%, year on year MARKET INDICATORS 2016 2017 2018F Total stock of modern retail space, million sq m* 15.98 16.52 17.41 Year-end completions in regions, thousand sq m* 1 104 532 799 Number of shopping centres opened in regions during the year* 37 21 35 Retail stock per 1,000 capita in Russia, sq m 179 184 193 * excluding Moscow and St. Petersburg Unstable recovery of retail According to Russian economic development ministry forecasts, the recovery of consumer demand observed since the beginning of 2017 will continue at an accelerated pace. This is due to simultaneous real wage growth and a slowing down in the decline of real disposable income, as well as increasing credit levels in the population. According to Rosstat, in the first eleven months of 2017, Russia s retail turnover grew by 1% y-o-y. At the same time, according to the baseline scenario of the economic development ministry, retail turnover growth may accelerate to 2.9% in 2018. However, Vnesheconombank, a state development institution, expects more moderate real income and wage growth and hence retail turnover growth at 1.6% in 2018, which is almost twice as low as the ministry s baseline forecast. Oxford Economics also expects a slowdown in private consumption growth from 4.4% in 2017 to 3.0% in 2018 and 2.8% in 2019. Such a smooth recovery of indicators certainly looks positive for the economy as a whole, especially compared to their rather deep fall in 2015-16. However, in the midterm there are still risks associated with tightening sanctions against Russia and worsening external economic conditions. Retail turnover and real disposable income growth, 2010 2019F 10,0% 8,0% 6,5% 7,1% 6,3% 5,9% 6,0% 4,6% 3,9% 4,0% 4,0% 2,7% 2,0% 0,0% -2,0% -4,0% -6,0% -8,0% -10,0% 0,5% -3,2% -0,7% -10,0% 2,9% 2,7% 2,3% 1,7% 1,0% 1,1% 1,1% -4,6% -5,8% 3,0% 3,1% 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F Volume of retail turnover index (Rosstat) -1,7% Volume of retail turnover index, baseline scenario (MED) Volume of retail turnover index, target scenario (MED) Volume of retail turnover index, conservative scenario (MED) Real disposable income *11 months of 2017 Source: Rosstat, Economy Ministry of Russia 1 Year-end Review 2017 Russia Retail Colliers International
thousand sq m thousand sq m Supply The completion volume of new retail space in Russia has declined for the third year in a row. The total leasable area of shopping centres opened in 2017 amounted to 780,000 sq m, which is 51% below the previous year s result. Regional cities (i.e. excluding Moscow and St. Petersburg) accounted for 532,300 sq m or 68% of the total completion volume, the lowest in the last 13 years. Such a record low indicator is the result of the economic crisis of 2014-15 when most developers cut their development pipeline and many projects were either frozen or postponed until better days. Geographical distribution of the annually completion volumes 3 000 These include projects in Chelyabinsk (GLA 150,000 sq m), Perm (GLA 110,000 sq m), Ekaterinburg (GLA 80,000 sq m) and Rostov-on-Don (GLA 27,000 sq m). At the same time, the share of the cities with a population of 100-300,000 including Volgodonsk, Grozny, Novocherkassk, Pyatigorsk, is also quite high (32%). Completions of quality retail space in regional cities by population groups 400 350 300 250 200 150 2 500 2 000 1 500 1 000 500 0 2011 2012 2013 2014 2015 2016 2017 2018F Regions St. Petersburg 100 50 0 * Excluding Moscow and St. Petersburg 2015 2016 2017 2018F Cities with population under 100 thousand people Cities with population of 100 300 thousand people Cities with population of 300 500 thousand people Cities with population of 0.5 1 million people Regional million-plus cities Moscow and satellites Moscow region 37% of Russia s retail property market is accounted for by Moscow and St. Petersburg 51% reduction in commissioned retail property in Russia compared to 2016 In 2017, Kursk (107,000 sq m), Voronezh (61,700 sq m), Lipetsk (61,000 sq m) and Barnaul (50,000 sq m) were leaders among regional cities in terms of quality retail space completion volumes. At the end of 2017 the total stock of quality retail space in Russia reached 27 million sq m, of which 37% is concentrated in Moscow and St. Petersburg and another 24% in remaining million-plus cities. Thus, 22% of the country s population account for more than 60% of retail property supply, which indicates a rather uneven distribution. Despite such a high concentration of supply in millionplus cities, they still account for around 45% of the volume of projects announced in 2017 that are due in 2020-2023. Biggest SCs opened in Russian regions in 2017 CITY NAME GLA, SQ M DEVELOPER Kursk Central Park 107,000 GK Promresurs Voronezh Gallery Chizhov Centre, 3 rd phase 61,700 Gallery Chizhov Lipetsk Riviera 61,000 Folium Barnaul Galaxy, 2 nd phase 50,000 Rostov-on-Don Megamag, 2 nd phase Maria-Ra /BAMZ 40,500 Edinstvo 2 Year-end Review 2017 Russia Retail Colliers International
The list of top-five million cities in Russia in terms of the penetration of quality retail space remained unchanged from the previous year. As in 2016, they include Samara (682 sq m/1000 inhabitants), Ekaterinburg (657 sq m/1000 inhabitants), St. Petersburg (570 sq m/1000 inhabitants), Nizhny Novgorod (523 sq m/1000 inhabitants) and Moscow (500 sq m/1000 inhabitants). Rostov-on-Don and Voronezh improved their positions in the ranking in 2017. Rostov moved from 7th to 6th spot with 464 sq m/1000 inhabitants, while Voronezh moved from 10th to 7th place with 431 sq m/1000 inhabitants. Quality retail property penetration in Russia s million-plus cities Samara Ekaterinburg St. Petersburg Nizhny Novgorod Moscow Rostov-on-Don Voronezh Krasnoyarsk Kazan Ufa Chelyabinsk Novosibirsk Volgograd Omsk Perm Demand sq m per 1,000 people Russia 185 sq m 0 100 200 300 400 500 600 700 Top spot in the number of new stores opened in Russia in 2017 is retained by federal grocery chains and fashion operators. The main share of those openings is held by retailers operating in the discount and mid-price segments. In the last few years, the largest grocery discounters have increased the number of their stores dramatically. In 2017, Pyateroshka opened 2,862 new stores to reach a total of 11,225. Its biggest rival Magnit opened 1,624 stores (excluding drogerie stores) bringing the total number of stores to 12,576. Detsky Mir, Russia s leading children s chain store, continued its active expansion and opened 94 new stores in 2017. For comparison, its nearest rival Dochki-Sinochki opened only 12 new stores. The largest DIY retailer, Leroy Merlin, was also quite active in terms of chain expansion and opened 13 new hypermarkets last year. Expansion activity in fashion and other retail segments was also quite high. Among the most active chains in 2017 were Fix Price (more than 170 stores opened), Gloria Jeans (more than 100 stores), Obuv Rossii (more than 80 stores), McDonald s (more than 50 restaurants), Familia (more than 40 stores), Chitaygorod/ Bukvoed (80 stores), M.Video (27 stores), H&M (21 stores) Cozy Home (20 stores) and Hoff! (11 stores). In 2017, Russian chain retailers announced plans to enter new foreign markets. And unlike 2016, when retailers that planned to expand abroad were represented primarily by food & beverage, other retail segments including fashion operators were quite as active. However, it is still too soon to talk about the active global expansion of Russian retailers, as most openings are pilot or opened via franchising partners. Expansion of Russian retail chains to foreign markets executed and announced in 2017 CHAIN NAME PROFILE YEAR COUNTRY Befree (Melon Fashion Group) Fashion 2017 Poland Finn Flare Fashion 2017 Belarus Gloria Jeans Fashion 2017 Belarus 2018 Kazakhstan Gulliver Kids wear 2017 Cyprus Choupette Leonardo Organic Shop Kids wear Hobby Cosmetics 2017 Spain 2018 England 2017 Belarus 2018 Poland 2017 Germany, USA 2018 Taiwan Kuzina Coffee shop 2017 USA Double B Coffee shop 2017 Dodo Pizza Cafes & restaurants England, Germany, UAE (Dubai) 2017 England Shokoladnitsa Coffee shop 2017 Mongolia Wokker Cafes & restaurants 2017 Kazakhstan De Salitto Fashion 2017 Spain Source: Companies data 3 Year-end Review 2017 Russia Retail Colliers International
Trends and forecasts According to announced projects, completions of quality retail space in 2018 in Russia s regional cities will increase by 50% compared to 2017 and reach 799,000 sq m. Among the biggest projects announced for delivery in 2018 are Arsib Tower in Tyumen, SC Golden Park in Nizhnevartovsk and SC Kalina Mall in Vladivostok. Despite the advanced stage of completion of most of the announced projects, the opening of some of them may still be postponed until 2019. Therefore, the volume of shopping centres commissioned up to the end of 2018 may amount to 560,000 sq m or 70% of the initially declared volume. 799 thousand sq m of retail space in professional shopping centres are announced for delivery in 2018 According to our estimates, in the next couple of years developers will focus on the completion of existing projects, the unfreezing of abandoned construction sites as well as the renovation and expansion of shopping centres that have long been operating in the market. As a result, we do not expect a large number of new projects. Biggest SCs announced for opening in Russian regions in 2018* CITY NAME GLA, SQ M DEVELOPER Tyumen ARSIB Tower 59,000 ARSIB Holding Group Nizhnevartovsk Golden Park 50,670 RIA-Invest-Group Vladivostok Kalina Mall 46,300 Artayar Novosibirsk Evropeyskiy 45,000 Atrium Development Krasnodar Skazka 36,220 A2Group Kazan Gorkovsky 33,600 Agava Pskov Ardus Plaza 31,030 Egle Stary Oskol Boshe, 3 rd phase 30,000 Boshe Murmansk Plazma 30,000 Euroros * Excluding Moscow and St. Petersburg 4 Year-end Review 2017 Russia Retail Colliers International