New Moscow restaurants struggle to find real estate in a good location at a reasonable price.

Today in Moscow, there are 2,300 restaurants. Moscow has seen 400 emerge within the last year, and 40 of them were the restaurants of the top chains and franchises: McDonald's (11 new restaurants), Rosinter (seven) and Sbarro (also seven).

According to Valeria Provotorova, executive director of the Golden Crane club of restauranteurs, the volume of Moscow’s restaurant market is approximately $300 million per year. "Depending on the location and quality of management, the monthly volume of sales of an average restaurant in Moscow is about $20,000-40,000 per month," Provotorova said, "and, for expensive restaurants, the figure may reach $80,000-100,000. In order for a restaurant to operate with profit, its expenses on wages and foodstuffs should not exceed 25-30 percent of the proceeds, and rent constitutes some 30 percent of the proceeds. For an average restaurant in Moscow, operating profit is 20-25 percent of the sales or $5,000 to $20,000 per month."

Prestigious locations are harder to find, and real-estate owners, especially the city of Moscow or its affiliates are increasing prices.

The situation is slightly different with indoor space for fast-food facilities that are actively opening inside shopping centers. According to Darya Palekhova, a Jones Lang LaSalle broker, the rent rates for such spaces have even fallen. As of the end of last year, the rate was about $1,250, and now it is possible to find a place for $1,000 or even $800-$900. However, separate premises to accommodate full-scale restaurants are only available at the Mega shopping center, where no reduction of rent rates has taken place.

Stiles & Riabokobylko experts give the following figures: The rent rate for the best commercial premises is $1,394 per sq. meter per year, while average rates for renting space in shopping malls are much lower, around $800 per sq. meter per year. Leases for space in shopping malls vary from three years to 15 years. Other attractive options for restaurant accommodations are available at $861 per sq. meter per year. Low supply has caused a sharp increase in rent rates recently.

Rent rates and sale prices of accommodations in buildings located on the major streets of Moscow Street Maximum percentage of vacant areas Maximum rent rates, $/sq. m/year Maximum sales prices, $/sq. m Tverskaya Ul. 2 3,200 16,000 Novy Arbat 3 1,600 7,200 Kutuzovsky Prosp. 5 1,500 6,750 Stary Arbat 1 1,200 5,400 Garden Ring 1 1,200 5,400 Leninsky Prosp. 1 1,100 4,950

According to Natalya Sazonova, a market-research consultant for Colliers International, sale prices for separate commercial space in good locations in the center of Moscow have grown during last year by approximately 25-30 percent. Especially attractive accommodations can cost as much as $5,000-$6,000 per sq. meter and sometimes even $16,000.

In contrast to malls, where rent rates depend on the tenant’s specialization and the size of the area being rented, rent rates for restaurant accommodations in ordinary buildings do not show such dependencies.

"The most acceptable price for me is $1,500 per sq. meter," said Oleg Alyshev, the general director of the Kumir restaurant. "The cost of buying space can come to half of all the expenses involved in opening a new restaurant. Let’s say you were willing to invest $1.2 million in opening a prestigious restaurant. The average space you would need for this kind of establishment would be 400 sq. meters. If you multiply 400 sq. meters by $1,500, you get $600,000. If you decide to rent rather than buy, you should know that prices range from $300-$400 to up to $1,500 per sq. meter. There are even people demanding up to $2,000-$3,000 per sq. meter, but restaurant owners generally don’t accept those kinds of offers. At least, I wouldn’t be interested in such a price."

Most restaurant owners would not be willing to pay more than $2,000 per sq. meter, though real-estate experts say that $2,000-$3,500 is a more realistic price range.

But it is more and more difficult to find a restaurant for a reasonable purchase price. That is why, according to the Ready Business Store consulting group, 80 percent of restaurants rent their space and only 20 percent own it.

Upscale restaurants where the average bill comes to $100 a head find appealing locations not just in the center, but also on the main roads leading toward the center, such as Leninsky Prosp., Kutuzovsky Prosp., Profsoyuznaya Ul. and so on. Real-estate prices on these main roads are slightly lower than within the Garden Ring. These locations have advantages of their own. For example, it is easier to find a building with convenient parking lots, or plenty of greenery, which is good for summer patios.

The top restaurant chains and franchises   McDonald’s   Rosinter   Sbarro   Novikov   Taras Bulba   Yolky-Palky   Drova

As a rule, people in the restaurant business do not turn to real-estate agencies to help them find space, saying that there are too many swindlers or just incompetent people working in the business. Alyshev, for example, is currently looking for new premises and has been working with 15 agencies since November. He said that, so far, this has brought no results.

"This is not surprising," was the response of Sergei Semyonov, a real-estate expert at Arsenal Holding. "If it’s a matter of finding fairly small premises, then it really is very difficult. It’s easier to buy a larger space of up to 1,500 sq. meters. It’s easier to find them, and the prices are lower. You can get something for $1.5 million – in other words, $1,000 per sq. meter. It doesn’t make sense for us to take on clients looking for premises smaller than that."

But the problem there is that the average restauranteur does not need more than 400 sq. meters, and some restaurants get by with just 100 sq. meters. Of course, it is possible to buy accommodations of 1,500 sq. meters in area, but this only makes sense for people who have the resources to put into further expansion and development.

Colliers’ Sazonova says that accommodations at a size of 250-300 sq. meters are in highest demand from restauranteurs. "About 70 per cent of the whole number of the applications our company receives for accommodations in ordinary buildings are precisely for that spaces of that size," she added

This situation means that most people in the restaurant business end up finding premises for their projects through their own efforts. It is not so much a case of real-estate agencies being greedy, since all the best locations in the center and along main roads have already been taken. If by chance one of these locations suddenly frees up, the whole market quickly finds out, and, from there, it is a case of "first come, first serve."

Restauranteurs say that there are good prospects in terms of location along Rublyovskoye Shosse, Mozhaiskoye Shosse, Krylatskoye District and the Yugo-Zapadnaya area. According to restaurant owner Sergei Shakin, rental prices in these areas are around $150 per sq. meter, while purchase prices are from $300-$400 per sq. meter.

Another niche lies in restaurants in the outlying new suburbs such as Novoperedelkino, Mitino and Zhulebino.

"There are practically no real restaurants in these areas," Shakin said. "It’s entirely possible that reasonably priced but good-quality family restaurants could be a success in these places. These establishments would be particularly convenient for people who want to relax with their children close to home, without having to take the car, because if they drive somewhere, they lose the chance of enjoying a glass of wine. They would also be good for people who want to relax with friends close to home after a hard day at work."

So, there is still room for the Moscow restaurant market to grow.