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Buyers become passive

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Having exhausted the effect of deferred demand, retail real estate operators faced a slight decline in purchasing activity in early October. Against this background, the rotation of tenants continues, and the average vacancy rate is growing. But the process has not yet led to a noticeable decrease in the rental rates declared by them. The situation in the office market is much calmer, the growth of vacancy is smoother.
The Shopping Index (reflecting the number of visitors per 1,000 sq. M. Of retail space) in the 40th week of the year (from September 28 to October 4) in Russia was 23% lower than the same value last year. Such data are provided by Watcom Group. According to analysts ‘calculations, this gap is slightly increasing, earlier it was about a gradual recovery of buyers’ activity: if by the end of July the decline was 27% compared to the same value last year, in August-September the value was adjusted to 16%. Despite a slight pullback, the president of Watcom Group, Roman Skorokhodov, calls the situation on the retail real estate market generally positive. According to him, the initial forecast was significantly worse. In Moscow, according to the Shopping Index, in the 40th week the indicator was 22% lower than a year earlier. At the same time, according to the results of September, the average gap was 11%, in August – 6%. In St. Petersburg in late September and early October the figure was 24% lower than last year, in September the decline was estimated at 16%.
“In September, against the backdrop of lower traffic, retailers noted a drop in sales,” she adds. The expert does not expect that the activity of buyers will recover by the end of the year: the retail trade turnover is decreasing following the actual disposable income of the population. Ms. Safonova assumes that the rotation of tenants in Moscow shopping centers will continue in the near future. Against this background, the average vacancy rate may grow from 8% in the first nine months of the year (January-September) to 10-13% by the end of the year. An additional increase in vacancy may stimulate the reluctance of some owners to make concessions to tenants.
Streets are losing tenants
The situation remains tense in the street retail segment.
On Tverskaya Street, the vacancy rate reached 15.5%, having increased by 6.6 percentage points over the quarter. This is due to a twofold increase in the number of tenant closings compared to last year. Yekaterina Podlesnykh, head of the street retail department at JLL, explains that shops and catering establishments are closing due to a decrease in consumer traffic and a drop in the purchasing power of the population.
But this dynamics has not yet led to a significant change in the cost of rent. Yulia Nazarova, head of street retail at CBRE, explains that although the owners of the premises are ready to provide a discount to current tenants, the rates for the exhibited premises in conditions of virtually zero demand have practically not been adjusted. Only in some cases, according to the expert’s supervision, the decrease was 10-15%.
In St. Petersburg, property owners turned out to be more accommodating. If, according to JLL’s calculations, the cost of renting street retail objects, for example, on Nevsky Prospekt, in June was 7-13 thousand rubles. per sq. m per month, then by the end of September the requested rate dropped to 7-11 thousand rubles. At the same time, the vacancy rate here is still lower than in Moscow and amounts to 12.9%. Since the beginning of the year, 308 stores, cafes and restaurants have closed in St. Petersburg so far – this is even 5% lower than the same value last year. Alena Volobueva, head of market research department at Maris, expects that by the end of the year the average vacancy rate in the city will not exceed 15%. The activity of tenants in the segment, she said, will continue: new catering establishments and fashion operators are replacing bookstores and souvenir shops. “Segments of the beauty industry and consumer goods feel confident,” the expert adds. Provided that a relatively stable economic and epidemiological situation remains, the average vacancy rate will not exceed 15%.
There is still a demand for offices
The situation in the office market is more stable. According to Colliers International estimates, vacancy in this segment in Moscow is growing smoothly, mainly due to the abandonment of excess space and moving to cheaper locations. Natalya Bonneli, director of the office real estate department of the company, doubts that a significant part of companies will refuse or significantly reduce the volume of their offices: business is already recording a decrease in work efficiency, the remote work format is not suitable for everyone. At the same time, Maria Zimina, director of the office real estate department at Knight Frank, notes that a reverse trend is also observed on the market. According to her, many residents of business centers who had planned a relocation even before the crisis began, amid general uncertainty, preferred to extend their current lease agreements on similar or better terms.
But it looks like they won’t be able to get serious discounts. Ms Bonneli predicts that by the end of the year the average cost of office rent will decrease by 5-10%. Even if there is a corresponding desire, the owners will most likely not be able to make more significant concessions to tenants: most of the buildings on the market are credited. At the same time, according to Knight Frank estimates, tenants’ refusal from part of the premises could not globally change the market situation. Maria Zimina notes that mainly small lots are entering the market, while the deficit of large offices in business districts still persists.
The dynamics in the St. Petersburg office market is not too different from that in Moscow. Victoria Goryacheva, Deputy Director of the Department of Services for Tenants and Office Real Estate, Colliers International, explains that many tenants are negotiating to optimize office space or, on the contrary, improve conditions. “But as part of negotiations to renegotiate terms, they no longer focus on the consequences of the pandemic, returning to traditional arguments: non-market rate, expiration of the contract, etc.,” she lists. At the same time, Mrs. Goryacheva notes that the supply of high-quality offices in St. Petersburg is still limited, against which the owners feel quite confident. In the third quarter, the average market vacancy rate in the city did increase slightly: from 6.7% to 7.4%. In total, according to estimates by Colliers International, we are talking about 250 thousand empty spaces. Mikhail Tyunin, Deputy General Director of Knight Frank St Petersburg, expects that by the end of the year the vacancy rate in the city will rise to 10%.
Alexandra Mertsalova

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