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08 october 2014

Almost 100 thou. sq.m of retail premises commissioned in Q3 in St. Petersburg

According to ASTERA an alliance of BNP Paribas Real Estate, during the period from July to October 94 940 sq.m of quality leasable premises were delivered within three retail complexes in St. Petersburg.

Thus, in Q3 the following retail complexes were put into commission: ‘Europolis’ with total area of 141 700 sq.m (GLA – 60 440 sq.m), ‘Montpencier’ with total area of 58 500 sq.m (GLA – 30 500 sq.m), and ‘Torgovy ‘sapozhok’ with total area of 6 000 sq.m (GLA – 4 000 sq.m).

In the fourth quarter another two retail complexes are expected to be delivered: ‘Parnas’ with total area of 15 000 thou. sq.m (GLA – 6 500 sq.m), and shopping mall ‘Au Pont Rouge’ as a part of mixed-used complex ‘U Krasnogo Mosta’ (GLA – 6,4 thou. sq.m).

Therefore, as of H2 the introduction of new retail premises will estimate to about 110 thou. sq.m which meets the forecasts. According to the results of the year, supply of retail space in Saint Petersburg will reach 3,2 million sq.m increasing by 3.8% in a year.

However, ASTERA experts note that strained external political situation and introduction of economic sanctions against Russian Federation significantly affected growth rate of retail sector in Q3 2014, the decision making process and terms of conclusion of new lease agreements or purchase of commercial real estate.

‘Current situation leads to the fact that tenants of retail complexes initiate the change of agreement terms more often, coming to the owner with already formed proposal. Most commonly, tenants insist either on changing rental rate to ruble equivalent, or agree on fixed exchange rate or cancellation of indexation of rental rate for the period from half a year to two years. If there are a lot of favorable tenants, owners are ready to offer discounts on rental rate in the amount from 10 to 30%. Also, in last few months owners of space in retail centers are ready to decrease security deposit upon request of tenants up to 1 month rental rate instead of usual 2 or 3 months. The most prepared for negotiations are owners of shopping complexes where vacancy exceeds average market vacancy rate due to the fact that exposition terms of premises increased by 50% at the mean’, - comments Svetlana Chernyshova, head of Brokerage Department at ASTERA an alliance member of BNP Paribas Real Estate.

According to ASTERA, facilities with the area of 50-100 sq.m (29% of inquiries) were the most demanded ones in retail complexes in Q3. Premises with the area from 500 to 1000 sq.m (16% of inquiries) took the second place in all received inquiries, and 15% of potential tenants were interested in facilities with the area from 100 to 200 sq.m in Q3.

Therefore, a significant part of inquiries was applied traditionally by public catering companies (20% of inquiries) and fashion retailers (19% of inquiries). Children goods (16% of inquiries) and grocery sellers (9% of inquiries) also stayed very active.

At the same time in Q3 the most active players in street retail segment were grocery chains working in the format 300-500 sq.m to 500-1000 sq.m (‘Polushka’, ‘Dixy’, ‘Real’), and also department stores (50-150 sq.m), pharmacies, public catering chains – restaurants, bistro, canteens, pubs (in lesser degree) – and banks (facilities with the area of 80-150 sq.m and departments with the area from 350 sq.m). Moscow and regional companies who decided to enter St. Petersburg market were also very active. In street retail segment the most requested premises are the ones with the area of 100-200 sq.m (36% of inquiries), 50-100 sq.m (30% of inquiries), and 200-500 sq.m (18%).

‘Our observation shows that some clients who were considering opening of new retail outlets in the beginning of the year paused and even stopped their development in Q3 until the end of 2014. First, this includes public catering retailers, - states Olga Atkachis, head of Retail Department at ASTERA an alliance member of BNP Paribas Real Estate, - Owners of commercial real estate modify their plans too. Thus, in Q3 those who had recently planned the sale of their commercial premises postponed it and preferred to keep their objects until the moment of stabilization of market situation’.

Those tenants that continue developing even in current difficult economic conditions take their time to make decisions when choosing premises. The majority spend up to 3 months to coordinate all agreement terms. Individual clients make decisions about leasing premises and conclude a deal in a month.

Rental rates in street retail segment remained stable in Q3. As a result, many potential tenants postpone their decisions on leasing the premises expecting general decrease of market rates in Q4 2014. Also, when choosing premises a number of potential tenants who intend to conclude long-term lease agreements (for 5 years minimum) began to propose postponed escalation of agreement. In this case annual indexation of rental rates starts from the second year of agreement, not the third one.

At the moment in street retail segment about 60% of agreements are long-term lease agreements subjecting to state registration. Usually they are concluded by food retailers, banks, public catering representatives and pharmacies which need registered lease agreement in order to receive their license. About 40% of deals are non-registered short-term lease agreements.

Segment of build-in premises remained active in Q3. St. Petersburg and Russian investors were the main purchasers. In most cases premises were acquired for future lease (more than 50% of transactions). End users buy objects with the cost up to 50 million rubles mostly at the stage of construction (build-in premises on the 1st floor of residential houses).

In the estimation of ASTERA specialists, in Q4 many tenants continue to adopt a wait-and-see attitude hoping for the further decrease of rental rates. At that, the majority of clients does not abandon their business development plans, but prefers to postpone the opening of new projects for 2015.

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