Patience is key for investors as market conditions in Ekaterinburg's street fashion scene undergo changes
Hopping on the Street Retail Wagon in Yekaterinburg, Russia
The world of street retail has become a hotbed for private investors, especially in Yekaterinburg. The city's center is experiencing a surge in demand for ground-floor retail spaces due to a limited supply in the business center segment. Let's delve into the factors driving this segment of commercial real estate, the key players, and how investors can maximize profits.
Fresh Facades, Fresh Ideas
Igor Stakhéev, Chair of the Commercial Real Estate Committee at UPN, notes that major changes in the street retail market don't happen frequently, but when they do, they stir up the competition. The past couple of years have been relatively calm for the market, although foreign tenants largely steered clear of ground-floor spaces, preferring shopping centers. Surprisingly, Russian operators swiftly filled the void left by their international counterparts.
Andrey Braude, the director of Managing Company RED, points out that grocery stores, alcohol markets, banks, and pharmacies were long-time tenants of ground-floor spaces. However, in recent years, bank branches have closed due to centralization. Instead, we've seen an influx of marketplaces, small cafes, and sushi points. The need for quality infrastructure on the ground floors has grown as housing density increases, with city dwellers seeking a variety of stores and pharmacies without long queues.
Franchisees now occupy a significant portion of street retail spaces, with examples such as "ZhiznMart" and Piv&Ko expanding their network in Yekaterinburg through franchising. Another trendy format gaining popularity is convenience stores, as retailers opt for smaller spaces, like Monetka's 173 sq.m store. Meanwhile, the number of optical salons and butcher shops is on the decline. While alcohol stores still claim a significant number of spaces, stricter rules for selling alcohol in residential buildings could potentially reverse this trend.
Retail investors must stay vigilant, watching these trends closely and preparing for potential market changes.
Real Estate Rising, Rent rising with
Not just the city center, the surrounding areas are witnessing the growth of commercial spaces alongside housing construction. Developers typically allocate around 5% of the total residential area for commercial use on the ground floors. However, only those who focus on business class and higher housing make an effort to plan a pool of tenants from the beginning, aiming to provide residents with high-quality goods and services.
Rental prices have seen a significant hike since early 2022 due to rising interest rates. In the past two years, the price per square meter of commercial spaces on the ground floors has increased by 40-100% depending on the location. Currently, many properties in Yekaterinburg are being sold at prices ranging from 180,000 to 200,000 rubles per sq.m. Two years ago, the average rental rate was around 800 rubles per sq.m, but now it hovers between 1,200-1,500 rubles. Premium spaces in top locations cost around 5,000 rubles per sq.m now, compared to 2,500-2,600 rubles two years ago.
Even new city areas are experiencing high rental rates, with commercial spaces in the Solnechny district currently being rented at 2,500 rubles per sq.m. Igor Stakhayev once said that if similar increases had been predicted five years ago, he wouldn't have believed it. As more inexperienced investors pour into the market, it's crucial to plan for a payback period of at least 10 years and carefully consider the profitability of real estate investments.
Those who invested early in the development of new city areas have seen substantial returns, with rents that were previously 500 rubles per square meter now commanding 3000 rubles per square meter in places like the Academic District. Andrey Braude advises that, given the current market situation, the role of property management companies in this segment will grow in the coming years.
Investors should approach street retail with a long-term vision, adapting to evolving market trends and embracing innovative strategies such as diversification, sustainability, and e-commerce integration to secure their success in this dynamic market.
- With a surge in demand for ground-floor retail spaces in Yekaterinburg's center, business investors are keenly exploring the street retail market to expand their portfolio.
- The influx of marketplaces, small cafes, and sushi points into street retail spaces has been a notable trend, leading to increased demands for quality infrastructure on the ground floors.
- As rental prices rise, investors must carefully consider their payback period, noticing that inexperienced investors may face challenges in the growing street retail market, especially in new city areas that show promising growth.
- To maximize profits and adapt to the ever-evolving street retail market, long-term vision, strategic planning, and embracing innovative concepts like diversification, sustainability, and e-commerce integration are crucial for investors in Yekaterinburg.
