TBY talks to Bahitbek Katen, President of Aristan Group, on trends in the retail market, opening new shopping centers, and the role urban regeneration plays in the development of the sector.
TBY What events have influenced the trends in the mass retail market in Kazakhstan?
BAHITBEK KATEN Despite its relatively small population and geographically isolated location, Kazakhstan is increasingly attractive for mass retail chains. Fundamentals such as political stability and macroeconomic growth are strong in the country. As economic conditions improve, we see an emerging and strengthening share for the middle class, whose natural demand for goods and services is growing along with its disposable income. Whereas in the West there is an oversupply of goods and services targeted at the middle class, in Kazakhstan there is an undersupply that triggers more activity in the commercial real estate and retail segments. Inditex Group, the world’s largest retail group with brands such as Zara and Bershka in its portfolio, bought out its local affiliate and began direct operations in Kazakhstan. For foreign retailers, this indicates that the Kazakhstani market is ready for Western companies. More international brands are considering launching direct operations in Kazakhstan, such as DeFacto, Koton, and LC Waikiki. Others seek regional partners with Russian and Middle Eastern retail groups. Local companies with operations in the retail business are also looking to form local retail groups. In mass-market retail, these local companies are developing their brands and corporate identities to be competitive. The lifestyle and entertainment segments are also developing fast, with cinemas and toy store chains entering the market. In general, we see these developments as very positive for our company; the number of deals is increasing and property developers are providing the market with retail space that meets the demands of international brands, both quantitatively and qualitatively.
Aristan Group recently completed the renovation of the historical TsUM shopping mall in central Almaty. How did Aristan transform this obsolete urban structure into a modern facility that meets the standards of the 21st century?
Aristan Group is a vertically integrated solutions provider for real estate developers and retailers. Thus, we provide services from consulting to concept creation, accompanying project management and providing engineering services with our international partners, with whom we have long-term relationships. We also own a construction general contractor. Aristan Group facilitated the TsUM project, developed by Retail Group Kazakhstan, by providing engineering solutions with the approval of the group and the Almaty Municipality. TsUM was originally built during the Soviet era. Although the structure was kept in place, 90% of the building and façade was renovated. We introduced smart building management, which uses energy and water efficiently. In this regard, we paid special attention to regenerating energy cycles within the heating and power systems. Previously, TsUM had corridors and small boutiques, and now the internal layout has significantly changed. Now, there are five operators that have street entrances, which creates an outdoor retail environment. These changes were planned and implemented through close consultation with the Almaty Municipality and Retail Group Kazakhstan.
What is the significance of the TsUM project for Almaty’s urban regeneration?
TsUM is a unique project that entails the transformation of a national architectural treasure into a world-class street retail shopping center in a very high traffic area. In the Soviet Union, the central shopping district was initially planned for that area, with limited vehicle traffic and high pedestrian access. This area was neglected after Kazakhstan’s independence, as new shopping centers were developed across the city in less central areas. The renovation of the historical TsUM center proves that there is investor interest in the historical center of Almaty. It constitutes a landmark project for the development of street retail in the historical center, and demonstrates the interest of very experienced international retailers to penetrate and grasp the market in the top locations of the city. We see very big potential in the area, similar to the famous İstiklal Avenue in Istanbul, where architectural heritage is successfully combined with state-of-the-art retail services. This is going to drive further restoration of the area and eventually create a unique retail experience for shoppers.
Which projects and urban centers have the biggest potential for retail growth?
The TsUM area is one of the top two retail locations in Almaty, along with the MEGA center. A third emerging project is the Dostyk Plaza, a project that TS Engineering and Development will start in 2012. This project signals a change in the funding schemes of real estate in the post-crisis period. Previously, banks heavily leveraged the structure of real estate development in Kazakhstan, which brought larger risks that materialized during the credit crunch. The Dostyk Plaza is a new kind of investment, where a local investor takes on a heavy portion of the investment instead of the banks. The shopping center at the Esentai Complex is about be finished. Initially announced to position itself as a high-class mall hosting a number of luxury brands, the center’s spaces are too large for smaller brands. Therefore, the top challenge for the Esentai Complex is to balance these luxury brands with mass retailers without diluting the initial concept.
How does the development of retail space in Kazakhstan compare to other countries that you are familiar with?
Developments like City’s or Demirören Plaza in Istanbul are not the appropriate schemes for Almaty. Istanbul is very crowded with limited and very expensive land available, and therefore vertical expansion is necessary. This also applies in Hong Kong, where the scarcity of land for real estate development sparks the development of vertical and multi-story shopping centers. In countries such as India, China, and Malaysia, we also see a drive toward retail space development. In Kazakhstan, two to four floors are ideal. This is because consumers are comfortable with horizontal space and there is more available land in the cities.
What is your outlook for Aristan Group and the industry as a whole?
We foresee that the next two to three years will be bright for Kazakhstan. The year 2012 will see a settling of the market and a new wave of confidence among investors, and there are many projects being reviewed as possibilities for the future. Financial institutions are eager to invest in projects that provide the best concept and location. Celebrating its fifth anniversary, Aristan is now growing as a group of companies and attracting more and more technology. Over the past five years, we have learned to acknowledge possible market risks and turbulences. We are aiming to learn more about the business and diversify within the real estate sector. We are now strongly developing retail construction and have many large projects in the pipeline.
© The Business Year