Kiev Retail Market Overview - JLL Україна · • Local retail chains explore new business areas: Franchising The owners of the restaurant chains Mafia and Casta plan to open

Kiev Retail Market Overview

Q2 2014

JLL – Kiev Retail Overview – Q2 2014

Kiev Retail Market Snapshot, Q2 2014

2

Supply

Quality shopping centre stock* 753,400 sq m

Completions, Q2 2014 30,200 sq m

Quality shopping centre stock per 1,000 262 sq m

Vacancy rate 8.2%

Announced completions, H2 2014 39,000 sq m

Finance conditions

Prime shopping centre base rent** USD960 sq m/year

Prime street retail base rent** USD2,160 sq m/year

Operating expenses USD90-120 sq m/year

*Stock data was updated by clarifying GLA in some objects

**Rents are given for a single unit of 100 sq m GLA located on the ground floor of a retail gallery. Rents exclude VAT and OPEX.

Supply: Real Estate Development


Supply Dynamics, Kiev

4

In Q2 2014 only SEC Atmosfera (30,200 sq m GLA) entered the market.

Till the YE2014 we expect only SEC Prospect (39,000 sq m GLA) opening.

We suppose that 2014 completion will be 38% less than for the 2013 and will amount 69,200 sq m.


European Shopping Centre Stock Benchmarks

5

The retail real estate market in Kiev is still undersaturated compared to other cities of Europe.

We assume that for the YE2014 the total retail stock will grow only by 5% up to 276 sq m per 1,000

inhabitants.

Total stock* Stock per 1,000 inhabitants, Q1 2014

*Data for all cities except Kiev, St. Petersburg and Moscow are given for Q4 2013


Map of Shopping Centres in Kiev. Existing Supply

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Neighborhood

Community

Regional

Superregional

Specialty

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8 9

11 12

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№ Name GLA Year

1 Globus 19,200 2002

2 Karavan 40,000 2003

3 Magelan 22,000 2003

4 Mandarin Plaza 10,400 2003

5 Ukraina 22,200 2003

6 Alta Center 16,000 2004

7 Promenada Center 17,800 2004

8 Aladdin 10,200 2004

9 Piramida 12,600 2004

10 Plazma 17,500 2006

11 Bolshevik, Phase I, II, III 43,0002006;

2007; 2009

12 Komod 7,600 2007

13 Arkadia (former Materik) 15,800 2007

14 Sky Mall, Phase I, II 68,700 2007; 2010

15Arkadia on Dneprovskaya

quay (former Materik II)18,400 2008

16 Kvadrat Aurora 19,000 2008

17 Darnitsa 5,800 2008

18 Promenada Park, Phase I, II 43,000 2009, 2010

19 Dream Town, Phase I, II 90,000 2009; 2011

20 inSilver 10,200 2011

21 RayON 24,100 2012

22 Ocean Plaza, Phase I 69,000 2012

23 Poliarnyi 8,600 2012

24 Silver Breeze 14,600 2013

25 Gulliver 45,500 2013

26 Manufactura, outlet center 15,000 2013

27 Art Mall 37,000 2013

28 Atmosfera 30,200 2014

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Map of Shopping Centres in Kiev. Future Supply

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1

5

6

2

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19

9 20

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30 31

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Neighborhood

Community

Regional

Superregional

Outlet center

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№ Name GLA Year

1 Prospect 39,000 2014

2 Respublika 135,000 2015

3 CUM 22,500 2015

4 Retrovill 91,300 2015

5 Lavina Mall, Phase I 115,500 2015

6 BlockBuster Mall 93,700 2015

7 Lukianovka 47,100 2015

8 Podol 23,000 2015-2016

9 Hartz 95,180 2016

10 Kiev IDEAL 35,000 2015-2017

11Ocean Plaza, Phase II

(Oceal Mall)45,000 2016-2017

12 Petrovka Moll n/a n/a

13 Kiev City Mall n/a n/a

14 Leninskaya Kuznitsa n/a n/a

15 Avenue n/a n/a

16 Kiev MAll n/a n/a

17 River Mall n/a n/a

18 Vyrlytsia n/a n/a

19 Manhattan Mall n/a n/a

20 Akademia Paladina n/a n/a

21 Sky Mall, Phase III n/a n/a

22 Nivki City n/a n/a

23 Happy Mall n/a n/a

24Kiev E-95 outlet centre,

Phase In/a n/a

25 GorodOk, phase II n/a n/a

26 Mall of Ukraine n/a n/a

27 Forum Plaza n/a n/a

28 Univer City n/a n/a

29 Kvadrat on Lesnoy n/a n/a

30 Boulevard on Pozniaki n/a n/a

31 Amstor n/a n/a

32 Sovskie Prudy n/a n/a

33 SC on Kollektorna St. n/a n/a

34 City Shchaslivoe n/a n/a

35 Detskiy Mir, Phase II n/a n/a

36 Central bus station n/a n/a

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Retail Stock Breakdown by Districts

In H1 2014 30,200 sq m entered the market in Goloseevskiy district and 39,000 sq m is expected in Desnianskiy

district for the YE2014.

Goloseevskiy districts is the most saturated (716 sq m of GLA per 1,000 inhabitant).

Quality stock per 1,000 inhabitants, sq m* Quality retail breakdown by the districts, sq m*

*In Podolskiy district quality SC/SEC supply is absent

8

Demand: Consumer Sector and Retailers

Activity


Wages and retail Turnover in Ukraine

National currency devaluation (in January-June 2014 around 48%) and limited ability of the government to use fiscal stimulus

caused the narrowing of domestic demand.

In January-June 2014 retail turnover growth was at 0.8%, which is comparable to mid 2010 and is significantly lower than for the

same period last year (11.2%).

For the first time since late 2009 real wages growth rate in Ukraine has became negative. In January-June real wages fell by -0,4%.

Source: Ukrstat

Wages and retail turnover, real growth, %, YoY

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Wages and Retail Turnover in Kiev

For the first time since H1 2010 the retail turnover growth rate in Kiev has became negative. In January-June

2014 the retail turnover fell by 4.6% (YoY).

In January-June 2014 real wages fell by 0.7% (YoY).

Source: Ukrstat

Wages and retail turnover, real growth, %, YoY

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Retail Chains on the Market: Anchors

In H1 2014 new formats entered the market: Intertop Outlet.

The hypermarket chain Tam-Tam is planning to enter Kiev market. Top Secret plans to develop the chain of stock shops.

12

Type Key Retailers Format

Food

Amstor, ATB Market, Billa, Furshet, Fora, Kray, Silpo, Eko-market, Velyka

Kyshenya, Cosmos, Topmart, Novus, VARUS Supermarket

Auchan, Fozzy, Metro, MegaMarket, Krayina, Karavan, Novus Hypermarket

White & brown Foxtrot, Eldorado, Comfy Multibrand

Cinema Butterfly, Liniya Kino, Multiplex, Odessa Kino, Oscar, Planeta Kino IMAX,

Cinema City, Kronverk Cinema Multiplex

DIY Novaya Liniya, Epicentre, Leroy Merlin, Praktiker DIY

Fashion Marka Ukraina, Delta-Sport, Inditex Group, LPP Group, LC Waikiki,

New Yorker, Mango

Multibrand/

Monobrand


Retail Chains on the Market: Retail Gallery

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Type Key retailers Format

Fashion

Benetton, Bershka, Cacharel, Calvin Klein, Colin's, Cropp Town, Diesel, Gant,

Guess, House, Lacoste, Lerros, Mango, Massimo Dutti, Mohito, Motivi, OGGI,

O’stin, Oysho, Phard, Promod, Pull&Bear, Stradivarius, Tommy Hilfiger,

Topshop/Topman, US Polo Assn.

Monobrand

Perfume and cosmetics Cosmo, Eva, Watsons, proStor, L’Etoile, Bonjour, Brocard, L’Occitane, MAC,

Bomond, Yves Rocher, Glossary Monobrand/Multibrand

Sports goods Arena, Adidas, Columbia, Nike, Puma, Reebok, Sportmaster, Sportland,

Megasport, New Balance, Northland, Marathon Monobrand/Multibrand

Shoes Aldo, Antonio Biaggi, Carlo Pazolini, Centro, Chester, Ecco, Egle, Geox, Luciano

Carvari, Respect, Tosca Blu, Welfare, Intertop, TsentrObuv, KARI, Plato Monobrand/Multibrand

Goods for children Antoshka, Budynok Igrashok, Planettoys, Pelican, SMYK, Tigres, Chicco,

Mothercare Monobrand/Multibrand

Books, music KS, Chitay-gorod, Empik Multibrand

Accessories, jewelry, gifts Accessorize, Almaz, Attributes, Clair’s, DEKA, Diva, I am, LuxOptika, Pandora,

Seta Décor, SIX, Swarovski, Swatch, WOW shop, Sekunda Monobrand/Multibrand

Food-court Coffee House, Pechena Kartoplya, SushiYa, Shokoladnitsa, Yapona Hata,

L’kafa, Mafia, McDonald's, McFoxy, Kredens Monobrand

Mobile phone Ringoo, Allo, Mobilochka Monobrand/Multibrand

Source: JLL


Retail Chains on the Market: Franchising vs. Direct Market Entry

• Local retail chains explore new business areas:

The owners of the restaurant chains Mafia and Casta plan to open seven sushi markets under the brand “Sushi Market” stores.

Fozzy Group plans to develop the travel agencies chain under the brand “Silpo Voyage”. The first travel agency office was opened in Q2 2014.

• In H1 2014 the following retailers leave the Ukrainian market: Bosco Sport, Spar, Perekrestok, OBI, Minelli, Esprit

• Helen Marlen Group reduced the number of stores and focused on its online store.

• M&A:

Baltika Group sold its Ukrainian division “Baltika Retail” (17 stores under the brands Monton, Mosaic) to Osaühing Ellipse Group

Empik Media & Fashion Group, the owner of Maratex company (Esprit and River Island stores chains), putted on sale River Island stores chain.

14

Franchising Direct market entry

Retail gallery operators

Marks & Spencer GAP

Inditex

Zara

s.Oliver New Look Massimo Dutti

Mango OGGI Bershka

Guess Karen Millen Stradivaius

Promod Tommy Hilfiger

LPP Group

Reserved

Accessorize Naf Naf Cropp Town

Befree Jennyfer Mohito

United Colors of

Benetton Desigual House

Mothercare Cacharel Baltika Ukraine

Monton

Oasis Sisley Mosaic

Love Republic Nike New Yorker, Adidas, Motivi, Kira

Plastinina, Mango Orsay Claire’s

Luxury retailers

Dolce & Gabbana, Valentino, Yves Saint

Laurent, Philipp Plein, Burberry

Dior, Louis Vuitton, Chanel,


Newcomers to Kiev Retail Market

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2013 Future 2012

Jack Wolfskin, LC Waikiki,

Hadley, Black Star Shop by

Timati, Z-Generation, Petit

Bateau, Collezione, Cinnabon,

Style Avenue, Panty,

Yamamay, SmartGuy Group (e-

commerce), Camper, DESEO,

Texas Chicken, Coyote Ugly,

Antica Murrina, Fabs, Versace

Collection, Nautica,

Camicissima, Vogue Café

Entered the market Plan to enter

SinSay, Violeta, Cortefiel,

Mega Ice, Vapiano,

Subway, Zara Home,

Mango Megastore (H.E. by

MANGO, MANGO TOUCH),

Converse, Helly Hansen ,

Peacocks

Prada, Valentino, Dolce & Gabbana,

Baldessarini, Agent Provocateur,

Oviesse, Diesel, Napapijri, by paprika,

Michael Kors, Reiss, Denis, Why Denis,

Marina Rinaldi, Patricia Pepe, MaxMara

Weekend, Strellson, Cinque, Stefanel,

Stones, Rebecca Sanver, Furla, s.Oliver,

TJ Collection, Suvari, Suiteblanco,

Caterina Leman, bebe, Armani Jeans,

Armani Collezioni, Atelier, Formarina,

Karma of Charme, Evita Peroni, Amstor,

Real, Happylon,Cinema City, Kentucky

Fried Chicken, Hesburger, Kredens Cafe

Pedro del Hierro, Star

Burgers, Rоdizio, Keddo,

Calzedonia, Lamoda (e-

commerce), Bottega

Verde, Glossip, Paul,

Alberta Feretti

H1 2014

In Q2 2014 it became known that H&M, Decathlon and Body Shop postponed entering the Ukrainian market.

Violeta, Mega Ice, Zara Home have announced openings in SEC Respublica, the commission of which has

been deferred to March, 2015.

Market Balance


Vacancy Rate Dynamics, Kiev

17

Vacancy rate in Q2 2014 was 8.2% that is 190 bps more than for Q1 2014.

We attribute much of this high vacancy rate to the following factors: new supply in Q2 2014, low

occupancy dynamic of some new shopping centres and high vacancy rates in shopping centers

located near areas where there have been political demonstrations in late 2013 and at the beginning

of 2014.


Prime Base Rents: European Benchmarks

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In Q2 2014 Kiev prime base rent decreased up to USD960 sq m (excluding VAT and OPEX) and became one

of the lowest among European capital cities rents.


Base Rents by Tenant Format, Q2 2014

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Profile Area, sq mRental rate, USD/sq

m/monthRental rate USD/sq

m/year

Hypermarket > 7 000 8–14 90–170

Supermarket 1 500–5 000 15–25 180-300

DIY 8 000–15 000 7–10 80–120

Cinema > 2 000 8–11 90–130

Entertainment > 700 6–10 70–120

Food-courts 40–90 45–60 540-720

Restaurants 250–600 20–30 240–360

250–450 45–60 540–720

50-100 60–70 720–840

> 1 500 12–18 140–220

< 300 30–40 360–480

> 1 000 15–20 180–240

300–600 20–30 240–360

70-250 30–40 360–480

Household goods < 2 000 10–12 120–150

1 000–2 000 15–20 180–240

300–600 25-35 300-420

150–300 35–50 420–600

100–150 70-80 840-960

Sporting goods

Goods for children

Fashion and apparel

White & brown < 2 000 15-20 180-240

Perfume and cosmetics

• In H1 2014 prime rent decreased to USD960 sq m due to the national currency devaluation, consumer spending activity reduction and retailers development plans optimization.

• Due to the overall economic situation in the country in H1 2014 the retail real estate market was faced with a new market practice where many f landlords and tenants agreed individual conditions for rental rates.

• Forms of individual agreements:

Rent fixing in Hryvna

Rental discounts (commeasurable with Hryvna devaluation rate)

Partial rents shift to the % of turnover

• Terms of individual agreements: 1-3 months.

• Rents in existing malls under the signed lease agreements for the H1 2014 have not changed since the end of 2013. Thus, the prime base rate under the contracts remained stable at USD1,200 sq. m/ year. At the same time, due to the individual arrangements, we see a significant decline in rental payments. That is why we consider the prime rent at USD960 sq m/year for Q2 2014.


Standard Lease Terms for retail Premises

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Kiev

Lease length Retail gallery: 3-5 years;

Mini-anchor tenants: 5-7 years;

Anchor tenants: 10-15 years.

Payment terms Fixed;

Combined (3-5% for anchor tenants; 10-15% - retail gallery);

rare % of turnover (for anchor tenants)

Rental deposit Deposit: 1-2 months.

For anchors: bank guarantee 1-3 months.

Rental indexation USD (rare Euro): CPI minimum – 3%.

Rent increases my be pre-agreed for several years; afterwards a CPI indexation is

applied.

OPEX 90-120 USD/sq m/year.

Other payments VAT – 20%.

Street Retail

JLL – Kiev Retail Overview – Q2 2014 22

Street-retail Kiev, Q1 2014

*Rents are given for a single unit of 100 – 150 sq. m GLA with basic repairs. Rents exclude VAT.

Demand and prime rents dynamic

- decreasing - increasing - constant

SubmarketRetail

corridors/zones

Kreshchatyk st.

Passag

Arhitectora

Gorodetskogo st.

Bolshaya

Vasilkovskaya st.

Lesi Ukrainky blvd.

Bohdana

Khmelnytskogo st.

Saksaganskaya st.

Tarasa Shevchenko

blvd.

Basseinaya st.

Pozniaky

Obolon'

Teremky

Sviatoshyno

Rezidential

area25-40

DemandPrime rents*,

USD/sq m/month

Center 1 150-180

Center 2 50-70

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Kiev Retail Market Overview - JLL Україна · • Local retail chains explore new business areas: Franchising The owners of the restaurant chains Mafia and Casta plan to open