Vacancy rates in Moscow shopping centres at 7% and rising

Vacancy rates in Moscow shopping centres have risen to 7% as the turbulence in the Russian economy begins to filter through to consumer spending, according to Colliers International.

A report by the international real estate consulting company found that most new projects are opening with more than half of their units empty. Occupancy rates on opening day have fallen from 80% to between 30% and 40% in the last few years.

Colliers said it expected overall vacancy to rise to at least 8%, based on an assumption that the vacancy rates in new projects does not exceed 25%. In recent years overall vacancy has been around 2% to 3%.

The scarcity of tenants has coincided with a relatively large volume of completions. A record six shopping centres have opened in Moscow since the start of 2015, with a total rental area of 343,000 m2.

Although most malls have signed agreements for between 70% and 80% of their space before they open, the actual occupancy rate is much lower. Colliers said the discrepancy was the result of retailers in financial difficulties being unable to finish their interiors on time.

Some retail operators have responded to the economic downturn by revising their business strategies by measures such as closing or changing the format of inefficient shops. Incity, Melon Fashion Group, Stockmann, Adidas and Burger King are among the brands who have optimised their chains.

However, the trend of international operators quitting Moscow appears to have slowed. Since the start of 2015 just six brands have announced their departure, including Carl’s Jr. from the US, Finland’s Lindex and Arnolds Bakery & Coffee Shop, and France’s Herve Leger.

Some large operators have announced plans to expand their chains, including Leroy Merlin, KFC and Metro, but they have adopted a more cautious approach and will only open new outlets in successful shopping centres with existing customer flow.

Anna Nikandrova, regional director of the retail agency department at Colliers International Russia, said: ‘The strengthening of the rouble in Q2 2015 and some stability in the currency markets enable tenants to do business calculations and rent space. Given the recent weakening of the rouble from the highs reached in May, the market is understandable, and no one is expecting its strengthening – market participants have learned to work in the new reality.’

Olesya Dzuba, head of research at Colliers International Russia, said the Russian market, especially Moscow, still had high growth potential in the long term. ‘Construction of shopping centres in Moscow in H1 2015 has slowed, no new major projects have been announced, and on the projects that have been announced construction work have not started,’ she said. ‘This means that in the two- and three-year term, the market will see a reduced amount of new space and a resulting decline in vacancy rates.

‘In the short term, consumers’ purchasing power could continue to decline. Nevertheless, Russia, and Moscow in particular, remain the largest consumer markets with high growth potential in the long term.’