2009 - CRE

Roman Evstratov /
Роман Евстратов
86
North–West:
Petrograd­side.­This­rate­reduction­is­alsoconfirmed­by­Ludmila­Reva,­brokerage­services­director­at­ASTERA­St.­Petersburg.­
She­ points­ out­ that­ in­ the­ last­ 3–4months­
rental­ rates­ have­ sunk­ on­ average­
by­ 15–20%­ in­ outer­ suburbs­ andby­
35–50%­ in­ the­ center.­ Thus,­ ASTERAreports­that­in­the­third­quarter­of­2008rents­ranged­from­$1,800­to­$7,200/sqm/year­on­Nevsky­while­in­January­2009­itwas­already­possible­to­find­premises­for­$1,560/sqm/year.­During­the­same­period­rates­went­down­from­$1,800–$2,400to­
$960–$1,200/sqm/year­ on­ Ligovsky­
Prospekt­ (transverses­ with­ Nesvky)­ andfrom­$1,200–$1,800­to­$1,020–$1,200­on­
Vladimirsky­ Prospekt­ and­ from­ $1,560–
$2,400­ to­ $1,440–$1,800­ on­ Sadovaya­
Ulitsa­(near­Sennaya­Ploshchad).­
At­bustling­places­near­metro­outletsin­outer­suburbs­the­rates­have­droppedfrom­
$720–$1,200­ to­ $360–$1,200­ during­this­time­whereas­in­places­with­littlepedestrian­traffic­the­rental­rates­changed
­­ Landlords­will­be­compelled­to­lower­the­rent,or­they­risk­losing­their­tenants.­Not­so­long­agolandlords­called­the­shots­but­now­the­pendulum­has­swung­towards­the­lesee­and­landlrds­are­alreadycompeting­for­attractive­retailers.
insignificantly:­ from­ $180–$420/sqm/
year­ to­ $180–$360/sqm/year.­ At­ shopping­centers­the­rates­peaked­in­2007­andbegan­sliding­in­2008.­Thus,­the­rental­rate­for­clothing­storesclimbed­from­$450/sqm­in­2005­to­$640/sqm­in­2007­and­at­the­end­of­2008­it­fellto­$500­–­the­level­of­2006.­The­maximumrates­for­athletic­gear­stores­dived­evenfurther­–­from­$550­in­late­2007­to­$350at­the­end­of­2008.In­the­words­of­Arina­Sender,­executive­director­of­the­management­company­
Alliance,­almost­all­shopping­centers­in­St.­
Petersburg­lowered­the­rent­by­20–30%.­
Competition­for­the­buyer­was­stiffer­herethan­in­the­street­retail­segment­wherethe­owners­of­good­premises­could­alwayschoose­from­a­great­number­of­claimants,she­explains.­
Trying­ to­ secure­ themselves­ againstthe­
tenants’­ exodus,­ developers­ meetthem­half–way.­The­average­rent­reduction­over­the­city­at­the­end­of­last­yearwas­20%,­she­comments.­However­rentsgo­down­at­a­different­pace­for­differentcommodity­
groups.­ The­ premises­ occupied­by­clothing­stores­saw­the­greatestslump­in­rates.
Tenants­ also­ confirm­ this­ trend.­
Development­ director­ of­ Euroset,­ Artem­
Perevozchikov,­ says­ his­ company­ is­ nownegotiating­with­landlords­on­the­reduction­
of­ rental­ rates.­ They­ can­ often­ belowered­by­50%,­he­remarks.­“This­figureshould­
not­ surprise­ anybody,­ since­ cellular­
communication­ stores­ paid­ almostthe­highest­rates­on­the­market,”­he­says.­
In­the­words­of­Evgeny­Bogdanov,­CEO­of­
Pharmacia­(Novaya­Apteka­and­Zdravnitsachains),­his­company­was­able­to­insist­ona­10-15%­rent­reduction­at­some­points­ofsale.­In­the­buildings­owned­by­Pharmaciaitself­the­rental­rate­for­third­parties­wentdown­by­5–10%.
Andrei­Khromoi,­executive­director­of­
BoscoNeva­(the­local­subsidiary­of­Boscodi­
Ciliegi),­ confirms­ a­ rent­ reduction­ of­
20–30%.­He­says­this­reduction­may­takeon­different­forms:­for­example,­the­landlord­sometimes­gives­up­on­annual­indexation­of­rental­rates­stipulated­in­the­contract.­
However,­ Khromoi­ prefers­ not­ to­
talk­about­rent­reduction­at­his­stores­onthe­premise­that­the­negotiating­processwith­tenants­has­not­been­completed.
The­market­of­survivals
Rental­ rates­ will­ further­ slide­ down­ atstreet­retail­premises,­believes­Evstratov.­
In­ his­ opinion,­ this­ segment­ was­ mostoverheated­on­the­market.­Most­expertspolled­by­CRE­share­this­view.­They­point­out­that­landlords­will­becompelled­to­lower­the­rent­or­else­theyrisk­losing­tenants­who­now­have­a­widechoice­of­vacant­premises.­“Not­so­longago­
landlords­ called­ the­ shots­ but­ nowthe­pendulum­has­swung­towards­the­lessee­and­landlords­are­already­competingfor­attractive­retailers,”­reasons­Sender.­The­rates­have­started­a­downward­slideindeed,­confirms­Alexei­Klyuchikov,­director­of­commercial­real­estate­at­Zdorovye­
(that­owns­premises­on­Nevsky­Prospekt).­
They­stated­at­the­briefing­service­of­thedevelopment­
company­ Makro­mir­ thatthere’s­no­talk­of­massive­rent­reduction.­“Nevertheless­Mak­romir­is­willing­to­makeprice­
concessions­ to­ those­ tenants­ whoface­
problems­ with­ turnover­ reduction.­
The­rental­discount­will­depend­on­manyfactors,”­said­a­briefer.­To­all­appearances,­competing­for­thetenant­will­be­a­tough­challenge,­predictmarket­
participants.­ Because­ of­ systemproblems,­the­retail­trade­and­space­market­has­seriously­changed.­“Already­nowone­can­see­numerous­premises­with­'forlease'­
signs­ in­ those­ places­ where­ theywould­never­have­stayed­empty­before,”comments­
Sender.­ “Chain­ operators­ nolonger­strive­for­geographical­expansion.­The­time­when­one­could­keep­unprofitable­outlets­for­the­sake­of­entering­anyparticular­
district­ has­ passed­ and­ theprofitability­of­each­store­is­the­key­factor­now,”­says­Evstratov.
Indeed,­ out­ of­ the­ more­ than­ 90­
Petersburg­stores­of­the­Dixie­chain,­nomore­than­10­are­now­operating­and­thefederal­
chain­ is­ phasing­ out­ its­ operations­on­the­cellular­phones­and­contractsmarket.­The­Petersburg­outlets­of­the­Betalinkchain­were­closed­for­technical­reasons.­
­ The­crisis­pressed­down­the­rates­and­thus­helped­retailers.­
According­to­a­recent­survey­done­by­the­Managers­and­Developers­Guild,­the­average­drop­of­rental­rates­in­the­city­in­the­last­five­months­has­been­26%­in­rubles­or­48%­in­­US­dollars.­Vacant­spaces­can­be­found­everywhere,­including­the­busiest­streets­and­shopping­centers­in­close­proximity­tometro­stations.
"Euroset­ is­ also­ optimizing­ the­ numberof­
its­ points­ of­ sale­ and­ this­ companywill­close­up­to­10%­of­its­stores­in­thenorthern­
capital,”­ Artem­ Perevozchikovtold­
CRE­ in­ an­ interview.­ In­ his­ words,­
Euroset­ is­ closing­ unprofitable­ outletswhere­
the­ company­ failed­ to­ negotiatethe­requisite­rent­reduction.­He­forecaststhat­the­number­of­mobile­communicationstores­in­the­city­could­be­cut­roughly­by­
50%.­ It’s­ clear­ that­ surviving­ retailerswill­obtain­acceptable­terms­of­lease,­hepoints­out.
Not­ only­ is­ it­ cellular­ communication­stores­that­are­being­closed­down.­
As­ predicted­ by­ Bogdanov,­ the­ number­
of­ drugstores­ in­ St.­ Petersburg­ willfall­
by­ 15–20%.­ Banks­ are­ also­ closingtheir­offices.­As­estimated­by­Alexander­Konyshkov,­most­banks­will­give­up­on­thedevelopment­of­their­retail­chains­underthe­current­circumstances.­The­turnover­of­stores­trading­in­luxury­and­premium-class­clothes­has­alreadydropped­by­30–50%,­note­market­participants.­Khromoi­admits­that­BoscoNeva’sturnover­has­fallen­by­roughly­30%­YoY.­
However­ this­ slowdown­ is­ not­ critical.­
Unless­the­demand­further­sags,­the­St.­
Petersburg­ division­ of­ Bosco­ di­ Ciliegiwon’t­
have­ any­problems­ with­overcoming­the­crisis,­he­assures.­
Roman­ Filimonov,­ vice-presidentof­Caligula­
in­charge­ of­marketing,­ alsobelieves­that­experienced­players­in­themarket­of­luxury­clothes­and­accessorieswill­get­through­the­crisis,­although­theirturnover­will­be­slashed­by­30%.­ASTERA’s­Ludmila­Reva­assumes­that­the­crisis­willdeal­the­heaviest­blow­to­luxury­clothesstores.­
From­ data­ of­ a­ survey­ done­ by­ thiscompany,­
72%­ of­ chains­ operating­ inthe­upmarket­segment­have­ceased­theirexpansion­and­some­are­phasing­out­theirbusinesses.­After­rental­rates­are­loweredthey­can­be­replaced­by­brands­that­havelong­forsaken­central­thoroughfares­buthave­
the­ ambition­ to­ come­ back.­ “Wedon’t­rule­out­opening­our­stores­on­thecentral­retail­routes­of­St.­Petersburg.­Butwe­use­a­very­careful­approach­in­choosing­places­for­our­brand,­though­it’s­quitepossible­that­we’ll­have­a­wide­choice,”points­out­Irina­Staroverova,­PR­directorat­
Malon­ Fashion­ Group­ (Zarina,­ BeFreeand­Taxi­brands).
Now­ it’s­ not­ clear­ how­ the­ situationwill­
further­ develop,­ point­ out­ marketplayers­and­experts.­Too­much­will­dependon­the­strength­of­the­Russian­economy­atlarge,­fluctuations­of­currency­exchangerates­and­the­solvency­of­the­population.­But­one­thing­is­certain:­no­rent­growthcan­be­expec­ted­in­the­years­to­come­andthe­owners­of­retail­premises­will­have­toenter­into­stiff­competition­for­attractiveretailers­whose­numbers­are­dwindling­onthe­market.­Who­knows.­Perhaps­the­former­premises­of­some­stores­will­have­tobe­turned­into­offices­and­their­ownerswill­be­compelled­to­tighten­their­belts.­