Commercial Real Estate

A comprehensive program to develop underground territory in St. Petersburg by 2025 is underway in the city, and, to this end, City Hall intends to cease distributing land plots for construction to investors whose plans do not envisage the development of subsurface territories. Developers are already talking about how these plans will cause the cost of completing projects to rise substantially. Nevertheless, none of the players doubts that sooner or later a significant section of the city’s commercial real estate will have to be constructed underground.

Time to put down Roots

There is currently not a full-scale approach in St. Petersburg to planning underground development, although this topic has been under discussion since the days of the city’s former mayor, Anatoly Sobchak. Indeed, a special institute, Podzemstroiproekt, for underground construction was created at the time and actually designed around 20 development projects for subterranean St. Petersburg. Particularly, several multifunctional underground passageways were planned for construction under Moskovsky Prospect, at Vitebsky Train Station, under Trud and Vladimirsky squares, respectively, as well as at the Technical Institute. Additionally, the institute designed a large subterranean complex under Art Square, with the Russian Museum’s vestibule going underneath, while the entire area under the square was planned for division into three levels: the top would be a pedestrian area and the two lower areas would be for parking; however, the city’s authorities changed, the institute ceased to receive funding, and, finally, was closed.

Meanwhile, the “subterranean” idea has been under active development in neighboring Finland since the 1970s, with plans for underground construction in Helsinki being designed in 1972 and project completion slated for 2012. According to the plan, an actual second, underground city will appear below the Finnish capital, with its own major roads and retail hotspots, while the historical city center will remain preserved for tourists.

Many experts believe that now is the time for St. Petersburg to adopt Finland’s experience, as there are practically no appropriate plots for new construction development in the historical city center. Additionally, regulations strictly limit the height of buildings, while the population density in the center is two-fold higher than the population in the bedroom communities, and the city’s business life is concentrated specifically in the center. This requires new stores, business space and, especially, parking. Therefore, the underground must be developed.

As CRE has learned, the specialists at the Committee for Urban Planning and Architecture of the city administration (CUPA) have already begun drawing up a new Comprehensive Program for the Development of Underground Territory by 2025 (CPDUT). According to the authorities, the plan will set standards for underground construction, the permitted load capacity on the network, the means for resolving cadastral matters and the rules and regulations for registering property rights for underground buildings and construction. “This will be a program of standards and approaches,” says Vitaly Zentsov, deputy chairman of CUPA, commenting on the city’s initiative. According to Zentsov, at this time investors are already being asked to consider developing underground sections of one to seven stories when seeking permission and approvals for projects; however, these requests thus far have been recommendations. “But, we shall soon cease issuing permission and approvals for construction, should underground development not be included in the concept. We shall use any means to convince developers to develop the subterranean area,” says Zentsov.

Subterranean Shopping

According to the construction statistics, development at a depth of 1.5 meters increases the cost of a square meter to $1,500, while a depth of three meters increases the cost to $3,000, with the average prime cost for a square meter on the surface being $900-$1,200. However, based on foreign experience, underground shopping center projects can be very successful in St. Petersburg. The largest underground shopping complex, Path, in Toronto, Canada, is 371,000 sqm and is built 12 stories underground. The complex has 1,500 stores, five subway stations, six hotels and a railroad terminal, and there are 50 exits to ground-level buildings. More than 10,000 people visit the complex every day. The second largest underground shopping complex, Cathedrale, is located in Montreal, with overall walkways totaling 30 km. A similar complex, Yaesu, in Tokyo, Japan, is 68,000 sqm, with 250 stores and cafes, and around 10 million people visit it on a monthly basis. Japan has the world’s most underground shopping centers numbering more than a hundred.

“There are similar complexes in Paris and in London, and there are even four in Moscow. It is time for St. Petersburg to also resolve this matter, although underground construction is 25%-50% more expensive than on the surface,” says Alexander Dymov, general director at Aditum, which has announced interest in investing around $200 million in the construction of a retail complex under Vosstania Square. Three projects have been designed and they are currently undergoing the permission and approval process at the city administration. If one of them is approved, said company will begin construction next year. “I believe that the construction of high-end underground shopping complexes is a risky but prospective business. Do date, the recoupment period for these facilities has been longer than for other ones, but, as lease rates increase in ground-level locations and top-notch brand names wish to have stores in underground complexes, the situation will change for the better,” believes Georgy Rykov, general director at Best Commercial Real Estate.

All the same, large developers specializing in shopping complexes still prefer not to take the risk once again and are combining surface premises with underground space. For example Adamant holding company is constructing the Komendantsky shopping and entertainment complex in the heavily populated Primorsky district of St. Petersburg. The project is unique, as it will be united directly by an underground passageway with the vestibule of the Komendantskaya Sq. subway station. The 11-story, 47,300-sqm complex will have four levels of parking for 400 vehicles and one level of shopping all situated underground, with 30,000 people expected to visit per day. Overall investment in the project is $55 million.

No Parking, No Business

The Komendantsky complex will also be known as the first project in St. Petersburg with underground parking.

“We are paying a lot of attention now to parking, as, if there is not any parking, there will not be any business. Everyone drives today,” notes Igor Leitis, president of Adamant holding company. “However, underground garages cost a lot to build, with the prime cost of one square meter costing $1,000. The multi-level parking which we construct in each shopping complex costs half as much at $400-$500/sqm. However, if there is no vacant room to construct surface parking, there sometimes is no other way, as, according to class A standards, as there must be 90-100 sqm of parking space for every 60 sqm of office premises.” According to Leitis, Adamant plans to build the city’s second underground parking lot at Ladozhsky Train Station, where the company plans to construct a mixed-use high-rise complex.

The St. Petersburg administration has granted permission for the design of 35 such facilities, with the city’s central squares top on the list. “This includes Lev Tolstoy, Nikolskaya, Manezhnaya and Revolyutsaya squares, respectively, as well as behind Kazansky Cathedral. There was even an attempt to build behind Marsovo Field,” says Zentsov, confirming that the latter initiative was not approved.

“Practically all of the buildings in the city’s historical section are protected monuments, so building under them is not permitted; therefore, the only resolution is to dig under the squares,” explains Nikolai Kazansky, director of the investment department at Colliers International. However, experts emphasized that a commercial function must be included as part of an underground parking project, for example, part of the premises should be reserved for grocery stores, of which there is a shortage in the city center. “The second variant is to offer these to investors completing projects to support the government, such as a bonus for completing other projects for the city,” says Kazansky.

Geotechnical Engineers Warn …

Alexander Sharapov, president of Becar, also doubts that underground parking projects can be successful on their own unless they are soil part of large mixed-use complexes. “There is extremely watery soil in St. Petersburg, and the construction of underground parking requires working with complicated hydraulic technology. Otherwise, there could be a repeat of what occurred while constructing Vladimirsky Passage and Nevsky Palace, when cracks and splits happened because of errors in joining the building,” says Sharapov. According to him, the cost of constructing in the most complicated areas could exceed $3,000/sqm.

Scientific studies confirm that the special features of the soil in St. Petersburg do not allow for the construction of underground facilities everywhere in the city. Therefore, prior to constructing underground projects, the recommendations issues by the geotechnical engineers must be studied thoroughly, otherwise, both money and labor will be wasted in vain.

Vladimir Ulitsky, deputy chairman of the municipal expert and consulting commission for development, foundation and underground construction for the St. Petersburg government, told CRE that the city is unique for its non-conforming soil. There are locations where construction must be completed carefully and not everyone is willing to undertake this. “The entire Vasilievsky Island is in a high-risk area as well as part of Petrogradsky and the city center, while the most promising areas, in terms of geology, are in the Kupchino and Vyborgsky districts, where there is excellent soil and ground foundation,” says Ulitsky.

Ulitsky also notes that developers, unfortunately, “often disregard the advice of the geotechnical engineers, and there are many examples, such as the VSM territory, where they wanted to construct an underground city. As a result, however, a huge ditch appeared on Nevsky Prospect, totaling 2,200 piles. The two neighboring buildings – architectural memorials – were knocked down, leaving only the facades, while another historical building nearby sagged 10 cm and is still moving, and the ditch will continue to widen for another 10 years,” states Ulitsky, who also confirms that it is necessary to consult with the geotechnical engineers not only during the design stages and construction of a building, but also during the operation stages. “We still have complications occurring with the best known facilities under current observation. Take for example the construction of the Mariinsky Theatre’s second wall. I consulted on this project, but Moscow expertise forbade monitoring during the completion, which is patently absurd,” believes Ulitsky.

Another episode occurred with the Mariinsky Theatre. Ulitsky says that Valery Gergiev, artistic director at the theater, approached the experts and asked whether a large parking lot could be built nearby. “It was not clear where to construct the parking, but it was needed. We studied some projects abroad, and discovered a variant completed in a small city in France, where the parking lot was built under a river. This project was built several years ago and involved excavating four stories deep below the canal and having passages along the street, closing off the flow of water and even repairing the bridges. Perhaps we could complete this type of project here?” says Ulitsky. So, that soft notorious St. Petersburg soil by no means precludes the development of underground construction. Other projects are also possible. “For example, the city needs an underground alternate to the historical embankments of the Neva River. All of these ideas can be completed, and where there is a will, there is a way,” concludes Ulitsky.