Retail Market Overview Q4 2014.
Shopping Centres
Q4 2014 Moscow SC Market Indicators
12 Month
Outlook
Indicators
Completions,
sq m
317,500
Vacancy rate
6%
Prime SC base
rent*,
USD/sq m/year
2,400–4,500
Average SC
base rent,
USD/sq m/year
400–1,450
Russia’s new retail space expanded by 1.63m sq m in 2014, of which Moscow completions accounted for more
than 35%, making a total of 602,600 sq m. This level is a record number for this market and is equal to the total result of
the previous three years. The total supply of retail space in Moscow exceeded 4.2m sq m by the end of Q4 2014, reaching
17.7m sq m in Russia.
Rents are given for a single unit of 100 sq m located on the ground floor of a retail gallery
Source: JLL
Shopping centres to open in Moscow in Q1 2015
SC name
GLA, sq m
Columbus
136,000
MARi
70,000
Kuntsevo Plaza
66,000
Centralny Detsky Magazin on Lubyanka
34,392
Klyon
23,100
Outlet Village Belaya Dacha phase II
12,700
Source: JLL
According to Oxford Economics, retail sales in 2015 in Russia is expected to contract by 4%. Although retail sales
held fairly firm for the final quarter of 2014 at 1.8% YoY in November 2014 and December data was even stronger with
5.3% YoY, in our view this strength is clearly unsustainable. The increased cost of imported goods due to self imposed
sanctions and devalued rouble will put yet more pressure on inflation, pushing down real personal income levels. These will
negatively effect consumer purchasing power and retail sales through 2015.
We anticipate 2015 completions will reach the level of 1.9m sq m in Russia. This result could become the record high
for the Russian retail market. Shopping centre supply in Moscow is expected increase by 500,000 sq m in 2015 to 4.7m sq
m by the end of 2015. The significant number of 2015 completions will be formed by projects that were originally planned to
be completed in 2014. In the current gloomy environment developers are likely to finish projects, which are under active
construction, but are not starting planned ones.
We expect the vacancy rate to increase to 8% in Moscow in 2015. The vacancy rate in Q4 2014 remained at the level of
6% seen in Q3. At the same time, we expect the vacancy rate to continue increasing in 2015, due to large pipeline and
lower retailer demand on the back of the weakening purchasing power of Russians and moderating retail sales growth.
Rents in shopping centres in Moscow have decreased by 20% in 2014 and will continue to be under pressure in
2015, due to the gloomy forecasts for the Russian economy and the increased competition among new shopping malls. The
most successful shopping centres will remain in demand and we expect prime rents not to shrink significantly. However, we
do expect that rents in shopping centres of lower quality will be under continued pressure. In regions, purchasing power is
lower, compared to the capital city, and the rental rates and availability in regional shopping malls will be under stronger
pressure.
Commercial Real Estate Market Report Q4 2014
2
Introduction
The past year can be characterized mainly by falling oil prices, dramatic rouble devaluation, and, a broad
slowdown in Russia’s economy. The retail market is of course significantly affected by the current environment.
Retailers have strong pressure on revenues, which has led to many of them reviewing their development plans
and a few have even left Russia. The construction and commissioning of new shopping centres are also under
pressure. The combination of retailers’ moderating demand and lack of financing will force developers to
postpone the launch of the newly planned projects. Nevertheless, they are likely to finish those ones that are at an
advanced stage.
The completion of retail space in Russia in 2014 equal to 1.63m sq m, down 10% YoY. The majority of new
premises are in Moscow, which is more than 35% of the total figure. This is the highest annual completion level
ever seen on the capital’s retail market (602,600 sq m). The majority of new shopping centres were opened in Q4
(317,500 sq m).
In fact, the pipeline announced by the developers accounted for more than 2.6m sq m, though we believe many
projects are likely to be put on hold. As a result we expect not more than 1.9m sq m are likely to be delivered, still
this result may become record high for the Russian retail market.
Due to the current economic climate in Russia, the extraordinary level of completion and the pressure of limited
demand, the overall SC vacancy rate had risen to 6% by the end of 2014. As real personal incomes and retail
sales are expected to continue declining, many operators are downgrading their development plans in 2015.
Some of them will close unprofitable stores, whereas a few market players will terminate their activity on the
market. Taking this into account, and given such a large pipeline, we expect the overall vacancy rate to reach 8%
by the end of 2015.
The average rental level has decreased by 20% in Q4. Retailers are continuing to insist on a short term turnover
rent or rental discount, fixing foreign currency exchange rate band. On the back of increasing competitiveness
between shopping centres and the retailer demand decline, the rents are likely to further come down in 2015.
Nevertheless, the most successful SCs should remain in demand and in these case prime rents are not expected
to shrink significantly.
Content
Introduction………………………………………………………………………...………….………………..
2
Shopping Centres. Outlook……………………….…….………….….………….….………………………
3
Shopping Centres. Overview………………………………………………………………………………...
6
Commercial Real Estate Market Report Q4 2014
Shopping Centres. Outlook
In 2015 more than 2.6m sq m of retail space are
planned in Russia. However, we expect no more
than 1.9m sq m to be delivered. This result could
become the record high for the Russian retail market.
Among the largest shopping centres in the regions are
Gudok SC (115,000 sq m) in Samara, Arena SC
(95,000 sq m) in Barnaul and Almaz SEC (90,000 sq m)
in Chelyabinsk are expected.
About 900,000 sq m are announced for Moscow in
2015. However, according to our expectations, only
500,000 sq m are likely to be completed. The significant
number of 2015 completions will be formed by projects
that were originally planned to be opened in 2014.
Among the largest shopping malls in Moscow that are
expected in 2015 are Columbus (136,000 sq m),
Kuntsevo Plaza (66,000 sq m), MARi (70,000 sq m),
Riviera (100,000 sq m) and Butovo Mall (57,000 sq m).
The majority of announced supply in Russia is
expected in cities with population of less than 1m.
About 37% of the total GLA of shopping centres which
are planned to be completed by the end of 2015 are in
cities with population of less than 1m. Millionniki cities
will have a share of some 22%.
Millionniki Cities
Smaller Cities
Pipeline 2015
Pipeline 2015
'000 sq m
140
'000 sq m
160
140
120
100
80
60
40
20
0
115
120
100
80
60
40
20
0
Source: JLL
143
Source: JLL
Growth Potential
Growth Potential
1 000
Most promising
950
Yekaterinburg
900
Kazan
850
Perm
800
Nizhniy
Novgorod
Ufa
750
Voronezh
Krasnoyarsk
700
Omsk
650
Novosibirsk
Chelyabinsk
600
550
Volgograd
500
0
100
200
Samara
Rostov-on-Don
Least promising
300
400
500
600
700
Retail stock per '000 inhabitants in 2015, sq m
*Bubble size is correlated with retail market size of the city
Source: Rosstat, JLL
Average monthly income per capita, USD
Supply
Average monthy income per capita, USD
3
1 200
Most promising
Tyumen
1 100
1 000
Khabarovsk
900
800
Vladivostok
Naberezhnye
Chelny
Togliatty
Krasnodar
Lipetsk
Astrakhan
Izhevsk
Yaroslavl
Irkutsk
Ulyanovsk
Tomsk
Ryazan Orenburg
PenzaKemerovo Novokuznetsk
700
600
500
Barnaul
Saratov
400
-50
50
150
250
Least promising
350
450
550
650
750
850
Retail stock per '000 inhabitants in 2015, sq m
*Bubble size is correlated with retail market size of the city
Source: Rosstat, JLL
Commercial Real Estate Market Report Q4 2014
4
Shopping Centres. Outlook
Shopping centre supply in Moscow has increased to
4.2m sq m by the end of 2014. Moscow experienced a
significant increase in supply of 602,600 sq m in 2014.
In Q4 the completion of retail space in Moscow equalled
to 317,500 sq m, which is five times the level reached in
the previous quarter. Nonetheless we maintain that the
city is still undersupplied with quality retail space
compared not only to the biggest European cities, but
also to St. Petersburg. By the end of the year, Moscow
will have 385 sq m of quality retail space per 1,000
inhabitants.
Total stock in Europe, Q4 2014
Completion dynamics in Russia by regions
'000 sq m
4,681*
5 000
4 500
4 000
3 500
3 000
2 500
2 000
1 500
1 000
500
0
'000 sq m
2000
Other cities
Moscow
St. Petersburg
Millionniki
Moscow Region
1500
1000
500
0
Debt financing is expensive and very limited. On the
back of sanctions, credit conditions have tightened over
H2 2014. On the back of the extraordinary increase in
the policy rate in mid-December the 3-months
MosPrime* rate increased to 29.9%. External debt
financing has been significantly squeezed. Both senior
and construction debt will remain difficult to obtain.
We anticipate some projects in Moscow and regions
to be frozen. In the short-term the construction of new
shopping centres will not be started except the projects
which have secured financing already or those financed
by equity capital. Some objects in Moscow, as well as
many of them in regions, may be frozen due to the
decrease in demand from retailers and the lack of
financing: developers will not start the construction of
the newly planned projects, but will finish those ones
that are at an advanced stage.
2008
*2015F
Source: JLL
2010
2011
2012
2013
2014
2015F
Source: JLL
Stock per 1,000 inhabitants in Moscow
MosPrime* Dynamics
35
2009
%
450
30
400
25
350
20
300
15
250
10
200
5
150
0
100
sq m
50
0
1M
3M
6M
*reference rate on the basis of offer rates of rouble loans (deposits) quoted by leading
participants in the Russian money market to first class financial institutions.
Source: JLL
Source: JLL
385
345
Commercial Real Estate Market Report Q4 2014
5
Shopping Centres. Outlook
Demand
According to Oxford Economics, retail sales in 2015
in Russia is expected to contract by 4%. Although retail
sales held fairly firm for the final quarter of 2014 at 1.8%
YoY in November 2014 and December data was even
stronger with 5.3% YoY, in our view this strength clearly
unsustainable. The increased cost of imported goods due
to self imposed sanctions and devalued rouble will put
continued pressure on inflation, pushing down real
personal income levels. These will negatively effect
consumer purchasing power and retail sales in the
coming years.
Due to the current economic uncertainty many
retailers continue reviewing their short term
expansion strategy. Given the challenges in the
planning of retailer financial strategy, new brands’
expansion activity on the Russian market will dramatically
fall in 2015. We do expect the majority of retailers to put
their expansion plans in Russia on hold and switch to
other emerging markets. At the moment, a lot of new
brands are looking for the premises for their first
openings, which are scheduled not earlier than in 2016. In
the long-term perspective, they realize the potential of
Russian consumer market.
Some Russian retailers will feel better settled
compared to others, which refers to grocery
supermarkets and discounters, children goods, and massmarket fashion. Some of them have already announced
their development plans in 2015. Russian chains of
children goods stores Detsky Mir and Korablik are hoping
to keep their high expansion results of the past year. The
French Auchan and Decathlon are to further expand into
the regions of Russia. O’KEY group is to launch the new
discounter brand Da! comprising 30-50 stores in 2015.
The German company Tengelmann group plans to extend
the presence of OBI across the Russia and start to
develop their other brand Plus discounters. Russian
chains of convenience stores Dixy and Magnit plan to
expand significantly their presence across Russia.
In Q4 several retailers have decided to leave the
Russian market, New Look and Camaeiu are among the
examples.
Market balance. Moscow
We expect that the rents will continue to decline
further in 2015, due to the negative forecasts for the
Russian economy and the increased competition among
new shopping malls. The most successful shopping
centres should remain in demand and the prime rents are
unlikely to shrink significantly. However, we do expect that
rents in shopping centres of lower quality will be under
continued pressure.
We expect the vacancy rate will continue to push up
in 2015 to 8%, due to the large pipeline that has been
announced, as well as retailers continued review of their
brand portfolios. Retailer are closing unprofitable stores or
even exiting the Russian market on the back of the
weakening purchasing power of Russians and moderating
retail sales growth.
Retail Sales Growth Forecast in 2015
%
4,0
3,0
2,0
1,0
0,0
-1,0
-2,0
-3,0
-4,0
-5,0
average level
-4
Source: Oxford Economics
Moscow Market Balance
'000 sq m
5 000
4 500
4 000
3 500
3 000
2 500
2 000
1 500
1 000
500
0
Source: JLL
Completions
Stock as at the end of the previous year
Vacancy rate
%
12
10
8
6
4
2
0
Commercial Real Estate Market Report Q4 2014
6
Shopping Centres. Overview
Supply. Russia
Major completed projects in Moscow, 2014
Russian new retail space expanded by 1.63m sq m in
2014, slightly lower (down 10% YoY) than in 2013.
Among the largest completed schemes are Aviapark SEC
(228,500 sq m) and Vegas Crocus City (112,500 sq m) in
Moscow, Ambar SC (90,000 sq m) in Samara, Grinvich
Phase IV (85,000 sq m) in Yekaterinburg and Planeta SC
(72,900 sq m) in Novokuznetsk. The volume of new
deliveries in Q4 2014 was 800,400 sq m (almost the amount
of Q1-Q3 2014), and total stock of quality retail space in the
Russian market reached 17.7m sq m.
Supply. Moscow
Moscow completion accounted for more than 35% of the
total annual completion, making a total of 602,600 sq m.
This level is a record level for this market and is equal to the
total amount of the previous three years. The total supply of
retail space in Moscow exceeded 4.2m sq m by the end of
Q4 2014 .
Moscow completion in Q4 was five times the level
reached in the previous quarter and amounted to 317,500
sq m. Two large shopping centres were delivered – Aviapark
SEC (228,500 sq m) and Mozaika (68,000 sq m) over this
quarter.
Moscow is still undersupplied with quality retail space
compared to the biggest European cities. The provision
of quality shopping centre retail space in Moscow is 345 sq
m per 1,000 inhabitants by the end of Q4 2014.
Completions Dynamics in Russia
thousand sq m
SC name
GLA, sq m
2500
Aviapark
228,500
2000
Vegas Crocus City
112,500
1500
Mozaika
68,000
1000
Vesna Altufyevo
56,000
500
0
Reutov Park
Source: JLL
2008
2009
2010
Q1
2011
Q2
2012
Q3
2013
2014 2015F
Q4
Source: JLL
Stock per 1,000 Inhabitants in Europe
sq m
800
700
600
500
400
300
200
100
0
2007
42,600
Completions Dynamics in Moscow
700
thousand sq m
600
500
345
400
300
200
100
0
2007
2008
2009
2010
Q1
Source: JLL
Source: JLL
2011
Q2
2012
Q3
2013
Q4
2014 2015F
Commercial Real Estate Market Report Q4 2014
7
Shopping Centres. Overview
Demand
The economy continues to create headwinds for retail
though we do still see evidence of new retailers
coming to the market. Consumer credit showed
negative growth in Q1 for the first time since 2009. This
trend continued, with further decline of consumer
financing by 18% YoY in Q3.
Retail sales held fairly firm for the final quarter of
2014 which is clearly unsustainable. Retail sales were
up 1.8% YoY in November 2014 and 5.3% YoY in
December 2014. Russians tried to save the value of their
money, by buying residential and stocking up on white
and brown, furniture, home appliances, and etc.
Retail turnover growth for 2014 has moderated to
2.5% from 3.9% in 2013, due to the rouble devaluation,
stagnant wage growth, increased cost and lower volumes
of consumer debt. Nonetheless, several new retailers
have appeared in Russia. For instance, Oris (watches),
Forever 21, Dockers, Ferrari store, Fogal, L'Agent by
Agent provocateur (fashion & apparel), Lindt and Wok to
Walk (cafes) are among Q4 new retailers.
Various tenant profiles are affected by the current
situation differently. The rouble devaluation and
macroeconomic uncertainty have led to the reorientation
of consumer demand. Retailers in the medium plus price
segment are experiencing the higher pressure;
conversely, the companies in low price segment (mass
market, discounters) are more attractive for buyers. The
following profiles of tenants are expected to be less
affected during the crisis: grocery, children goods stores
and food courts (excluding the supermarkets and
restaurants in the high price segment, which are under
pressure of sanctions and rouble depreciation).
Some retailers have shown an active expansion
across Russian regions in Q4 2014. Food retailers
Lenta, Metro C&C and Fix Price actively continue their
expansion mainly focused on Russian Regions and
Moscow region. Detskiy Mir is strengthening its presence
in Ryazan, Orenburg, Krasnoyarsk, Volgograd and
opened first stores in small cities in Kemerovo, Orenburg,
Chelyabinsk regions and other. We do see that Moscow is
still popular particularly among fashion and catering
brands whereas children goods and grocery are mostly
expanding in the regions.
Real Income and Turnover Growth in Russia
20
%
15
10
5
0
-5
-10
-15
Retail turnover growth, YoY
Real income growth, YoY
Source: Rosstat
Market balance. Moscow
Although the demand for retail space continued to
moderate, it has not affected the vacancy rate so far.
The vacancy rate in Q4 2014 remained at the level of 6%
seen in Q3.
Rents in shopping centres in Moscow have decreased
by 20% in 2014. The average rents are at USD400-1,450
per sq m per year, while the prime rents are ranging
between USD2,400 and USD4,500 per sq m per year.
Retailers are asking for a short term rental discount, fixing
foreign currency exchange rate band, or paying rent as %
of turnover. Developers are ready to consider alternative
commercial terms. For example, in newly constructed
shopping centres they may offer to peg the rent to the
lower boundary of turnover rent for the short term (3-12
months). In most cases developers are ready to
compromise only after the terms are justified by the
retailer performance.
Average Rent Dynamics in Moscow
USD/sq m/year
%
14
%
2000
15
12
1500
10
10
8
1000
5
6
4
500
0
0
2
-5
0
-2
-4
-10
2008 2006
2009
2010
2007
2011
2008
2012
2009
2013
2010 2014
2011 2015F
2012
Average
rent располагаемых
Retail доходов
sales growth
Рост
реальных
Source: JLL
2013
2014
20
Доля свободных площаде
Commercial Real Estate Market Report Q4 2014
8
Contacts
Tom Mundy
Head of Research
[email protected]
Olesya Dzuba
Deputy Head of Research
[email protected]
Maria Shpakova
Analyst, Retail Research
[email protected]
Konstantin Loginov
Analyst, Retail Research
[email protected]
JLL Russia & CIS
115114 Moscow, Russia
2 Letnikovskaya St., Bld. 1
Phone: +7 495 737 8000
Fax: +7 495 737 8011
[email protected]
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