Moscow 2011 Annual Real Estate Review
 

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Moscow 2011 Annual Real Estate Review Document Transcript

  • 1. Economic Overview • In 2010, the positive trends in the Russian economy that had been observed at theIndicator % end of 2009 continued. GDP growth rate for the eleven months of 2010 amounted toGDP growth rate 3.7* 3.7%.Industrial production • Overall, Russian economy was growing faster than most of the developed Western 8.2growth rate economies, such as the USA, the countries of the continental Europe and the UK.Unemployment rate 7.2 However, it was growing slower than many developing countries, the other BRIC countries for example.Inflation rate 8.8 • In Q3 2010, the drought and the forest fires caused by it encompassed practically theRetail trade turnover 12.1** entire European part of Russia, which became one of the reasons for a reduction in the GDP growth rate (2.7% versus 5.2% in Q2) and affected the inflation rate.Budget deficit –25.5*** Prices of oil and key industrial metals that exert a considerable influence on the growth rate of Russian economy displayed a positive trend. The price of oil increased from * January–November 2010. $81.23 per barrel to $93.975 per barrel during 2010. The prices of copper, aluminum,** January–November 2010 / January–November 2009. and nickel increased by 18.9%, 6%, and 31.5%, respectively, during the same period. *** Change vs. 2009. Sources: the Federal State Statistics • Industrial production was growing at a record pace (the highest since 2004). However, Service, Colliers International it was largely caused by a low base effect that tends to overstate indicators. This is evidenced by a significant difference of the final industrial output growth indicator of 8.8% from the growth of 10 to 12% planned at the beginning of the year. • Among other positive factors one can name declines in the unemployment rate and the inflation rate back to their 2007 values, which were accompanied by an increase in the real disposable income of the population. • For most of the year, the inflation rate was at its historic lows and reached its lowest level (5.5% per year) in July. However, due to higher food prices caused by the drought, the final value amounted to 8.8%. • The growth rate of exports slowed down from 18.1% in September to 14.9% in October 2010. This can be traced to the introduction of a government ban on grain exports until July 2011. Even though the revenue from oil exports grew, the increase was not significant and was unable to compensate for this decline. • In September 2010, the law regarding the budget for 2011–2013 was enacted. A prohibition on increasing the headcount of government employees in 2011, as well as its gradual reduction by 20% by 2013, which would allow for cutting government payroll costs, can be considered one of the key innovations. Unlike in previous years, it is planned to fund the budget deficit by means of domestic borrowings and state property privatization (previously, it was mostly funded by means of foreign borrowings; these are planned to be cut in half).
  • 2. FORECASTS• In 2011, most analysts expect GDP growth rate to be at 4.3%, which is 0.3% higherthan what was expected in 2010. Because of the accelerated inflation rate at the end of2010, its forecast for 2011 has been increased to 8%, that is, by 0.2%.• We expect a decline in the industrial production growth rate to 4.6% in 2011.Chart 1. GDP GROWTH RATE, INDUSTRIAL PRODUCTION GROWTH RATE, AND UNEMPLOYMENT RATE 15% 10% 5% 0% -5% -10% -15% -20% Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, 2009 2009 2009 2009 2010 2010 2010 2010 GDP Growth Rate * Industrial Production Growth Rate Unemployment Rate Igor Pushchen Associate Director * The data for Q4 2010 are preliminary estimates. Investment Services Department Source: The Federal State Statistics Service Igor.pushchen@colliers.com
  • 3. Investment • In 2010, the market continued its recovery that had been rooted in pre-conditions Indicator % existing as early as Q4 2009. The total volume of deals increased by 67.8% and amounted to $3.93 bln. Total volume $3,937,410,215 of investment deals • The office segment of the market continues to be the key growth driver; this segment accounted for 72.7% of deals, which is slightly lower than in the previous year (85.5%). Capitalization rate for 9–10% office properties • At the beginning of the year, end-user companies like SOGAZ, RusHydro, Evraz Group, etc. were the main buyers in the office property market. However, the Capitalization rate for acquisition of the Horus Capital development company’s property portfolio and an 9–10% unfinished business center Classic on Valovaya Ul. by OTKRITIE Financial retail properties Corporation that took place at the end of the year could be considered a trend change. As of the end of the year, several major investment deals expected to close Capitalization rate for 9.5–11% in the first half of 2011, were in advanced stages of development. warehouse properties • In the retail property segment, the volume of deals was significantly lower, amounting to $185.5 mln. The much smaller volume of completed deals is explainedboth by a smaller number of properties with purchase appeal and by the fact that the investor, rather than the end user, has alwaysbeen the main buyer of shopping and entertainment centers, contrary to the trend observed in the office segment during the past1.5 years.• The warehouse property segment, which hadn’t seen any deals since 2008, started to exhibit signs of revival, which did not gounnoticed by investors. Three deals for a total amount of $729 mln were completed.• Capitalization rates continued to decline for all segments of the commercial real estate market. However, by the end of the year, thedecline slowed down considerably, stabilizing at the 2006 levels.• Higher energy prices, contractionary policy of the Central Bank, and cautiousness of the banking sector have led to a considerableimprovement in the banks’ liquidity, which has been evidenced by a continuous reduction in deposit interest rates. Historically, realestate sector lending has been one of the key areas for major banks, which, combined with positive market signals, allowed them tolower interest rates and relax borrower requirements somewhat. At present, it is possible to obtain a foreign currency loan at 10–11%for the term of up to 7 years using completed projects as collateral; compared to 2009, it is 300–500 basis points lower. Interest ratesfor Russian ruble loans are traditionally higher by 200–300 basis points. However, the crisis still continues to have quite a significantimpact on projects at the land development stage.Nonetheless, the volume of lending in the construction industry is going to be higher than in 2009. During the eleven months of 2010,there were 33% more loans issued compared to the same period of the previous year. Even taking the updated statistical data for theend of 2010 into account, we would register the growth of the lending volume, as during the eleven months of 2010 there were alreadymore loans issued (by RUR 207.5 bln) than during the entire 2009.FORECASTS• For 2011, we forecast an increase in the volume of deals in all market segments. The highest growth is expected in the retail propertysegment, as several properties under construction that may change hands are available in the market.
  • 4. Chart 1. CHANGES IN DEAL VOLUME BY MARKET SEGMENT 6Billions 5 4.85 4.33 3.40 4 3 2.35 2 1 0 2007 2008 2009 2010 Office Retail Mixed-use Warehouse Hotel Source: Colliers InternationalWe also expect an increase in the volume of deals in the warehouse property segment,which follows the retail property segment’s trend and at the same time is characterized,on average, by longer contract terms and less complex management.• Professional investors will start to dominate in the office property market, while thevolume of deals with participation of end-user companies will be declining. This process Igor Pushchenis directly related to the decrease in the vacancy rates and stabilization of rental rates, Associate Director,which we are currently observing in the market. Investment Sevices Department• We are not projecting a considerable decrease in capitalization rates in 2011. Further Igor.pushchen@colliers.commovement of the rates will take place at a much slower pace, because they are close tothe stabilization level.• A similar scenario is possible for loan interest rates, as well. Banks will be relaxingborrower requirements and more readily lending to developers, but a considerabledecrease in rates should not be expected.Chart 2. CHANGES IN CAPITALIZATION RATES BY SEGMENT, % 21% 19% 17% 15% 13% 11% 9% 7% 5% 2003 2004 2005 2006 2007 2008 2009 2010 Office Retail Warehouse Source: Colliers International
  • 5. Office Segment 2010 saw a growing interest in the office property market on the part of tenants and developers. Thanks to the revival of demand, the gross take-up in Q1–Q3 2010 exceeded the corresponding figure for the entire 2009. The number of the companies interested in leasing and buying office premises with an area of over 10,000 sqm increased; in particular, there was emerging demand for properties to be commissioned in 2–3 years. The take-up increase led to a drop in vacancy rates and growth of rental rates, which, in its turn, resulted in an improvement of the situation in the construction market and renewed development of the previously suspended projects. According to our estimates, the trend for the office property market revival is stable and is going to gather pace in 2011 unless any macro-economic disruption occurs. This will lead to a further decrease in vacancy rates, growth of rental rates and gradual strengthening of landlords’ position in negotiations. SUPPLY AND NEW CONSTRUCTION 2010 saw the commissioning of 970,000 sqm of new space in the office property market, with Class A properties accounting for 34% and Class B properties for 66%. The percentage shares of new construction and reconstruction were 76% and 24%, respectively. As a result, by the end of 2010, the total stock of Class A and B office space amounted to 12.64 million sqm. It should be noted that in 2010 the amount of commissioned space was considerably lower than in the previous several years, when approximately 1.5–1.8 million sqm of office space had been commissioned annually. The reason is that in 2009, against the backdrop of a slump in demand for office properties, many projects were suspended at early construction stages.Table 1. MAJOR PROJECTS PUT INTO OPERATION IN 2010 Building Total area, Rentable office CommissioningBuilding Developer class sqm area, sqm date Moscow Business Incubator SeptemberNagatino i-Land, Phase I, part 2 В 87,164 78,245 OJSC 2010 Moscow Business IncubatorNagatino i-Land, Phase I, part 1 В 89,200 76,500 April 2010 OJSCPreo 8 В Montazhspetsstroy 118,700 75,000 October 2010Domnikov А OPIN 132,000 64,100 March 2010Western Gate А Centurion Hypermarkets 60,500 56,000 February 2010 DecemberSkyPoint Business Park В Otdelstroy-Invest 74,267 38,092 2010
  • 6. Building Total area, Rentable office CommissioningBuilding Developer class sqm area, sqm date SeptemberW Plaza В Absolute Group of Companies 200,000 31,155 2010Legend of Tsvetnoy А Capital Group 112,000 30,862 December 2010Trio В MR Group 37,550 30,770 November 2010Danilovskaya Manufaktura, Korpus В KR Properties 42,000 26,000 April 2010KnopaMarr Plaza А Marr Capital 34,000 21,913 December 2010 SeptemberHelios City В Russian Investment Company 22,000 20,000 2010Summit А Rossiyskiy Kredit Bank 63,800 18,570 October 2010Sherland 2 В Sherland 18,700 17,500 November 2010Kalanchevskaya Plaza В Absolute Group of Companies 20,045 15,830 December 20101/2 Arbatskaya Ploshchad А Zhilrekonstruktsiya 31,447 15,168 March 2010Novakhovo BC В AeroВus 18,000 15,000 February 2010AFI at Paveletskaya В AFI Development 19,700 13,600 July 2010Moscow Silk, Phase III В Moscow Silk 33,700 13,500 May 2010Avignon В Capital Group 24,180 13,440 December 2010Novatek BC А Novatek 17,596 12,730 December 2010 Sadovoe Koltso GroupKrasnogorsk Plaza В 39,611 12,000 December 2010 of Companies PromSvyazNedvizhimost /South Park В 22,400 11,500 June 2010 Russky Monolit SeptemberTaurus А Gazprombank-Invest 18,680 11,060 2010 Source: Colliers International DEMAND In 2010, a revival of demand was registered in the office property market, primarily on the part of companies operating in the primary, public, and consumer goods sectors. Demand from financial companies also increased, which testifies to the renewal of their business activity and the need to expand the occupied office space. An outstanding trend of 2010 was the demand for office premises with an area of 10,000–30,000 sqm, both in completed buildings and buildings under construction to be commissioned in 2–3 years. A larger portion of such requests – about 95% – came from Russian companies.
  • 7. In 2010, the gross take-up in the office lease market amounted to approximately 1,000,000 sqm, which is 38% more than in 2009. Deals with Class A and Class B properties accounted for 28% and 72% of the total leased area, respectively. It is noteworthy that in 2010 the volume of lease terms renegotiation deals decreased by more than a factor of two. In 2009 it amounted to 196,000 sqm, whereas in 2010 it was only 95,000 sqm. It should be noted that in 2010 the demand remained focused on operating business centers.Chart 1. TOTAL STOCK AND NEW CONSTRUCTION, CLASSES A AND BMillion sqm 14 12 10 8 6 4 2 0 Source: Colliers International 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E New construction (million Total stock (beginning of the reporting sqm)) period) In 2010, gross take-up by end users in the office sales market amounted to 320,000 sqm. The total area of office premises purchased in 2010 was 16% more than in 2009. This report contains data on office property sales to end users. Information about investment sales is provided in the “Investment” section. Table 2. MAJOR LEASE DEALS CONDUCTED IN 2010 Building Office Tenant Building Quarter class area, sqm. TNK-BP Nordstar Tower, 3 Begovaya Ul. A 37,700 Q2 Confidential Western Gate, 21 Belovezhskaya Ul. А 17,900 Q2 World Trade Center III, E4 Group А 10,433 Q4 12 Krasnopresnenskaya Nab. Sanofi-Aventis Pharma Summit, 22 Tverskaya Ul. А 8,800 Q2 CTC Media Monarch Center, 31 Leningradsky Pr-t B 7,000 Q4 Danone Riga Land В 6,600 Q4 IT Omega Plaza, 19 Leninskaya Sloboda Ul. В 6,512 Q1 Philips Marr Plaza, 13 Sergeya Makeeva Ul. А 5,935 Q3 Samsung Voentorg, 10/2 Vozdvizhenka Ul. A 5,879 Q4 Moskommertsbank Nordstar Tower, 3 Begovaya Ul. А 5,573 Q3
  • 8. Building OfficeTenant Building Quarter class area, sqm.OTKRITIE Financial Corporation 14 Yakovoapostolsky Per., Bldg 1 В 5,553 Q3Eldorado 14 Smolnaya Ul. В 5,273 Q3Confidential Nordstar Tower, 3 Begovaya Ul. А 5,251 Q1Avon Fusion Park, 1 M. Trubetskaya Ul. В 4,861 Q1Nycomed Fusion Park, 1 M. Trubetskaya Ul. В 4,748 Q3Enel Pavlovsky, Phase II, 7 Pavlovskaya Ul. А 4,736 Q3Merck Pavlovsky, Phase II, 7 Pavlovskaya Ul. А 4,407 Q3(MSD Pharmaceutical)ChTPZ Group White Square, Bldg B, 13–15 Lesnaya Ul. А 4,400 Q2RZD Trading House Pallau-NK, 39 Nizhnyaya Krasnoselskaya Ul. В 4,351 Q2 World Trade Center III,Acron А 4,233 Q3 12 Krasnopresnenskaya Nab.Grinatom Novospassky Dvor, 7 Derbenevskaya Nab. В 4,000 Q1Microgen Volkonsky, 10 2nd Volkonsky Per. В 3,890 Q3Gazprom Maintenance and Procurement Krugozor, 30 Obrucheva Ul., Bldg 1–3 В 3,763 Q3Confidential Georg Plaza, 5A Ogorodnoy Slobody Per. В 3,750 Q4 Source: Colliers InternationalTable 3. MAJOR SALE DEALS CONDUCTED IN 2010 Building Office area,Buyer Building/Seller Quarter class sqmRWM Capital Domnikov, 34 Mashi Poryvaevoy Ul. А 84,548 Q3OTKRITIE Bank Vivaldi Plaza, 2 Letnikovskaya Ul., Bldg 4 A 25,037 Q4 Volna, 10 Akademika Sakharova Pr-t / EurasiaSOGAZ А 15,825 Q1 GroupConfidential Pallau-MD, 7–9 M. Dmitrovka Ul. / Ferro-Stroy В 14,744 Q2ICT Group Complex Nouvelle, 5 Stary Tolmachevsky Per. В 14,511 Q4Finam Megapolis, 7 Nastasyinsky Per., Bldg 2 В 7,437 Q1 Ulansky Tsentr, 4–5 Ulansky Per. /LUKOIL В 7,209 Q1 London & Regional Prokhorov Manor, 30 Podsosensky Per. /ROSENERGOBANK А 4,278 Q2 Dresdner BankConfidential Novodanilovsky Dom, 4A Novodanilovskaya Nab. В 2,440 Q4Ankor Bank Sokol House, 3 Marshala Meretskova Ul. В 2,400 Q2 Source: Colliers International
  • 9. VACANCY RATES Recovering demand and growing take-up, typical of the office property market in 2010, provided for a decrease in vacancy rates. It is noteworthy that the reduction of vacancy rates for Class A premises began in Q2 2010, while for Class B premises this trend had emerged as early as in Q3 2009. As of the end of 2010, vacancy rates in Class A buildings amounted to 17.1%, in Class B buildings to 11.0%. It is worth mentioning that Q4 saw a slight growth of vacancy rates for Class A premises (from 14.3% to 17.1%) following the commissioning of approximately 160,000 sqm of office space and, correspondingly, an increase in supply. This is comparable to the total area of Class A properties commissioned in the first three quarters of 2010.Chart 2. AVERAGE VACANCY RATES 25% 20% 15% 10% 5% 0% Source: Colliers International Q4 2000 Q2 2001 Q4 2001 Q2 2002 Q4 2002 Q2 2003 Q4 2003 Q2 2004 Q4 2004 Q2 2005 Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q4 2008 Q2 2009 Q4 2009 Q2 2010 Q4 2010 Class A Class B* Hereinafter, rental rates are stated net of VAT and OPEX. RENTAL RATES AND SALE PRICES In 2010, we observed gradual stabilization of rental rates in the first half of the year followed by their slight increase in the second half of the year. It was noted that in H1 2010 owners were ready to offer discounts and favorable lease terms to potential tenants. This was the position of landlords offering new business centers with high vacancy rates, buildings in less favorable locations, and premises without finishing. Lessors of more competitive properties started increasing rental rates as early as in the first half of the year. In H2 2010, weighted average rental rates for Class A and Class B business centers somewhat increased. This resulted from demand recovery, increased take-up and reduced vacancy rates. The most significant growth was registered for business centers located in the central business district. As of the end of 2010, weighted average rental rates there amounted to $ 760/sqm/year* for Class A, $660/sqm/year for Class В+, and $390/sqm/ year for Class В– properties. For comparison, in the beginning of the year they amounted to $660/sqm/year for Class A, $560/sqm/year for Class В+, and $300/sqm/ year for Class В–. Outside the CBD, weighted average rental rates for office premises remained practically the same since the beginning of the year and amounted
  • 10. Table 4. ASKING RENTAL RATES AND SALE PRICES IN 2010 Sale prices, $/sqmBuilding class Asking rental rates, $/sqm/year (net of VAT and OPEX) (net of VAT)Class A 550–1,000 7,000–12,000Class В+ 300–750 3,000–8,000Class В– 200–550 2,000–6,000 Source: Colliers International to approximately $450/sqm/year for Classes А and В+ and $220/sqm/year for Class В–. An increase in rental rates across the market overall facilitates a strengthening of landlords’ position in negotiations. TRENDS AND FORECASTS In 2010, the following positive trends developed in the office property market: demand revival, absorption volume enhancement, and vacancy rates reduction. This resulted in an increase of rental rates, as well as in developers becoming more active and resuming previously suspended projects. For example, one could name the following business centers: Olympia Park, Metropoliya, Nagatino i-Land, Skyline, Classic, and Olympiysky Prospekt. This is testimony to the fact that both developers and financial institutions are feeling positive about the office market development prospects and forecast that by the time the new properties are commissioned, there will be corresponding demand in the market. We believe that the market revival trend is stable and is going to gather pace in 2011 unless any macro-economic disruption occurs. It will result in further reduction of vacancy rates, growth of rental rates, increase of competition for office space between tenants, as well as a gradual enhancement of the bargaining power of landlords and property owners. We expect that in 2011 the trend of longer lease agreements will grow, due to the expansion of leased space and the landlords beginning to see the possibility of long-term business development planning.Table 5. MAJOR PROPERTIES PLANNED TO BE COMMISSIONED IN 2011 Building Total Rentable officeBuilding Developer class area, sqm area, sqmImperia Tower А MosCityGroup 287,723 70,110RiverSide B New Life Group 72,146 70,0009 Akrov, Phase II B Garmet 90,738 67,824Vivaldi Plaza А OTKRITIE – Real Estate 68,824 63,680Olympia Park A OTKRITIE – Real Estate 71,185 45,966Aquamarine III A AFI Development 75,500 42,000Solutions BP, Phase II B MosKapStroy 44,000 40,040Diamond Hall А Midland Development 61,500 38,000Lootch А INTER RAO UES 30,000 28,500
  • 11. Building Total Rentable officeBuilding Developer class area, sqm area, sqmLinkor В Agrostroy 35,000 28,500Krasnye Vorota А Olmineya 33,440 25,760Riga Land, Phase II B Polishelk 28,800 21,700Sokol Bridge II B CS Trading 33,000 21,691Radisson SAS Olympiysky Moscow A Kuznetsky Most Development 79,955 19,846Mirland, Bldgs 14 and 26 В Mirland Development Corporation 21,242 19,769Ochakovo BC B Premier Development Company 26,014 19,676 Accent Real Estate InvestmentDelta Plaza В 27,000 19,300 ManagersLegion II, Phase II B Legion Development 30,290 19,300SKY House A MCG Group 145,000 17,500Flacon B Elitstroy 23,300 16,800 th4 17 Maryinoy Roshchi Proezd B Kvartstroy Development Company 17,500 15,000Trefoil Plaza B Rialtservis 20,160 14,5903 Sadovaya-Kudrinskaya Ulitsa В Proektstroyinvest 13,925 13,925Center of Contemporary Architecture A Technocom Trade 29,100 13,300Danilovskaya Manufaktura, Ryady В KR Properties 15,700 12,956SoldatenkovaMoskva hotel А Moskva Hotel / DekMos 187,000 11,13312–14 Zhukovskogo Ulitsa А Lizingbiznes 25,000 10,000 Source: Colliers International Financial institutions, which came into ownership of collateral properties may make an impact on the office market development in 2011. The way they manage these assets (whether they would sell them or establish developer units within their corporate structures and dispose of these properties independently) will, to a certain extent, determine the supply, vacancy rates, rental rates and sale prices in the office property market. In 2011, it is planned to commission about 900,000 sqm of office space. The majority of the properties due to be commissioned are located outside the Garden Ring (see Chart 3). This important fact predefines a short supply of office space in the city center, which allows us to forecast a keen demand for these properties, and, as a result, a more rapid increase in rental rates within the Garden Ring compared to the market average.
  • 12. Chart 3. BREAKDOWN OF 2011 COMMISSIONING VOLUME BY GEOGRAPHIC SEGMENT 3.0% 1.8% 9.5% Within Boulevard Ring 23.3% Boulevard Ring - Garden Ring Garden Ring - Third Ring Road Third Ring Road - Fourth Ring Road Fourth Ring Road - MKAD 16.0% 46.4% Outside MKAD Source: Colliers International Olga Pobukovskaya Director Office Property Department olga.pobukovskaya@colliers.com
  • 13. Warehouse Sector The warehouse property market was experiencing perhaps a more profound impact ofChart 1. TOTAL SUPPLY AND NEW the crisis than other segments of the commercial real estate market: the demandCONSTRUCTION OF CLASS A dropped dramatically, vacancy rates increased sharply from 1% at the end of 2008 toWAREHOUSE FACILITIES 19% in the middle of 2009. As a result, most of the new projects were put on hold. The consequences manifested themselves in 2010, when new construction volume decreased by a factor of 1.6 compared to the previous year and amounted to about000 sqm 5,000 400,000 sqm. In this environment, a revival of demand in the warehouse segment was 4,000 observed in 2010. As a result, the take-up of warehouse space was double the volume 3,000 of new construction. These factors defined the main trends of 2010: reduction of 2,000 vacancy rates to 6% and growth of rental rates. 1,000 0 Commissioning of about 350,000 sqm of warehouse space has been announced for 2007 2008 2009 2010 2011F Total Stock (beginning of the reporting period ) New Construction 2011. This is 1.5–2 times less than the yearly commissioning volumes in 2007–2009. Relatively small new construction volumes allow for projecting, by the mid-2011, an Source: Colliers International insufficient supply of quality warehouse premises ready for tenants to move in. Correspondingly, 2011 will see a continuation of the trend toward reduction of vacancy rates and growth of rental rates. Nonetheless, the revival of demand, which took place in 2010, has served as a catalyst for energizing developers. A number of developers are resuming implementation of previously suspended projects and considering offers of land plots for new construction. In the next two to three years, this will lead to a rebound in construction rates and an increase in the supply of quality warehouse facilities. SUPPLY By the end of 2010, total supply of Class A warehouse facilities in the Moscow Region amounted to 5.1 mln sqm, having increased during the year by approximately 400,000 sqm. It is important to note that over 500,000 sqm of quality warehouse space was announced for commissioning in 2010 initially; however, commissioning of about 25% of this space was postponed to the next year. Among the major projects rescheduled to be commissioned in 2011 are: Aparinki warehouse complex (61,000 sqm), Krekshino logistics park (22,000 sqm), and Salaryevo warehouse complex (20,000 sqm). As commissioning timeframes for some Class A warehouse facilities were postponed from 2010 to the next year, it is expected that the total supply of quality warehouse space in the Moscow Region will increase by about 350,000 sqm in 2011. This is almost the same as the amount commissioned in 2010, but still 1.5–2 times less than annual commissioning volumes in 2007–2009.
  • 14. Table 1. MAJOR CLASS A WAREHOUSE PROJECTS IN THE MOSCOW REGION COMMISSIONED IN 2010 Phase, Commissi Property Developer Location area, oning sqm date Simferopolskoye PNK- PNK Group Shosse, 106,000 Q3 Chekhov 50 km from the MKAD Simferopolskoye PNK- PNK Group Shosse, 50 km from 105,100 Q4 Chekhov the MKAD Krekshino RosEuroDevelop Kievskoye Shosse, Phase IV, logistics Q2, Q4 ment 24 km from the MKAD 46,800 park Leningradskoye Sherland Sherland Shosse, 23,000 Q3 13 km from the MKAD Istra Novorizhskoye Espro Group / Phase V, logistics Shosse, Q4 Raven 20,000 park 40 km from the MKAD Source: Colliers International DEMAND 2010 demonstrated revitalization of demand in the warehouse property market, primarily on the part of retail operators and companies working in the FMCG segment. This was a consequence of an increase in the population’s purchasing capacity, which determined a more intensive development of the companies operating in the end-user goods and services market. As a result of demand recovery, in Q1–Q3 2010, the total volume of transactions in the warehouse property market of the Moscow Region was almost the same as during the entire 2009 (about 600,000 sqm). In 2010, the total take-up in the warehouse property market of the Moscow Region amounted to about 950,000 sqm, which is 55% greater than in 2009. In the demand structure, a trend towards a higher Diagram 1. BREAKDOWN OF DEMAND* BY TENANT PROFILE share of requests for premises in excess of 3,000 IN THE MOSCOW REGION sqm was observed. For example, if in H1 2010 they accounted for less than 50% of the requested areas, in H2 2010, they accounted for over 70% 3.6% 2.9% 3.6% (see Chart 2). Overall, there was a noticeable 5.0% Retail & Trading increase in the number of transactions for areas in 31.4% Fast Moving Consumer Goods excess of 20,000 sqm in 2010 as compared to 5.7% Logistic operators/3PL 2009. Manufacturer 7.1% Automobiles/technics/machines The regions were also characterized by a revival of Construction materials demand in the warehouse property market in 2010, Services primarily in such cities as St. Petersburg, Alcohol 9.3% Novosibirsk, Yekaterinburg, and Rostov-on-Don. OTHERS There, several major transactions for premises with Pharmaceuticals & Healthcare an area of up to 34,000 sqm were completed. 19.3% 12.1% Source: Colliers International* by requested area
  • 15. VACANCY RATES Revival of demand in the warehouse property market in 2010, combined with the Chart 2. BREAKDOWN OF DEMAND absence of new projects, led to the fact that the take-up was more than two times the BY REQUESTED AREA IN THE new construction volumes, approximately 950,000 sqm versus 400,000 sqm, MOSCOW REGION respectively. As a result, the warehouse space that had become vacant in 2009 was gradually filling with tenants, while the vacancy rate – decreasing. The trend of declining35.0% share of vacant space began to take hold in Q2 2010, but the sharpest drop in the30.0% vacancy rates was observed in Q3 2010 (from 11.7% to 7%). In Q4 2010, there was no25.0% considerable reduction in the vacancy rates, as about 160,000 sqm of new Class A20.0% warehouse space was brought to the market. Thus, in the end of 2010, the vacancy15.0%10.0% rates in the warehouse property market of the Moscow Region amounted to 6%, having5.0% contracted by more than a factor of 2 compared to the end of 2009.0.0% less than 1,500- 3,000- 5,000- over 1,500 sqm 3,000 sqm 5,000 sqm 10,000 sqm 10,000 sqm RENTAL RATES Q1-Q2 2010 Q3-Q4 2010 2010 was characterized by growing rental rates and changing commercial terms. For Source: Colliers International example, in the first half of the year, we noted that landlords started to provide discounts less frequently, especially at completed warehouse complexes with small vacancy rates. The second half of the year was marked by growth of rental rates in the market as a whole. For Class A warehouse space, rental rates increased from $100/sqm/year in the beginning to middle of the year up to $110–115/sqm/year at the end of 2010; while rental rates for Class B office space increased from $90/ sqm/ year to $95–100/sqm/ year, respectively. In addition, an increase in the length of lease agreements can be noted in 2010. While short-term agreements had been common in 2009, in 2010, the minimum lease term increased to 5 years. Table 2. MAJOR 2010 LEASE TRANSACTIONS IN THE MOSCOW REGION Leased area, Transaction Tenant Property Location sqm date Simferopolskoye Shosse, X5 Retail Group PNK-Chekhov 46,211 Q1 50 km from the MKAD Simferopolskoye Shosse, Arconada Agroterminal 32,430 Q2 30 km from the MKAD Kievskoye Shosse, S-3/SkladLogistik Krekshino logistics park 25,780 Q2 24 km from the MKAD Simferopolskoye Shosse, Mitsui PNK-Chekhov 23,062 Q2 50 km from the MKAD Don Shosse, Unix Severnoe Domodedovo 22,000 Q1 13 km from the MKAD Novoryazanskoye Shosse, Auchan Trilogy Park Tomilino 21,972 Q1 7 km from the MKAD Novoryazanskoye Shosse, Axima Trilogy Park Tomilino 21,873 Q4 7 km from the MKAD Novoryazanskoye Shosse, Univeg Logistics Trilogy Park Tomilino 21,870 Q4 7 km from the MKAD Ryazansky Prospekt, Merlion Infrastroy Bykovo 20,000 Q3 19 km from the MKAD Varshavskoye Shosse, Alliance Healthcare SLT Klimovsk 17,800 Q2 21 km from the MKAD Novoryazanskoye Shosse, General Motors CIS Tomilino TLC 16,728 Q3 6 km from the MKAD Gorkovskoye Shosse, Tsentralny Division Eastern industrial park 15,700 Q2 44 km from the MKAD Novoryazanskoye Shosse, Vinexim Trilogy Park Tomilino 14,500 Q4 7 km from the MKAD
  • 16. Table 2. MAJOR 2010 LEASE TRANSACTIONS IN THE MOSCOW REGION Leased area, TransactionTenant Property Location sqm date Simferopolskoye Shosse,Uhrenholt PNK-Chekhov 12,960 Q1 50 km from the MKAD Kievskoye Shosse,FixPrice Krekshino logistics park 12,429 Q3 24 km from the MKAD Leningradskoye Shosse,Stockmann MLP Leningradskiy terminal 11,184 Q4 13 km from the MKAD Troitse-Lykovo warehouseTNT Express Moscow 10,884 Q2 complex Novoryazanskoye Shosse,Liga Chistoty Rostinvest 10,100 Q1 22 km from the MKAD Source: Colliers InternationalTable 3. MAJOR 2010 LEASE TRANSACTIONS IN THE REGIONS Leased area, TransactionTenant Property City sqm dateDixy St Petersburg Megalogix St Petersburg St Petersburg 34,000 Q3X5 Retail Group Pyshma Logistics Park Yekaterinburg 24,118 Q3Gala Center Pyshma Logistics Park Yekaterinburg 17,000 Q1Sima-Land Pyshma Logistics Park Yekaterinburg 14,000 Q2Russkiy Svet Pyshma Logistics Park Yekaterinburg 12,500 Q1Global Logistic Projects MLP Utkina Zavod St Petersburg 12,320 Q2Elopak MLP Utkina Zavod St Petersburg 11,512 Q2Confidential Megalogix St Petersburg St Petersburg 11,173 Q3Confidential Megalogix Rostov-on-Don Rostov-on-Don 9,583 Q3Tarkett PNK-Tolmachevo Novosibirsk 8,680 Q2Kinetika Pyshma Logistics Park Yekaterinburg 8,400 Q3Confidential Gorigo St Petersburg 8,056 Q2 Source: Colliers InternationalTRENDS AND FORECASTSThe total area of Class A warehouse properties announced to be commissioned in 2011 in the Moscow Region amounts to about350,000 sqm. It should be noted that some of this commissioning volume has been rescheduled from 2010. There are practically nonew projects among those expected to be commissioned in 2011; these are mostly properties that had started to be developed evenbefore the crisis.Despite the fact that the total area of Class A warehouse properties announced to be commissioned in 2011 is comparable with 2010new construction volumes, this indicator is 1.5–2 times lower than yearly commissioning volumes in 2007–2009. This fact, combinedwith the revival of demand in the warehouse property market allows for forecasting that the vacancy rates in 2011 will continue todecline, while rental rates will continue to grow. This will lead to the fact that by mid-2011 there may be a supply shortage of qualitywarehouse space ready for tenants to move in. This, in turn, will lead to an increase in demand and a gradual decline of vacancyrates in the segment of warehouse properties under construction.At the same time, one can’t fail to note that the revival of demand that ocurred in 2010 contributed to energizing developers. This wasreflected in resumption of the projects previously put on hold and search for new land plots to be developed. Because of this, weexpect new projects to be announced in 2011; and in the next 2–3 years, this will lead to higher construction rates and larger supplyof quality warehouse space. A potential restriction on entry of heavy trucks into Moscow may become an additional incentive forbuilding new warehouse complexes in the Moscow Region.
  • 17. Chart 3. VACANCY RATES 20% 19.0% 18.0% 16% 13.0% 13.0% 11.7% 12% 7.0% 8% 6.0% 5.0% 4% 1.7% 1.0% 1.0% 0% 2006 2007 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2009 2009 2009 2010 2010 2010 2010 Source: Colliers InternationalChart 4. CHANGES IN RENTAL RATES* $/RUR exchange rate 160 40 Rental rate, $/sqm/year 140 35 120 30 100 25 80 20 60 15 40 10 20 5 0 0 Vladislav Ryabov 2007 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Director, 2009 2009 2009 2009 2010 2010 2010 2010 Warehouse, Land and Industrial Property Department Class A Class B USD exchange rate vladislav.ryabov@colliers.com* not including VAT, OPEX, and utilities Source: Colliers International Table 4. MAJOR CLASS A WAREHOUSE PROJECTS IN THE MOSCOW REGION PLANNED TO BE COMMISSIONED IN 2011 Phase, Property Developer Location area, sqm Kashirskoye Shosse, Aparinki VVV Company 61,000 4 km from the MKAD Simferopolskoye PNK-Chekhov PNK Group Shosse, 38,800 50 km from the MKAD Novoryazanskoye Belaya Dacha Hines Shosse, 32,000 4 km from the MKAD Kievskoye Shosse, Salaryevo New Logistics Systems 23,000 2 km from the MKAD Kashirskoye Shosse, Agrocomplex Agrocomplex 22,000 20 km from the MKAD Krekshino Kievskoye Shosse, Krekshino logistics park 21,700 logistics park 23 km from the MKAD Source: Colliers International
  • 18. Retail Sector The last year was characterized by a revival of demand in the retail property market of Moscow and the Moscow Region. This resulted in the renewed interest of international operators to the Russian market, entry of new foreign brands and expansion of regional chains to the Moscow market, and active regional development. This, in turn, led to decreasing vacancy rates, growing rental rates, cancellation of bonuses for tenants and expanding “waiting lists” for the most appealing and successful retail facilities. The growing demand for retail properties triggered developers activity, who resumed construction of the previously suspended projects. However, no major new projects were announced during the past year; construction of all shopping centers opened in 2010 and planned for opening in 2011 had begun before the crisis. In Moscow, coupled with the new tougher commercial property development policy, this may lead to a growing shortage of supply in the Moscow retail property market and, as a result, to an increased interest of developers and retailers to regional markets. SUPPLY In 2009, nine new properties with a GBA of 962,000 sqm (GLA – 373,000 sqm) were opened in the Moscow retail property market. Over half of this area is represented by two properties: Vegas SEC and Gagarinsky SEC (GBA – 590,000 sqm, GLA – 194,000 sqm). Vegas SEC became a significant project for 2010. Its market importance lies in the fact that the developer managed to ensure maximum convenience for potential visitors thanks to a combination of fine architectural concept and design with the center’s efficient retailChart 1. TOTAL SUPPLY AND NEW CONSTRUCTION (GLA) concept. 4,000 It is noteworthy that the area of the shopping 000 sqm facilities opened in 2010 accounts for approximately 3,500 75% of the previously announced area. Opening of the other announced properties (GBA of 3,000 249,000 sqm; GLA of 128,000 sqm) has been 2,500 postponed to early 2011, including AFIMALL CITY SEC with a GBA of 179,000 sqm (GLA of 2,000 101,000 sqm). 1,500 As a result, the GBA of the new shopping centers 1,000 opened in Moscow in 2010 was 7% greater than in 2009: 962,000 sqm and 900,000 sqm, respectively. 500 However, the GLA of the new properties opened in 2010 is 25% less than the previous year: 0 373,000 sqm and 497,000 sqm, respectively. 2006 2007 2008 2009 2010 2011 F By the end of 2010, the GBA of retail properties Gross leasable area at the beginning of the reporting period New construction (GLA) opened in Moscow amounted to 5,819,000 sqm Source: Colliers International (GLA of 2,911,000 sqm).
  • 19. Table 1. SHOPPING CENTERS OPENED IN 2010 OpeningName Address GBA, sqm GLA, sqm Major tenants date 2 Festivalnaya Ul., Perekrestok supermarket, M.video Rechnoy Vokzal metro household appliances andRechnoy station 26,000 18,140 electronics store, Detsky Mir, March Cosmic children’s entertainment centerAzovsky 28V Azovskaya Ul. 34,500 16,900 Perekrestok supermarket March Karusel food hypermarket, MediaMarkt household appliances Severnoye Butovo, and electronics hypermarket,Viva 32,000 21,900 April 8 Polyany Ul. Domania household goods supermarket, Limpopo children’s goods store Auchan food hypermarket, Tvoy Dom household goodsVegas 24 km MKAD 390,000 124,000 hypermarket, Luxor cinema, Saturn June and M.video household appliances and electronics hypermarkets Nash Hypermarket food hypermarket, Nash Dom DIYRIO Reutov, 2 km MKAD 175,000 56,400 hypermarket, Eldorado household September appliances and electronics supermarket, Cinema Star cinema Perekrestok supermarket, EurosetMarcos Mall 70 Altufyevskoye Sh. 41,800 36,200 intellectual supermarket, Karo Film September cinema Victoria supermarket, DetiKlyuchevoy Borisovskie Prudy Ul. 26,600 13,700 September children’s goods supermarket Auchan food hypermarket, Sportmaster sporting goods hypermarket, M.video household Ordzhonikidze Ul. /Gagarinsky 200,000 70,000 appliances and electronics November 3 Vavilova Ul. supermarket, Detsky Mir, KIABI, Fun City family entertainment centerTsvetnoy Tsvetnoy Blvd. 36,500 15,600 Department store format December Source: Colliers International Another positive fact is the continued development of regional retail property markets. In 2010, the following shopping and entertainment centers were opened: City Mall Belgorodsky in Belgorod (70,000 sqm), Viva Land in Samara (68,000 sqm), KomsoMALL in Yekaterinburg (67,200 sq), Europe in Lipetsk (60,000 sqm), as well as Rubin in Tver (55,000 sqm), Frant in Kazan (54 000 кв. м), JUNE in Cherepovets (46,000 sqm), Golden Park in Novosibirsk (30,000 sqm), and RIO in Ivanovo (45,000 sqm) and Tula (25,000 sqm). DEMAND 2010 saw an increase in demand for retail properties on the part of practically all types of operators, not only in the largest cities but also in the cities with a population of 300– 500 thousand people. It is worthy of note that 2010 saw a very fast expansion of
  • 20. demand from federal operators across cities of various size. Competition level ratherthan the local market scale has become the decisive factor for retailers deciding to entera new regional market.In 2010, food retailers were active. X5 Retail Group purchased Ostrov and Kopeykaretail chains, and plans to open over 500 new stores in 2011. Magnit from Krasnodarplans to develop on a large scale this year, including opening of approximately 700stores and construction of distribution centers. Lenta chain of hypermarkets is going toresume development in 2011 and build 8 hypermarkets in St Petersburg, Tver, Vologda,Cherepovets, Volzhsky, Ufa, Novosibirsk, and Omsk. French group Auchan intends todevelop Raduga hypermarkets in the chain format and increase the Atak retail chainfrom 40 to 200 supermarkets by 2015.Foreign operators also became more active: in 2010, Thomas Sabo, UNIQLO,home&you, Burger King, and Dunkin Donuts entered the Russian market. The InditexGroup brought a new concept to the Russian market, the Uterque accessories store.The first stores of Cool Club, a Polish children’s clothing chain, and German brandApart (women’s clothing) opened in Gagarinsky SEC in Moscow. American clothingretailer Abercrombie & Fitch is considering the possibility of entering the Moscowmarket. Fiba Group plans to open the first Banana Republic stores. MONEKSTRADING, operating under franchise agreements, has got the right to develop newbrands in Russia, including Victoria’s Secret, Bath & Body Works, and American Eagle,and plans to develop them in Moscow and other regions in the near future. Britishdepartment store chain Debenhams resumed the search for partners in Moscow inorder to enter the Russian market. Operator of Spanish brand Desigual is innegotiations with Jamilco, a company representing international brands in Russia.Tashir group of companies got the right to develop British brand Quiz in Russia: the firststores were opened in RIO SEC at Dmitrovskoye Shosse in Moscow and RIO SEC inReutov. The company plans to open four more Quiz stores in Belgorod, Tula, Vologda,and Yaroslavl in Q1 2011.In 2010, an increase of international brands’ activity in the Russian market was noted.French company KIABI (budget family clothing) opened its first Moscow store inGagarinsky SEC and is considering the possibility to expand to other Russian cities.Turkish brand LC Waikiki independently entered St Petersburg’s market in the clothingsupermarket format (the first store was opened in Galeria SEC) and plans to open about50 more stores all over the country in the next three years. Other Turkish brands, Kotonand Network, also started to actively search for new sites in Russia.New Yorker, SOliver, Mango, and Promod announced they were going to continueoperating independently in Russia. Reima, a Finnish children’s clothing producer, isopening a representative office in Russia to directly interact with retailers rather than viadistributors. In addition, Reima is going to introduce the previously unrepresentedLassie, Tutta, and Progress brands to the Russian market. In 2011, Ecco is going tocontinue replacing franchise stores with its own ones and plans to open about ten newstores in Russia.Increased demand and competition encouraged retail operators to develop new retailformats. Euroset opened the first intellectual hypermarket which combines sellingelectronics and books in Marcos Mall SEC and intends to develop a chain of suchstores all over Russia. X5 Retail Group launched a new retail format, Pyaterochka-Maxi,having opened the first store in Syzran. The company plans to develop this format inRussia’s regions, including small cities with a population of over 50 thousand people.Auchan is considering the possibility to develop a wine boutique chain following thesuccess of its first wine shop opened in EuroPark at Rublevskoye Shosse in 2010.German retailer METRO Cash & Carry is going to introduce new store formats to theRussian market, METRO Punct and METRO Eco. Operator of women’s clothing brandPompa developed a new store format based on the general Pompa mini concept forcities with a population exceeding 100 thousand people.
  • 21. RENTAL RATES Growing demand for quality retail properties resulted in a decrease in vacancy rates and expansion of waiting lists for Moscow’s most attractive shopping centers. In a number of cases, this led to renegotiation of commercial terms for tenants. In 2010, the fixed portion started to account for a larger part of rental rate structure, as it used to be before the crisis, with a percentage of sales being preserved (a mixed scheme). Moreover, many shopping centers cancelled bonuses for tenants, such as finishing of the premises at the owner’s expense or free rent for the first 1–2 months, which had been widespread in 2009. It is noteworthy that rental rates at the most successful shopping centers have started to grow not only in Moscow, but also in some regional cities. STREET RETAIL In 2010, a recovery of demand for street retail premises was registered. In particular, Incity opened a store at 17 Tverskaya Ulitsa, and Inditex is going to open a Massimo Dutti store on Tverskaya Ulitsa. This was facilitated by the overall improvement of the economic environment, growing sales turnover, and increasing purchasing power. As a result, vacancy rates began to decrease, and rental rates started to grow. The growth was registered first and foremost at those premises where lease agreements or the period of reduced rates valid for tenants during the crisis were coming to an end. By the end of 2010, maximum asking rental rates reached $3,500– 4,000/sqm/year; for Tverskaya Ulitsa, the figure was $10,000–13,000/sqm/year, even though in 2009 rental rates in the street retail segment had been $500–3,000/sqm/year, and on Tverskaya Ulitsa they had ranged from $2,500 to $5,500/sqm/year. The restrictions on parking on Tverskaya Ulitsa, which took effect at the end of the last year have not yet caused a decrease in rental rates, but they have led to tenants’ rotation: a number of stores designed for long customer visits are leaving the street as the traffic of customers arriving by car has dropped. TRENDS AND FORECASTS According to the statements of developers and the estimates of Colliers International, the GBA of shopping centers scheduled for opening in 2011 is about 1,000,000 sqm. This is roughly the same figure as in 2010. However, the GLA of properties to be commissioned in 2011 exceeds the 2010 figure by 34%: 500,000 sqm compared to 373,000 sqm, respectively.Table 2. MAJOR SHOPPING CENTERS PLANNED FOR OPENING IN 2011Name Address GBA, sqm GLA, sqmAFIMALL CITY MIBC Moscow-City, Plot No. 8 179,000 101,000River Mall 16–18 Avtozavodskaya Ul. 258,000 90,000GoodZone 12 Kashirskoye Sh. 120,000 70,000Kaleidoscope 7–23 Khimkinsky Blvd 119,000 41,000Outlet Village Belaya Dacha Kotelniki, Belaya Dacha district 40,800 38,000Fashion House Leningradskoye Sh. 38,600 28,800 1 Novokurkinskoye Sh.,Parus 35,500 25,800 district 17
  • 22. Name Address GBA, sqm GLA, sqm Brand City / Waymart* 26 km MKAD 30,000 24,500 Favorit Yuzhnobutovskaya Ul. 37,000 24,000 Avenue 77 Severnoye Chertanovo 35,000 20,000 Moskvorechie Kashirskaya metro station 30,000 19,800 TPU Planernaya Planernaya Ul. 50,380 14,790 Severnoe Siyanie Dmitriya Donskogo Blvd 20,000 12,000 EGO Mall 23 Dezhneva Pr-d 12,000 7,800* Concept change; is not included in the new supply calculation for 2011. Source: Colliers International In our opinion, an increased supply of quality shopping centers in 2011 will result in the following trends becoming more prominent. • A more balanced approach of developers with regard to the quality and the architectural concept of their properties. The year 2010 demonstrated that many developers strive to make their properties more competitive, by means such as engaging experts in various areas. IKEA, for example, has temporarily frozen new project development, focusing instead on attracting new brands not yet represented in Russia to the existing shopping centers and the retail facilities due to open shortly. Thus, the tenant pool will be improved and, therefore, the competitive advantages of these properties will be enhanced, against the backdrop of increasing competition from new projects. • New shopping center formats emerging in the market. For instance, in 2010 development of outlet center projects picked up pace, and the first such properties will open in 2011 in Moscow. These are the new shopping centers Outlet Village Belaya Dacha in Kotelniki and Fashion House on Leningradskoye Shosse. Also, Waymart shopping center, located at 26 km MKAD, is being transformed into an outlet center, Brand City. In 2010, a more stringent policy of Moscow authorities with regard to new commercial property development was declared. In the end of 2010, the Moscow authorities made a decision to suspend development of about 400,000 sqm of retail space in the city center with the aim of easing the burden on the traffic network. Such policy will predetermine a shortage of retail properties in the Moscow market over the next few years. Market situation development in 2011 will result in the following trends taking shape. • Reduction of vacancy rates and further increase in rental rates, primarily in Moscow’s most successful shopping centers with professional concept. • Renewed activity and shifted focus of developers and retail operators toward the regions. This trend progressed in 2010 and we are expecting it to strengthen over the next year. In particular, 2010 saw many developers resume work on previously suspended projects.
  • 23. Among the major shopping centers due to open in the next two years, one could namethe following: SEC OZ in Krasnodar (227,000 sqm), SEC MoreMall in Sochi(150,000 sqm), SEC Planeta (126,000 sqm) and SEC JUNE (42,000 sqm) in Ufa, SECYarmarka in Astrakhan (81,700 sqm), М5 Mall SEC in Ryazan (81,500 sqm).Also, one should mention SC Yuzhny in Kazan (78,000 sqm), SEC Gostiny Dvor in Tula(60,000 sqm) and the shopping and entertainment center on Komsomolsky Prospekt inTomsk (42,000 sqm). Moreover, in 2011 two major MEGA properties are due to open inUfa (150,000 sqm) and Samara (150,000 sqm). In 2012, one of the largest shoppingcenters in the Moscow Region, REC JUNE in Mytishchi (178,000 sqm), is scheduled foropening.Since over the last year rental rates for premises in Moscow’s main retail corridorsincreased significantly, one can forecast a growth of demand in the suburban areas ofthe city where rental rates, on average, are lower. This, in its turn, will facilitate rapidincrease in rates for the most attractive properties. Galina Maliborskaya Director, Retail Property Department galina.maliborskaya@colliers.com
  • 24. Hotel SectorSUPPLY• At the end of 2010 the current hotel room stock in Moscow included about 28,176 rooms (Diagram 1) in 3-4-5 star segments (the totalroom capacity of Moscow grew by 7.7% compared to the same period of the previous year).Diagram 1. BREAKDOWN OF MOSCOW HOTEL ROOM Diagram 2. BREAKDOWN OF MOSCOW HOTEL ROOM CAPACITY BY CLASSES CAPACITY BY CLASSES INTRODUCED TO THE MOSCOW MARKET IN 2010 13% 20% 5* 5* 4* 4* 3* 42% 3* 28%59% 38% Source: Colliers International Source: Colliers International• About 70% of number of rooms announced in 2010 entered the market (Table 1). This circumstance is explained by the fact thathotels postponed opening dates for a number of hotels. The opening dates for Marriott Courtyard in the Vivaldi Plaza mixed-usecomplex, a hotel on Krasnopresnenskaya embankment within the second phase of the mixed-use complex and Radisson Blu Hotel atBelarusskaya were rescheduled for 2011.• Last year the number of rooms increased mainly due to the 4-5-star hotels (it accounts for 80% of the total number of roomsintroduced in 2010) (Diagram 2).• Among the new supply we single out the opening of Lotte Hotel Moscow, the first project in Russia by Lotte Hotels & Resorts, theKorean hotel chain. One of the infrastructural components of the hotel is a SPA center belonging to a world-famous spa managementcompany, Mandara Spa.
  • 25. Table 1. HOTELS IN 4-5 STAR SEGMENTS THAT ENTERED THE MOSCOW MARKET IN 2010 Number of Name Location Class Management rooms Radisson Royal Hotel (former 2/1 Kutuzovsky Prospect 5* 543 The Rezidor Hotel Ukraine hotel) Group 8, Bldg 2 Novinsky Boulevard 5* 304 Lotte Hotel & Resorts Lotte Hotel Moscow Renaissance Moscow Monarch 31a, Bldg 1 Leningradsky Prospect 4* 338 Interstate Hotel Group Center (part of the Monarch mixed-use complex) SK-Royal office and hotel 163а Dmitrovskoe Shosse 4* 170 Independent complex 26 Ozerkovskaya Naberezhnaya 4* 159 1 Africa Israel Hotels & Aquamarine Resorts 14, Bldg 3 Prospect Mira 4* 86 Accord Management Garden Ring Group Total 1,600 1 The hotel had its soft-opening in November 2009. Then only 75 of 159 rooms were opened. The other 84 rooms were opened in February 2010. Sources: Hotel data, Colliers International• A third of the available accommodation is under the management of international operators. However, if we look at the share ofhotels of a modern-standard kind in each segment, there is a shift toward hotels in the upscale and upper upscale categories. Table 2. SHARE OF HOTELS UNDER INTERNATIONAL OPERATOR MANAGEMENT IN THE APPROPRIATE CATEGORY Hotel category Share 5* hotels 65% 4* hotels 43% 3* hotels 3% Source: Colliers International• International operators are represented in the top segment of Moscow accommodation facilities in the largest volume: two-thirds ofthe city hotels are under their control. In the 3-star segment supply is still under the management of Russian operators. Only 3%of 3-star hotels are managed by international operators.• The main share of hotel supply is predominantly located in the centre of Moscow.Chart 1. BREAKDOWN OF MOSCOW HOTEL ROOM CAPACITY BY DISTRICTS 100% 5* 4* 3* 80% 60% 40% 20% 0% Source: Colliers International Central W SW S NW NE N E SE
  • 26. • Upper upscale hotels are located in the historic center: 85% of 5-star hotels operate in the Central Administrative District. In the futurewe may witness other districts developing subject to the proximity of the main demand generators (development of business areas,construction of exhibition facilities, etc.).DEMAND• According to the Tourism Committee of Moscow, 3.7 million foreign guests visited the capital in 2009 which is 10% less compared tothe statistics of 2008.• During the first 9 months of 2010 Moscow was visited by 3 million foreign guests which is 17% more than at the same period in 2009.It proves that tourist flow is gradually recovering.• The main purpose of a Moscow trip remains the same for many years: business or professional. In Moscow recreational tourism ispredominantly short-term in its nature.Chart 2. DYNAMICS OF THE FLOW OF ACCOMMODATED VISITORS SEGMENTED BY TRIP PURPOSES, 2004-2009 60% 50% 40% Leisure and recreation 30% Business Other 20% 10% 0% Source: Mosgorstat 2004 2005 2006 2007 2008 2009• The RevPAR index for 2010 in the luxury hotel segment increased by 5.5% compared to the same period of 2009. Meanwhile, theoccupancy level increased by 11.2% and stands at 63.9%. The average price per room (ADR) decreased by 5.2%.Chart 3. PERFORMANCE DYNAMICS OF KEY INDICATORS IN THE LUXURY SEGMENT ADR RevPAR Occupancy 100% 15,000 RUR 80% 12,000 9,000 60% 6,000 40% 3,000 20% 0 0% 2007 2008 2009 2010 Sources: STR Global, Colliers International
  • 27. • The RevPAR index in the upper upscale and upscale hotel segments remained the same as the previous year. The occupancy levelgrew by 7.7% as compared to 2009, thus, reaching 67.9%. It is practically similar to the index for 2006 which was 67.5%. The averageprice per room decreased by 7.1%.Chart 4. PERFORMANCE DYNAMICS OF KEY INDICATORS IN THE UPPER UPSCALE AND UPSCALE SEGMENTS ADR RevPAR Occupancy 10,000 100% RUR 8,000 80% 6,000 60% 4,000 40% 2,000 20% 0 0% 2007 2008 2009 2010 Sources: STR Global, Colliers International• In the midscale hotel segment the average price per room decreased by 8.8%. The occupancy level grew by 14.4%. It resulted in aRevPar increase by 4.3% compared to 2009.Chart 5. PERFORMANCE DYNAMICS OF KEY INDICATORS IN THE MIDSCALE SEGMENT ADR RevPAR Occupancy 10,000 100% RUR 8,000 80% 6,000 60% 4,000 40% 2,000 20% 0 0% 2007 2008 2009 2010 Sources: STR Global, Colliers International• Thus, in 2010 the main features of the hotel market in Moscow were a decrease in ADR and an increase in occupancy. Theincreased occupancy levels may be considered as a factor that characterizes the beginning of market stabilization and potential forgrowth in key indicators in the hospitality segment.
  • 28. FORECAST• In 2011 we expect a supply increase by 6.9% (1,934 rooms) (Table 3). Developersand investors remain interested in upscale and upper upscale hotel projects(Diagram 3). Table 3. THE MOST SIGNIFICANT HOTEL PROPERTIES PLANNED FOR OPENING IN 2011 (selected) Number of Name Location Class Management rooms Intercontinental Intercontinental 22 Tverskaya Ulitsa 5* 203 Moscow Tverskaya Hotels Group Marriott Courtyard 8/4 (part of the Vivaldi Kozhevnicheskaya 4* 170 Marriott Hotels Plaza mixed-use Ulitsa complex) Radisson Blu 26, 3rd Ulitsa 4* 264 Rezidor Belorusskaya Yamskogo Polya A hotel on 12 Krasnopresnenskaya Krasnopresnenskaya 4* 149 ING naberezhnaya Nab. Hilton Doubletree Vnukovo Airport 4* 439 Hilton Vnukovo 9 Varshavskoe Azimut Hotel 3* 134 Azimut Shosse Sources: Hotel data, Colliers International Polina Kondratenko Director,Diagram 3. BREAKDOWN OF MOSCOW HOTEL ROOM CAPACITY BY CLASSES Valuation & Consulting Department PLANNED FOR OPENING IN 2011 polina.kondratenko@colliers.com 6.9% 20.9% 5* 4* 3* Olga Moussienko Head of Consulting Group olga.moussienko@colliers.com 72.2% Source: Colliers International• We note that the total new hotel room supply will be managed by chain operators(international and Russian operators account for 93% and 7% respectively).• New brands will be introduced to the Moscow hotel market: Hilton Doubletree andMercure by such international operators as Hilton and Accor respectively.• In Q1 2011 Windham Hotel Group plans to open a hotel under the brand name ofRamada (5 km from the Domodedovo airport).• Limited supply of hotels of a modern-standard kind will still be the case in the budgetand middle scale segments.• There is a positive tendency of a continued RevPAR growth which indicates that thehotel market is gradually recovering.