The creation of large—scale commercial blocks as part of residential complexes or even the construction of freestanding shopping malls is an increasingly frequent development solution, especially in Moscow. What is it dictated by? And what should be taken into account so that you don’t regret it later?
Recently, the shopping center “ZOOM. ZILART department store”, which is part of the ZILART project and occupies four floors of one of the residential buildings, was presented to the capital’s real estate market. The developer of the new shopping center is the LSR group, which implements ZILART on the site of the former Likhachev plant, and Karat Group took over the development of the concept, brokerage and subsequent integrated management of the shopping center. Department store with a total area of 30 thousand square meters (including a large-scale food hall “ZILART Food” with 18 food outlets of various gastronomic concepts and an underground parking for 250 places) It will open in the fourth quarter of 2024: it is expected that more than 15 thousand people will visit it daily.
The presentation of the new shopping center — by the way, the first object of this format for the LSR group and the first experience of the developer’s collaboration with the Karat Group Management Company – gives an occasion to talk in more detail on the topic “Retail space as part of residential complexes”. Of course, ZILART is by no means a classic residential complex, and ZOOM is also far from an ordinary shopping facility designed for residents of neighboring houses and a couple more neighboring ones. Evgeny Zavorotnov, General Director of the Karat Group Management Company, calls it a regional shopping center, in which serious transit traffic will be formed thanks to the internal and external infrastructure of the district.
The Collection Museum and Exhibition Center, the CSKA ice arena, perhaps the largest school in Russia for 2,500 students, the ZIL water area are not all the objects that bring a lot of people to ZILART, potential visitors and buyers of the department store, whose ambitions clearly overlap the district scale. At the same time, Yevgeny Zavorotnov is sure: after all, the concept of a district shopping center is radically different from the regional and super-regional format of a shopping center.
Evgeny Zavorotnov, General Director of the Karat Group Management Company, “First of all, the district shopping center is designed to cover the primary needs of residential complex residents, therefore, food and service operators prevail among the tenants of the facility, which on average occupy 50-60% of the GLA of the facility. In large shopping malls, the main areas are occupied by players in the fashion and entertainment directions. It is also important to note the difference in qualitative and quantitative indicators of site attendance. The traffic of the district shopping center is limited to residents of the area in which it is located, while it is easier to predict the qualitative and quantitative attendance of such projects. The average traffic of a district shopping center is 10-15 thousand people per day, and the frequency of attendance at such facilities is several times higher than in large shopping centers. When coming to a district shopping center, a visitor knows what services and goods he needs, respectively, the time spent in such shopping centers is lower than in large ones. And the probability of an impulse purchase is also low. And, of course, it is important to note the technical aspects and coordination issues. For example, in order to coordinate the media facades on the building of the house, we asked permission from the residents of the house, called a meeting of the owners and drew up a protocol of the OSS. Large shopping malls are most often located at a distance from the residential area and do not face such moments when agreeing.”
Probably, given the scale of Zilart, the question of why the developer was not satisfied with the retail infrastructure on the ground floors, but decided to build a whole conceptual shopping center under separate management, in this case, you can not ask. Well, in general, do residential complexes often have built-in retail units or even free-standing commercial buildings? Yes, says Denis Kolokolnikov, managing partner of RRG: in modern projects, developers are increasingly creating commercial infrastructure that exceeds the standard concepts of the first floors. These can be stylobates, two- or three-storey “jumpers” between buildings, free-standing multifunctional, sports and leisure or shopping centers. And the implementation depends on two factors.
Denis Kolokolnikov, Managing Partner of RRG, “The first is the need and marketing justification for creating a shopping center or a larger object. The second is the creation of places of employment, which, for example, in Moscow allows a developer with a shopping center area of over 5,000 square meters to receive benefits for changing the type of permitted use (VRI). It is a common practice when developers build housing, and the site for a shopping center is sold to a third-party investor who independently implements it. The reason for creating such facilities is that there may not be enough commercial infrastructure in the environment, and due to regulations, placement on the ground floors is not always possible for tenants such as fitness centers with swimming pools or full-size supermarkets – they need a separate building. The same applies to large tenants such as clothing stores, shoe stores and restaurant operators: they prefer to work in shopping malls where food courts and other large-format spaces can be placed. Another popular format that we are actively working with is thermal baths, which require a swimming pool, which cannot be placed in a stylobate or on the ground floors. Large medical and sports centers, creative spaces — all this, as a rule, is also located in separate buildings.”
Pavel Lyulin, Vice President of the Union of Shopping Centers, agrees: individual shopping centers within the residential complex are becoming an increasingly popular development solution. This is due to the growing demand for shopping and entertainment within walking distance from home, and the LCD is just a product with the need to create a comfortable living environment.
Pavel Lyulin, Vice President of the Union of Shopping Centers, “Unlike shopping centers, commercial premises on the ground floors often work without a concept, and you can easily get a line of liquor stores, pharmacies, PVZ and other tenants with high fees, while in-demand, but less solvent tenants (entertainment, social) are not at cases. Therefore, by building a shopping center with a concept and professional management, the developer complements the residential complex as a product, and can also then sell the object or extract rental income. In addition, a substantial discount on the replacement of the land plot, which is provided by the construction of shopping centers in Moscow, allows you to partially pay for the construction of the building. It should be noted that the district shopping center inside the residential quarter becomes a magnet for its residents and thus provides itself with traffic. I think this practice will continue. This is due to the general trend towards the creation of multifunctional spaces and the development of the “city within a city” concept, which meets the needs of modern consumers. The integration of trade, services and public spaces into residential complexes increases their competitiveness and creates attractive living conditions.”
Denis Kolokolnikov estimates that a well-designed commercial infrastructure can account for up to 20-25% of the LCD product and increases the liquidity and cost of apartments. “Another question is how well it is configured and implemented. For example, another segment that we have been working with for ten years is parking. I believe that it is necessary at the legislative level to prohibit parking on the ground floor in a multi-storey building, as this is ineffective. It is better to involve these areas in commercial activities, which will allow you to pay for parking and create additional jobs. What can be placed on the ground floors instead of parking? Sports facilities, supermarkets, light industrial, dark store, dark kitchen, workshops, car services and so on. These places can become a local shopping center if it is not possible to build a separate one nearby,” the expert is sure.
But Nikita Kornienko, CEO of the commercial real estate investment platform Simple Estate, has no doubt at all: the developer decides to build a shopping center if he can make money on it. “The key parameter here is the possibility of selling, not the need. Construction is more likely to begin if there is a specific buyer or the developer believes that he will find it and earn it. The decision may also be influenced by the results of marketing research and the level of demand for commercial premises in general,” the expert shares his thoughts.
Nikita Kornienko, CEO of the commercial real estate investment platform Simple Estate, “A separate shopping center is trying to accommodate everything that is needed in the area of its location. At the same time, the shopping center inside the residential complex should take into account the presence of street retail around and offer those functions that are not represented in it. For residents, more often than not, the more retail space, swimming pools, fitness centers and everything else, the better. But there must always be a golden mean. If there are too many retail premises in the residential complex, and there is also a separate shopping center “from above”, some tenants simply will not enter such a market, they will not open due to high competition and the potential loss of the point. Others will open and close. As a result, there will be a pool of low-quality tenants in the residential complex, because the good ones simply will not go there, and the dominance of undesirable and unstable tenants can play a cruel joke with the tenants.”
According to the observations of the interlocutor BFM.ru the presence or absence of a shopping center has a very indirect effect on housing, its sales and cost. “Retail infrastructure is an important factor for buyers, but not the key one. Who decides to buy an apartment because there is a shopping mall nearby? Conversely, who would reject this idea because of his absence? Social infrastructure is much more important: kindergartens, schools. But they are everywhere now, so this is also not a competitive advantage,” Nikita Kornienko emphasizes.
And here’s another thought he expresses: “For me, as a buyer of commercial real estate in street retail, the presence of a shopping center in a residential complex is a negative factor. The shopping center makes the residential complex less attractive for investment. During construction, the developer must understand how much money he will lose on the sale of street retail, how much more difficult or cheaper it will be to sell premises of this format. The emergence of competition is inevitable, and tenants will make a choice based on the size of the rate. The developer makes decisions based on his financial interests. If it is profitable to build, it will be built. If he loses more in street retail than he earns in the mall, he won’t do it.”
The uniqueness of each residential complex also needs to be taken into account, Nikita Kornienko notes. “There are complexes in which there is no commerce on the ground floors, only apartments. A shopping center will be very useful here, because there is no retail infrastructure in fact. The shopping center is great for residential complexes that are located right at the exit from the subway: in this case, it is aimed not only at residents, but also at subway traffic, so it does not compete with street retail. The reverse example is one of the low—rise projects in New Moscow: few people, few apartments and a huge amount of commerce. The entire ground floor consists of commercial premises, adjacent outbuildings, several small freestanding shopping centers and one large one at the entrance to the residential complex. The worst residential complex for commercial real estate investments. There is a huge competition — 33 supermarkets per square meter. Poor owners and poor tenants, I sincerely feel sorry for them,” the expert admits.
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What do developers think about this? What explains the choice of those who decided to take a step away from the standard retail infrastructure of the first floors in their residential complexes? And did they regret this step later? We’ll talk next time.
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