Shopping malls and emptiness: halted tenant turnover

Tenants asking for discounts again

Tenant turnover in shopping malls in Kazan and Naberezhnye Chelny has stopped indefinitely. After the start of the special operation in Donbas, most retail operators had a wait-and-see approach when it comes to the expansion of shopping areas. According to a representative of one of the big shopping centres of Kazan, potential tenants among Russian retails postponed the signing of new agreements “because of the uncertainty about tomorrow,” while some foreign brands resumed trade this summer. “But there is a handful of them, more and more foreign brands work under franchise,” he noted.

The uncertainty of the prospects frightens both sides — both network operators and developers: “Now everything has been suspended due to the latest events,” one of the market players claims.

“The plans are put on ice. There is no such thing that we all don’t develop or, on the contrary, we develop extensively and so on. We all started to think how and where to move,” another Kazan broker describes the current situation.

According to him, some tenants resumed talks to reconsider agreements. “Some sent letters to suspend rent agreements, some have sent letters to terminate them prematurely,” he said. Many tenants are asking to give them an up to 50% discount or a respite till the end of the year. The main cause of the stress is the disruption of traditional supply chains. Difficulties with the transfer of payments in a foreign currency for shipping products have recently added up to them.

Against this background, professional managers are leaving development.

MEGA without foreigners

At the moment, the uncertainty worsened the situation among many Kazan shopping malls where many lots have been long vacant since the exit of foreign brands. By experts’ estimates, vacant areas in Kazan can reach 15-20% by the end of the year.

“The biggest number of vacancies in Kazan is in MEGA,” noted CORE.XP consultancy’s Director of the Department of Rent of Commercial Premises Nadezhda Tsvetkova. “Big anchor tenants that left the Russian market (IKEA, H&M) or those that suspended their activity (Inditex, Uniqlo, Mothercare, Adidas and others) were located there.”

There is quite a big share of closed stores in Park House in Kazan where Inditex, H&M as well as Uniqlo were situated that closed before the announcement of ceased operations in Russia.

Now there are 109 stories in shopping centres in Kazan, analysts of GGroup — Asset Management calculated. According to their data, almost half of offers are in mid-size locations — from 50 to 200 square metres. “There are 49 stores in this segment,” they counted. However, there aren’t almost big free areas from 1,000 square metres. The experts of GGroup — Asset Management say there are just offers of this kind. This means that developers try to divide the area into small pieces to gather as many sellers as possible in one place.

Turks’ big disappointment

H&M clothing and shoe company, Inditex — Bershka, Pull&Bear, Stradivarius — suspended their activity indefinitely in Sunrise City in Chelny (belong to Turkish Kastamonu and Hayat Kimya). “The management of the company is carefully following the situation and will take necessary measures to soften the consequences of possible negative events and circumstances as soon as they come up,” Sunrise Capital said in its report.

The document reads that the Turks hoped these brands would return. Talks on signing additional rent agreements during the forced idle time were held. Sunrise Capital offered to pay utility bills equal to 15% of the average monthly commodity turnover in 2021 for three months and free from fines. It is unknown if it managed to come to an agreement with somebody. Sunrise Capital’s rent manager Nadezhda Novikova refused to comment on this.

“Of course, a big number of closed fashion brands has a negative impact on the traffic of shopping malls and turnovers of operating small tenants. Due to this, many started to discuss changing commercial terms and providing discounts or terminating the agreement,” CORE.XP consultancy’s Director of the Department of Rent of Commercial Premises Nadezhda Tsvetkova stated.

Who wasn’t bit by the storm in retailing

Shopping malls where Russian tenants have prevailed since the beginning feel better.

“KazanMall is nowadays the most popular and stable. The list of tenants had a small number of brands that left the market or haven’t yet resumed their activity from the very beginning — Adidas, Helly Hansen,” explained Nadezhda Tsvetkova.

Head of Omega shopping mall in Chelny told Realnoe Vremya that Japan’s Sensay and Mango under franchise resumed their businesses, others stopped working.

The announcement of H&M group of brands about the intention to leave the Russian market became very sensitive for owners of shopping malls. “The sides are now holding talks and discussing the terms of termination of rent agreements. Owners of shopping malls hope to receive compensations in the court,” CORE.XP’s analysts note. According to them, a third of foreign retailers suspended their work in Moscow shopping malls.

“By the end of the third quarter, the share of retailers who announced the suspension of activity or business restructuring is 31% and 27% respectively,” the analysts note.

The exit of IKEA from Russia as well as a store optimisation programme of Inditex and H&M influenced the share of vacant sites in shopping malls this quarter (an up to 11,3% growth). A total of about 180 foreign brands, or 34% of tenants, announced the suspension of activity in Russia, says MLSD’s review.

Rates to stay till the end

Russian brands (Melon Fashion Group, LIME, NOUN and others), big stores of Russian designers can replace the companies that left the market or suspended their activity, the CORE.XP experts assume. But as it was noted above, the turnover is slow there. Russian brands Lichi, Kuchenland, Le Journal Intime managed to settle in Kazan under franchise.

In search for retailers that could replace these brands, the management of Sunrise Capital planned to enter the independent market of Belarus as well as China and India.

Despite the weak turnover, the rent rate in Kazan doesn’t fall, on the contrary, it continues increasing. According to GGroup — Asset Management, the average rent in Kazan shopping malls in September was 104,000 rubles. “Since April, this parameter has increased by 3,89%. In absolute terms, the rate has risen by 3,980 per store,” the experts calculated.

“I think the rates will stay till the end,” thinks Yury Chikirov. “The property tax hasn’t decreased, the cadastre value of real estate property hasn’t changes. While purchasing power has fallen, uncertainty has increased. Where can a discount come from?”

According to him, lessers now show great flexibility in pricing setting the lowest rent rate with interest on turnover. However, the rates differentiate. Magnit has one rate, a discount store has another. If a hookah chain comes, its rate will be 10,000 per square metre,” he says.

Market players say that nowadays the average rent rates in Kazan shopping malls vary from 2,500 to 3,500 per square metre depending on the location, while the share of empty areas with the exit of anchor tenants is evaluated at 30%. It seems that payments of rent decreased proportionally to this. In these conditions, owners of shopping malls can make concessions if retail areas expand.

“If somebody comes and expands, a lesser will meet many wishes halfway,” Chikirov concluded.