Shopping centre completions in 2016 could be record low for the last 10 years in Russia, says CBRE
Uncertain retailers’ demand, as well as expensive and unavailable financing, were the major reasons for lower developers’ activity in Russia. As a result, completions in 2016 could be the record low for the last 10 years.
Completions of modern retail space in 2015 amounted to 1.9 mln. sq. m, which is 13% lower than in 2014. In 2016 in Russia retail premises delivery will be almost 30% lower than in 2015, which is driven by the reduction of new supply in regional cities.
In Russia only half of TOP-10 most saturated markets are cities with 1 million inhabitants. The most promising cities for development of retail space are Vladivostok, Khabarovsk, Naberezhnye Chelny, Kirov and Chita.
Despite some negative macroeconomic factors, international retailers are still interested in the Russian regional retail property market, mostly due to lower competition than in Moscow along with sufficiently high purchasing power and favorable leasing terms. 13 out of 53 international brands that came to Russia in 2015 opened their first stores in regional cities.
Key trends of the Russian retail property market for 2016:
• Developers in Russia announced over 2 mln. sq. m of new construction for 2016. According to our estimates, taking into account the current stages of development and terms of delivery of every project, the actual delivery in 2016 will be about 1.3 mln. sq. m.
• Current interest rates and continued decline in the Russian economy are not conducive to the start of construction of new projects. Construction of shopping centres at the final stages with guaranteed financing, with high probability will be finished during 2016-2017.
• The interest of developers and retailers to large cities (Moscow, St. Petersburg, cities with population above 1 mln. inhabitants) will stay, mostly due to high purchasing power in these markets.
• Shopping centres in the cities with high penetration rate (e.g., Yekaterinburg, Krasnodar, Tyumen, Yaroslavl) need reconception. Even relatively low cost changes can increase consumers’ loyalty and increase shopping centres’ attendance.
• Major retail chains of «middle» and «economy» price segments will continue regional expansion: in 2016 further expansion announced such key market players as OBI, Leroy Merlin, Decathlon, H&M, McDonald`s, KFC, Subway, Nathan`s Famous.
• In order to keep stable position on the market, other retail chains will continue reducing the number of unprofitable retail outlets in regions, that will result in further increase in vacancy rates in some markets, and increase the time period required for new shopping centres to be populated with tenants.
Michael Rogozhin, Managing Director of Retail department CBRE in Russia, comments:
“Retailers in regions are more carefully selecting and evaluating locations for opening their new shopping centres. With high probability, key trend of business optimization and reduction of unprofitable shopping centres in regions will continue in 2016. However, this will be compensated by high activity of major international and federal retail chains as well as retailers of ‘middle’ and ‘economy’ price segments, that traditionally rent premises in shopping centres as anchor tenants.
Developers have announced over 3.2 mln. sq. m of new construction for 2016-2017 in Russia (including Moscow and Saint-Petersburg), which is about 15% of current total stock. However, taking into account current credit conditions, not all the announced projects will be completed in time. According to our estimates, only 60% of new supply will be delivered in 2016-2017, construction of other projects will be postponed, and projects will be completed not earlier than 2018-2019”.