RETAIL: COMMERCIAL REAL ESTATE (Russia)
by Olisya Kruglova
Retail is fast becoming an integral part of any development and skyscrapers are no exception. With the right layout, retail space adds greater attraction to a high-rise buildings, increases the flow of visitors, and provides for rapid recoupment in any given project.
Shops inside high-rise developments are primarily intended for use by those who either live or work in the building. This dictates what kind of tenants and goods that may be selected, keeping in line with the needs and the status of those inside. When the facility includes an observation platform, the visitor volumes will be increased by a flow of tourists. All the same, the majority of experts concur that this kind of retailing will not be able to compete with the actual shopping malls in the area.
There are plenty of examples of highrise buildings with impressive retail components all over the world. The US, holding 40 of the world’s 100 biggest skyscrapers (for the most part in Los Angeles, Chicago, and New York), also demonstrates the best planning for its retail space. “There is pretty much no such thing as separate retail with these kinds of projects,” says Yuri Sinyaev, director of marketing at Konti group. “The split also helps the developers to diversify their business: if rental rates suddenly dip down, then the residential units will bring in the income.” As an example of a residential skyscrapers, the expert cites the Continental, where the first and second floors will accommodate offices, retail facilities, and an entertainment center.
As a rule, the anchors at these kinds of complexes tend to be hotels and offices, with rental agreements that last from 20-25 years, as well as conference halls and business centers (on average for 10 years). The retail section and the restaurants, cafes and bars have their own anchors, with contracts up to 20 years, but the majority of them prefer short-term rental – about 5 years according to Stuff International Design. For example, AOL Time Warner Center (260,000 sq m), located in the center of Manhattan, New York, offers a combination of luxury retail (The Shops at Columbus Circle, 32,000 sq m with 5 levels, 40 middle end shops, restaurants, and a fitness center), the Mandarin Oriental hotel (with 251 rooms), condominium units, offices (CNN, AOL, Frederick P. Rose Hall). There is 500 parking spaces. The two-towered One Beacon Court located next door (425,000 sq m, developer Steve Rot, Vornado Realty Trust), has a retail section located alongside a major recreation component (The Beacon Club, with fitness and entertainment facilities). Yulia Nikolicheva, assistant director of the strategic consulting and evaluation division at Jones Lang LaSalle, believes that the most successful Asian projects are located in Singapore, South Korea, Malaysia, and Taiwan. In particular, the 400,000 sq m MFC Pacific Place in Hong Kong has a predominant hotel component (1680 rooms). The four-level retail area covers 66,000 sq m and holds 130 shops, mostly at the high, upper middle classs range. The majority of the brands are familiar to Russians.
According to Andrei Bushin, general director at Miel-Commercial Real Estate, out of all the factors that impact an skyscrapers, location is most important for a typical shopping center. The expert had trouble naming a current successful skyscraper in Moscow that is located inside a high-rise building. “More frequently, it is an ensemble of several structures, for example, Lotte Plaza, currently under construction.” But there is a strong presence on the market of retail-office-residential projects, like the complex at Shabalovka, 10, which includes a residential project by Capital Group, the Concord office, and a MetroMarket store. Mr Bushin attributes these kinds of retail facilities to the street retail sector, with all of the corresponding restrictions upon the work of its operators. “Products for kids and the home are not likely to enjoy any popularity on the first few floors of a business center. Meanwhile, the residential sector puts a number of restrictions on noise, light, and products that might hurt the atmosphere, so an auto salon in a residential high-rise probably will not be successful.”
In the opinion of Natalya Sekretareva, director of leasing at the retail real estate department of Capital Group, the same rules and principles that apply to all other formats of retail real estate apply to 'retail in the sky': “If the tower is located in the center of the city, or at the intersection of transport-pedestrian currents, retail locations of all sorts can successfully operate in it. If the location is far from busy streets, it makes sense to open shops that will cater mostly to the employees and residents of the skyscraper, as well as the surrounding blocks.” According to Mirax, in 90% of the cases, this kind of clientele does planned shopping rather than spontaneous shopping.
Neil Whitehead, managing director at Stuff International Design, believes that the most successful complexes are composed of several objects linked together by an open shopping area on the bottom 5 floors. “For example, London’s metro/railway station Canary Wharf combines shopping and restaurants on the initial floors with office space in the towers above.” According to the Whitehead, in a single structure high-rise MFC, the layout for accommodating tenants will be even more complicated. The first two floors will accommodate restaurants, cafes and retail, fitness facilities will be on the middle level (ideally on the 11-12 floors), and restaurants, bars and clubs with a panoramic view on the top floor. Hotel or offices can be spread out over the rest. The entertainment should be as close as possible to the shops. “A good example of integrated zoning would be the ‘Burzh’ complex in Dubai: restaurants on the lower levels, a retail zone that connects with the reception lobby, and a hotel above,” says Whitehead in summary.
Every high-rise turns into a landmark, changing the city’s architectural landscape – like Norman Foster’s famous 'Gerkhin' that changed the City of London. What company would not want to become a part of such a building? This simplifies the task of choosing retail-tenants for a full-fledged infrastructure.
It goes without saying that a retail area should correspond to the particular area where it is located, and to the class of the building. According to Roman Tikhomirnov, vice-president of the Mirax Group corporation, in order to create synergy, it is important that there be "...a balance of tenants and proprietors, under which one group ‘draws’ the other to it. Some want to rent out an office in a building with its own bank, fitness center, etc. Meanwhile, the others earn a living on the needs of the office workers.”
In each of the towers at Moscow-City, retail will cover 10-15,000 sq m, mostly on the lower (first and ground) levels. The optimal layout for the MIBC, according to Yuri Sinyaev, is a combination of "boutiques, restaurants, movie theaters, and entertainment areas.” For example, on the four lower floors of the City of Capitals, by the Capital Group, 18,500 sq m will be dedicated to retail galleries. According to Natalya Sekretareva, the first two floors will be covered by a supermarket, a cafe, restaurants, perfume and cosmetics shops, souvenir and gift shops, beauty salons, business services, and others. On the 3rd level, a fitness club and SPA center are planned, and on the sub-ground floor – domestic services.
At the begining of April, AFI Development presented the five-floor REC Mall of Russia (179,000 sq m, GLA 101,000 sq m, project designers – 'Mosproject-2' and 'Mosproject-4', general developer and engineers – Enka), which will become a hub, linking together the pedestrian flows of all the MIBCs. Colliers International will act as the exclusive leasing agent. The same company also conducted zoning development work at the shopping mall, and optimized the architectural concept. The Mall of Russia will include all of the popular anchor types, including the first location of Peek&Cloppenburg in Russia, a gallery with the maximum number of brands (over 400 shops), a multiplex movie and concert hall with space for 5500 people, a 'Formula Cinema' Cinaplex (7,000 sq m) with 4D and 5D technology. There will also be a skating rink, a food court and restaurants (50 operators), and three-level parking for 2700 cars. In addition, both women’s and men’s apparel will be represented, and there will also be restaurants and entertainment facilities, Pret a Porter collections, and household goods. The fact that the Mall of Russia is so close to the main highways in Moscow will ensure easy access to the facility. Two metro stations – Delovoi Center and Mezhdunarodnaya – will have direct access to the mall. A future transport terminal will connect Moscow City with both Sheremetyevo and Vnukovo airports. The total volume of investment is $1 bln, with a forecast recoupment period of 6 years. The facility is slated to open at the end of 2009.
The estimated daily volume of visitors to the MIBC, including office employees, residents and guests, will come to 500,000 according to Capital Group. The business district of the MIBC will have about 5,000 employees, some 2,000 of which will be white collar. “The Moscow-City employees already make up a legitimate base of regular shoppers for the 'middle-middle plus' segments," observes Tatyana Kluchinskaya, director of commercial real estate at Colliers International. "Furthermore, it will be easier for residents of adjacent districts to do their shopping at the Mall of Russia rather than traveling beyond the MKAD.” Currently, the consultants are holding talks with major anchors for spaces between 1,500 - 6,000 sq m. Lease agreements will start at 5 years. Ms Kluchinskaya predicts that the complex will not encounter any competition from the shops in the stylobate zones of the office towers. “Traveling all of 100 meters to the center of the MIBC, employees will find shopping at a different quality levels with an incomparably wide selection.”
Yulia Nikulicheva estimates that the average fixed lease rate at the MIBC is in the area of $800-1000 per sq m a year (for restaurants – $500-600). “Business districts with similar zoning exist in the center of Toronto and elsewhere. True, the stand-alone two-floor shopping center (GLA around 30,000 sq m) at Paris’s La Defence is experiencing trouble with visitor volumes on weekends. It is likely that Moscow-City overdid it a little with retail, and the developers should coordinate their efforts to balance out this component,” believes Nikulicheva. The developers will have to attract clientele to their own retail areas by means of unique brands with separate entrances, as well as separate passageways for cars. “It is necessary to have bright boutiques with goods for the impulse buyer, restaurants with big windows, new brands and big bookshops, dry cleaners and beauty salons, with the minimum restriction to outside access,” says Nikulicheva. The expert named Alle Parusa (belonging to “Don-Stroi) as an ideal supermarket operator for the tower. Currently, JLL consultants are assisting Mirax Group with leasing out 5,800 sq m of retail space in the Federation tower on the 1st, 2nd floors and the ground floors.
For the new Moscow Ring (60 high-rises slated for completion by 2015, in the middle and periphery beltways of the city), Andrey Bushin thinks it makes sense to set up typical shopping centers with strong recreational components that do not necessarily need natural lighting. “However, operators in the cinema industry more and more often have demands regarding the height of the ceilings. Also, they need to have a minimum of two floors beneath them, which can be above ground or below,” he says. Mr Bushin furthermore believes that the new MFCs will come with a stronger fitness component than usual. There are also smaller projects with plans for retail components. For example, the company Stroiprogress, according to Konti, plans to build three hotel-office-retail towers, with a total area of 300,000 sq m in the Vladykino industrial area, on the Altufeevski Highway.
One of the key features to brand formation leading to retail success at a skyscraper is a clear and precise system of signage and navigation. Roman Tikhomirnov believes that that it is a mistake to think of the Russian shopper as lazy. “The shops inside skyscrapers will become strong competitors with nearby boutiques and shopping centers, and an accurate system of navigation will bring the shopper to the right products.” Neil Whitehead, however, disagrees. “The consumer is actually lazy! Even in a skyscraper, the main retail area should be located no higher than the first 2 or 3 floors.” Andrei Bushin supports this argument. “The highest shopping center in Moscow is six floors, and it is not particularly popular.” However, it is possible to have several specialized shops and a fitness facility part of the way up a building. “Already, at the current phase of building at the MIBC, problems are cropping up with parking availability, which could have an impact on the choice of format at the shopping mall,” observes Bushin. Mr Whitehead thinks that the parking at this tower should be underground, and that it should have multiple levels, all shared by the different parts of the building.
The breathtaking panorama from the upper levels will be a main attraction for restaurant clientele. There are many precedents, from the Hilton Hotel at Park Lane in London, to projects in Dubai and Singapore. It is always difficult to plan and operate a panoramic restaurant from the standpoint of logistics and ventilation systems. “In a round-shaped restaurant facility, it is necessary to set up the kitchen either in the center of the building floor, or on a different floor altogether, thereby moving it away from the panoramic view,” recommends Bushin. "This will allow for more tables with a view. Also, it is possible to combine the restaurant elevator with the hotel elevator in addition to the two service elevators, which are needed for product deliveries and waste removal. “One incredibly important detail is fire safety – especially after the memorable events of September 11!” recalls Mr Whitehead. “When planning restaurants on different levels, it is important to keep the number of columns to a minimum, and to provide for good daytime lighting.”
The achilles heel of skyscrapers remains the status of the highly-elevated number of storeys, that is, the vulnerability of the upper (15 and up) floors in the event of a fire. Expenditures on fireproofing systems can reach as much as 10-15% of the overall cost of the project. “But the reality is that there is no proper control over the condition and servicing of these systems,” says Ilya Spektor, general director at Spider Rescue Systems. “Frequently, mistakes are made with layout plans, and the majority of buildings are equipped with antiquated sprinklers with a hot-seal lock. There was one incident with a fire on the 25th floor of a building on Sentulski Proezd. This happened overnight on November 19, 2005, all of two months after the scheduled checkup of the fireproofing system. As it happened, the system was unable to provide a flow of water to the fire sprinklers, and the only fire truck in Moscow with a hydraulic lift to a height of 90 meters (to the top of the 27th floor) arrived only three hours later.”
Those who are shopping in the retail area are usually not tennant in the building, and will succumb to panic faster than the office occupants, who are trained in fire drills. Nevertheless, smoke allows for all of 28 seconds of deliberate movement. You cannot use a regular elevator during a fire, while the elderly or pregnant probably cannot run down a stationary fire stairwell, even if the latches between the connecting balconies are not locked up or otherwise jammed with big cupboards. Compact, mounted stairs and rescue systems made of rope are not suitable for high-rises. Extendable fire stairwells no more than 52 meters in length secure the evacuation of one person from a height as high as 30 meters -up to and including the 16th floor. Following a deal with the city fire department, the company Airo Kamov furnished the city of Moscow with three fire helicopters, capable of rescuing people from rooftops and balconies, but not from windows.
It is possible to evacuate yourself from a height up to 300 meters only by using individual means. 'Sleep-evacuator', 'KSG-1' and 'KSR-3' systems, like the majority of cable-drops ('Bars', YS-E-16 and others), require special preparation and rarely help at a height above 60 meters. The inflatable 'Life Cube' device and other absorption devices cannot be used above the 5th floor, while parachutes (such as the Arco Aviation, Evacuator, or the Kazan 'MVEN') require aerial preparation on the part of the victim. Descent arms, which may be installed during construction, take up a great quantity of open space around the building, and require a high degree of awareness from victims. A stationary collapsing lift, from the Israeli producer Escape Rescue Systems can serve a 40 storey building and costs $2 m. The Glideshoe steel rail is only accessible from the adjacent windows, while the Automatic Rescue Climber (ARC) is still in production. Some systems have been recognized as reliable for evacuations from high up. They include the built-in DoublExit system (to 350 m) and the Israeli 'Spider' (to 150 m, Moseroth Technologies Ltd.), with a built-in regulator for the speed of descent. “All you have to do is take out the rescue harness, which is fixed to a steel beam by a pulley, put it on, and hook up to a carabineer with an anchor rim-bolt on the ceiling, and then calmly go out the window,” consults Ilya Spekter. Unfortunately, project authors cannot make use of such devices in the planning stage as there are no regulatory documents, although existing construction norms and rules ('Fire safety for buildings and facilities') explicate 'the preeminence of requirements oriented toward securing the safety of people in the event of a fire, relative to other fire safety requirements'). In the Moscow City Construction Regulations, (4.19-2005 “Temporary norms and rules for the drafting of multifunctional high-rise buildings and complex buildings in the city of Moscow”) the requirement to utilize individual means of evacuation is not explicit. The investors themselves do not wish to spend money on rescue equipment.”
The task of organizing the flow of people, parking, area zoning, and safety at a multi-functional complex rests on the shoulders of specialized companies such as Eller+Eller. “They have the necessary experience, which allows them to perform the appropriate anlysis and make the right provisions while still in the drafting phase,” says Mr Tikhomirnov.
Skyscrapers take up very little land when compared to the amount of retail space they van provide. As a result, says Mr Whitehead, the developers strive to get the maximum amount of profit out of every square meter that is available for retail use. Other sources verify that the high level of competition among Moscow BCs is leading the proprietors to expand the infrastructure of business complexes, at the expense of retail.
Retail: Commercial Real Estate, #10 (93)
16 May 2008