Izhevsk Rides a New Wave

Izhevsk is a city in the midst of what has become known as the third development wave. Despite its close proximity to Kazan, its well-developed metal manufacturing sector and its population of over a million, developers and investors are only now starting to get interested in the city. A year and a half from now, the city will be unrecognizable, as in 2008, the city will celebrate the 450th anniversary of becoming part of Russia. The local business community is already talking about a pending construction boom.

Modern-day Izhevsk is a city in which open air markets are still successfully competing with modern, more civilized forms of retail. Shopping centers are located in former industrial zones and the proper classification of office areas is unnecessary, since they are virtually all class C. As such, in the upcoming years, the market is only preparing to absorb a large number of projects.

Office Real Estate

Today’s office market in Izhevsk is mainly comprised of former council buildings and scientific research institutes. A small number of office areas has also appeared in shopping centers located in former industrial buildings. According to development firm, Most, the only class B office areas in the city are to be found in the Medved shopping and entertainment center on Ulitsa Pushkinskoi (rental rates $300-320/sqm per year). The total office areas in the city comprise more than 100 thousand sqm. Rental rates depend upon location and range from $100-150/sqm per year.

There are as yet no professional business centers in the city, nor is there a developing business district. You can find bank buildings situated in the most unlikely of locations, like close to market gardens. The city also has aging utilities systems. Until recently, however, the biggest problem was the absence of a general development plan for the city. “Before the passing of the general plan for the city, developers themselves determined if a land lot was suitable for construction and what could be built there. Today, information about areas earmarked for development and their designation is accessible, thereby making the local real estate market far more transparent than before,” comments the ASSO-Stroi development firm.

The passing of the general plan has had a positive influence on development activity in the city. Construction has started on a number of commercial projects, including class A and B business centers. Management company ASSO-Stroi is building a 30,000-sqm shopping and office center not far from the city center at the intersection of Ulitsa Lenina and Pervaya Maiskaya. At completion at the end of this year, the center will provide 18,000 sqm of retail areas and 12,000 sqm of offices. In 2010, the Krasnaya Ploschad multifunctional complex will be completed in the city center. With a total area of 104,000 sqm, it will provide: 35,000 sqm of retail areas, 10,000 sqm of class A office areas and apartments. The total volume of investment in the project is $100 million. The developer is local firm Komos.

Development firm Most has announced plans to build the class A Bolshoi Ural office on Ulitsa M. Gorkova, near the Friendship of the People monument. The total area of the seven-story complex will be 14,000 sqm. According to the firm, the complex will be put up for sale. Completion is planned for 2010.

Currently, Upravleniye Kapitalnovo Stroitelstva Udmirtiya (UKS) is building an 18-story class B business center in the Pervomaisky district of the city. The total area of the finished complex will be 12,710 sqm. Areas will be sold in floors (area of each floor: 820 sqm) for an estimated price of 65 million roubles each. Local experts comment however that plans to sell such large areas may prove to be unrealistic. According to Most, 80 thousand sqm of office areas will be delivered in the city by 2010. Once again, market experts comment that the city does not currently have a demand for these high quality office centers. In general, the highest demand is for class B offices and comes from insurance and legal firms. ASSO-Stroi comments that there is demand for large office areas and as is often the case in the regional market, sales predominate over leasing.

Retail Segment
The situation in the city’s retail real estate market is looking more favorable. Open air market-style retail is being gradually displaced by shopping complexes and stores located along the city’s leading shopping streets, like Ulitsa Lenina and Pushkinskaya. In old department stores and the lower floors of residential buildings, you can find outlets from local retailers and federal operators like Eldorado, Tekhnosila and M Video. So far, only one federal grocery retailer has entered the market - Carousel, which opened a store in the Stolitsa shopping and entertainment center (Ustinovsky district) in spring of this year. Construction work was carried out by DVI Group.
However, experts comment that the success of the new store has been put in doubt by its close proximity to a number of older-style shopping centers, which offer an inferior infrastructure but several well-known chains like, IzhTrading and Ai Kai, which occupy 70% of the local grocery market.
ASSO-Stroi estimates the total volume of retail areas in the city to be 288,000 sqm, the lion’s share of which constitutes old-style, unprofessional shopping complexes. The Axion shopping center is located in a former canteen, while TsUM is housed in former Council of Ministers building and shares areas with the Leon shopping center. Furthermore, Izhevsk has a specialized shopping center, Radiotekhnika, for radio enthusiasts.
New shopping centers are however under construction. Komos, for one, is currently completing the 49,000-sqm Petrovsky shopping and entertainment center at the intersection of Baryshnikova and Petrova Ulitsa. Construction first began in 2005 and was originally to be completed in the first quarter of 2007. The Petrovsky is quite unusual in that the entertainment component – bowling and billiards – is to be located on the first floor, while anchor stores and boutiques will be on the second floor. The third floor will house a grocery hypermarket and retail gallery. The fourth floor will include a multiplex, food courts and children’s clothing stores. The total investment in the project is estimated at 1 billion rubles.
Komos is also building the Nemetsky shopping center on Ulitsa Udmurtskoi - one of the city’s main streets. Currently negotiations are underway with several food anchors including Mosmart, Grosmart and Ramstore. The concept was developed by Cushman & Wakefield Stiles & Riabokobylko and Knight Frank.
Komos, which is receiving strong support from the local authorities, has yet another retail project - the Oktyabersky shopping center, which will be integrated with a residential complex of the same name. Construction will be completed in 2009. The 15,000 sqm of retail areas will be sold at prices starting from $2,000/sqm.
According to specialists at Most, a total of 220 thousand sqm of new retail areas have been announced for the next couple of years, which represents a very high figure for the city and may bring the retail market of Izhevsk closer to saturation.

 Warehouse and Hotel Segments
The hotel sector is currently only represented by old hotels and converted halls of residences and dormitories. According to ASSO-Stroi, the total room stock is about 700. All of the city’s hotels are in the low price segment, with the exception of the 10-room Park Hotel.
However the forthcoming anniversary celebrations could see a change to this all. The city’s general plan includes the construction of a three-star hotel on Tsentralnaya Ploschad with 150-170 rooms, planned to open in 2008. However, construction has not started, and local experts have expressed doubts about the completion deadline.
The planned Kalashnikov multifunctional complex, whose shape will take the form of the world-famous fire arm, will include a 170-180 room hotel. The 24-story building will also include office and retail areas. The complex will be built on a man-made island on Izhevsky Pond. Currently investors are being sought for the project, which has an estimated cost of 1 billion roubles.
The warehousing segment comprises older-style premises, in the main, converted vehicle depots and fresh produce warehouses. According to ASSO-Stroi, there are no high quality warehouse areas available for lease in the city. Since Kazan is a large transportation terminal, large federal retailers prefer to lease warehouse areas there. However, this may change because Komos together with Knight Frank is developing a concept for a logistics complex, Park Logistika, to be located along the Mozhginsky highway. Komos comments that there are a number of possible locations for warehouse complexes on the city outskirts.

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