RESEARCH & FORECAST REPORT | MID-YEAR 2012 | MOSCOW | RETAIL MARKET

Retail Market • H1 2012 saw further decline in the amount of newly commissioned retail space in Key Retail Figures - Moscow Total shopping centre stock in Moscow (GBA), m2

5,881,000*

Total shopping centre stock in Moscow (GLA), m2

2,974,100*

Total stock of shopping centres opened in Moscow in H1 2012, m2 (GLA)

32,800

Total stock of shopping centres opened in Russia in H1 2012, m2 (GLA)

738,300

Number of shopping centres opened in Russia in H1 2012

21

Moscow. Many projects are still suspended, while the number of newly announced shopping centres is small. This is caused by both global and local factors. On the one hand, development is limited by macroeconomic risks; on the other hand, it is hindered by a stricter city development policy adopted by the capital’s authorities. Because of this, many companies have started to look for new markets and niches to enter. The Moscow Region ranks second after Moscow in terms of investment appeal due to its proximity to the capital and high effective consumer demand. Therefore, developers are exploring opportunities to implement projects in the Moscow Region, first and foremost in the areas close to the MKAD and in satellite cities. In addition, an increasing number of projects have been recently seen in the remote districts of the Moscow Region and in cities with a population of less than 100,000 people. Retail formats change with the geographic reach, as the focus is shifting toward retail parks, particularly those situated in highly competitive areas in the vicinity of Moscow and in the cities located inside the Moscow Small Ring Road (A107 motorway).

SUPPLY

• In Q2 2012, the total stock of retail space in Moscow saw the addition of just one

Source: Colliers International

shopping centre, SC Sombrero with a GLA of 6,100 m2 located at Varshavskoye Shosse. Opening of other retail facilities was rescheduled for the next quarter.

• All in all, three small shopping centres with a combined GLA of 32,800 m2 were

K m2

TOTAL STOCK AND NEW COMPLETION (GLA) IN MOSCOW

opened in H1 2012. The aggregate GLA of traditional shopping centres in Moscow reached 2,974,100* m2.

• Improving economic climate and strong retailer demand for Moscow projects

4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2006 2007 2008 2009 2010 2011 2012F 2013F

GLA as of the beginning of the reporting period New retail space supply (GLA)

Source: Colliers International

TOTAL STOCK AND NEW CONSTRUCTION (GLA) IN CITIES WITH A MILLION-PLUS POPULATION Yekaterinburg Rostov-on-Don Omsk

exacerbated by a shortage of quality retail space boosts developers’ activity. A number of large milestone projects were announced in Moscow in Q2 2012. Crocus Group plans to replicate the successful SEC Vegas project and open two more shopping centres by the same name – in Myakinino (near the existing Crocus City Mall), with a GLA of 111,400 m2, and in Kuntsevo, at the 56th kilometre of the MKAD, with a GLA of 113,400 m2. Another large-scale project will be implemented at Varshavskoye Shosse by BIN Group: SC Galaktika Park (Galaxy Park) with a total area of 100,000 m2 will be built as part of a mixed-use complex that includes a Universalmanaged theme amusement park with an area of 150,000 m2.

• The regional retail market was by far more dynamic than the Moscow market in H1 2012. The new retail stock entering the market during this period was 2.4 times the amount of retail space commissioned in H1 2011. Q2 2012 saw the opening of nine shopping centres with a combined GLA of 509,800 m2, including notable major projects such as OZ Mall in Krasnodar (GLA of 164,000 m2), RIO in Rostov-on-Don (GLA of 70,000 m2), and Sedmoye Nebo in Nizhny Novgorod (GLA of 60,800 m2).

• Overall, over twenty retail facilities were opened in Russia in the first half of the year; more specifically, 21 shopping centres with an aggregate GLA of 738,300 m2, including 18 regional projects with a GLA of 705,500 m2 and three projects in Moscow with a GLA of 32,800 m2.

• Developers specializing in chain projects were active in Q2 2012. The REGIONS

Nizhny Novgorod

Group of Companies announced its plans to build a new JUNE shopping and entertainment centre in Omsk by 2014. RAMO-M is planning to add one more project to its Krasnaya Ploshchad chain – a shopping centre in Armavir with a GLA of 30,000 m2 to be completed by the end of 2013.

Novosibirsk Samara Ufa Volgograd Kazan Chelyabinsk

K m2 0

200

400

600

800 1,000 1,200

Existing SC SC under construction Planning SC

Source: Colliers International

• In addition to developing the existing chains, plans to establish new retail development chains were announced in Q2 2012. GRINN corporation intends to strengthen its position in the Central Federal District by building 10 shopping centres with a total area of 160,000 m2 in the next 10 years. Yediniye Resheniya, a St. Petersburg company, plans to develop small shopping centres (5,000-12,000 m2) under the Smile brand in cities with a population of 100,000-500,000 people. *Shopping centre stock has been revised.

1 | COLLIERS INTERNATIONAL

RESEARCH & FORECAST REPORT | MID-YEAR 2012 | MOSCOW | RETAIL MARKET

MAJOR SHOPPING CENTRES OPENED IN MOSCOW IN H1 2012

• It is noteworthy that many developers entering new regions pay increasing attention to cities with a small population (300,000-500,000 residents or less). The desire to be the first in the market and skim the cream of it is limited by retailers’ development plans.

GLA, m2

DEMAND

2 Okhotny Ryad Arcade at Moscow Hotel Ul.

21,200

• To find out how prepared retailers are to follow developers into the regions, Colliers

EGO mall

23 Dezhneva Pr-d

5,500

International conducted a survey among national retailers. Over 70 operators representing various profiles shared their regional development plans.

Sombrero

152A Varshavskoye Sh.

6,100

• Cities with a million-plus population remain the priority development area, as 53% of

Name

Address

retailers want to develop their business in all cities with a population in excess of one million people; out of these, 61% of the companies also consider all cities with a population of at least half a million people.

Source: Colliers International

• Cities with a population of 500,000-1,000,000 residents appeal to 81% of retailers. PER CAPITA RETAIL SPACE IN CITIES WITH A MILLION-PLUS POPULATION, m2 /1,000 residents

Volgograd 1 000 Chelyabinsk 800 600 400 Uf a 200 0

• Stores specializing in selling perfume and cosmetics, appliances and electronics, as well as food hypermarkets and large retailers with a number of foreign brands in their portfolios (Moneks Trading, BNS Group, and others) have the most ambitious plans. Retailers offering household goods, outwear and furs, as well as entertainment centres have less expansive plans, selectively considering cities with more than 500,000 residents and choosing the areas that interest them the most.

Yekaterinburg

Kazan

Samara

Nizhny Novgorod

Novosibirsk

Rostov-on-Don Omsk

Retail space provision in Q2 2012 Retail space provision in 2015

• Retailers have been adapting their store formats for small regional cities. For example, M.video plans to enter cities with a population of less than 150,000 residents while reducing sales area of the stores to 2,000 m2. METRO Cash & Carry plans to develop a similar format, intending to open METRO Puncts with an area of 2,100 m2 in the cities with a population of 250,000-350,000 residents. In addition, SPAR, real,-, Magnit, and O’KEY have previously announced a transition to a smaller format. • Moscow continues to be the most appealing city for retailers. In H1 2012, British chains specializing in goods for children, Hamleys and Mamas & Papas (both stores opened at SEC Evropeisky) entered the capital’s market. A store of the Dutch apparel brand Scotch & Soda opened at SEC Metropolis. Moneks Trading will be developing the Bath & Body Works brand in Russia – a store selling body care products with an area of about 200 m2 has already opened at SEC Atrium.

Source: Colliers International

NEW COMPLETION (GLA) IN THE REGIONS, 2011–2012 K m2

The list of the most popular cities (ranked by appeal) includes Perm (991,000 residents), Tomsk (522,000 residents), Krasnoyarsk (973,000 residents), Tyumen (581,000 residents), Krasnodar (744,000 residents), Saratov (837,000 residents), Irkutsk (587,000 residents), and Yaroslavl (591,000 residents).

900

• Opening of a Debenhams (UK) department store at SEC MEGA Belaya Dacha is scheduled for September 2012; while in August 2012, Michael Kors, a store selling American designer apparel, will open its doors at SEC Metropolis.

800 700 600 500 400 300 200 100 0 Q1 2011

Q2 2011

Q3 2011

Q4 2011

Source: Colliers International

Q1 2012

Q2 2012

• Public catering chains are the most keen on the Russian market. Starbucks plans to develop its new format – Seattle Best Coffee, a café for motorists – in Russia. Arkady Novikov will open a café of the American Krispy Kreme chain in Moscow by the end of 2012. Japan-based Toridoll Corp., Serbian Monument Group, Irish Bennigan’s pub chain, and American Quiznos fast food restaurant chain have announced plans to develop in Russia.

VACANCY AND RENTS

• Situation in Moscow’s retail market can be described as stable. In H1 2012, rental rates in most shopping centres saw no inflation-adjusted growth.

• Despite the minor fluctuations in rental rates, Moscow remains one of the most expensive European cities for retailers, ranking sixth behind London, Dublin, Birmingham, Frankfurt, and Manchester.

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RESEARCH & FORECAST REPORT | MID-YEAR 2012 | MOSCOW | RETAIL MARKET

PIPELINE RETAILER INTEREST IN SELECTED CITIES WITH A POPULATION OF OVER 500,000 RESIDENTS

• Shopping centre space opened in 2012 is projected to exceed that of 2011 by 46%. Opening of 12 projects with a GLA of 331,250 m2 has been for the second half of the year, including four specialized facilities – Vnukovo Outlet Village, Outlet Village Belaya Dacha, Fashion House Moscow, and Sportex, a sports and entertainment centre with a GLA of 18,000 m2. Nonetheless, we expect that opening of a number of facilities will be delayed until 2013, and the amount of retail space commissioned in H2 2012 will be reduced to 286,000 m2.

Moscow St. Petersburg Nizhny Novgorod Rostov-on-Don Yekaterinburg

• In the Moscow Region, construction activity in the next few years will be mainly seen in

Novosibirsk

Krasnogorsk (four projects: Komsomolets, JUNE, Krasnogorye-City, and Phase II of SC Park) and Podolsk (three projects: SC Zapadny, as well as shopping centres at Oktyabrsky Prospekt and at the central market’s location). Korolev and Naro-Fominsk will add two new shopping centres each. Moreover, developers are now interested in small towns with a population of less than 50,000 residents. Shopping centre projects have emerged in Zvenigorod and Aprelevka.

Omsk Kazan Chelyabinsk Ufa Samara Perm Volgograd

PROGNOSIS

Krasnoyarsk Voronezh 60

• Rental rates in Moscow shopping centres will continue to creep up gradually,

Number of companies interested in the city

supported by stable demand for retail premises in the capital and limited amount of newly commissioned retail space.

0

20

40

• Vacancy rates will remain at their minimum in the short term (on average, 3% in

Source: Colliers International

Moscow). RENTAL RATES IN MOSCOW SHOPPING CENTRES, Q2 2012

Tenant profile

Rental rate (minimummaximum), $/m2/year

Anchor tenants Food

THE MOSCOW REGION’S RETAIL MARKET OVERVIEW

• A surge in interest in the Moscow Region from developers and retailers has been one of the key trends of the last year. Because of this, Colliers International conducted a detailed survey of the retail market (traditional professional shopping centres) in the cities of the Moscow Region.

• The Moscow Region is one of the most appealing regions for developers. In terms of 70–300

Household appliances 120–400 Sporting goods

150–350

Children’s goods

180–400

its population (6.75 million people), it is second only to Moscow. There are 77 cities in the region, 17 of them having a population in excess of 100,000 residents. The economy of the Moscow Region is among the fastest growing in the country. For example, the 2011 GRP showed a 6% growth and amounted to over RUB 2.2 trillion. A high income level (average monthly wage in 2011 amounted to RUB 31,225) and a large population define the pace of the consumer goods sector development: in 2011, the retail turnover grew by 22.9% and amounted to RUB 44.9 billion.

• The Moscow Region’s retail market began to develop in 2002 with the opening of SEC

Arcade Clothing

300–3,000

Footwear

500–3,000

Children’s goods

500–1,200

Food court, entertainment Food court

500–3,000

Movie theatre

120–250

Entertainment

70–200

Source: Colliers International

MEGA Khimki. In the following several years, dynamic development took place in cities located within 30 km from the MKAD, including Khimki (SC Liga, 2003), Mytischi (SEC XL III, 2003), Podolsk (SC Ramstore, 2003), Balashikha (SC Vertikal, 2005, SC Galion, 2005), Ramenskoye (SC Solnechny Rai, 2005), and others. In 2006, retail property market players entered the distant parts of the Moscow Region. The largest increase in supply was registered in 2008 and 2011, when the markets of these cities saw the opening of five shopping centres (in 2011, the following facilities were opened: Mayak in Dubna, Korston in Serpukhov, Karnaval in Chekhov, as well as two shopping centres in Dmitrov: Dmitrovsky and a shopping and entertainment centre at the intersection of Pochtovaya and Zagorskaya Ulitsas).

• At present, the Moscow Region is home to 68 traditional professional shopping centres with an aggregate GLA of 1,638,500 m2.

• Moscow’s satellite cities like Khimki, Mytischi, Reutov and others account for 47% of the shopping centres. Retail space in these centres represents 72% of the total stock in the Moscow Region. It should be noted that these also include major shopping centres located along the MKAD in the Moscow Region yet not part of any specific city (for example, SEC Vegas or SEC Waypark). The catchment area of the regional and super regional shopping centres located off the MKAD covers a large portion of the Moscow Region’s cities. This is one of the reasons why the “middle” part of the Moscow Region (cities located near the Moscow Small Ring Road, aka A107 motorway) is the least developed at present, with only 16 shopping centres operating there.

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RESEARCH & FORECAST REPORT | MID-YEAR 2012 | MOSCOW | RETAIL MARKET

EUROPEAN CITIES WITH THE HIGHEST RENTAL RATES IN SHOPPING CENTRES

More than half of the facilities (56%) have the GLA of 5,000–10,000 m2 and are focused on meeting the demand for FMCG. Another reason is the fact that many residents of the cities located in this zone work in Moscow and have an opportunity to make purchases at the capital’s shopping centres.

London

• Cities in the more distant areas of the Moscow Region are more self-contained, and

Birmingham

the population’s demand for shopping centres is higher there. The facilities themselves are larger as well: 50% of the shopping centres have the GLA of 10,000 to 20,000 m2. At present, 20 shopping centres with a GLA of 266,000 m2 are operating in the outskirts of the Moscow Region.

Dublin Frankfurt Manchester Moscow $/m2/year 0

2,000

4,000

6,000

8,000

Source: Colliers International

TOTAL STOCK AND NEW COMPLETION (GLA) IN THE MOSCOW REGION K m2

• In terms of the amount of retail space per 1,000 residents, Kotelniki, Reutov, and Khimki lead with 6,616 m2, 1,413 m2, and 976 m2, respectively. Such a large per capita supply is due to the fact that major shopping centres (namely, MEGA Belaya Dacha, RIO Reutov, and MEGA Khimki) are located in these cities. Excluding the above shopping centres, retail space per 1,000 residents amounts to 380 m2 in Reutov and to 131 m2 in Khimki. In Kotelniki, there is not a single traditional professional shopping centre except for the SEC MEGA Belaya Dacha. Other shopping centres in these cities are small (GLA of less than 15,000 m2) and target the local market.

• Among the Moscow Region’s cities located farther from the capital, Serpukhov

2,500

(519 m2), Dmitrov (517 m2), and Chekhov (372 m2) have the highest amount of retail space per 1,000 residents, while Elektrostal’ (412 m2), Schelkovo (276 m2), and Domodedovo (229 m2) lead the “middle” zone .

2,000 1,500

• The least amount of retail space per 1,000 residents among the cities with a population 1,000

of at least 80,000 people has been recorded in Podolsk (51 m2), Ramenskoye (67 m2), and Krasnogorsk (82 m2).

500

• A huge upsurge in per capita retail space supply is expected in some cities. There are

0 2004

2006

2008

2010

2012F

2014F

30 projects with a GLA in excess of 586,600 m2 currently being implemented in the Moscow Region (not including suspended projects). The largest facilities include Phase II of Krasny Kit mixed-use complex (GLA of 47,200 m2), and SEC JUNE (GLA of 75,000 m2) in Mytischi, and SEC Korolev (GLA of 65,000 m2) in Korolev.

GLA as of the beginning of the reporting period New retail space supply (GLA)

Source: Colliers International

• In H1 2012, SC Galereya welcomed its first visitors in Podolsk. Opening of 11 more shopping centres with an aggregate GLA of 203,500 m2 before the year’s end has been announced.

BREAKDOWN OF NEW STOCK BY ZONES OF THE MOSCOW REGION (NUMBER OF SHOPPING CENTRES) 12

• By 2015, per capita retail space in the Moscow Region will become substantially greater. In 47% of the cities with a population of over 50,000 people it will surpass the mark of 300 m2 per 1,000 residents. At present, only 21% of the Moscow Region’s population centres have reached this level.

10 8

• Nonetheless, some cities of the Moscow Region still have no modern shopping

6

centres. Noginsk, with a population of almost 100,000 people, Yegoryevsk (74,000 people), and Lobnya (71,000 people) are among them.

4

• Overall, the Moscow Region is one of the most rapidly developing regions of Russia.

2 0 2002

2004

Zone 1

2006

2008

Zone 2

2010

Zone 3

Zone 1 – satellites of Moscow Zone 2 – cities within the Moscow Small Ring Road (A107) Zone 3 – cities located farther from Moscow Source: Colliers International

4 | COLLIERS INTERNATIONAL

2012

However, in many cities, per capita supply of retail space remains low. This creates a good opportunity for implementing projects with a format to be defined by the land plot’s location, level of competition, as well as the city’s size and its proximity to Moscow. Cities in the Moscow Region’s distant areas, especially those with large populations, have the potential necessary for building major shopping centres. Cities in the “middle” zone, as well as those adjacent to the MKAD, will see demand for small projects geared toward local needs.

RESEARCH & FORECAST REPORT | MID-YEAR 2012 | MOSCOW | RETAIL MARKET

MAJOR RETAIL PROJECTS IN THE MOSCOW REGION TOTAL STOCK (GLA) IN CITIES OF THE MOSCOW REGION Kotelniki Khimki Reutov

City

Name

GBA, m2

GLA, m2

Year of opening

Mytischi

JUNE

178,000

75,000

2012

Korolev

Korolev

81,500

65,000

2013

Mytischi

Krasny Kit, Phase II

62,800

47,200

2013

Khimki

Torzhok

65,000

45,000

2013

Reutov

Reutov Family Mall

90,000

41,000

2013

Zhukovsky

Zhuk

40,000

28,000

2014

Lyubertsy

Liberichi

60,000

27,000

2014

Krasnogorsk

Komsomolets

29,000

14,000

2013

Serpukhov Mytischi Elektrostal' Lyubertsy Balashikha Kolomna Orekhovo-Zuyevo Dmitrov Schelkovo 0

50

100

150

200

250 K m2

Source: Colliers International

Source: Colliers International

PER CAPITA RETAIL SPACE IN THE MOSCOW REGION

Number of towns

PER CAPITA RETAIL SPACE IN THE MOSCOW REGION, m2/1,000 residents 20 16 12 8 4 0 0

1-100 Q2 2012

100-300

> 300

2015

Source: Colliers International

Source: Colliers International

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