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15.01.2021

When the coronavirus finally recedes, we will see who was bathing without pants

All segments of commercial real estate are experiencing the pandemic and the economic crisis in different ways. Hotels and shopping centers have been hit the hardest. Offices are doing well due to long contracts, although co-working spaces are stepping on their toes. Apartments have even managed to earn on self-isolation, and warehouses have increased demand created by online commerce, that they overtook the most optimistic analysts’ forecasts. “New Prospect” discussed the results of the past year and plans for the next year with players from different segments of commercial real estate in St. Petersburg.

Dmitry Kiselev, co-founder of Okhta Group:
- In short, 2020 was a bad year for commercial real estate. Commercial real estate, of course, suffered most of all, while retail real estate did not suffer so much, although demand decreased. Many companies (including us) reduced office size through desk-sharing, but I didn’t hear from anyone about a radical move to remote work forever. The format of flexible offices - co-working spaces - has begun to gain popularity. Landlords became more flexible - what else can they do? And tenants, especially retail tenants, drastically reduced their planning horizons.
Remarkably, there are a lot of investors willing to invest in commercial real estate on the market, but there are few good offers for them. To answer the question of what will happen in 2021, we can only quote a character from the movie Carnival Night: "Whether there is life on Mars, whether there is no life on Mars, science does not know". This is a question for the epidemiologists. Our plans are simple: develop current projects and make new ones. The pandemic won’t las forever, so the groundwork has to be provided.

Alexandra Selezneva, Commercial Director of Orientir Group:
- In 2020, warehouse real estate showed sustainable growth, remained active and accelerated qualitative development. The main driver of this growth was e-commerce. It grew sharply in volume from 4-5% to 10% and began building logistics and storage infrastructure. We are talking not only about online retailers, but also about classic trading companies, which, following modern trends, are increasing their logistics efficiency and adding additional storage capacity. In St. Petersburg, we would like to highlight the commissioning of a 70,000 m2 distribution centre for Lenta in the M-10 industrial park by Orientir.
Traditional retail and e-com upgraded and expanded their storage and fulfilment infrastructure, mainly through a build-to-suit scheme, which has become one of the main trends of the last year. Also, among the trends we can highlight the growth of investment attractiveness of the storage segment. During the year, investments in warehouses accounted for one third of total investments in real estate. It is a record. We observe new investors arrival and a growing appetite for leased quality warehouses against the supply shortage.
The future of the storage market is in online companies and automation. Firstly, we can see this trend in Europe, the US and Asian countries. Secondly, the Russian online retail market, despite its growth in 2020, is still very far from its potential capacity. In the coming years we will see significant growth in absolute numbers, and grocery retailers will continue to develop online channels. For the storage market, it means that demand for technology-based facilities - fulfillment factories - will be stable for at least a few years and following the e-com companies such facilities will start to appear in the regions.

Alexander Sharapov, President of Becar Asset Management:
- The main event of the year for the commercial real estate market was of course the lockdown. Only warehouses as distribution centers benefited from it. We don’t see the sustainable vacancy growth in offices and shopping malls yet. In the first case, tenants are bound by tight contracts for several years and some of the vacated space is rented for co-working spaces. Retailers, on the other hand, will wait until at least next autumn to understand where the market is heading.
Lockdown has accelerated trends over the last few years. This is seen most strongly in co-living and apart-hotels. Worldwide co-living has lost only a few percentage points in occupancy, while apart-hotels have adapted to long-term accommodation and have kept occupancy at least 30-40% even in the harshest quarantine. Apartments in our projects sold better than last year due to the rush of demand, and co-working spaces, after a slight dip in quarantine, rather quickly returned to their pre-demic levels. The other segments of our real estate portfolio also continued to develop smoothly.
Next year, we are likely to be hit hard by the crisis. Commercial real estate, because of its inertia, reacts to events with a certain lag, especially now that a significant part of the global economy is closed. Some perspective will only be seen after lifting the main quarantine restrictions. Unfortunately, classic offices will continue to lose tenants if their owners promptly convert them to a flexible office format. And owners of large shopping centers should already prepare for their usual visitors and tenants’ attrition. Such facilities will become more like lifestyle centers.
For example, in 2021 we will open a co-livings project in Dubai, just in time for the World Expo, which will start in the Emirates' capital next autumn. We will continue to open new GrowUp co-working spaces and build our cOasis project in St. Petersburg.
I would like to wish all our colleagues good nerves and peace of mind in the coming year. This is not the first crisis we have experienced, but it is always followed by recovery. You have to look for a positive in everything. What is there now? At least in the fact that when the coronavirus finally recedes, we will see who was bathing without pants.

Boris Moshensky, CEO of Maris in association with CBRE:
- It was a different year for different segments of the commercial real estate market. There are segments that suffered a lot this year due to the introduction of coronavirus restrictions and the closure of tourism: shopping centers, street retail, and hotels. The office segment, for example, performed well as a whole, but warehouse real estate performed best; it is one of the most stable segments of commercial real estate in 2020. It's the only segment that showed not only maximum stability of key indicators, but also its growth and increasing interest from investors.
All in all, there's a general nervousness and uncertainty throughout the whole industry in 2020, because all the economic processes changed by the pandemic, affect real estate.
We saw a lot of new trends. If we're talking about office real estate, there is a trend for turnkey spaces lease: no one wants to do the finishing and spend time on the layout now. In storage real estate, there is a boom in new formats, such as dark stores. All the major market players have opened this area and now they are planning to develop it. There is no doubt that potential investors' interest in warehouses and logistics has increased, and this is a general global trend for 2020.
We ended the year positively thanks to the solid work of our entire team and proper strategic planning. Our only expectation for 2021 is that the pandemic will go into decline so that we can continue to do what we love.

Natalia Kozyreva, Head of Leasing at the “Garden City” shopping and exhibition complex and the “Furniture City” furniture center:
- In 2020, we started developing street trade. Our traditional garden fair was a resounding success throughout the season, and especially at the beginning of the season, which came at the lockdown. People who decided to wait out the difficult time in the countryside enjoyed gardening: there was a steady demand for plants and seedlings throughout the spring and summer. At some point, we faced with a demand from visitors "for food" and began to think about what to do - eventually we mastered the foodtruck format. And of course, the fact that we managed to organize and hold this year's MotorSummit in conditions of severe restrictions on exhibition activity has added optimism and self-confidence.
We are cautiously optimistic about 2021. The trade format has changed this year forever and we are starting the new year thinking about the refurbishment of the trade center. This year we have seen increased demand for household appliances and generally for all kinds of household, garden, and flat equipment. We will think how to satisfy it. We are definitely going to improve the restaurant area: restrictions on food courts will not be endless. We are going to strengthen exhibition activities - the area that understandably suffered in 2020, but which is very much in demand by visitors and exhibitors.

Nikolay Artemenko, general director of Malltech (Leto shopping mall):
- We faced two main problems during the lockdown. The first problem was that the retail real estate sector was not conceived as something significant by the government. In my opinion, this hurt the industry badly because there was no understanding that shopping malls are a significant part of the economy, that they provide 25% of the country's retail consumption and create millions of jobs. The drop in revenues in the spring months in shopping centers was as much as 90%. But shopping malls were not given the support they needed, but instead solved the problems of other businesses at the expense of our sector. The second problem is that when the government started discussing support measures for the sector, it turned out that there was no technical possibility to implement them: the notorious OKVED codes were to blame. The total loss of income of shopping centers by the end of 2020, I think, will be about 40%. This is at best.

Ekaterina Trushlyakova, executive director of retail real estate at PPF Real Estate Russia (“Nevsky” shopping and entertainment center):
- We faced the first Russia's lockdown and the significant restrictions on shopping center operations that resulted from it. The main consumer trend of the year was an increase in conversion rates against a significant decline in shopping center attendance. The past year introduced the mall industry to the fact that malls can close for a long period of time by government decision. The new reality provided an opportunity for companies to learn how to operate in an incomplete format, engaging only a limited part of the shopping complex. The mall staff faced with need to carry out the unfamiliar tasks and work harder than usual. Many areas had to be shifted to remote work.
Nevertheless, 2020 became a year of new openings for us: we have signed lease agreements with a number of new “Nevsky” Center anchor operators, who have decided to develop their business in St. Petersburg together with us.
What does the market expect from 2021? Victory pandemic. According to the forecast, the incidence of coronavirus will start to decline in March. Following that, we will see a market recovery and visitors return to shopping centers. In a favorable scenario, but 2019 levels will not be reached until 2022.

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