Commercial Real Estate

Experts estimate today’s Samara market of commercial real estate as stable. In their opinion, this can be explained by the glut in its most popular segments, such as retail. Under the current conditions the main potential of market development is realized in the quality realm. The only question is whether today’s Samara is capable to meet demand for quality commercial real estate.

New Benchmarks

More than 200,000 sqm of office space have been put into operation in Samara for the two recent years. As reported by Knight Frank, BC Skala, Big Ben and Ladia are Class A properties already delivered or soon to be delivered to the local market, although BEL Development believes that their new 10,500-sqm BC Povolzhsky Development Center at Molodogvardeiskaya Street is indeed the first Class A office facility in Samara. According to Indest-Development, the 10,000-sqm office center Vityaz, the 16,800-sqm Delovoi Mir (Business World) at Uritsky Street, the 8,200-sqm Globus at Vodnikov Street, the 3,000-sqm Sky City at Moskovskoe shosse, the 5,000-sqm BC at Gorky Street and Alabinsky (at the intersection of Leninskaya and Vilonovskaya streets) are closer to Class A in terms of their performance. The mixed-use Vertical, Moskva in the residential complex at Moskovskoe shosse, a class B office center at Stavropolskaya Street, Galaktika mixed-use at Ulyanovskaya Street with office and hospitality functions plus a class A underground parking garage, a B+ office center at Galaktionovskaya Street and a class B office center at Frunze Street will soon be completed.

Construction on an office center at Uritsky Street with Class A and B office premises is at the initial stage. They also intend to erect an administrative-office facility at the intersection of Michurin and Osipenko streets, to renovate a class B office-retail center at Myaga Street and to construct the office-retail Titanic at Sadovaya/Vilonovskaya Street.

Analysts doubt that the occupancy of office space depends only on the property class or whereabouts. When basic demand is satisfied, property location and class are no longer the only occupancy criteria, which is clear from the fact that office premises in Samara are only 70-80% filled. In their opinion, the Samara business has matured enough to lay new claims on office quality. Yet old redeveloped buildings with their inherent deficiences still account for the greater share of urban office real estate.

Old districts — Samarsky, Leninsky and partly Oktyabrsky — abound in such commercial premises. Having said that, we have to admit that those districts are still deemed prestigious, so high rental rates remain. As reported by Natalia Badova, in charge of analytics and valuation at AN Visit, per square meter rents amount to $240-480 a year in Leninsky and Samara districts and to $240-530 a year in Oktyabrsky district. According to Irina Korneeva, spearheading the commercial real estate department at Spektr Nedvizhimosti (Real Estate Spectrum) Group, office space rental rates in the old city core near $600 per sqm per year.

However it is not the center that demonstrates the highest price growth dynamics, as rather such peripheral districts as Promyshlenny (Industrial), Kuibyshevsky and a number of others. Unlike the cramped downtown, office real estate development is turbulent there, and new developments reflect quality changes in line with latest demands. Most high-end properties are being developed in the near peripheral areas with rental rates ranging from $145 to $288 per sqm per year in Kirovsky district, $144 to $216 in Krasnoglinsky district, $168 to $385 in Promyshlenny district, $168 to $265 in Kuibyshevsky district and $170 to $335 in Zheleznodorozhny district.

Entertaining Retail

Rising living standards in Samara directly influence the local retail sector. The traditional arrangement of shopping centers with one or two anchor tenants and a multitude of small retailers quickly becomes a thing of the past.

“Today’s shopping center is no longer the sum total of individual tenants: the project conception, pricing segment and the so-called symbolic consumption, in addition to goods and services, are coming to the fore,” says managing director of Indest-Development Victor Antipov. “Developers now focus mainly on the property’s quality performance and increasingly often add the entertainment function to attract more consumers.” The most outstanding representatives of entertaining retail in Samara are Megacomplex Moskovsky (housing a multiplex, a bowling club, a billiard club, a waterpark, a fitness and wellness centers, tennis courts and a food court) and Park House (accommodating a multiplex cinema, a bowling alley, a food court, a restaurant and a playground).

Moskovskoe shosse with its heavy traffic has turned into the main urban retail route, rather attractive for regional and nationwide developers. Piled there are 15 shopping centers with at least five more to be soon constructed. Novo-Sadovaya Street now represented by six shopping centers and three properties yet to be raised is a new parallel retail route. In the historical center the retail real estate is mainly represented by swelling street retail. According to Irina Korneeva, the shopping space rental rates at street retail outlets come to about $600 per sqm per year.

According to the data provided by Indest Development analytics center, the aggregate retail space granted on lease in 2002 came to 113,500 sqm. As of today, this figure topped the 460,000-sqm mark in the universal SC segment and the 125,000-sqm mark in the specialty segment.

The following significant shopping centers and stores opened in Samara for the year 2006: 58,000-sqm MegaCity, 11,500-sqm Castorama, the second 34,000-sqm phase of SC Park House which enlarged the total floor space of this property to 54,000 sqm, 3,256-sqm SC Molot, 15,000-sqm Myagkoff and the second phase of 10,000-sqm SC Intermebel.

Therefore 48 shopping centers with the aggregate floor area of 585,000 sqm now function in Samara with average rental rates ranging from $500 to $600 per sqm per year at large retail centers, as reported by Spektr Nedvizhimosti Group. Accordingly, 509 sqm of retail space fall on 1,000 residents, of which 327 sqm is quality retail. At the present time development companies have already declared 14 SC projects at different stages of realization and the aggregate floor space of 727,000 sqm (see Table 1):

In September 2007 they plan to finish off construction on the largest 120,000-sqm retail and entertainment complex Mega-IKEA in Krasnoglinsky district.

Warehouses for Nationwide Businesses

Approximately 80,000 sqm of class A warehouse space is offered for lease in the Samara region. Construction costs for class A storage facilities range from $700 to $800 per sqm, while rental rates vary between $165 and $170 per sqm per year in Class A and about $75 per sqm per year in Class B, according to Ms. Korneeva. The dearth of high-quality warehouse space is most acutely felt by foreign companies operating in the region. The main consumers of high-end warehouse complexes are logistic companies and retail chains of both national and multinational brands, adhering to European standards in their operations. They require high-quality professionally managed storage facilities. Large manufacturers, such as Nestle, Baltika, PepsiCo and Coca-Cola plants, Samara-based Samara Product, Allegreto, pharmacy chains Vita and Implozia had to build good warehouses on their own.

According to various estimations, Samara has about 120,000 sqm of class B storage facilities. The largest complexes are owned by the Middle Volga Logistics Company (80,000 sqm of gross floor area including 55,000 sqm of Class A warehouses and 25,000 sqm of Class B storage space), Armada Co. (about 25,000 sqm), Soyuz Group (approx. 25,000 sqm), Nestle (18,000 sqm) and Volgatransterminal (10,000 sqm).

The first 35,000-sqm phase of a Class A logistic complex developed by Victor & Co has been completed. In the second quarter this year the company is going to finish construction on the second 60,000-sqm phase. The total space of the complex is planned at the level of 130,000 sqm. Local developers come up with smaller projects

The rapidly expanding retail real estate generates the deficit of storage space to be compensated by the market. The international logistic operator Ahlers plans to build Class A warehouses in Samara from 2007 to 2008. The investment-industrial group Eurasia is going to construct a Class A logistic complex with tentative gross area of 250,000 sqm. The retail chain Kashirsky Dvor also intends to invest more than 250 million rubles into a new retail-warehouse center. Many logistic companies, such as the Russian Logistic Service, the National Logistics Company, FM Logistics and DHL have declared the soon start of construction on their own logistic complexes, though they do not mention any specific times or characteristics of their build-to-suit properties.

In addition, a distribution center to comprise four multimodal terminals and a logistic information-analytic center is also planned in the region.

Night at Renaissance

At the present time more than 50 hotels operate in Samara. Noteworthy among the three-star hotels are Azimuth Hotel Samara, Hansa, Europe, Zarechye, Rossiya, Transit and Equator. However the main bulk of hotels, including such mastodons as Volna, Kolos, Volga and Oktyabrskaya, was built back under Soviets. The service proposed by some of them is limited to rooms with a single bathroom per floor. Yet world class properties have also been delivered to the market in three recent years.

Renaissance Samara is the second hotel of the Renaissance chain in Russia. The first one appeared in Moscow 10 years ago while the third property was built in St. Petersburg, although half the size of the Samara one. Samara-based Renaissance offers its guests the level of services typical of its congeners in London, Paris, Barcelona and 125 other big cities of the world: five restaurants and bars, a huge banquet hall and six conference halls, an indoor pool with heating, a bowling alley, a fitness center and 196 rooms including eight business suites plus one vice presidential and one presidential apartment suites.

You may buy a one-bed room without a breakfast at Renaissance for 8,400 rubles per night, whereas the hotel guests will have to stump up 31,152 rubles a day for a presidential apartment suite.

The second four-star Holiday Inn Samara Hotel integrated with the international chain InterContinental Hotels Group opened in Samara this May. Construction works drained the investors’ wallets by $40 million. Holiday Inn Samara began its operations at dumped prices and lowered the average monthly occupancy of other hotels in the city from 70% to 60%. The 24,000-sqm eight-story hotel has 177 rooms, of which 142 are standard singles and doubles, 26 rooms of enhanced comfort, eight junior suites and one deluxe presidential suite with a sauna.

A double room at the three-star Europe at Galaktionovskaya Street costs from 3,600 to 9,900 rubles per day while they charge 2,850 rubles per day for a single. On the other hand, you may stay at the typically Soviet hotel Volna on M. Gorky Street for just 460 rubles per day, if this is a single room without amenities.

Today’s growing construction volumes are largely speculative and strive to meet the potential future demand for commercial space. In the opinion of market analysts, the number of players from other regions, regarding Samara as a promising beachhead for running their businesses, will keep growing with time. Many nationwide players from different market segments (banking and insurance services, retail, entertainment business etc.) have stated their interest in Samara. Some of them like Rosnedvizhimost want to buy space; others (mainly chain stores) target the lease while still others (IKEA) prefer to build suitable premises for their business operations by themselves.