short of attractive construction sites for developers, the structure of new retail supply is changing. During the next two years, a large part will be represented by small local projects, retail space in multifunctional complexes or transport hubs, as well as next phases of existing projects.” –
comments Polina Zhilkina, National Director, Head of Retail Advisory, JLL, Russia & CIS. – “Nevertheless, neighbourhood projects are as attractive for retail operators as large-format shopping centres: they provide retailers an opportunity to locate closer to their customers, increase the frequency of purchases and boost brand awareness. Moreover, even large retail chains are becoming more flexible by optimizing occupied premises and developing small-format stores. Several grocery chains have already launched such concepts (Perekrestok, Azbuka vkusa, Auchan), and other large retailers have announced openings (Decathlon, Leroy Merlin, OBI, M.Video, IKEA).”
The international retailer activity in Russia in 2017 is comparable to the level of 2016, with 49 and 47 newcomers respectively. Moreover, some brands, which previously exited the market, contemplate a return. The American bags and accessories brand Coach, the French makeup brand Sephora, the German fashion-retailer Orsay, as well as several other European and Middle Eastern fashion-retailers unveiled their expansion strategies for 2018.
“Most 2017 newcomers have been luxury (18%) and premium brands (37%). It is notable that the share of luxury brands has doubled compared to 2016. The vast majority of retailers enter the market with partners. Among the key retail groups are Mercury, Bosco di Ciliegi, Crocus Group, JamilCo, Aizel Group, BNS Group, Kashemir & Shelk. Most of market entrants have opened their first stores in Moscow, while seven have chosen to enter the market through a regional city, primarily with the assistance of regional partners. Three new international brand stores have opened in St. Petersburg, two retailers have appeared in Voronezh, with one store each in Belgorod and Samara.” –
adds Oksana Kopylova.
Among the most notable 2017 debuts are the first European opening of the Italian cosmetics boutique Giorgio Armani Beauty, the Italian marketplace Eataly, the French jewelry retailer Mauboussin, the American media corporation Disney toys store, and the American sports brand Under Armour.
Meanwhile, nine international retailers have left the market in 2017: Accessorize, C&A, Debenhams, Finlayson, Kipling, LeEco, Mamas&Papas, Mexx, Takko Fashion. Decisions to close down monobrand stores have been predominantly caused by business restructuring rather than by the decline in sales.
Retailers on the Russian market: entries and exitsSource: JLL
* This and other figures refer to gross leasable area (GLA).
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and on behalf of its clients managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $145 billion. At the end of the third quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of over 80,000. As of September 30, 2017, LaSalle Investment Management had $59.0 billion of real estate under asset 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, 2006-2017 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, 2016, St. Petersburg; Consultant of the Year at the RCSC Awards in 2015.
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