Retail Sector - Colliers International

Retail Sector
In Q1 2011, no new trends emerged in the retail properties market, while the trends established earlier continued to develop. Among
the notable key events of the quarter are the declaration of intentions and the first practical steps of Moscow’s new leadership aimed at
improving transport infrastructure and harmonizing the real estate development process within the city; following these steps will,
without a doubt, have a considerable influence on the market and player behavior in general.
DEMAND
Analyzing retail operators’ development plans published in Q1 makes it possible, without exaggeration, to talk about the fact that they
have overcome the fallout of the crisis, as well as that the precursors to speculative demand for premises in the retail property market
have been established.
Acquisitions of chains, plans
to increase the number of stores,
entering into smaller cities –
all of these point to very strong
competitive positions and presence
of opportunities for development of
X5 Retail Group.
Food Operators
X5 Retail Group and Magnit lead the food operators group. Acquisitions of chains, plans to
increase the number of stores (notably, of all formats), entering into smaller cities – all of
these point to very strong competitive positions and presence of opportunities for
development of X5 Retail Group. In addition, the company plans to implement a
development project in Ufa; it is also in negotiations to establish a joint venture with LUKOIL
to manage stores at gas stations, as well as to open gas stations in the parking lots of
Karusel hypermarkets. Magnit plans to increase the number of its stores by 25% in 2011, as
well as to strengthen its influence in the capital cities by opening stores in St. Petersburg (up to 50 locations) and in Moscow. In
Moscow, however, it is possible to predict problems related to availability of a sufficient number of suitable premises. In addition, the
owners of Magnit chain have outlined development of the new “drogerie” concept (stores selling cosmetics, perfumery, household
chemicals, and personal hygiene products). Among other operators, O’KEY chain plans to increase its retail space by 30%. In the near
term in 2011, it plans to open 11 hypermarkets in Novosibirsk, Omsk, Yekaterinburg, Moscow, Tyumen, Astrakhan, and St Petersburg.
The chain is also considering taking the place of another operator. Acquisition of Mosmart chain by the owner of the Sedmoy Continent
is yet another example of active expansion (at present, Mosmart hypermarkets, including 4 hypermarkets in Moscow and 1 – in the
Moscow Region’s Voskresensk, are being replaced by Nash Hypermarket stores). Auchan plans to open 4 hypermarkets and 1 Raduga
discounter in Russia in 2011 (earlier, the retailer’s plans were more ambitious, but they had to be adjusted due to the lack of suitable
premises). At present, the company is searching for a land plot to open the second hypermarket in Omsk. Metro AG announces plans
for a more aggressive growth in Russia, while Dixy launches a pilot supermarket in the Moscow Region.
DIY Operators
In March of this year, Adamant Holding Company sold the Domovoy chain it owned (during
the crisis, the chain shrank to five stores located in St Petersburg) to Start. As a result, as of
the beginning of April, MC Start was managing 11 stores located in 5 cities with population in
excess of one million (St. Petersburg – 6 stores, Chelyabinsk – 2 stores, Samara, Ufa, and
Voronezh – 1 store each). Kika opened its fifth store 3 km outside Voronezh and announced
St Petersburg’s Metrika, one of the
most rapidly growing companies of
the DIY market in recent years, plans
to open at least 20 stores this year.
plans to open two to three new stores in Russia annually. St Petersburg’s Metrika, one of the most rapidly growing companies of the
DIY market in recent years (with 15 new supermarkets opened in 2010), plans to open at least 20 stores this year (at present, the
chain’s stores are located in St. Petersburg and the Leningrad Region – 13 stores each; it also has 2 stores in Lipetsk, and one store
each in Orel, Pskov, Veliky Novgorod, Velikiye Luki, and Staraya Russa). In addition, the company plans to develop construction

supermarkets not just in large cities, but also in towns with a population of at least 50 thousand people. Maxidom (the first DIY operator
in Russia; opening of its first store took place in St. Petersburg in October 1997) is entering Moscow’s market of construction and
finishing materials.
Entertainment
Entertainment operators are also seeing a certain revival. National cinema chains have
resumed development, while regional operators have become more active. For example, KINO
CITY, having started its development in St. Petersburg in 2002, entered the Moscow market at
the end of 2007, and in the last two years has been designing and building properties in
Orenburg, Novosibirsk, St Petersburg, and Maykop. VERY VELLY, a Perm chain (currently
including three multiplex cinemas, two of which are located in Perm and one in Izhevsk), and
Charly, a Rostov chain (consisting of two multiplex cinemas) are also planning development.
Happylon, a chain of entertainment parks, which started its development in 2006 under the
Babylon brand in Kazakhstan, opened its first entertainment center in Moscow in 2009. The
second project of the chain was opened in VEGAS shopping and entertainment center; while at the end of April, opening of an
entertainment center in Galeria shopping and entertainment center in St. Petersburg is planned. At the same time, the company
continues to search for premises for its parks. KidZania, a Mexican chain of family entertainment centers, has found a partner for
development in Russia using the franchising concept. The Corporation for the Development of Territories (KRT) has presented its new
project, The Worlds of Captain N, to the market, and is planning to establish a chain of entertainment centers, N-Terra, in 33 cities in
Russia and non-CIS countries.
Shopping gallery operators are also active: foreign companies are making decisions regarding independent entry into the market and
signing partnership agreements with strong local players regarding development using the franchise model; active development of the
existing chains is planned.
Fashion Retailers
Hermes is entering the market independently (prior to May 1, 2011, JamilCo was developing them under a franchise agreement). Prada
also plans to start operating independently at the end of this year. Coach, Coty, and Desigual are planning to join them in the near
future. Guess?, an American apparel manufacturer, having taking distribution in Russia in its own hands, is planning to expand its chain
of stores (previously, JamilCo was developing the chain): during the spring and summer of 2011, opening of 10 new stores in Moscow,
St. Petersburg, Rostov-on-Don, Yekaterinburg, and Tatarstan is planned.
Moneks Trading has obtained the right to develop one of the most well-know lingerie brands, Victoria’s Secret, in Russia. JamilCo plans
to open first Jaeger (one of the British luxury fashions’ manufacturing and design leaders) stores in Russia in Q2 2011 at Vremena
Goda and Metropolis shopping centers. Jimmy Choo, a British fashion house, has signed a franchise agreement to open its stores in
Russia. According to the company’s announcement, the first boutique with an area of 50–60 sqm will open in Stoleshnikov Pereulok,
Moscow, in September 2011. Opening of the first Banana Republic store is planned for September at Afimall City shopping center.
Other retail operators announcing large-scale development plans include Monro, a Siberian footwear chain, which plans to expand the
chain by 40–60 stores; Gloria Jeans, which has announced expanding store trading floors and closing small stores; and Obuv Rossii,
with plans to open 50 stores in 2011. Mango, a Spanish operator, will launch 25–30 own and franchise stores in Russia (Irkutsk, Kazan,
Moscow, Novy Urengoy, Orenburg, St. Petersburg, Stavropol, Stary Oskol, and Yuzhno-Sakhalinsk). Bosco di Ciliegi plans to open
31 Bosco Sport stores of sports fashions in Russia in 2011 (in 2010, 28 stores were opened in Russia), expanding its presence by
approximately 10 cities.
Douglas Holding, a German company, has sold its Douglas Rivoli chain to competitors, the owners of Rive Gauche chain.
The acquisition will not allow Rive Gauche to surpass its largest competitor, L’Etoile chain, in terms of the number of stores;
nevertheless, it will expand its geography and strengthen its presence in Moscow and a number of cities in the regions.
Public Catering Operators
Foreign companies are making
decisions regarding independent
entry into the market and signing
partnership agreements with
strong local players regarding
development using the franchise
model; active development of the
existing chains is planned.
The public catering operators’ segment did not stand back, either. Having opened the first coffee shop in Moscow in 2010, the famous
Dunkin’ Donuts chain, considering Russia to be one of the largest and most promising European markets, plans to increase the number
of coffee shops to 20 in the very near future, and to 100 – in the long term. Other foreign chains – Chili’s, which operates in the same
format as T.G.I. Friday’s, Burger King and its regional franchisee, Ginza Project, have already been actively expanding and plan to
continue development. Traveler’s Coffee, a Siberian chain, opened the doors of its first coffee shop in Moscow at the end of April.
In addition, several international operators are considering the possibility of entering the Russian market, including Wendy’s/Arby’s
Group, an American fast food operator, which plans to open 180 fast food restaurants in Russia in the next 10 years.

SUPPLY
Unlike most retail operators, expansion of supply of retail space in all formats will be
lagging behind the demand for them for quite some time still.
In Q1 2011, the retail property market of Moscow saw addition of two shopping centers,
Afimall City (MIBC Moscow City, site No. 8, GBA – 179,000 sqm, GLA – 101,000 sqm)
and TPU Planernaya (transportation terminal near Planernaya metro station, GBA –
50,400 sqm, GLA – 14,800 sqm). As of the end of Q1 2011, the GBA of retail properties
opened in Moscow amounted to 6,048,400 sqm (GLA – 3,026,800 sqm).
About 300,000 sqm of retail space has been announced to enter the market by the end
of the year (GBA indicator; GLA is about 150,000 sqm); at the same time, most of them
have already been leased under preliminary agreements. This is why their opening, as
well as the new projects, numbering in single digits, will hardly be able to satisfy all of
the expected demand. This situation is characteristic of most Russia’s cities.
VACANCY AND RENTAL RATES
The situation described above leads to a reduction in vacancy rates (for many
properties, they have reached the pre-crisis levels). According to our projections, growth
of rental rates, denominated in USD, may amount to 10–20% in 2011 (the latter value
may be achievable for some properties highly sought after by operators).
STREET RETAIL
The situation in the street retail property segment is similar to the one that could be
observed at shopping centers. Taking into account the extremely limited new supply
and higher activity of retail operators, a heated competition for premises can be
expected. Even now, rental rate increases can be observed; at the same time, they
happen both in the main retail streets and in the periphery districts of the capital. Also,
the rates for the most attractive locations have reached the pre-crisis levels. On
Tverskaya Ulitsa, Moscow’s main retail street, the current rates are USD 8,000–9,000
per sqm per year (given that as recently as in the middle of 2010 asking rates there did
not exceed $5,000/sqm/year).
TRENDS AND FORECASTS
• Active increase in demand for premises on the part of all retail profiles
• Unfreezing of previously suspended projects
• Higher development activity, especially in the regional cities
• Increasing imbalance between demand and supply
• Reduction of vacancy rates
• Growth of rental rates
Galina Maliborskaya
Director,
Retail Property Department
galina.maliborskaya@colliers.com