Page 28 - bne_Magazine_May_2018_print

28 I Special report bne May 2018
Vacancy rates in Moscow’s retail stores are falling, but more slowly than the other categories
Ben Aris in Berlin
The vacancy rates in Moscow’s retail stores are following the general
trend of improvement in the real estate sector, but not as fast as office and warehouses. Vacancy rates shrank in the first quarter of this year returning to the same level last seen at the start of 2017, says real estate consultant JLL.
The vacancy rate on the main Moscow high streets declined to 8.4% in the first quarter of 2018, down by 0.6ppt q/q on the back of rising real income. Other surveys like Sberbank’s Ivanov survey suggest that Russians are starting to make bigger ticket purchases such as cars as well as trading up again from cheap Russian-made products to more expensive imported goods.
The strongest growth and most attractive locations were on the northern side of Moscow Garden Ring road – from Mayakovskaya metro station to Kurskaya metro station – that encircles the capital’s central business district, where vacancy rates were down 6.9pp to 13.2%, according to JLL.
Beauty salons and small-format supermarkets were the most popular types of new tenants. Overall the vacancy rate on the Garden Ring fell from 11.7% to 9.5% over the first quarter of this year.
The other location that saw a conspicuous improvement was along Moscow's main thoroughfare and most expensive shopping street Tversakaya and the nearby Maroseyka street where vacancy was declining by 2.5pp and 2.2pp, to 5.8% and 10.0%, respectively.
“The main trend on the Moscow high street retail market is a rising share of food service tenants (to 33.5% in the first quarter of 2018 ), while the presence of fashion operators is declining. The share of fashion and footwear stores has been gradually decreasing over the past years, from 15% in 2015 to 10.5% in March 2018,” says Yulia Nazarova, Head of Street Retail in Moscow, JLL.
On the demand side, restaurants and cafés remained the leaders on the Moscow street retail market, with 46% of leasing inquiries in the first quarter of 2018. Fashion operators traditionally were the second most active with 17%, followed by supermarkets and grocery stores (9% of total inquiries), reported JLL.
Overall vacancy rate dynamics
Source: JLL
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grow their demand for new space is also growing.
Vacancy rates falling
The vacancy rate in Moscow continued to decline, reaching 13.1% at the end of the first quarter, down 0.7 ppt q/q and 2 ppt y/y, reports JLL.
“Low completions and rising demand stimulate the vacancy rate reduction in all quality office segments except Class B-, where the vacancy rate has increased by 0.1 ppt Q/q and by 1.5 ppt y/y to 12.3%,” says JLL.
In Class A the vacancy rate has dropped to 14% (by 2.4 ppt q/q and 3.6 ppt y/y). In Class B+ the vacancy has reached the market average, 13.1% (down by 0.4 ppt Q/q and 3.2 ppt y/y).
The most activity has been seen in the capital’s most prestigious suburb of Moscow City, the “Canary Wharf” of Russia. There the vacancy rate declined by 1.1 ppt in the first quarter of 2018, which saw the largest annual decreases: the vacancy rate in Moscow City was down 7.5 ppt y/y to its lowest level
since 2012 of 12.9% due to the activity of state banks and public authorities. Only two years ago the vacancy rate in Moscow City was so high some landlords were turning their prime office space into backpacker hostels to make a little money.
Completions of new buildings low
Falling vacancy rates have not yet spurred new construction and the falling rates is supported by the low supply of new buildings coming onto the market. Supply of high quality real estate objects coming onto the market in the first quarter was still lagging well behind demand, reports JLL.
Overall completions in the first quarter amounted to a mere 37,000 sqm and no new Class A buildings at all. All of the new office centres coming online were Class B+. Of these only one new busi- ness centre was in the central business district with the bulk of the others (nine out of ten) located outside of the third transport ring, many of them clustered around the Vnukovo airport and the