Page 1
RUSSI~S RETAIL GOLD RUSH MALLS ARE RISING ON A TIDE OF GROWING CONSUMER WEALTH By Bennett Voyles
URING THE COLD WAR, NIKITA KHRUSHCHEV
reportedly boasted that his Soviet Union would soon "bury" its geopolitical rivals
in the West. That did not happen. But today, a little over 50 years later, some
might wryly observe that Khrushchev's ghost must be off somewhere tittering up
his sleeve over the speed at which Russia is now building its shopping centers and
leaving the West behind.
Only two decades ago Russians shopped mostly at open-air markets or by
pointing to something hanging on the wall of some kiosk the size of a newsstand
- a little newsstand. Now huge shopping centers are rising all over Russia as devel
opers try to cash in on the reality of an increasingly affluent Russian consumer. In
j the second quarter oflastyear alone, some 464,500 square meters {about 5 million ~
~ square feet} of new mall space opened in Russia, including the 152,360-square-~
~ meter OZ Mall, in Krasnodar, a city of 750,000 not far from the Black Sea. S? ~ And there will probably be much more where that came from. In Moscow ~
A PR I L 2 0 1 3 I seT 51
Page 2
expected to rise to 422 ,000 square
meters from 334,000 square meters.
Growth will be even more abrupt in
Nizhny NovgoruJ, a ci ty of 1. '3 mi l
lion some four hours fro m Moscow.
There, retail stock is expecteJ to
rise to 500,000 square meters frum
300,000 square meters by year-end.
As for the smaller cities (those with
population of about 300,000), get
ting consumers accustomed to the
new malls can be difficult, Sokolov
says. In many cases regional shopping
centers cannot Jraw the chain and
thus end up with local shops instead.
Developers here see room for
continued growth. The level of retail
space per person in Russi a remains
far below the West European aver
age, according to Cushman & W ake
field. Russia has a little more than 100
square meters of retail space per 1,000
people, versus 250 square meters per
1,000 in Western Europe.
And Russian incomes continue to
rise. Per capita income is $13,543 yearly
at present, and that is climbing about 4
percent annually, after inflation, accord
ing to Credit Suisse. Furthermore, con
sumer access to credit is getting easier:
Russian credit<ard debt grew by 60 per
cent in the first nine months of 2012, to
the equivalent of $19 billion, according
to government data.
What might the old-school commu
nists say if they could see all this? SCT
APR I L 2 0 1 3 I SCT 53
Page 3
alone, roughly 1 mill ion square me
ters of shopping space is set to come
online over the next five years or so,
by Jones Lang LaSalle's .reckoning.
And for the period between first-half
2012 and first-half 2013, Russia in its
entirety is on track to see some 2 mil
lion square meters of new shopping
center space, boosting the country's
total floor space by about 13 percent,
according to Cushman & W akefield.
By contrast, the shopping center
space pipeline in France is expected
to produce about half that amount
over the same time frame, while the
U.K. is anticipating only about a
third of the volume in France. (The
U.S. saw just 580,000 square meters
of new construction through the first
nine months of last year, according to
Colliers International.)
To look at the newspapers some
days, one might think the Cold War
is still on. But the old [ron C urtain
has long rusted into oblivion, for
foreign shopping center investors in
52 SCT I APR I L 2 0 I J
particular. In January 2012 Morgan
Stanley paid $1 billion for the 2-year
old, 93,000-square-meter Galeria mall
in St. Petersburg. In recent months
the firm also bought the super-posh,
205,000-square-meter Metropolis
Shopping and Entertainment Mall,
just outside Moscow, the largest for
eign acquisition of Russian real estate
to date, for $1.2 billion.
Western developers, too, are ac
tive in Russia. Ikea Group operates
14 centers here. And last year Hous
ton-based developer Hines opened
Russia's first factory outlet center,
the Outlet Village Belaya Dacha, in
suburban Moscow, in partnership
with local partner Belaya Dacha.
Hines attributes the center's success
in part to that partnership. "They
owned the land, which was contrib
uted into the joint venture, and they
have worked alongside us on the
development, in particular in help
ing to deliver approvals and working
on utility and infrastructure issues,"
said Andrew Muzzlewhite, Hines' de
velopment manager for the project.
"They have been a real benefit to the
development, being both honest and
sophisticated people who know how
to work in a constructive and trans
parent manner."
The new Russian malls comprise a
mix of formats, from razzle-dazzle me
gam ails - such as Moscow's Vegas mall
- to factory outlets. Russian shoppers
like the outlet concept a lot, accord
ing to Muzzlewhite. "Russians are very
brand-conscious and spend a relatively
large proportion of their income on
shopping," he said. "The outlet format
allows those who might not be able
to afford brands full-price access to
high-end products as well as providing
bargain hunters with opportunities to
purchase discounted brands."
To be sure, these shiny new shop
ping centers are not in competition
against much of anything else. Even
in Moscow it remains difficult to find
a high-quality supermarket. Chains
are relatively few. "It takes quite a
long time for a new chain to enter the
market and to expand, and our mar
ket is only 15 years old," said Denis
Sokolov, a Moscow-based analyst with
Cushman & Wakefield. One reason
is logistics: This is an inevitable chal
lenge in a country so physically vast
that it comprises six time zones. Re
tailers must therefore either wait un
til distribution networks are able to
cover such an expanse or else bu ild
their own supply chains. In either
case, that takes time, Sokolov says.
Mall development is reaching
beyond just Moscow and St. Peters
burg, spurring change in the habits
of shoppers in almost every city, large
and small, across the country. In No
vosibirsk, Russia's third-largest city
and Siberia's largest (population 1.4
million), annual retail sales stand at
$10.4 billion. By the end of this year,
total retail tock in Novosibirsk is
expected to ri se to 422,000 square
meters from 334,000 square meters.
Growth will be even more abrupt in
Nizhny Novgorod, a city of 1.3 mil
lion some four hours from Moscow.
There, retail stock is expected to
rise to 500,000 square meters from
300,000 square meters by year-end.
As for the smaller cities (those with
population of about 300,000), get
ting consumers accustomed to the
new malls can be d ifficult, Sokolov
says. In many cases regional shopping
centers cannot draw the chains and
thus end up with local shops instead.
Developers here see room for
continued growth. The level of retail
space per person in Russia remains
far below the West European aver
age, according to Cushman & Wake
field. Russia has a little more than 100
square meters of retail space per 1,000
people, versus 250 square meters per
1,000 in Western Europe.
And Russian incomes continue to
rise. Per capita income is $13,543 yearly
at present, and that is climbing about 4
percent annually, after inflation, accord
ing to Credit Suisse. Furthermore, con
sumer access to credit is getting easier:
Russian credit-card debt grew by 60 per
cent in the first nine months of20l2, to
the equivalent of $19 billion, according
to government data.
What might the old-school commu
nists say if they could see all this? SCT
A PR I L 2 0 I 3 I SCT 53
'J>
iii 0: o ~ "" u i z 2-Q
o to ;:
Page 4
alone, roughly 1 mill ion square me
ters of shopping space is set to come
online over the next five years or so,
by Jones Lang LaSalle's .reckoning.
And for the period between first-half
2012 and first-half 2013, Russia in its
entirety is on track to see some 2 mil
lion square meters of new shopping
center space, boosting the country's
total floor space by about 13 percent,
according to Cushman & W akefield.
By contrast, the shopping center
space pipeline in France is expected
to produce about half that amount
over the same time frame, while the
U.K. is anticipating only about a
third of the volume in France. (The
U.S. saw just 580,000 square meters
of new construction through the first
nine months of last year, according to
Colliers International.)
To look at the newspapers some
days, one might think the Cold War
is still on. But the old [ron C urtain
has long rusted into oblivion, for
foreign shopping center investors in
52 SCT I APR I L 2 0 I J
particular. In January 2012 Morgan
Stanley paid $1 billion for the 2-year
old, 93,000-square-meter Galeria mall
in St. Petersburg. In recent months
the firm also bought the super-posh,
205,000-square-meter Metropolis
Shopping and Entertainment Mall,
just outside Moscow, the largest for
eign acquisition of Russian real estate
to date, for $1.2 billion.
Western developers, too, are ac
tive in Russia. Ikea Group operates
14 centers here. And last year Hous
ton-based developer Hines opened
Russia's first factory outlet center,
the Outlet Village Belaya Dacha, in
suburban Moscow, in partnership
with local partner Belaya Dacha.
Hines attributes the center's success
in part to that partnership. "They
owned the land, which was contrib
uted into the joint venture, and they
have worked alongside us on the
development, in particular in help
ing to deliver approvals and working
on utility and infrastructure issues,"
said Andrew Muzzlewhite, Hines' de
velopment manager for the project.
"They have been a real benefit to the
development, being both honest and
sophisticated people who know how
to work in a constructive and trans
parent manner."
The new Russian malls comprise a
mix of formats, from razzle-dazzle me
gam ails - such as Moscow's Vegas mall
- to factory outlets. Russian shoppers
like the outlet concept a lot, accord
ing to Muzzlewhite. "Russians are very
brand-conscious and spend a relatively
large proportion of their income on
shopping," he said. "The outlet format
allows those who might not be able
to afford brands full-price access to
high-end products as well as providing
bargain hunters with opportunities to
purchase discounted brands."
To be sure, these shiny new shop
ping centers are not in competition
against much of anything else. Even
in Moscow it remains difficult to find
a high-quality supermarket. Chains
are relatively few. "It takes quite a
long time for a new chain to enter the
market and to expand, and our mar
ket is only 15 years old," said Denis
Sokolov, a Moscow-based analyst with
Cushman & Wakefield. One reason
is logistics: This is an inevitable chal
lenge in a country so physically vast
that it comprises six time zones. Re
tailers must therefore either wait un
til distribution networks are able to
cover such an expanse or else bu ild
their own supply chains. In either
case, that takes time, Sokolov says.
Mall development is reaching
beyond just Moscow and St. Peters
burg, spurring change in the habits
of shoppers in almost every city, large
and small, across the country. In No
vosibirsk, Russia's third-largest city
and Siberia's largest (population 1.4
million), annual retail sales stand at
$10.4 billion. By the end of this year,
total retail tock in Novosibirsk is
expected to ri se to 422,000 square
meters from 334,000 square meters.
Growth will be even more abrupt in
Nizhny Novgorod, a city of 1.3 mil
lion some four hours from Moscow.
There, retail stock is expected to
rise to 500,000 square meters from
300,000 square meters by year-end.
As for the smaller cities (those with
population of about 300,000), get
ting consumers accustomed to the
new malls can be d ifficult, Sokolov
says. In many cases regional shopping
centers cannot draw the chains and
thus end up with local shops instead.
Developers here see room for
continued growth. The level of retail
space per person in Russia remains
far below the West European aver
age, according to Cushman & Wake
field. Russia has a little more than 100
square meters of retail space per 1,000
people, versus 250 square meters per
1,000 in Western Europe.
And Russian incomes continue to
rise. Per capita income is $13,543 yearly
at present, and that is climbing about 4
percent annually, after inflation, accord
ing to Credit Suisse. Furthermore, con
sumer access to credit is getting easier:
Russian credit-card debt grew by 60 per
cent in the first nine months of20l2, to
the equivalent of $19 billion, according
to government data.
What might the old-school commu
nists say if they could see all this? SCT
A PR I L 2 0 I 3 I SCT 53
'J>
iii 0: o ~ "" u i z 2-Q
o to ;: