1 July 2012
Commercial Real Estate publishes commentary by Nikita Gurin

Tverskaya to Be Made Pedestrian

On weekends, holidays and the days of major cultural events, Moscow's center may be announced as a car- free zone. The authorities promise to account for all the consequences of the restrictions for thecapital's transport system and to organize additional parking spaces in locations where the blockages are set up. However, how will the new measure affect retailers located on the central streets?

T he he concept of developing pedestrian zones was drafted by Moscow's department of transport together with the consulting company PricewaterhouseCoopers at the directive of Moscow Mayor Sergey Sobyanin.

Automobile access may be closed on Tverskaya, Kuznetsky Most and Nikolskay streetsa, as soon as this year. Plans call for announcing the street closures 10 days before the start of the event - with the compulsory passage of a legal act stipulating the exact date and time.

Retailers have mixed opinions on the authorities' initiative. As reported by the retail-office center Nikol'skaya Plaza, Nikolskaya Street appears free of heavy automobile traffic, since there are problems with parking and accessing the street is difficult, while on holidays passage is already closed off.

"Stores located on Kuznetsky most and Nikolskaya, in all likelihood, will function without changes. This is due to the fact that access to Kuznetsky most is partially closed to auto transport, while Nikolskaya Street is one-way and is of little importance for drivers, confirms Ekaterina Podplesnykh, head of the street retail division at Knight Frank.

A separate matter is the prohibition of auto traffic on Tverskaya, one of the city's most lively streets. For now, retailers have a calm reaction to the initiative. According to Alexander Malis, president of Euroset, "nothing extraordinary" will occur in the event the initiative is approved by the authorities, since the Euroset store at Tverskaya ulitsa 4 generates the vast majority of its profits on weekdays.

However, the company is prepared for a worse outcome. "If the stores earnings decline, even insignificantly, the location's attractiveness will considerably fall due to the high rental rates," says Mr Malis. Then Euroset will seek to lower rental costs or even to close certain stores.

Due to the possible change of merchandise turnover, the question of reviewing rental rates inevitable arises, the experts agree. "It's important to understand the period of time during which the streets will be blocked. If the closure is a one-off for 6 hours on a weekend, this may not affect the store's sales, although if weekly on the weekends (two days), then customer flows could fall," according to the company Magazin Magazinov, part of the CBRE affiliate network.

Additionally, retailer-owners who incur losses due to the authorities' prohibition likely cannot secure compensation in court - they will have to prove the illegality of the act, the losses and the linkage between the losses and the passage of the act by a governmental body, says Nikita Gurin, lawyer at the legal firm Yegorov, Puginsky, Afanasyev and partners. The city can even reason that real estate value has increased - since the measure was passed in order to boost the city's social-economic status.

Meanwhile, experts believe that the authorities' initiative need not cause any concern for retailers. An indicative example is the prohibition of parking in 2010. Hit hard by this measure were retail operators working in the premium segment and above, whereas the analogous indicators of tenants in the segments "Middle-minus" and "Middle" showed considerable growth, says Ms Podplesnykh (although, according to Mr Malis, Euroset on Tverskaya was deprived of several percentage points of earnings). "For many tenants in the premium class and above, parking availability is one of the most important aspects when selecting premises, so such initiatives by the Moscow authorities may negatively affect the work of their stores if there isn't correctly planned organization of additional parking spaces. Also, the new brands entering the Moscow market may abandon their plans to open boutiques on Tverskaya," the expert warns.

However, approximately 70% of Tverskaya's operators work in the middle segments, so overall the authorities' initiative will have a positive effect on tenants. In any case, in order to prohibit automobile access to certain streets, the authorities will first have to set up pedestrian zones in Moscow's territorial planning and zoning schemes, and then to signal the prohibition "on location."