Offline retail crisis in Kazan: tenants ask for easing, but there is no money and traffic in shopping centres

Shopping centres are fighting off tenants

The tenants of Kazan shopping centres have bombarded managers with requests to soften the terms of lease payments against the background of falling consumer traffic, the managers of the shopping centre say. However, so far not every shopping centre has publicly met these wishes, postponing the issue of reviewing contractual relations until the end of the year. They believe that it is impossible to make a balanced rational decision now, since the terms and conditions of the autumn lockdown remain unknown.

“It is difficult to make any decisions with tenants, we work under the same terms. The financial burden is exorbitant: no one has removed questions on loans, taxes, housing and communal services, and the costs of PSC in connection with checking QR codes have increased. If they help us, we will help the tenants," Olesya Rybakova, the director of Raduzhny shopping centre, told Realnoe Vremya.

No one doubts that the second wave of COVID-19 morbidity has hit the sales of the tenants of shopping centres hard, but they cannot make concessions — there are no financial opportunities left. Shopping centres are suffering along with tenants. According to their estimates, attendance has dropped by 70% over the past week, and it's scary to guess what will happen next.

“It is unclear why shopping malls are considered hotbeds of coronavirus? Why not Multifunctional Public Services Centres, not transport, but only shopping centres? We have 28 square metres per person. This is clearly better than in the bus, MPSCs or polyclinics. Now buyers are crowding in queues in Pyaterochkas, where the area is smaller, and only one or two cash registers work!” managers are perplexed. “Now they want to close shopping centres from November 30 to November 7. Well, what kind of lockdown is it if the borders are open? People are buying tickets and flying to rest, and then they will return to Kazan again. Is this the right way to combat morbidity?"

Due to the uncertainty in the future, shopping malls have reached a dead end. On the one hand, they need to keep tenants, but on the other — financial resources are at the limit.

“It would be fine if we were provided with assistance — discounts or deferrals on loans, taxes, housing and communal services, then it would be possible to negotiate. In the meantime, why make discounts? The rainy day fund has already been spent 1000 times! The delay that we were given in the last period, the burden fell on this period. Then we restructured and are preparing again. So, there will be debt accumulation again! Tenants are writing letters — traffic has fallen, sales have fallen, help! But how can we help? Who will help us?" they explain in the shopping center.

According to them, the tenants are preparing to move out, but so far they are suffering and waiting for loyalty from the authorities.

“Why not make allowances for the district shopping centres, where the only pharmacy in the district is located," Olesya Rybakova suggests. “And now we can't let people in without a QR code: neither nursing and pregnant women, nor elderly people. We have one bus that goes to Kazan regularly. They load into it and go to buy medicines a few kilometres away, because we don't let them into shopping malls. And there are no free-standing pharmacies nearby. They put such serious restrictions on us, they drive us into the framework of fines, if someone turns out to be in a shopping centre with a false code, then the administration is responsible.”

“Now they are completely pulling the plug on them”

Evgenia Khakberdieva, the regional director of Knight Frank Retail Real Estate Department, states that the pandemic situation continues to have a serious impact on the retail real estate market. In the first quarter, an improvement in the performance of retailers and developers was recorded: despite the slow recovery of traffic in shopping centres, there was an increase in the conversion rate and turnover in the range of 10-20%, due to both the behaviour of buyers and the work of brands to update their outlets and the active introduction of digital technologies.

However, during several weeks of June-July, additional measures were introduced restricting the operation of catering establishments and the entertainment segment, which negatively affected the recovery of indicators. After a slight relaxation of the anti-weed measures regime in the third quarter of 2021, control over the implementation of sanitary requirements in shopping centres began to tighten, violation of which entails penalties for business owners, up to the closure of facilities for 90 days.

In her opinion, the restoration of shopping centre traffic in Russia to the pre-crisis level can be expected no earlier than the first quarter of 2022, and in some segments, for example, entertainment centres and cinemas, no earlier than mid-2022.

Several catering establishments have already closed in shopping centres

Catering establishments located both in shopping centres and in the premises of street retail are being in a very difficult situation now, experts say. Not everyone managed to adapt to the new realities, but for some, it is an opportunity to develop the delivery of both finished products and semi-finished products — such as, for example, Tyubetey network.

In Kazan, in catering establishments that operate in shopping centres, after the introduction of QR codes, revenue fell by about 80%, Galina Sharafutdinova, the executive director of the Association of Restaurateurs and Hoteliers of the Republic of Tatarstan, told Realnoe Vremya.

Entrepreneurs, according to her, will most likely apply to the management of the shopping centre for preferential rental conditions.

“At the moment, it is still unclear how events will unfold. If a lockdown is introduced, tenants will have an opportunity to address the issue of zeroing the lease for this period, as it was last year. We do not yet have a clear understanding of what support measures the government will take for businesses," Sharafutdinova said. “There is talk that gratuitous grants in the amount of one minimum wage will be issued for the remuneration of each employee, but we have not seen an official document with an interpretation of the issuance mechanism. It would be a great help for us. In case of allocation of credit funds, even at the lowest interest rates, entrepreneurs are unlikely to take advantage of this measure, the bulk of restaurateurs simply will not be able to handle them — everyone is already over-credited. After all, we see this by analogy with the programme of preferential lending while maintaining jobs of the FOT 3.0, which was last year. There is only one way out of the crisis for restaurateurs — it is the provision of all possible measures of state support.”

“KazanMall is still meeting us halfway, making concessions”

The press service of UD Group company reported: “There are changes in the situation on the commercial real estate market, and they did not begin today and not with the introduction of QR codes, this has become our reality.”

“Naturally, after the introduction of restrictive measures, significant changes have affected the internal operating mode of the facilities, the workload on staff and financial expenses have increased, and we and our tenants are recording a decrease in traffic and revenue. The whole business and our industry are waiting for a government decree, this will reduce uncertainty. We hope that an increase in the rate of vaccination will eventually have a positive impact on attendance and consumer activity, and deferred demand will form. The management team is preparing for different scenarios, together with the tenants we are analysing the indicators. Our main task is to preserve rental relations, jobs, the concept of facilities and the quality of services for visitors," the company says.

Revenue is falling not only for catering establishments — in the first week after the introduction of QR codes, revenue fell to an average of 70-80%, says Sisley brand partner Adel Yagudin:

He also announced the data on catering. In total, there are four points in Tatarstan — three in Innopolis and one in Kazan.

“In terms of revenue, we have not lost much, because there are a lot of vaccinated people in Innopolis. There is a drop of only 20-30%, and in Kazan — by 80%," noted Yagudin.

Street retail — among the leaders by price growth

Meanwhile, prices for commercial real estate have risen sharply during this time, Vladimir Shaykhiev notes. So, for example, if last autumn in retail real estate a square metre cost 80-90 thousand rubles, today it can cost 130-180 thousand rubles. In office real estate, differences in prices are significant. After all, there are different classes of offices. Location also matters. So, for example, in the Aviastroitelny district, the rate may be 500 rubles, and in the centre — 1,500-2,000 rubles.

According to him, it is now difficult to buy a small street retail for adequate money. Against the background of coronavirus restrictions, the rental rate in street retail has increased to 2,500, overtaking the classic shopping centres.

“A lot has changed in the real estate market since the start of the pandemic," he says. “With the growing demand for delivery, many have begun to develop pick-up points — for example, Wildberries, Ozon, KazanExpress, catering establishments. The steady demand for small objects is 100-120 square metres. This is the most popular format that SMEs can afford today.

In this regard, office segment becomes a panacea — small office premises, if they appear on sale, which can cost 3-4 million rubles. As for rent, prices for it have also increased, but not so much. If earlier for investors the payback period from renting was about 10 years, now it often increases to 12-14 years, because rates are rising, but not as fast as the cost. Everything here depends on the location, area, residential area, transport interchanges, public transport stops. There are a lot of nuances here.

In general, there is a demand for commercial real estate in the market. It is high and exceeds the supply. At one time, developers stopped selling — Unistroy, then Ak Bars followed this way. Now, of course, options periodically appear, but there is a shortage. As prices rise, it has become more difficult to buy. Many have stopped selling: it makes no sense to do it if prices are going up. In the secondary market, prices have increased.

“The demand for rental of commercial real estate has decreased, but for sale remains at the same level," says the head of Realit real estate agency, Tatyana Renkova. “Grocery stores are opening, such as Pyaterochka, Magnit, Fix Price, Ozon points, delivery centres. But there are few interesting offers. It's income. If the tenant pays well, then why sell. People probably compared the rise in real estate prices with the bank rate and realised that it is profitable. There was such a spontaneous increase in prices, and many were the winners. Even having a small property in possession was much more profitable. Despite that bank rates are rising now, real estate is still more profitable. Prices for commercial commercial real estate, of course, have increased compared to last year. For example, my object has a price of 200,000 per a square metre. There are 250 thousand each, and last October there were 150 thousand. There are no significant changes in rental prices. However, a lot depends on parking here — in its absence, the cost, of course, decreases. But if earlier it was possible to rent out commercial rent very expensively in the centre, now there is no such demand.”