Yulia Nikulicheva, deputy director for strategic consulting and evaluation at Jones Lang LaSalle, says the main difference between western outlet centres and their Russian counterparts is to do with construction phases. ‘In Europe and the US, these schemes are developed in smaller phases over a course of 10 to 15 years,’ she says. ‘First they build 15,000-20,000 sq m, and later, according to the results, they add on more space. It generally takes 10 years to recoup the investment. Foreign operators have previously looked into possibilities in Russia, and they proposed building an initial 10,000-20,000 sq m.

‘The fact is that our centres need to start out bigger – from 25,000 sq m – and recoupment should take between five and seven years.’

Olga Yasko, director of Colliers International’s Russian analytical department, says the further development of outlet centres could be limited because of Russian developers’ lack of experience, insufficient saturation of existing retail property formats and antiquated – or non-existent – transport links.

‘The Russian market should be ripe for outlets in three years,’ says Nikulicheva. ‘The first outlet will probably appear near the outer Moscow ring road, where rents would be comparable to those paid by anchor tenants in regional shopping centres – right now around $100-$300/sq m.’

One more format missing from the Russian market is western-style retail parks. Traditionally, a retail park in the west features a vast amount of space – 1m-2.2m sq ft (100,000-200,000 sq m) – and a unified architectural concept. However, Russian retail parks constitute any collection of retail structures on a single plot and sharing common parking.

Mikhail Gets, representative at consultant Novoe Kachestvo, says an increasing number of Russian developments lay claim to the retail park format. ‘These are shopping centres where 80%-90% of the floorspace is occupied by anchor tenants,’ he says. ‘There is basically no retail gallery.’

Several years ago, Garant-Invest opened a centre with the name Retail Park. Nevertheless, Yasko says that, in this particular case, the term is used loosely. ‘Judging strictly by the size of the plot, none of the structures will be single-storey – not the hypermarket, DIY, sporting goods, nor any other big boxes,’ she says. ‘However, the location and strong anchor – German DIY retailer OBI – provide a bit of help.’

The Moscow region bodes well for retail parks, considering the abundance of development opportunities, as well as the financial situation of the residents. The format could also thrive in any of the ‘millioniki’ – the cities in Russia’s remote but resource-rich regions with populations of more than 1 million, such as Yekaterinburg and Novosibirsk.

Living large

Many in the Russian retail property market increasingly believe that the sector’s future lies in projects of an unprecedented scale, combining several different concepts. In all likelihood, these facilities, which would take advantage of Russia’s vast expanses of available land, would cater to family recreation and shopping over an extended period, such as a weekend.

‘Typical mega-projects in the west feature the neighbouring construction of retail parks and outlets,’ says Nikulicheva. ‘What’s more, they do not necessarily belong to one developer.’

Colliers International says the development of transport infrastructure, as well as new, expansive residential districts dozens of miles outside city centres, will allow for large retail projects to be developed on plots of 370-494 acres (150-200 ha). Such projects could also feature neighbouring entertainment parks, on the model of Disneyland.

‘Russia currently has no centres with a fully fledged entertainment component,’ says Nikulicheva. ‘Such a complex, located close to Moscow, could draw customers from all over the region.

‘The initial costs would be incredibly high, and recoupment would take 10 to 15 years. But it would make sense for the developer to draw its anchors from the entertainment sector – ideally,

a partner like Disneyland or Legoland. Several famous, big-name players are currently considering investment in similar projects, and franchising negotiations are taking place with some of the worldwide leaders in the entertainment industry.’

These big schemes could provide equally big opportunities for international investors.

Source: Extract of the entitled article "Growing pains" published on http://www.propertyweek.com, 16.10.08.