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Is it profitable to build an exhibition and trade fair center? Are there enough exposition premises in Moscow, or is there such an acute shortage on the market that any facilities at any location will generate yields? How can the wishes and tastes of international exhibitors be ascertained when factoring in the number of floors and height of the ceilings? Developers do not always receive unambiguous answers from consultants to these and other questions. Even though it seems as though there is currently a dearth, market saturation seems near at hand.

Exhibitions have long considered a link between the local and international markets, given they have paved the way for inflows of foreign investment in key sectors of the national economy. The Expocenter on Krasnaya Presnya in 1992 smoothly entered the market as the country’s largest exhibition center, having converted into a jointstock company. Meanwhile, Russia remains one of the few countries without a single large exhibition complex (100,000 sqm and up), although in the past few years, at least 2,500 exhibitions have taken place annually, including special B2B exhibitions.

Exhibition Space is …

According to the Concept for the Development of Exhibition and Fair Activity in the Russian Federation, exhibitions and trade fairs are commercial events, where exhibitors display their goods and services.

Commercial exhibition space should adhere to exact specifications. “This means that there absolutely must be exhibition pavilion space (outdoor and indoor), conference halls (300500 spaces) and a small area for retail pavilions, with premises offering food and beverages,” explains Yulia Nikulicheva, deputy director for strategic consulting and valuation at Jones Lang LaSalle.

For exhibitors, the modern exhibition complex is conveniently located in terms of transport routes, have spacious parking, storage premises and service elevators. Service premises and space for the administration of exhibitions, banks, exchange offices, stores, a post office, a tourist agency, press club, guest club, as well as conference halls wouldn’t go amiss, & a business center is naturally indispensable .

On the other hand, according to statistics, from the overall amount spent by visitors and participants at any given exhibition, more than half is spent on the attending enterprises. Therefore, it is advisable to include space for various types of activities, such as a restaurant, a bar, a sightseeing tour and other forms of leisure. Elina Zanina, deputy director of commercial real estate management and development at MielNedvizhimost, believes that the presence of a developed infrastructure on the territory of an exhibition center is a desirable, but not obligatory requirement.

Going to Moscow to a Trade Fair

In addition to Moscow’s exhibition and convention activities successfully achieving a world scale scale, the commercial impact of the service sector and leisure industry is also developing. Moreover, more than 50% of all the exhibitions in the CIS and Baltic countries take place in Moscow. The exhibition market in the Russian Federation overall is represented by more than 450 operators, including the representative offices of foreign firms, such as Dusseldorf GmbH and Messe Frankfurt GmbH (Germany), M.S.I. (Austria) and other ones.

According to the annual total volume of sold space, Moscow comes first at 56% and St. Petersburg second at 10%. Expocenter, MVK exhibition holding company (the only one with a network of representative offices in the country’s economically developed regions) and Britainbased ITE are the top three companies. Furthermore, five to seven new exhibitors enter the Moscow market annually, with about the same number ceasing to exist (according to data provided by Jones Lang LaSalle – JLL).

According to expert assessment by ITE, turnover in Russia’s exhibition industry is around $500 million per annum, while, for example, turnover in Germany, the leader in the business, turnover is $120 billion per annum. Alexander Shtalenkov, general director at ITE, believes that today there are not more than 100 major exhibition operators on the market. “Our company is the leader of exhibitions among organizers not owning their own premises. For example, the largest construction and interior exhibition, MosBuild, is in our portfolio. Today we must fully use two premises, Expocenter and Crocus Expo.”

According to European standards, exhibitions are divided into three categories: A, where the statistics have been independently audited; B, where there are statistics, but they have not been audited; C, no statistics are available. Accordingly, exhibition premises in Russia fall into categories B and C, with the exception of MVK, whose audited statistics adhere to Germany’s FKM (Society for Voluntary Control of Fair and Exhibition Statistics) standards. Meanwhile, according to the evaluations of a number of experts, foreign developers, initially concentrating on foreign exhibitors, leave abroad up to 90% of the funds generated from the sale of services, leaving Moscow with only lease payments for the rented premises. Thus, given the absence of reliable statistics, it is noticeable that dozens of exhibitions take place along one theme. The only reliable figures for potential exhibitors are the fundamental indictors, such as the premises and the number of participants and visitors.

According to information provided by JLL, the overall market share today of quality largescale exhibition premises in Moscow and the nearby Moscow outskirts is around 800,000 sqm. This is about 400,000 sqm of useful exhibition space, while 40,00060,000 sqm of modern exhibition space enters the market annually. “In terms of exhibition premises, Moscow is not in first place; however, in speaking with market operators, it appears that saturation is just around the corner,” comments Nikulicheva. “In about another five years, the exhibition market will be developing dynamically because of such operators as Crocus Expo and the AllRussia Exhibition Center (VVTs) state jointstock company, following which there will be stabilization. Indeed, by 2010, around another one million sqm of quality modern exhibition space should enter the market.”

According to other sources, the real volume of Moscow’s space is less. Blackwood suggests, that the amount of exhibition space in Moscow is estimated at around 300,000 sqm (indoor space). “ The tradition locations for exhibitions in the capital can conditionally be divided into the initially specialized complexes (VVTs and Sokolniki) and the nonspecialized premises used for holding commercial exhibitions (Olympisky Sport Complex and Manezh Central Exhibition Hall),” says Alla Glazkova, director of client relations, commercial real estate, Blackwood. “According to approximate estimates, a bit more than 40% of the commercial exhibitions in Russia are held in specialized pavilions, while the rest are held in stadiums, in palaces of culture and in hotels.”

The annual average capacity of Moscow’s exhibition premises today reaches 60%70%, while the yield from development (construction) is around 10%12%. The average lease rate for indoor exhibition premises of international standard reaches $8/sqm per day, and $4/sqm per day for outdoor premises, depending on the type of exhibition as well as the positioning level. Indeed, the lease rate in an exhibition pavilion for a luxury auto show costs from $210 to $310/sqm for a fourday show. The annual growth of lease rates for exhibition real estate in the capital is 8%12% per annum, reports JLL. The lowest prices at this time are at VVTs, while the most expensive are in Expocenter.

According to data provided by Blackwood, net revenue from the use of every square meter in several instances is on par with yields from office real estate. “However Moscow still does not have enough infrastructure for organizing largescale international exhibitions. Thus the growth potential in Moscow and Moscow Region in this segment is quite high,” comments Glazkova.

There are currently around 150 exhibition operators in Moscow, 25 of which are members of UFI, The Global Association of the Exhibition Industry. The largest of them are Expocenter, VVTs, Sokolniki, RLPYarmarka, Textilexpo and Maxima. Quality space, according to the consolidated opinion of consultants includes Expocenter on Krasnaya Presnya, Sokolniki, Gostiny Dvor and Crocus Expo. Additionally, 550 events of various formats with international participants are held annually at 15 exhibition premises in Moscow, with the overall exhibition space reaching 1.5 million sqm.

The peak of the exhibition season falls between March and October, while July and August are the least busy times of the year. May has demonstrated varying performance in relation to the previous months, but, overall, springtime generally witnesses a waning in exhibition activity.

Business Demands Development

The key factors in the development of the exhibition industry, according to experts, are the overall development of Moscow, the complexity of construction, accessibility for transport, the close proximity of hotels for guests, the presence of a convention center for participants’ conferences, spacious parking, as well as the development of infrastructure and mixeduse complexes overall.

Moreover, 20% of the overall space in an exhibition center is an unavoidable “loss,” being comprised of restaurants and cafes etc.However, 80% of the premises can be used for indoor exhibition pavilions with an average of 3,0008,000 sqm of space each. “The land for constructing an exhibition complex must be chosen by taking into consideration further future expansion, namely, the chance that the adjacent land will be bought,” recommends Elina Zanina. “Constructed complexes must be geared towards large exhibitions on their territory to attract the interest of entrepreneurs to build the exhibition area. Many international exhibitions require around 500 sqm of exposition space for each exhibitor.

“A land plot must be at least eight ha to build a 40,000sqm exhibition complex, given that only 50% of the plot will be used for construction. The rest of the territory, in accordance with market demands and construction specifications for an exhibition center (one parking space per six to eight visitors , Moscow City government order № 769PP as of 04.10.2005), must be used for free parking,” explains JLL. “In the interest of saving on a land plot, there has been a trend lately of building multilevel exhibition centers, like Crocus Expo. The first levels can be used for large exhibition pavilions, while the upper levels can be used for small stands.”

However, according to the overall opinion of consultants, it is not worth building more than three floors. “Construction of a multilevel exhibition complex is not accommodating owing to the limitations on the exposition space,” comments Zanina. “Participants at large exhibitions prefer to impress visitors with the designer solutions of their stands. Indeed, companies use the most diverse means to attract the attention of potential clients. Therefore, building multistory complexes with such high ceilings presents some difficulties.

According to developers, it is also necessary to consider how quickly the building will generate a return on investment (for retail and exhibition space), as well as for buildings of longer periods of recoupment (for example, conference halls, consulting and innovative activity premises and hotels). Accordingly, the most important parameters for recoupment are the frequency and scale of the exhibitions. The exhibition area must be divided into modules by sliding partitions. Outdoor exhibition space must have rolling flooring (an antistatic floor covering calculated for medium and high mechanical weight load).

In turn, developers and brokers believe that money for an exhibition center will always be found, given that this is a rather profitable segment of commercial real estate. Indeed, often participatory construction means are used to attract private capital for the construction of exhibition infrastructure projects. Inasmuch as the retail, office and exhibition market in Russia is quickly developing, realty companies could become prospective investors.

From Shortage to Competition

The shortage of quality specialized pavilions can be added to the list of serious issues on the Russian exhibition market. According to MielNedvizhimost, the dearth of space in Moscow is 250,000300,000 sqm as of today. “Another 300,000 sqm minimum is necessary, and then it will be possible to count on holding exhibitions on an international scale in Russia’s capital,” says Zanina.

According to the shared opinion of experts, only Expocenter (65,000 sqm, of exhibition space, about half of which is for the center’s own exhibitions, and the other half is used by other organizers), the Sokolniki cultural and exhibition center (28,000 sqm, mostly hosting MVK events), the 13,000sqm Gostiny Dvor and the 86,000sqm indoor exposition center Crocus Expo, having opened in March 2004, meet the standards of modern venues. However, specialists at MielNedvizhimost confirm that in Moscow today, there are only three marketleading exhibition complexes adhering to world standards. “The most prospective is Crocus Center, with the second wellknown exhibition area being Expocenter on Krasnaya Presnya. A

For the past few years, Expocenter has been actively modernizing its pavilions and building new ones. Sergei Katyrin, chairman of the board of directors at Expocenter and vice president of the Chamber of Commerce and Industry of the Russian Federation, notes that the year was not simple; however, the exhibition and convention activity of Expocenter continued to develop successfully. “Our net area today is 65,000 sqm, and the gross premises exceeded 110,000 sqm in 2006. The total overall volume of completed operations and services was 3.5 billion rubles. In 2006 ninetyfour exhibition events were held at the facility, encompassing 665,000 sqm of exhibition and convention premises. Indeed, around 15 new projects appeared with the wellknown exhibition events, and conventions received a new stimulus. In all last year, more than 400 conventions were held, including 113 events excluding trade shows,” concludes Katyrin.

In terms of the development of Expocenter, Nikolai Gusev, first deputy general director of Expocenter, notes that the new 20,000sqm #8 pavilion has been delivered, with 12,000 sqm of exhibition space. According to the technical specifications, the pavilion meets the latest requirements for the exhibition industry and will be the link connecting the complex’ five pavilions. Previously, seven modern pavilions, a demonstration hall and four symposium and pressconference halls were part of the Expocenter. Significant growth in the area of the exposition happened in 2003, with the seventh pavilion with 29,000 sqm of exhibition space being delivered.

According to ITE data, a new Expocenter exhibition complex comprising 200,000250,000 sqm is under construction in the Zelenograd Administrative District of Moscow, near Sheremetyevo2 international airport, possessing all the necessary infrastructure.

In terms of Expocenter’s main competitor, Crocus Expo at 6566 km of the MKAD, the official opening of its first pavilion took place in March 2004. The owner of IEC initially aimed to host large international exhibitions. Today, Crocus Expo’s indoor exhibition space comprises two pavilions of 87,000 sqm, and its outdoor premises occupy 66,500 sqm. In addition to 11 exposition halls, there are 13 conference halls and nine negotiation rooms located here. Moreover, a third, 120,000sqm pavilion is slated for completion in September 2008. As part of the building, conference halls with movable partitions, VIP negotiation rooms, cafes and food courts are envisaged, and there will be underground parking for 2,800 vehicles. Expocenter’s overall indoor exposition premises will increase to about 220,000 sqm, rendering it not only the largest exhibition center in Russia, but also in Eastern Europe. One of the main differences in the third pavilion is the modern 3,500seat conference hall, equipped with everything necessary for conducting international conferences and conventions, concerts and film showings. In the second pavilion, there are also two conference halls with capacity for 660 places. Between the second and third pavilions, a covered crossing area will be equipped and a travelator walkway, and following construction, drivers will also be able to reach the exhibition center from the inside of the MKAD.

Crocus Expo hosted 50 international exhibitions in 2004, while there were more than 80 events held in the center’s pavilions in 2005. In the same vein, in 2006 the center hosted more than 100 exhibitions, and in 2007 there will be 18 exhibitions held by Crocus Expo’s own program (data provided by Crocus International).

Overtake or Pass?

At the same time, recently there have been quite a few rather ambitious projects announced on the market, which, according to the intentions of Moscow’s authorities, are earmarked to liquidate the shortage of exposition space and the country’s lag in organizing exhibitions. In accordance with the program Development of the Exhibition, Trade Fair and Convention Activity in Moscow for 20072009, the increase in exposition space will be 275,000 sqm, while there are plans to deliver 65,000 sqm of convention space by 2009, thus allowing the city to host events on a world level. The overall amount of financing for the period of completing the program will be 22.8 billion rubles, including funds from the city’s coffers, totaling 18.4 billion rubles.

The expansion of trade fair space is planned mostly within already existing complexes and centers. Indeed, by 2010, the Moscow City government intends to complete construction on the new Russia international exhibition center (342,000 sqm, including 240,000 sqm of pavilions and 188,000 sqm of exposition space) on the territory of VVTs (at this time, there is 108,000 sqm of indoor exposition premises), between Prospect Mira and VVTs, from Ostankinskaya St. to Sergei Eisenstein St. There are also promises to build a 6,500sqm administrative and exhibition complex on a 0.4ha plot on Profsoyuznaya St by 2008.

However, despite the quite ambitious plans of Moscow’s government, the main hope for developing the exhibition segment lies first and foremost with private capital. In line with this, on a 180ha plot owned by the Luzhniki sports complex, the administration of the sports facility and Vneshtorgbank are planning to build an exhibition center, a golf club and a fourstar hotel. Furthermore, at a location long under construction on Orekhovy Boulevard, in a public center in the Southern Administrative District, on a 2.7ha plot, a 96,000sqm retail and exhibition complex, 50,000 sqm of which will house an underground parking lot, will be built by 2008. Accordingly, the mayor of Moscow signed a corresponding order on May 19, 2006, and the construction will be completed by DAK International. Also, fast food cafes (at least 50,000 sqm) and daily goods and services stores (at least 100,000 sqm) will be constructed on the territory.

According to Blackwood, construction has begun in the southeast of Moscow on a mixeduse business complex with an exhibition and trade fair center for small businesses. The 90,000sqm complex will be located at 20 Ryzansky Prospect, and the building will house an exhibition center, office premises and consumer goods shops. At this time, the beginning terms and conditions for completing the investment project have been sent to the Property Department of Moscow City to obtain permission. A tender is planned in the near to select an investor.

“Despite the dearth of exhibition space in Moscow, the city’s plans include the Sokolniki indoor exhibition complex locate on the territory of the eponymous park of culture and leisure in the east of the capital,” says Glazkova. “Indeed, the city plans to build a children’s educational techcenter here and to divide the park into several zones, such as one for leisure, one for walking, and yet another for participating in sports, and the area will be equipped with modern cafes and restaurants. The project also stipulates the widening of Rostokinsky Proezd passing by the park, as well as for an alternate main road of Yaroslavskoe Shosse.”

Moreover, on the territory of Moscow’s Tsaritsyno museum and national park, an exhibition complex, the Moscow Dacha hotel center and tourist club, a museum and educational center for archeology, as well a research and educational center for beekeeping will be constructed. Upon completion of the restoration work in 2007, in Bolshoi Dvorets, 112 exhibition halls, one of which will house current exhibitions by Moscow artists and sculptors, will open right away. The overall amount of exhibition space in the facility will increase by nearly 30fold. Next to the museum and national park, parking for 10,000 vehicles will open, thus requiring the reconstruction of the nearby railroad juncture.

Finally, on the territory of MIBC MoscowCity, in the Expo Park area (14 Krasnopresnenskaya Embankment and 1st Krasnogvardeisky Proezd, building 1), an exhibition and hotel complex will be constructed. The exhibition premises will exceed 38,000 sqm on four floors, and underground parking for 1,500 vehicles is also envisaged.

An exhibition complex with the working name REC (TVK) will be built in the Moscow suburb of Zhukovsky by 20082010, on the grounds of the Gromov Aeronautics Research Institute. The new expocenter will unite the international aeronautics and space showroom MAKS, the Ground Forces exhibition center, the Security Showroom, and, perhaps, other exhibitions. Furthermore, a transport exhibition and outsourcing service and office and museum of history center will also be part of the complex.

East Line, owner of Domodedovo airport, is designing a concept for the integrated use of commercial real estate facilities of various design, located within a radius of 35 km of the airport. As part of this work, largescale projects, such as Aeroport City and Aerotropolis, are being completed. Indeed, the Aerotropolis concept offers a large selection of varying complexes, including a construction project for a mixeduse exhibition complex.

“If all the plans of the Moscow City government are completed by 20092010, the dearth of exhibition space in Moscow, experienced first and foremost by large operators like us, will be liquidated,” comments Shtalenkov (ITE). “Indeed, new exhibition premises are necessary so that the sector develops fully. Firstly, the number of exhibitions hosted depends on the number of complexes, which, in turn, generates turnover. There is around 400,000 sqm of exhibition premises in Russia as of today; meanwhile, 250,000 sqm of this total is in Moscow, while there is seven million sqm of space in Germany. In second place is the U.S., with approximately four million sqm of exhibition space. Moreover, very soon China will arise to the top spot in terms of the amount of exhibition premises, as the country will construct around nine million sqm there.”

Information

The minimum requirements of a professional exposition center:

• 50,0080,000sqm land plot nearby a subway station and/at a major intersection
• Outdoor exhibition area of 15,00020,000 sqm
• Parking in excess of 1,000 vehicles
• Covered pavilion with clear exhibition area of 10,00020,000 sqm with four separate entrances
• Universal outdoor space (premises without any columns and covering)
• The latest climatecontrol technology for the premises (air conditioning, heating, ventilation)
• Multibranch network providing electricity, water, sewage and telephone connections and Internet (the electrical network should be at least 100 kW)
• Three to five conference halls
• Storage premises
• Restaurant
• Hotels

Source: information courtesy of Jones Lang LaSalle Moscow