‘Shopping malls were the first to receive the blow of imposed sanctions’

Malls in Russia have started to be put up for sale, some experts consider them a doubtful investment

The exit of many Western retailers from the Russian market has mostly hit shopping malls. These stores in many malls were anchor tenants. In large shopping malls of Moscow, according to Cushman & Wakefield, the share of retailers who suspended commerce, reaches 60%, which influenced the general attendance rate of shopping malls. Nevertheless, positive signals have appeared too — Poland’s retailer LPP stores resumed the operations, including in Tatarstan. Read in Realnoe Vremya’s report what future awaits shopping malls and the commercial real estate market.

Shopping malls suffering losses

A fall in traffic in shopping malls across the country is a tendency that became a consequence of the closure and suspension of operations of many foreign companies and their stores. As a result, big shopping malls have especially been affected, the share of Western retailers’ stores could surpass 50% there.

Director of Happy Home real estate agency Anastasia Gizatova told Realnoe Vremya that demand for liquid commercial real estate is high, but the buildings of shopping malls that some owners are even trying to get rid of can hardly be considered as liquid:

“Commercial real estate was the least affected segment both in March and April. The activity is good, there is a waiting list to buy liquid areas, but shopping malls aren’t among the lucky. There are a lot of orders of liquid interesting real estate. The number of deals is growing, but some segments are falling out — it is shopping malls, tenants are leaving them. These facilities are put up for sale, but they don’t find their purchasers because of being considered as a high-risk deal and a doubtful investment.”

Huge areas and corresponding utility bills amid the absence of tenants are a nightmare that became a reality for owners of large shopping malls. It isn’t a bad option to compensate for the losses by raising the rent for the remaining stores, experts notes, because in this case one can lose all the tenants. Moreover, nothing has changed for small shopping centres, stores of local shopping malls with consumer goods haven’t disappear and continued being in demand.

“Demand cannot go instantly”

Director General of ReAgentstvo realty agency Yury Chikirov noted that there is liquid commercial real estate in the Tatarstan market. And those who invest in this area clearly understand the criteria that differentiate a good deal from a failure:

“Liquid areas are in demand as usual. The key question here is which factor of the facility provides their liquidity. The expected and real rental income, expectation of speculative income during the next resale, in the case of a discount on the purchase, etc. So a ready rent business, redevelopment facilities, wholesale and retail schemes can be traditionally considered such facilities. These areas usually have the status of general purpose area.”

Nowadays most offers of commercial real estate are in small and mid-sized segments in the republic, as noted Yury Chikirov:

“It is noteworthy that the size of the lot in terms of price has a significant influence on liquidity. Real estate is a hard currency, and the market considers small lots (up to 7 million rubles) as simply an investment in conservation, profitability is often secondary. In the case of 10 to 30 million rubles, seasoned investors look at the rental income (current and future), the universality of the facility (a separate entrance, throughput capacities of networks in the facility and prospects of increasing them). The segment over 50 million rubles for Kazan scrupulous enough.”

By Yury Chikirov’s estimate, one shouldn’t put shopping malls paid. Even though the exit of Western companies seriously impacted many of them, nowadays there is progress that change the situation for the malls for the better:

“Shopping malls were the first to receive the blow of imposed sanctions. However, as marketing managers say, demand cannot disappear instantly, it needs to be compensated with analogues, including promotion channels. We already see this when selling famous brands to their Russian representatives and, for instance, “Chinese” partners. In any case, the substitution process is already full swing, logistical chains are created, though longer, including the classical substitution of concepts of parallel imports, by replacing labels. I personally tend to be positive in my evaluations, we hope for the best. The most important thing is to be in the flow, don’t stay idle thinking that everything will resolve itself, it is necessary to act.”

“Undoubtedly, it is good news”

Polish retailer LPP sold its Russian office to a Chinese consortium, and Reserved, Cropp, House, Mohito and Sinsay stores that closed earlier have opened again under new names. Plenipotentiary representative of the Russian Guild of Managers and Developers Yelena Stryukova notes that the resumption of operations even of these stores will be salvation for many shopping centres:

“As for the meaning of the fact of the resumption of the commercial activity of LPP stores, it is hard to overestimate. I hope this is the first positive signal for Russia’s commercial real estate market. The stores of this retailer operating with Reserved, Cropp, Sinsay and House brands closed last, on 30 March 2022.”

Considering that these stores played a role of anchor tenants for most shopping malls (the total area of the four brands could occupy up to 4,000 square metres, while the average area of, for instance, Sinsay is 1,000 square metres), the suspension of the commercial activity painfully hit the attendance rate of facilities. It turns out that owners of facilities not only lost the rent as interest on retail commodity turnover but also had to agree with smaller tenants that worked as anchor tenants. So the resumption of the operation of all LPP brands is, undoubtedly, good news for shopping mall owners.

According to Yelena Stryukova, other companies also want to get out of this situation. The desire is mutual — the brands that temporarily suspended the operation don’t want to lose the Russian market, while big shopping malls need serious tenants.

“I want to believe that other commercial operators will also find a way of solving the problem. At least staying in touch with all our tenants who aren’t working now, we receive information about this. We aren’t talking about the termination of rental agreements and exit from the market. Stores continue paying the fixed rate of the rent and the minimum wage to the employees.”

As for further prospects of work, it is important to understand when the commercial operator will return to the development programme. Sinsay opened very actively in 2021, in early 2022, and there is a number of signed rental agreements in which the tenant hasn’t started finishing works or hasn’t completed them. I want to believe that the company will find the wherewithal to meet the obligations in the signed rental agreements and continue its development.

Emil Ziyangirov

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