Commercial Real Estate

The Seventh Urals Investment Forum was held near Miass on the Turgoyak lakeside in December 2007. The investors invited to the forum could see with their own eyes how attractive the Chelyabinsk region is. Lake Turgoyak, within the Miass municipal district, is called “The Pearl of South Urals.” Its unique location favors the tourism business. Functioning in summertime are holiday camps, homes and sanatoriums, while in winter downhill ski resorts are the most popular. City authorities intend to make tourism their top priority. Retail properties are most actively being developed; as regards warehouse complexes, the city has only storage facilities built in Soviet times, in addition to in-house storerooms developed by some industrial concerns.

Industrial Boom

Miass ranks fourth among the cities of the South Urals in terms of population, with 167,500 residents scattered over the territory of greater Miass. The city lies 72 km. south of Chelyabinsk. The Urals carmaking plant, part of the GAZ Group, is the economic anchor of Miass. In 2007, Urals put out 15,751 trucks, up 58.3% YoY. In the words of Victor Ardabyevsky, head of the Miass city administration, Miass is presently going through an industrial boom. In the last four years, the city’s production volume has grown by 2.4 times, with small business playing a notable part in the city’s economy. More than 12 enterprises function per 1000 residents. The average wage in Miass is 9900 rubles. The dwellers of greater Miass spend 55% of their income on commodity acquisition and 15% on various services. Between January and September 2007, investment in the Miass economy totaled 1.287 billion rubles, which is up 169% against the figure for last year. Miass is divided into three districts: Northern, Southern and Mashgorodok. The specific geographical location imposes limitations on land development. “On the one hand, we have the Ilmen natural preserve and, on the other hand, an environmental area along the Miass River under government protection. Actually, we have no vacant plots; even peatbogs have been developed,” recounts chief architect of Miass, Sergei Derbintsev. He foresees redistribution of lands. “There are large parcels owned by production concerns; I believe they will be developed in the future.” At the present time, the master plan developed in 1991 is being adjusted.

Uncompetitive Retail

“Most attractive for retail is the central street, Avtozavodtsev Prospect, though all non-residential premises there have already been sold,” says manager of Gorodskaya Nedvizhimost agency, Anton Kornev. Retail space on the adjacent March 8 St. are also in demand. On the whole, retail realty prices vary between 70,000 and 140,000 rubles per sqm, and rental rates range from 500 to 1000 rubles per sqm. They also note at the agency that demand for retail space outbalances supply. Makeev and October Prospects and Likhachev, Stepan Razin, Proletarskaya and 60 Years of October Streets are also mentioned among the major retail streets.

Both national chain operators Magnit, Dixie and Pyaterochka and local chains Normann and Ural Val, as well as Chelyabinsk-based Ariant, operate in the city. Only Eldorado is represented among the national household appliances retailers. A total of 1003 retail and public catering businesses operate in the city. “Seven Prodmaster stores are slated to open next year,” says principal of the trade and services administration Yuri Khrenov. Four modern shopping centers – 3,000-sqm Medeo, 3,500-sqm Vostok, 4,000-sqm retail-office complex BD Spiridonov and Crystal – function in Miass. Other large retail properties include a renovated retail center in Mashgorodok and the Miass department store on Avtozavodtsev Prospect. The rental rates in shopping complexes average $450 per sqm per year. “The daily traffic in our retail center is about 5000 visitors. There is not tough competition among the shopping centers; the incomes of townspeople have risen remarkably of late and people willingly go shopping,” says administrator of SC Medeo, Indus Tukayev. “Now we are preparing an entertainment complex for delivery, to house a bowling club, a billiard parlor, a movie theater and a restaurant. The 2,000-sqm children’s cafe Ploshchad, to open this year, will be accommodated in a detached building.” He also pointed out the shortage of vacant development land.

Four hectares have been allotted to Pioneer Group for the construction of a retail-entertainment complex and a hotel at the intersection of Avtozavodtsev Prospect and Likhachev St. Lorena Co. grabbed another land property for the construction of an entertainment complex to comprise a hotel, a restaurant and a bowling center. The complex is slated for delivery in 2010-2011, with gross floor area of 2000 sqm; the planned level of investment is 30 million rubles. “In the near future, construction sites for five shopping centers will be prepared; in particular, a Moscow-based investment company has stated its interest,” says chief architect Derbentsev.

Mr. Khrenov points out that the demand for retail space will keep rising. “Both large family retail centers and corner shops will be popular,” he said.

Resort Town

Three hotels operate in Miass. The city’s largest hotel, The Neptune, was built in 1973. The daily charge to stay in one of 120 rooms in the 11-story building varies between 1300 and 3000 rubles. The other two hotels are Ilmeny+ (32 rooms) and Miasskit (50 rooms). Ludmila Radochina, director of Miasskit Hotel, says rooms are mainly rented by people coming on business trips, and their number is growing with the intensification of business activity. “We have rooms with a daily charge of 400 rubles and, regardless of the season, the average occupancy is 80%,” says the director. Oleg Sirotin, president of the national Turgoyak Sports and Tourism Park and chairman of the board of the Golden Beach Hotel Club and Sunny Valley downhill skiing center, believes there is a long way to go before the level of demand for hospitality services typical of the 1990s is reached. “Most likely, hotels in Miass will not be able to maintain an effective business structure because of insufficient demand. The situation with outdoor holiday-making is quite different. The great multitude of natural wonders makes Miass a resort town. But here the main problem is seasonality. In fact, holiday residences actively receive vacationers only during the three summer months and one week during New Year’s vacations. For the rest of time, the hotels are almost empty. In order to fill the hotels during off-season periods, special health treatments have to be offered at them, or else exciting tours for eco-tourists could be developed. The optimal segment for Miass hotels is at least three European stars. The conference halls at the hotels are also in demand,” says Mr. Sirotin. Now construction on the all-season resort Sunny Valley is under way. The project includes a cottage community, a hospitality complex and summer and winter recreational facilities. Office and retail real estate are underdeveloped in Miass. Premises converted recently to non-residential stock are fitted for offices, while the warehouses have existed since Soviet times.

Offices in Retail Centers

There are no office complexes in Miass. Office space is offered in the BD Spiridonov retail-office complex, SC Vostok shopping center and the Household Services Center with rental rates varying from $140 to $240 per sqm per year. “Half of our space functions as offices for lease and another half hosts retail,” says Antonina Koptelova, director of BD Spiridonov. “The average rent is $168 per sqm per year. All our offices are occupied. I believe new office premises will also be in demand.”

“Basements and first levels on the main streets are bought up for offices,” says Mr. Kornev, “and it is increasingly difficult to find an office premise. Banks have demand for class A office realty that is not currently being met.” The rental rate fluctuates between $140 and $150 per sqm per year. Thus Chelyabinskinvestbank constructed a building for its branch on its own. We were told at Predstavitel Plus Co. that two double-story office buildings in Neighborhood N have been built, in which office space was sold at the price of 40,000 rubles per sqm. In the opinion of Lorena director Yuri Vykhovskih, the office real estate sector is underdeveloped because there is not enough demand. “A short time ago, we built a two-story shop and could not lease out the first floor. We built three 10-story houses nearby, each having attached office premises, which we could not lease for half a year. The city has sufficient premises, so office complexes are not attractive investment properties.”

Outmoded Warehouses

They say at the Miass retail and services administration that the city lacks modern logistics terminals, and their construction is not envisaged in the near future. The base rent at existing storage facilities is about $144 per sqm per year. “Wholesale companies are being accommodated in fruit-and-vegetable storehouses that have been operating since Soviet times. Chain retailers build storage facilities at their stores. However, there is no dearth of warehouse space in the city,” says Tatiana Voloshkevich of the retail and services administration.