The data offered by Colliers International Company are a strong confirmation to this fact: enterprises working in retail trade in January-May 2006 had 33,9 billion UAH of retail turnover, which is 27% more than their January-May 2005 turnover.
As the economics develops and retail trade capacities go up, one can notice gradual displacement in sales areas general structure – from markets to more civilized forms. Retail trade market – on behalf of customers as well as of retail operators – sets up constantly growing demands for a place where the actual process of buying occurs. According to the data of GfK-USM Company, supermarkets’ share in the everyday expenses for convenience goods in Ukraine went up from 21% in 2000 to 37% in 2005.
Development of every sector is inseparably linked with the economical situation in the country, and real estate is no exception. This dependency is of direct and simple character – economics development level is the main factor which determines the size of people’s solvent demand, which in its turn settles the size of retail trade, the main demand bearer for real estate in most countries. If we follow people’s revenue and expense dynamics and connect it with retail trade dynamics, we will come to a conclusion that these parameters are strongly correlated.
Strong demand for real estate has been observed for several years in every Ukrainian city with no exception. Presently, supply of trading areas, especially of those corresponding to high quality standards, is unable to satisfy the demand for them.
The reasons for this deficiency lie in the insufficient number of sales areas, lengthy land allotment procedures and constant postponements in terms of commissioning of shopping centers. Today it makes up only 70 square meters of such housing per 1000 Ukrainians, while this index is several times higher in the European countries. For example, in Poland, when the market turned to the stage of saturation in 2000-2001, this index was 277 square meters per 1000 people.
As before, downtown shopping centers find the largest market among the tenantry, though the centers situated in dormitory areas or in the outskirts gradually become of interest as well.
Speaking about the widespread formats of the shopping centers, it is necessary to mention that in Ukraine of today there doesn’t exist any strong classification of shopping centers, which is the reason of using Western analogues for analysis. In world-wide practice there exist several classifications of shopping centers; in such classifications all the formats are corresponding to certain criteria: size, target market, premises configuration, tenantry, etc. The shopping center’s zone of influence (microdistrict, district, regional centers) is also one of the classification criteria. Another classification is based upon determination of the anchor tenantry (specialized shopping center, festival shopping center, power-center, fashion shopping center, shopping and leisure center, public shopping center, etc). While working out shopping/shopping and leisure center conceptions, the authors often turn to the universally accepted classification of Urban Land Institute (the USA). Presently, however, Ukrainian shopping centers are of great variety, and it is almost impossible to relate them to some strict generally accepted formats; the reason for this is that the Ukrainian market is still rather young.
In Ukraine, the most widespread shopping center format is the one which has a supermarket as "the anchor"; a supermarket which in addition to low prices offers its customers a great range of high-quality goods, as well as the possibility to buy everything necessary at the same time at the same place. Such anchor tenants serve as a bait for the customers. The anchors’ distinguishing features are large size of the occupied area (more than 1000 square meters), long-termed lease contract (up to 10 years), as well as substantial capital investments in trading equipment and sales technologies. The anchors’ main function is to generate flows of visitors (for themselves as well as for other tenants) and to direct them to the certain areas of the shopping center. According to the world experience, the most effective disposition of the anchor tenants is considered to be in the places remote as much as possible from the incoming groups, for example at the floors which make the customers go up or down.
In Ukraine, anchor tenantry is usually represented by such commodity groups as foodstuffs, building materials, furniture, office equipment, IT, domestic appliances, clothes, footwear, goods for children, cosmetics, perfumery, accessories and presents.
The tendency of growth of the population solvent demand affected positively the dynamics of regional shopping centers development as well. Despite the fact that regional real estate markets fall behind the Kyiv market for about four years, on the whole in Ukraine there are about 60 large shopping centers with more than 600 000 square meters of total area. The majority of regional shopping centers are actually reconstructed emporiums and self-service stores. Correspondingly, most of them can’t pass for professional shopping centers as for their architecture, conception and area. Lately, however, there have appeared some really professional regional objects as "Evropa" and "Srednefontanskaya Shopping Center" in Odessa, Shopping and leisure centers "Daffy", "Most" and "Evropa-center" in Dnipropetrovsk, "Caravan" in Kharkiv, shopping and leisure center "Donetsk-City-Center", "Metro" in Lviv, Odessa, Kyiv, Poltava, Dnipropetrovsk, Krivy Rig, Kharkiv, Lugansk, etc.
The rent rate in regional centers doesn’t differ greatly from that in Kyiv, as construction costs are about the same everywhere and come to $700-1000 per 1 square meter. The average rent in regional shopping centers is about $20-100 per 1 square meter a month. The average basic rent growth came to 10% in the first six months of 2006, comparing to December 2005. In areas of keen demand for certain objects the prices growth made up 15%. The main reason for this growth is, as before, the limited supply of high-quality sales areas in shopping centers, as well as in the most popular trading corridors. The rent rate may differ according to the location of a shopping center, the company’s profile, the size of the tenement. The highest rent is paid by the present-accessories commodity group operators ($60-65 in 2004, $90-100 in 2005), while the lowest rent is fixed for the anchor tenants of leisure sector and supermarkets ($12-13 in 2004, $20-21 in 2005). As a result, in its rent rates Kyiv has long ago left behind such capitals of the Eastern Europe as Warsaw, Budapest and Prague.
However, it is strange that increasing the rent rate of real estate projects doesn’t result in reduction of their payback period; on the contrary – we presently can observe a tendency of its growth. Comparing to the “first wave” shopping centers which were recompensated in two or three years, today the payback period is claimed by the experts as five-eight years. This fact is a natural after-effect to the market development – here come new shopping center formats, where the stores are represented not only by domestic operators, but by international retail operators as well. In the environment of constantly growing competition shopping center project designers have to keep to more expensive quality parameters. As a result, sizes of shopping center investments are constantly growing (up to $600-800 per 1 square meter in 2006), involving mostly decoration, infrastructure and bringing in entertainment services operators as anchor tenants. Entertainment complexes in shopping centers permit not only to create necessary conditions for a customer’s leisure (which widens a trading object’s range of services), but also effectively generate extra customer flows for the rest of the shopping center tenants. Lately we may have observed tendencies demonstrating that a shopping center which cares for its own success has to provide not only supermarkets and fast-food restaurants, but also billiards clubs, cinemas, nurseries, a skating rink, etc. Owners of shopping centers invite show business and leisure operators on beneficial terms. Their rent rate is determined individually and is usually lower than the average one. Preferential rent terms and growth of demand for leisure sector companies’ services stimulate noticeably their development. In 2005 the number of such operators as anchor tenants increased for 30-50%.
The Ukrainian market is undoubtedly becoming more and more attractive for international operators; it is supported by the fact that throughout 2005 and 2006 Ukraine has been firmly holding top positions in the rating of the most promising retail markets made up by A.T. Kearney GRDI (Global Retail Development Index) Company. In 2003 Ukraine took up the 11th place, in 2004 – the 3rd, in 200 – the 4th. At the beginning of 2006 Ukraine held the 4th place in this rating, yielding the palm to India, Vietnam and Russia. In view of this, the foreign companies’ activity at buying of already operating shopping centers has remarkably increased. It may be illustrated by the fact that in October 2006 93% of shares of the shopping and leisure center "Ukraine" were sold to the Irish Quinn Group company. Heretofore the center was owned by the American company NCH Advisors Inc. Also, in the first half year of 2006 the London investment company 1849 PLC, together with one of the largest international investment companies Apollo Real Estate Advisors (the USA), bought the Kyiv shopping center "Pyramida", which had been the property of the Jordan company Arab Piramids.
In 2007-2008 we expect arrival and activation of such well-known international operators as IKEA, Auchan, Ramstore, Ava, OBI, Bata, Leroy Merlin, as well as active development of the Russian trading networks "The Sedmoy Continent", "Pyaterochka", "Perekryostok", "Mosmart", "Veymart".
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