Global financial crisis, generally speaking, didn’t change the tenant mix of capital shopping centers. But it made developers be geared to retailer’s paying capacity and to vitality of their shops in concrete projects. Now they aren’t ruled only by reputation of tenant’s brand. But fundamental repartition of market hasn’t happen.
In the beginning of financial crisis, analysts of market anticipated for retail property market the most pessimistic development scenarios. One of the keynotes of that prognosis was the assumption that in the crisis the tenant mix in Moscow shopping centers would really change. Great retail chain would go on the world, but new store chains wouldn’t appear and it would mean that the most part of trade objects would be empty and the other projects would change into classical markets. In return, last August; Reinhardt Dopher, European Fashion and Textile Export Council said that more than third part of Russian retail clothes chain would collapse by the end of 2009 year.
But, realty happens to be not as terrific as it has been tried to present. Even now, we may draw the conclusion that we have managed to avoid the most pessimistic market development. Shopping centers have stand.
According to Vitally Efremkin, vice president of GC “Tashir”, it connects with the fact that people don’t stop buying food and necessary goods that’s why a buying interest in shopping centers even though shortens but isn’t give out at all. Certainly, some retailers, not having wrested out with leverage, leave market but the other shorten the number of their shops having liquidated unprofitable shops but large collapse of trade operators and change of shopping centers into classical markets doesn’t happen. And the place of withdrawing from market players is taken by their competitors.
Nevertheless, leasehold policy of leading capital owners of retail property was changed but these alterations would be to the good for market and they would teach developers to think rationally and not to follow prescript in marketing textbook stamps.
Image is nothing
“Today, developers of shopping centers become less scrupulous attracting tenants”- it is said by Margarita Trofimova, the director of division of consulting and appraisal NAI Becar. She bases on her own experience of demising of shopping spaces in Moscow. The major criterions of choosing tenants are his readiness to pay a desired rent rate and his opportunity to carry on a successful business as part of a concrete shopping center. Other factors, which were so popular before the crisis, paled into insignificance.
Does it to the good or not? Andrei Suhov, the first deputy of general manager of management company “Manejnaya square” ( this complex is managed by “Ohotniy Riad”) thinks that as a result of the crisis common sense triumphed on the market of retail property, and developers should make away with illusions: “ In a shopping center should be these tenants which are voted by consumers but there shouldn’t be tenants which are wanted to be in the object by a manager or a consultant”.
According to his words, if in good, pre-crisis years market permitted developers to build shopping centers with an elegant conception and they could build them as they wanted then now a rough economic reality make developers just raise money and attract to objects these tenants which they really need. Suhov says- “As a result, object filling with such tenants is converted in higher rent rates and object capitalization”.
Vitally Efimkin from “Tashir” agrees with him too: “A shopping center is a large business, which should give good money. That’s why in your projects operator who gives more money takes a free place. Even before the crisis we considered this fact to be one of the most impotent and now its significance has raised even more”. According to Suhov’s words, you may in any quantity argue and prove that a tenant will not fit in the conception and aggrieve the object but, finally, only a consumer may close the chapter on this dispute. He either will pay or will not pay. For example, in the shopping center, in which discounters are the anchor tenants, expansive premium brands are unlikely to look appropriate (if we don’t speak about a super regional multi format center).
Bulat Shakirov, general manager of the shopping center “Retail Park” and trade complex “Pragsky Grad” says: “When in our projects two store chains pretend to the same place and one of them is more famous, but another- less, we, anyway, are geared to the rate which they ready to offer. If the deference between offered rates is essential, in this case we choose the tenant who is ready to pay more”.
For this reason in many Moscow shopping centers the tenants which presence in ТРЦ before crisis would result advisers in a condition of deep cultural shock began to appear. The question is about private entrepreneurs developing either their own projects or using not really famous franchise. As a rule, these no name operators or small company developing according to the system of franchising nameless in Russia brands (“Stock- Moda”, “Uno”, By Malen Birger, X-Men’s and so on). According to Andrei Suhov’s words, today, there are many auction companies transporting goods from Europe that’s why emergent entrepreneurs should just choose assortment, rent premarketing and enter upon trade.
Before the crisis such tenants could place their shops only in the shopping centers of second class because developers feared to work with such company because of their financial fragility and risk of momentary bankruptcy. But, today, more and more developers make them advances and open object’s door for them. The reason is that such tenants are ready to pay very good money (upon average, on 25-30% more than store chains of middle popularity). Bulat Shakirov, for example, is sure that private entrepreneurs in his projects are presented only in the segment of small trade (different kiosks, near cash section and so on), but opened by such operators shops can be count on fingers.
But, Vitaliy Efimkin remembers that his company is constantly being criticized for this fact that its objects looks like “market CSKA” but small private tenants happen to be stronger and they are ready to pay high rent rate supporting developer’s income.
Andrey Suhov discourses that such tenants have a great interest in sales that’s why it is impossible to find more efficient tenant than private entrepreneur. According to his dates, in objects where such tenants are presented, they pay such rent rates which can be envied only and thus they don’t go up. Besides, many of these projects have not bad chance to change into large famous chains in the future. Suhov remembers that in 1998 year many of nowadays captains of trading business were working by themselves in their small shops in our object. And now they are the leaders of market.
Elena Afanasieva, director of division of commercial property Prime Time Realty has said “Today, frequently, property owners prefer small, non-networked brands. The case is that now they are ready, by using the fact that market rates become lower, to struggle for such places with chain-retailers. But as store chains continue to “bend” property owners at the price, the owners with pleasure take in their shopping centers small, not so famous but ready to pay brands”.
Truly, many net-worked operators, according to brokers’ words, today, either pay minimal rent rate and per cent of turnover or, in the most problem projects; they rent shopping space free of charge. Certainly, only anchor tenants and brands which the owner of the object wants to see can get such right, but, nevertheless, every such tenant is loss of money for developer. That’s why developers today try to attract not only famous brand but capable of paying tenants too.
However, it is necessary to notice what it’s possible for anchor tenants, renting the big spaces, to "wring out" developers under rates. According to Peter Verbin’s words, it’s difficult now for small retailers, renting spaces in the gallery, to do it and it would be even more difficult in the future. According to his word it’s for a reason that today there is earnest effort for places in new shopping centers, the fact connected with decrease in supply on market and with the fact of phased economic redevelopment: “by hearsay, some tenants, which want to take some or another object, even pass money under the table to developers for the right to place their shop in the shopping center. As a rule, small chain-retailers do it. They understood that the crisis is not everlasting, but on the market will be less new offers of high quality retail property. Upon that it’s necessary for them to sale and to make money, and now it’s not so easy to compete for good places”.
However, this coin has tails. “Unknown tenant, which is ready to pay a high rent rate for that to enter to the project, is a leap in the dark”- it was said by Galina Maliborskaya, director of division of agent service of retail property department. She added: “As there is a great chance that business can be “no sale” and after several months a renter may happen to be with an empty section”.
But constant rotation of tenants in the object is not only reputational detriment for the object but it scares away regular buyers and it leads to negative profit because of dead time of shopping spaces and to extra expenses on search of new tenant every several months. Peter Verben, manager of retail property of company “Aptrend” think that in a greater degree it concerns “anchors”, their leave can do harm to the shopping centers: “rotation of gallery tenants is not so dangerous, that’s why the presence not so famous brands among such tenants cannot do an ill turn the shopping centers”.
Natalia Oreshina, general manager of company Art Properties marks that attracting nameless and weak brands is pregnant with losses because of deficiency of strong “anchors” in the gallery can make attendance of the object lower.
Marina Markova, leading consultant of the company “Shop of shops in association with CB Richard Ellis” considers: “Developers should have a range of trendy companies which are not always capable of paying. But rental income is also very impotent, that’s why in every shopping center there are both “anchors” which can pay nominal rates and companies which pay higher rates but don’t attract many clients in the center”. “ An object owner’s aim is to keep balance between image of the project according to availability in it famous or new brands and expected investor’s profitability which is created by less known brands”,- it was said by Eugenia Mahova, director of rent in the shopping center “Mosaica” (TriGranit Russia).
And nevertheless, today, image seems to play a small part in comparison with incomes, that’s why step by step “image” tenants are pushed away by more financially reliable players of market. It’s not for nothing that “Tashir”, which was accused in interest of market formats, today doesn’t complain of empty spaces but steadily buys attractive projects in Moscow, which it equips to its taste ant after that it takes a good income.
Which do you want?
Except the fact that today, developers and directors of shopping centers extensively keep an eye on tenants for that they fit in conception of the shopping center not only in theory but in practice too. For this, manager of the object should have maximal complete and accurate information about their activity. Tatiana Smirnova, independent expert of market marks that developer has to estimate, in what degree business of this or that operator will happen to be steady against the crisis, and production is popular on the market, and to apply preventive measures concerning those operators who cannot obviously benefit object. Bulat Shakirov lists: «Choosing the tenant we are guided first of all by the fact how this or that tenant fits in the object and how his presence affects on attendance of the object and finally how much money he is ready to pay.
And all this facts are interrelated among themselves. For example, in the near future, in the shopping center “Retail Park”, which belongs to FPK “Garand Invest”, will be the opening of the shop Media Market. Its floor space is about 6 thousand m2. Contract of lease with the operator was inked for 30 years. But for that to get such a pleasant tenant developer had to do replanning of the object and to suspend relations with range of other operators. Shakirov said that he had to part company with chain “M-Video”, which was a direct competitor of German retailer and besides with such operators of gallery as Colin’s, Orange, Bustie and City footwear, which were in the zone of replanning. It should seem that Media Market is not such a tenant which is ready to pay a high rent rate at such a contract, but Bulat Shakirov doesn’t regret about a range of more capable of pay tenants. He said: “It doesn’t mean that they work badly, we just want to get such a tenant for the long time, but contracts with gallery tenants were awarded for short terms, although they pay, certainly, higher rent rate”.
Except that, it became clear that in many objects goods of operators which worked in premium segment happened to be unclaimed. And the very presence of such tenants stopped attracting new clients in the shopping center.
In this situation would have to constantly cut rates for the tenant and to gain preservations popular before mark at any cost by granting to it of fantastic discounts, but Tatiana Smirnova considered to be abortive, because in the case of recession in demand on the tenant’s products “discounts will not help him”. It’s more logical and profitable to change such a retailer to the tenant which offers more effective anti-crisis conception.
Margarita Timofeeva think: “In the medium shopping centers brands don’t want to pay the fixed rate of rent satisfying proprietors. More or less satisfactory conditions can be offered only by shops oriented to customers with income level “average-below average income” or discounters. Besides they form good attendance in the shopping center, because in conditions of loss of revenue customers reorient to budgetary brands”. And just good attendance in combination with good rent rate is the guaranty of stability of any shopping center.
Though, a great deal depends on the object. “The same tenant may be popular in one location and be useless in another”- Bulat Shakirov thinks. That’s why you should think before choosing premium operators or vice versa discounters.
Peter Isaev conciders, director of commercial property Capital Group considers: “Every complex is created for its own audience, which dictates the group of tenants. For example, discounter in CUM or Crocus is doubtful profit as for the shopping center as for the company- tenant”.
According to the words of Natalia Chinenova, director of SELA Company, today customers choose those shopping centers in which a pack of brands is composed in more successful way, there you may buy not only fur and gold but there is a wide choice of clothes beginning from premium and finishing mass-market.
But for such decisions, a manager should constantly keep his eye on the ball. Andrei Suhov said: “If we see that the tenant becomes weaker step by step, in this case, firstly, we try to find him a comparable substitute in the same or more popular today category of retailers”. According to his words customer’s preferences changes quite often and developer just may not legally focus on original conception and he should constantly do rotation of tenants depending on their popularity among customers. That’s why yesterday outsider today become leaders and vice versa.
Holy place
In such a way, both owners of shopping centers and tenants affirms, in the most complexes, the changes to the composition of tenants were insignificant and there was no mass bankruptcy of chains. During the crisis such operators as ‘Bananamama”, R2, tour operator “Kuda.ru”, “Sanrise”, “Santa house”, “Betalink”, “Dikaya Orhideia” and several others find themselves to be bankrupts. But in the most of cases retailers which happen to be on the brink of ruin either change their owners or continue to work on market under previous brand or enter to holdings of customers. For example such destiny came to the chain “Mosmart”, ”Alpy” and “Vester” which went into control of Sberbank, the chain “Paterson” which entered to X5 Retail Group, “Samohval” which became a part of the chain “Kopeyka” and so on. It was expected that bankruptcies would be much more.
As a result in shopping centers there was an insignificant redistribution of the same marks. The retailers which closed their shops in some shopping centers moved to other centers which were more suitable for them, and on their places the operators which conception corresponded more to those objects came. In some objects became a little more small tenants, in other new western or regional brands came, but skeleton of tenants of Moscow shopping centers nevertheless was preserved.
Igor Titov, Development Director of FINN FLARE chain said: “In the shopping centers there are our shops, the mix of tenants, practically, doesn’t change. Mostly, those players, which were presented, stayed. In some shopping centers only new famous brands appeared, typically, they are west”. Peter Isaev said: “Not many company left Moscow market because it is the financial center”.
Accordingly to Bulat Shakirov’s words, in the main, only the companies which didn’t stand the crisis and which completely crashed left Moscow shopping centers. But it didn’t connect with bad work of the shopping centers, but with financial problems of the very store chains. Shakirov said: Other brands which managed to use the crisis for their development replaced those operators- nature abhor a vacuum”. For example, a crashed chain R2, and a broken-down tour operator “Kuda.ru” left the shopping centers FPK “Garant Invest”. But the developer managed to change those tenants on the other which happened to be stronger to the crisis. So, VCO Club replaced “Kuda.ru” and other clothes operators were opened instead of R2 shops.
The same thing happened with the premises of “Bananamama” chain, the place were taken by young and ambitious company “Dety” and by other operators of child clothes market. After bankruptcy of the chain “Arbat Prestige” its “tame” premises were taken by such chains as “L’Etual” and “Riv Gosh” (the latter even changed discount cards of “Arbat” on its own “gold” cards and in such a way took a part of competitor’s client). And such examples you may find, practically, in any sectors of retail trade. And on Russian market in the crisis there are many new brands (inclusive of regional brands, for example, the chain “Uyouterra” or the hypermarket “O’key” having opened its first shop in Moscow in the shopping center “Gold Vavilon”) which take the places which are free because of bankruptcy of some chain.
For example, the owners of opened in the beginning of 2009 year shopping center “Megapolice” managed to attract inexpensive ( a crisis trend) but, practically, exclusive tenants as H&M which actively learns the capital market and also Airfield, Basic Editions, Bebe, Caterina Leman, Coast, Gerard Darel and others- Elena Afanasieva marked. Many of brands, which come to the capital market, develop according to the system of franchising, but Andrei Suhov’s opinion is that enterprising people, who are in dry dock, form interest to them. This people are ready to do their own business rather than to go to job market.
Bulat Shakirov marked: “Every market has companies which feel good even in the crisis and which are ready to exaggerate their business and take places of competitors which have gone out of business. And it’s far from being the worst”. Just in the condition of the crisis such tenants can approve themselves. Peter Isaev said: “Todat, it is good time for active developing, because such operators have a real opportunity to get for rent good places”.
Average rent rates in the shopping centers of Moscow for different types of tenants:
Hypermarkets- 100-150 $/m2 annually
Entertainment – 80-90 $/m2 annually
Child goods- 150-280 $/m2 annually
Clothes- 500-3000 $/m2 annually
Footwear- 200-2000 $/m2 annually
Food-court- 700-3000 $/m2 annually
The source: Blackstone Keeping Company
http://www.bn.ru/articles/2010/04/16/60927.html