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Street reconstruction again affects Moscow street retail market

JLL analysts expect the market to recover in H2 2017

According to JLL, the vacancy rate in main Moscow high street corridors reached 8.8% in Q2 2017, up by 0.4 ppt from Q1 2017 and down by 4.2 ppt from Q2 2016.

“A correction of the main street retail market indicators was expected,” – Oksana Kopylova, Head of Retail and Warehouse Research, JLL, Russia & CIS, comments. – “The decline in customer visits was primarily observed in the city center, as the store and café access was partially restricted by the street reconstruction works. The sections of the Garden Ring under reconstruction showed a rise in the vacancy rate, partially compensated by the decline of this indicator on the western section of the corridor (from Zubovkiy Boulevard to Mayakovskaya metro station) which had been renovated last summer. We expect a rise of the average occupancy to resume in H2 2017 as the renovation process is gradually completed.”

In Q2 2017, the lowest vacancy rate was observed on Pokrovka (1.7%), B.Dmitrovka (2.2%) and Myasnitskaya (4.5%) streets. The occupancy on many central streets remained unchanged, which limited the overall vacancy. The lowest occupancy was observed on Petrovka Street, the Garden Ring and 1st Tverskaya-Yamskaya Street, with vacancy rates rising by 3 ppt to 11.8%, by 1.6 ppt to 12.9%, and by 1 ppt to 9.8%, respectively. Access to premises on these streets was partially blocked due to the reconstruction.

On the demand side, Restaurants & Cafés traditionally remained the leaders on the central corridors, with a 45% share of all leasing requests. Supermarkets climbed to the second place, with their share rising from 14% in Q1 to 17% in Q2 2017. Other segments posted lower tenant activity.

Rental rates  increased on Arbat Street (from RUB110,000 per sq m per year in Q1 2017 to RUB115,000 in Q2 2017). At the same time, the new round of renovation lowered rental rates on 1st Tverskaya-Yamskaya street from RUB95,000 to RUB70,000, and Petrovka street from RUB150,000 to RUB130,000. As a result, Nikolskaya Street joined the list of top-3 most expensive corridors. Being a good alternative central location, Nikolskaya Street showed a positive occupancy dynamics, with a decline of vacancy by 1.8 ppt to 5.4% in Q2 2017. 

“Rental growth is observed on renovated streets, extending the trend of the previous quarters. The overall market recovery is supported by rising operator activity on several central corridors. Expected further demand improvement makes recent rental drops on some streets is a temporary correction, likely to be reversed in the near future. Overall, we expect rental recovery by the end of 2017, – Natalia Ozernaya, Deputy Head of Street Retail in Moscow, JLL, notes.

The rotation  continues to decline on Moscow retail corridors, from 5% average in Q1 2017 to 4% in Q2 2017. The largest share of new tenants appeared on Tverskaya and 1st Tverskaya-Yamskaya Streets (9% respectively); while no changes in the tenant mix were recorded on Stoleshnikov Lane, Maroseyka Street and several sections of the Garden Ring.