Neither Time Not Tide Waits

Ocean, located at 49 Chkalov St., is the first modern shopping and entertainment center for the citizens of Zhukovsky, a city located near Moscow. The 7,000-sqm complex houses reasonably priced stores which threw their doors open to their first customers in December 2005. The total amount invested in the project, including construction, expenditures on acquiring the land and facility reconstruction as well as design and processing approvals and permits, was $6.5 million, with the developer spending his own funds as well as securing a loan (50/50 ratio). The facility is slated to recoup investment within five years maximum.

Local Color

The Ocean shopping center is located in a public and residential neighborhood, at the main intersection of Zhukovsky’s major central street (Ramensky district in the Moscow Region). Bykovo airport, the city market and the Ilinskaya railroad platform (Kazanskoe direction in the outskirts of Moscow) are located nearby. The shopping center is situated at two kilometers from Zhukovsky’s geographical center.

According to most consultants, this location has excellent transport accessibility, visibility as well as very heavy car and foot traffic. Particularly, the experts at Colliers International note that several categories of consumers traditionally form the target group for retail facilities in the Moscow Region.

“These entail middle-class Moscow citizens, those living in the outskirts of Moscow who work in the capital, managers and owners of small- and mid-sized businesses in the Moscow Region, hired help of small- and mid-sized businesses, civil servants as well as service and retail employees,” clarifies Olga Yasko, director of the analytical department at Colliers International. “Ocean is located on the city’s main central road, on the right-hand side when coming from Moscow. This location renders the shopping center popular with the citizens living in the outskirts of Moscow, who are returning home from the capital in the evening by car, and also with the local citizens of Zhukovsky.

At the same time, Ocean is the first conceptual shopping center in the city. According to the concept’s designers, even though they understood that the facility was necessary for municipal development and the city’s population, they were not sure whether the city was ready for similar new facilities, and, most importantly, which ones specifically.

“Accordingly, the owner could not follow a beaten path,” says Denis Kolokolnikov, general director at Russian Research Group (RRG). “Therefore, for the purposes of completing this project, we conducted a full-scale study of the target consumer group and the members’ purchasing power and preferences. We conducted a survey and also formed a focus group for designing the concept. Based on the data generated, we identified a vacant niche and forecasted the average turnover per each category of goods.”

The People’s Choice

Ocean shopping center is a three-story modern-style building, with a functioning ground floor and parking for 140 vehicles on the adjacent territory. The interior area has an atrium and a smooth line of showcase windows forming a single visual panorama.

Currently, the 6,500 people per day visit Ocean, with this figure nearly doubling to 12,000 on pre-holiday days. “The interior is set up so the flow of shoppers ascends to the next floor and the customers enthusiastically go in a circle by all the shop windows,” says the owner. “Consequently, there is not a ‘dead zone’ on any of the floors, and since anchor tenants are located on each level, shoppers make their way all the way to the upper floors.”

Indeed, Ocean’s architectural design immediately rendered it one of the city’s main features, as attested to by the three professional awards already bestowed upon the center:

• Best Small Shopping Center 2007 (CRE Awards)
• Shopping Center Ratings Finalist Russian Council of Shopping Centers (RCSC)
• Best Shopping Center with Walking Distance (RWAY)

City-Arkh is the architect of the shopping center.
“This firm was chosen because of its extensive experience, efficiency and reasonable prices. The general contractor, Aspect-Stroi, was chosen as a result of the optimal price/experience ratio,” says Mikhail Tarasov, general director at SVA Torgovy Center.
Ocean has been a significant facility in Zhukovsky, a meeting place as well as a popular place to rest and relax and buy goods among the city’s residents since the very first day it opened. Another category of shoppers is those driving past on the nearby highways. “This naturally means that there is additional investment in the city’s budget, too,” notes Tarasov.
“Furthermore, retail real estate today is for the most part today contained with covered markets,” comments Kolokolnikov. “Therefore, with 1,000 residents per 50 sqm, there is virtually no competition.”

Fully In Demand
The developer ran into a number of problems at the various stages of the Ocean project
“Particularly, it turned out that underground utilities were very thickly installed under the construction site, and they needed to be transferred,” recalls Tarasov. “Moreover, it was necessary to act in the same manner in terms of a number of former tenants of the land plots, and many of them had to remit compensation.”
According to specialists at RRG, the developer, during the construction of the center, did not economize on escalators (Schiendler), air conditioning, ventilation, automatic fire extinguishers and instructions and gas boilers for the interior, nor did he cut corners on the ventilated facade made from ceramic granite nor on the ceramic granite floors, the Armstrong hanging ceilings, drywall, aluminum stained-glass windows and stainless steel. The developer also spent generously on the utilities’ power, such as electricity, thus luring well-known chain stores as tenants to the small city on the outskirts of Moscow.
Ocean Management Company is responsible for operating the facility, while the management of the building’s utilities’ systems and cleaning have been entrusted to subcontractors.
Five anchor tenants were envisaged at the center’s initial concept, and today they lease premises on the complex’s four levels. These tenants are Spar supermarket (1,980 sqm as per a five-year contract); Eldorado electronics and appliances store (1.064 sqm, three-year contract); popular young adult clothier MEXX (525 sqm on five-year contract); Korablik children’s goods (420 sqm as per a five-year contract); as well as New Bookstore (leasing 250 sqm on a five-year contract). In any case, the shopping center’s owner considers specifically these brands to be the anchor tenants, as the lion’s share of customers visit the complex to patronize these retailers.
Currently, the shopping center is practically full, with lease rates ranging from $200-$2,825/sqm. According to Yasko, this lease level at Ocean puts it on par with other modern shopping centers in the outskirts of Moscow.
“The results so far have exceeded the initial plans, partly in terms of the lease rates and partly because of the number of visitors and the center’s popularity,” says Tarasov. “The anticipated yields have already exceeded the business plan by 25%.”
“When space in the Ocean shopping center was first being offered for lease, practically none of the large chain companies were looking at cities outside of Moscow in which to place their retail stores; however, marketing research and a business plan on the potential turnover generated negotiations with anchor tenants not lagging Moscow tenants by much. Today, many tenants would like to lease more space and expand their presence in the city,” comments RRG.
The leaseable space in the shopping center is 5,496 of the 7,000 overall sqm. There are restaurants and cafes filling the entertainment niche, leasing more than 118 sqm. Moreover, as Kolokolnikov notes, “a shopping center of this format does not necessarily require a strong entertainment draw.”

Competing with Oneself
At the same time, the prosperity of the city and the region overall will very likely result in the further development of modern retail real estate. Indeed, the outskirts of Moscow are becoming increasingly attractive to investors and retail operators. Moreover, according to independent experts, one can speak of the formation of a shopping center market in the region. Accordingly, the trend in the regions is that, along with small shopping centers, full-scale shopping and entertainment centers of 20,000-30,000 sqm are under construction, as RRG notes.
Currently, SVA Torgovy Center, in conjunction with RRG, is completing another project in Zhukovsky, less than a kilometer from Ocean (micro-region 5, along Ryazansky direction, Moscow Region). This project is a 47,000-sqm regional shopping and entertainment center, including 28,000 sqm of retail premises).
Indeed, the Zhuk (Eng. – beetle) shopping and entertainment center will be the second modern-concept retail facility in the city, being built in a new residential micro-region as part of a pedestrian and recreational zone on the embankment of the Bykov River. The concept stipulates constructing a three-level complex for family shopping and relaxation in full accordance with modern impressions of a shopping center of this format.
The anchor tenant at Zhuk is expected to be Spar hypermarket, occupying 5,000 sqm. In addition to several large stores – a 3,000-sqm electronics and appliances store, a 3,000-sqm DIY store, a 1,000-sqm sporting goods shop, a 1,500-sqm children’s clothing store and a 14,000-sqm shopping mall – a 3,500-sqm cinema, a 2,000-sqm food court, an 800-sqm children’s entertainment zone and parking for 1,000 vehicles are in the pipeline. But, the shopping and entertainment center’s main attraction will be the 800-sqm ice-skating rink.
In addition to marketing research and developing the project’s concept, RRG will provide consulting services at all stages, including architectural study, design, construction as well as promotion and brokerage services. SVA Torgovy Center is the client and investor, and the facility is slated for delivery at the beginning of 2009.
“The intense economic development of the Moscow Region is causing demand for services to grow, as offered by modern shopping centers, and is stimulating their development,” concludes Yasko. “In practically every average-sized city outside of Moscow, modern shopping and shopping and entertainment centers are either under construction or are planned for delivery. Small shopping centers in the region may be quite profitable when properly placed in a large residential micro-region, station-side area, the city center, etc. Also a professional conceptual solution and selecting a strong pool of tenants, who will draw visitors under conditions of growing competition, are essential for the success of such shopping centers.”