New Malls and Hotels for Krasnodar
The Rodina Hotel in Sochi
Here's a great report written in October by Commercial Real Estate Russia magazine:
South Federal District // Commercial Real Estate, #20 (80)
15.10.2007 Krasnodar: Holiday making and Entertainments
South Federal District
The commercial real estate market of Krasnodar is notable for two main characteristics. First of all, local developers of retail properties are better at building entertainment centers than their colleagues in other regions. And, secondly, because of the upcoming Winter Olympics of 2014 hotel construction is switching into high gear.
Click on the extended post to read more.
A Russia Today TV commercial promoting the 2014 Winter Olympics in Sochi
Chasing Office Space
As reported by Cushman & Wakefield Stiles & Riabokobylko's experts, there are no class A business centers in Krasnodar. All existing office buildings either fall under class B, B or C, or altogether defy classification.
The rental rates fluctuate around the $400 per sqm less VAT. The share of vacant space in business centers is only 5%. Office space at class C facilities (which account for 70% of the total office space in the city) can be rented at $230 per sqm per year. Demand for quality premises is said to greatly exceed supply.
Most office premises are sold and let in central Krasnodar, where most industrial and warehouse premises used for offices is concentrated.
However the local players assure that no sooner had the demand for quality office premises been formed, than developers rushed to make up for this deficiency. As reported by Cushman & Wakefield Stiles & Riabokobylko, class A and B office buildings are scheduled for delivery before this year's end: the 9,345 sqm SAS business center, the 6,000 sqm BC at Moskovskaya Street, the 7,057 sqm BC at 181 Rashpilevskaya St., the 4,000 sqm office facility developed by Mashpromsnab at Kotovsky Street and others. Reconstruction on a long lasting project at the intersection of Krasnoarmeiskaya and Gogol streets will soon transform this unfinished property into the 17,770 sqm BC Tsentralny.
In addition, the local housing builder Development Yug constructs on the 55 000 sqm class A business center not far from the center of Krasnodar. This BC will be delivered to the market in 2008-09.
A new building in downtown Krasnodar
What a Wonderful Game!
According to Real Estate Krasnodar, today's retail sector totals approx. 180,000 sqm of quality retail space, such as found at retail entertainment center Krasnaya Ploshchad at the intersection of the Bypass Road and Dzerzhinsky Street. Construction was carried out by local development company Ramo M. The 105,000 sqm mall is redevelopment of former industrial premises conducted in three phases. The 15,000 sqm home improvement hypermarket Krasnaya Ploshchad (the developer's brand) and a shopping gallery constituted the first phase. The 30,000 sqm second phase conceptually developed by SMT Development experts comprised a shopping arcade covered by an atrium and the Mosmart food hypermarket. The final phase delivered in November 2006 included three stories of boutiques, a multiplex of the local operator Monitor, which occupied two levels in the shopping center, and the first McDonalds restaurant, which rented a premise in the basement.
The 2,000 sqm children's fun center Jungles also functions on the mall's grounds. Krasnaya Ploshchad boasts a decent buyers' traffic. The development company figured out that the shopping center sees 16 20,000 visitors on week days and 25 30,000 shoppers on weekends. Rental rates vary between $270 and $1,500 per sqm per year. The developer plans expansion of the fashion area and construction on a multi tier parking garage. Yet local players doubt it would be possible to fill the entire retail space with quality brands.
The 22,000 sqm retail entertainment center City Center brokered by the local development company City Center operates on Industrialnaya Street. The three floors house such anchor tenants as Perekriostok and City de luxe multiplex as well as a shopping gallery and a food court that sheltered local operators. An insignificant part of the City Center's third floor is occupied by a picture gallery. A number of services, such as a storeroom, a cloakroom etc., is at the buyers' disposal. The development company also plans to convert the shopping center to a higher pricing format. Now the complex targets middle class buyers; however the developer is going to increase the share of premium class brands to 30% from the present 10%.
As reported by the landlord, the attendance of City Center comes to about 230 250,000 shoppers per month and rental rates range from $700 to $1,300 per sqm per year. Contracts of lease are signed for 3 5 years, save for the multiplex (7 years).
The said properties are the largest in the city; some others may even surpass them in terms of floor area but they lack any concept. Thus the open air shopping complex Tsentr Goroda is spread out on 26,000 sqm at Krasnaya Street and shelters rows of retail operators representing both national and local brands. The 80,000 sqm SBS mall was constructed by the same company using a similar approach. SBS is famous for its huge entertainment complex Sem Zvezd (Seven Stars) covering 25,000 sqm. Its three stories house a bowling alley, billiard tables, slot machines, children's attractions, an eight hall multiplex, a food court, restaurants and many other amusements. This is the city's first entertainment center, extremely popular with local teens. However, on week days you won't find many visitors. "SBS is a weekend center," the landlords admit.
Yet the situation will change after the second phase of the mall opens. Construction on Auchan hypermarket to be put into operation in December this year is close to completi on. Leroy Merlin will supposedly open its doors in the second quarter of 2008. The first quarter 2009 will see completed construction on a shopping arcade to be integrated with the existing fun center into a single building. Additionally, a multi tier parking garage for 1,000 cars will be built on the same territory. The total number of car spaces at SBS will reach 3,500 while the total space of SBS mall upon completion of the second phase will come to 160,000 sqm. For now the rental rates range from $960 to $1,440 per sqm per month.
The same developer also came up with another property -- the retail office center Kavkaz M, which is a redevelopment of the furniture factory. Almost 80% of the aggregate 67,000 sqm are dedicated to offices with rental rates varying between $270 and $400 per sqm per year. Kavkaz M is anchored by Technosila, Paterson, Torgovy Dom SBS (furniture) and fast food operator Rostik's. The remaining space is let by small units at the price of $400 $460 per sqm per year. However the third floor, housing local non chain operators, is almost empty -- apparently because of competition with Tsentr Goroda. The developer plans property re conception in the near future.
Specialists from Cushman & Wakefield Stiles & Riabokobylko point to the explicit dearth of quality retail space in the city. In their opinion, demand several times exceeds supply. Yet the situation will radically change by 2010, they figure. By that time, "if all declared projects will have been implemented, 640 sqm of quality leasable retail premises will fall on 1,000 residents.
A lot of projects have indeed been declared. DVI Group is going to build a 90,000 sqm mall on Rostovskoe shosse anchored by a 15,000 sqm food hypermarket, 17,000 sqm OBI, a nine screen multiplex and a children's fun center. A large summer terrace is said by DVI Group to be the salt of the project slated for opening in the first quarter 2009.
The investment company TPS carries out construction on 94,000 sqm Krasnodar City mall in the center at the intersection of Krasnaya, Severnaya and Golovaty streets. Among the planned anchors is a 3,000 sqm food supermarket, a 4,000 sqm hypermarket of electronics and household appliances and a 5,000 sqm multiplex. The names of the tenants are not known yet; construction works will reportedly be completed in autumn next year. The project will be exclusively brokered by Jones Lang LaSalle.
BV Development is building a 110,000 sqm mall at the intersection of Sormovskaya and Starokubanskaya streets to be anchored by a home improvement store, a food hypermarket, sports ware, electronics and other stores. This is a chain project to be carried out in many regional cities. The complex is due to open in the fourth quarter 2008 and will be exclusively brokered by Cushman & Wakefield Stiles & Riabokobylko.
Experts of CB Richard Ellis Noble Gibbons report on the development of Mosmart hypermarket at Vostochno Kruglikovskaya Street.
The lifestyle center OZ constructed by Moscow based AIM Property Development will rise in 2009 on Krasnodar -- Kropotkin route on the area of nearly 37 hectares. The mall's total space of 207,568 sqm will be divided between a shopping gallery (52,551 sqm), anchor tenants (42,924 sqm), an FM radio station studio, an ice rink, a 12 hall multiplex, frestaurants, cafes, a food court, a children's playground and other functions. The anchor tenants include a DIY store and a hypermarket. The project is exclusively brokered by CB Richard Ellis Noble Gibbons. Swedish retailer IKEA constructs on the 130,000 sqm MEGA mall at Krasnodar's border in the republic of Adygeia scheduled for opening next year. Also construction on the 150,000 sqm mall Kalinka Malinka (ADM Group's chain project) is carried forward.
All declared projects comprise entertainments. Local players shake their heads fearing the glut on the entertainment market. As reported by local experts, the market of entertainments took off in 2002. For three years 5 largest entertainment trading complexes in the city were placed in operation, namely Sem Zvezd, Evropa, Kvartal, Krasnaya Ploshchad and City Center. Now the lack of entertainment operators is quite apparent. Local pundits believe that developers may diversify their properties by including fitness clubs.
Krasnaya is a leading street retail route in Krasnodar. By its extension and shopping activity it could be compared to Nevskii prospekt in Saint Petersburg. Well known national and local brands try to open their stores at this retail route. According to Real Estate Krasnodar, the rent of 1 sqm costs from $1,200 to $1,800 sqm while smaller premises may cost up to $10,000 per sqm per year. Premises from 100 to 200 sqm are in great demand, although it is practically impossible to buy retail space on this street, opine local players.
Krasnodar's hospitality stock is represented by 63 hotels, of which only 59 are active. Only 4 hotels fall under the four star category, whereas 6 belong to the three star segment and 14 -- to the two star category. For now there are no five star hotels in Krasnodar. The city fathers plan construction of world class hotels to be operated by world renowned hoteliers. Real Estate Krasnodar informs that the Ibis Hotel run by Accor Group must open in 2009 at the crossroads of Krasnaya and Mira streets. This will supposedly be a reconstruction of Tsentralnaya Hotel. Another Accor run 250 room Novotel hotel will open at the site of the First Municipal Hospital. The worldÂrenowned hotelier Marriott is expected to enter the market in the same year. A hotel with 262 rooms and 49 apartments will be built at the site of the former movie theatre.
Construction of several hotels is planned at Molodezhnaya, Novatorov, Dmitrovskaya damba and Kubanonaberezhnaya streets, though there is no detailed information on those properties, except that they are approved by Krasnodar's Urban Planning Committee.
The warehouse sector is mainly represented by old format premises. According to Macon Realty, the total warehousing space in Krasnodar is 152,000 sqm including 135,700 sqm of class C storage facilities and only 12,000 sqm of class B. The average rental rates at low quality warehouses range from $46 to $90 per sqm per year.
With the coming of high profile retailers, such as Auchan, Leroy Merlin et al. demand for quality warehousing space has risen. Yet logistics developers do not hasten to realize their projects in Krasnodar. - Nadezhda Mikeshkina, Olga Malkova
Read more articles on commercial real estate development in Russia at www.cre.ru
Timothy Post, a native of Boston, Massachussets and an MBA graduate of Babson College, is a private equity and real estate developer in Krasnodar Krai. You can read the original post on Tim's blog, Inside Krasnodar. If you have more questions about doing business in Krasnodar, you can email him at firstname.lastname@example.org .