Today 33 market areas trading in foods and non-foods function in St. Petersburg. One-third of them are located in central districts, drawing the keen interest of the development community. Experts are positive that almost all urban markets will be re-profiled in the next 5-7 years.
Second-Hand Market with Background
Peter the Great decreed in 1782 that special places for trading in meats and fish should be established in each part of the city. Sytny Market (Fat Market) was the first to appear in St. Petersburg in 1710, to be soon followed by Sennaya (Hay) Square, where they traded in hay. Later on, it became the nucleus of a huge retail area extending from Gostiny Dvor to Nikolsky Market. Hundreds of stalls were strung out along Sadovaya Street. Wholesale deals were cut at local taverns and eating-houses. Gardeners and traders in greenery from the adjacent provinces also came here. Other markets were located between Gostiny Dvor and Kryukov Canal. In Apraksin Dvor, they traded in wild fowl, fruit, mushrooms and berries, while at Gorstkin Market they dealt in fish, at Aleksandrovsky market in second-hand goods and Nikolsky Market in all of the above. At the turn of the 20th century, five private markets were added to the then existent 15 municipal markets. Kuznechny Market, built 1925-1927, became the first Soviet place of business. The area between Gostiny Dvor and Sennaya Square remains the city’s busiest trading area, altogether 33 marketplaces operate in the city, 17 of them offering food. As reported by Praktis CB, stationary roofed markets now occupy about 11 ha of land, most of it owned by the government.
Attractive Aura
”Most old markets are of interest to developers, since the land under them is inefficiently used in most cases. Multi-story shopping centers could be developed at sites currently occupied by single-story markets. On the other hand, markets are a source of inexpensive foods for residents of central districts, and their social function has to be taken into consideration by those who will re-profile the marketplaces,” point out the experts at Becar Consulting. “Such grounds as Sennoi, Maltsevsky and Kuznechny Markets are noted for traditional buyers’ flows. Any redevelopment of these old mercantile businesses should preserve the retail function,“ agrees Dmitry Zolin, managing partner of LCMC.
“Most roofed markets lie in the historical center – the Central, Admiralty and Petrograd districts. Land is priced at $500-800 per sqm in these most expensive areas. Renovation will cost $3,000 per sqm on average (less title redemption charges),” estimates Aleksei Chizhov, consulting director at Praktis CB. The amount of investment can be even higher given that most old markets are architectural monuments under government protection. In addition, building height limitations and codes do not allow the developer to make the most of an expensive project. More outlay is needed to convert the land under a farmers’ market to a different category given it was earmarked specifically for trading in agricultural produce.
Redevelopment in a Big Way
Difficulties do not scare developers off, however. Several projects for the reconstruction of historical marketplaces are at different stages of implementation. The most ambitious of all is the redevelopment of Apraksin Dvor. This trading area covers 14 ha of land bounded by Sadovaya and Lomonosov Streets, Fontanka Embankment and Apraksin Lane. Located within this territory are 57 properties totaling 160,000 sqm of the floor area, and most of the properties are in private hands. As stipulated by the terms of the investment tender, the minimum level of investment in the project must come to 10 billion rubles, or roughly $400 million. In expert estimation, both hospitality and office-retail functions will be efficient in this area. “The class A office space rental rates in this district range from $500 to $940 per sqm per year,” point out the experts of Colliers International. If GLA of all Apraksin Dvor properties after their renovation exceeds 60% of their gross floor area, the highest rental rate may bring the landlord up to $86 million in annual return. That means that investment in the project, i.e. $400 million, will be returned within 5 years. The delivery of this project may not only be indicative in terms of effective land use but also in terms of solving numerous legal and technical problems. “The main problem of such properties is inefficient layouts protected by KGIOP (Monuments Conservation Committee); another problem is the lack of single owners at many properties,” stresses Mr. Chizhov. Reconstruction on the Nikolsky rows of stalls, also under the protection of state, promises to become the second landmark project for the city. Now they are looking for an investor capable of tackling this project. Market participants believe a business and hospitality complex would be optimal on the grounds, given that the transportation situation is not as strained here as in the area of Apraksin Dvor, whereas the remoteness of the destination from major pedestrian flows bars the placement of regular shops there. This opinion was voiced by Oleg Barkov, general manager of Knight Frank, and Sergei Igonin, managing partner of IB Group. Art galleries and souvenir shops would also be fitting here, they opined. With office space rental rates ranging from $700 to $800 per sqm per year investments in a business-hospitality complex would recoup within 7-8 years for the developer and 12 years for the end investor.
Old and New Formats
The city’s food markets, both those built before the Revolution and in the postwar period (Nekrasovsky, Moskovsky and Torzhkovsky) arouse the keen interest of many developers. As estimated by LCMC experts, with land prices varying between $10 million and $25 million per hectare, a renovation project might pay off within 4-5 years with the commercial space leased out at $750-900 per sqm per year. However, Mr. Chizhov is positive that the payback periods for reconstruction projects on the roofed markets, provided the retail function is conserved, will exceed 10 years.
The most successful example of market reconstruction is redevelopment of Hay Market, as noted by the analysts. “The new market building we constructed five years earlier lies within the bounds of the old market. Preservation of the historical trading area furthers the influx of shoppers to the PIK retail complex between the market and the nearest subway station,” points out Mr. Igonin.
The former Vasileostrovsky Market, redeveloped into Andreevsky Market, is another example of successful modernization. “The total floor area of the three-story building nears 9000 sqm, of which retail accounts for 6000 sqm. About $8 million was invested in the renovation. The rental rates are not as high as they might have been – $240-700 per sqm per year with chain retailers dominating. The market is an architectural monument of federal importance because the stone building of Andreevsky Market was built in 1789-1790 at the site of the rows of wooden stalls,” Chizhov notes.
The renovation projects for Kuznechny and Sytny Markets also have bright outlooks. Thus, 12,000-20,000 sqm of additional commercial space will reportedly be constructed on the territory of 5,000-sqm Sytny Market. “We won’t disclose all the details of the project, but the market building will be preserved along with the market retail format on some of the spaces,” Boris Elkin, general manager of Sytny Rynok Ltd. told CRE. In their turn, market analysts are positive that not only a retail-office complex but also a residential complex may flourish on this territory. Mr. Barkov even forecasts that the residential function can become dominant in this complex, although the return on investments for the terminal investor will take 10-13 years if office space is leased out for at least $750-800 per sqm per year.
Maltsevsky Market, which has been acquired by Makromir, may prove as attractive for reconstruction as Sytny Market. The historic value of this property, renovated in the postwar years, is rather relative and hence a modern-day multistory mixed-use would be advisable on its territory. “At the present time, Makromir is preparing a proposal to the city administration for the renovation of Maltsevsky Market with the preservation of its main function. It’s too early to talk of any specific goals, as it is necessary to have a number of important documents approved. We hope the future facility will be a modern market by European standards,” we were told by Sergei Rumyantsev, commercial director of Makromir Ltd. Yet Mr. Chizhov believes a business center would be more appropriate here. “The site lies far from pedestrian flows and therefore a multistory office project should be preferred to retail,” agrees Oleg Barkov.
Outgoing Markets
Most traditional marketplaces will be redeveloped or re-profiled during the next 5-7 years, in analysts’ opinion. Suburban markets will also have their turn. “Open-air marketplaces in bedroom districts are actually green fields with minimum limitations and no need to invest in reconstruction,” points out Mr. Chizhov. Furthermore, in bedroom communities already saturated with retail, the developers won’t face the challenge of preserving the functional purpose of the markets and at the site of Torzhok market near Chernaya Rechka subway station a residential complex will most likely be erected. “Given the attractiveness of the district and the opportunity to build a high-rise property, the apartments will be bought up at the stage of digging the foundation pit,” assures Igor Gorsky, managing partner of ARIN. He said the optimal housing cost in such a place will come to $3000 per sqm, which will allow the investment recoupment within 3-5 years. “Redevelopment of an open-air market is a natural process,“ says Arina Sender, head of the retail real estate department at Knight Frank St. Petersburg. “A modern retail format is coming to the city and retail is becoming more respectable.” Chain developers are eagerly looking at market grounds too. “Even the markets from Soviet times have generated flows of shoppers, so acquisition of such a spot for development will provide us with ready buyers,” said one of the top managers with the Okay hypermarket chain. “The segment of market shoppers has shrunk remarkably, along with people who customarily eat in their homes. Running the markets is now a rather awesome challenge. Not in vain do their owners try to get rid of this unfashionable name and avoid numerous checks by various municipal officials,” says Mr. Elkin. He predicts that two or three traditional markets will remain in St. Petersburg, at the most, in 5-7 years. Most experts agree that only Sennoi and Kuznechny Markets can avoid re-profiling.