Ben Aris in Moscow -

A recent survey amazingly found that Moscow now has more retail space than any European or US city, but a closer look at the statistics shows Warsaw remains the region's top shopping city.

Russian daily Kommersant ran a story last month about a survey that claims downtown Moscow now has more shopping space than any European or American large city: a little bit more than 1,000 metres of retail space for every 1,000 Muscovites, according to NAI Global's data.

No one denies there is a construction boom on and that retail space is in high demand. Retail trade growth has been climbing all year and was up by 13.6% year-on-year in August, driven by even stronger gains in Russians' real disposable incomes, which rose 16.9% in the same month, according to Rosstat. However, real estate experts pooh-poohed the idea that Moscow has overtaken the likes of Paris and London to become the world's Mecca of shopping.

“This story is complete rubbish. Moscow has one of the lowest amounts of quality shopping centre space per 1,000 inhabitants in Europe largely due to its massive population and a low starting point in the early 1990s,” says Denis Maternovsky, an analyst with Jones Lang LaSalle. “It is around 120 [square metres] per 1,000 inhabitants now; will be 230 in late 2008.”

Maternovsky says NAI Global's data only counts the population of central Moscow – people living inside the Garden Ring – which massively inflates the concentration of retail space because the number of inhabitants in the centre of the city is so low. If the surrounding districts are taken into account, then the numbers fall off dramatically: the concentration in the southeast district is 210 sqm/'000; 285 in the northeast district; and only 75 in the eastern district.

Excluding Moscow, NAI Global’s data shows Warsaw is the champion-shopping city in Central and Easter Europe (CEE) with 600 sqm/'000. London remains the world's shopping capital with 1,050 sqm/'000 people followed by Milan's 980, Paris' 860 and New York's 810. However, Jones Lang LeSalle has lower estimates of 200 sqm/'000 people in London and over 350 in Paris and Berlin, for the more narrowly defined shopping centres as opposed to all types of retail.

Still, even if Moscow isn't top dog yet, the amount of retail space has been growing at an exponential rate since the retail boom began in 2001. The total number of shopping centres space in Moscow has exploded from 60,000 sqm/'000 in 1997 to the 1.25m sqm/'000 of space that will be in operation by the end of this year.

Despite the growth there is clearly a shortage of space in all real estate classes. In October, the cost of a square meter of apartment space broke through the $4,000 mark, according to the respectable IRN.ru website. A year earlier the same square meter could be had for $1,900.

And Katya Thain, head of Knight Frank's top-end residential sales team, recently set a new record by selling an apartment with a $13.6m price tag. Even Mikhail Gorbachev has cashed in on the boom by selling his Soviet-era apartment in central Moscow this year for an undisclosed sum.

Indeed, the growth in prices is so fast that government officials are starting to worry about a real estate bubble.

Boris Titov, head of the business lobby group Delovaya Rossiya, late last month proposed increasing taxes on people who own more than one apartment in an effort to stem speculation, which accounts for an estimated 70% all apartment purchases, by some estimates. IRN.ru experts put the number closer to 20-30% and only 1% of Moscow apartments are empty. However, Deputy Prime Minister Dmitry Medvedev, who is in charge of the president's "affordable housing" project has expressed an interest in the idea.

Investors have also benefited from the boom. Open Investments, a real estate company that belongs to Vladimir Potanin's Interros, has consistently out preformed the RTS since it debuted in 2004 as Russia's first IPO for a real estate business. With uncertainty on the stock market driven by fears of an oil price fall, Aton bank was recommending Open Investments as a defence play.

"Open Investments has shown that equity securities that allow investors to gain exposure to Russian real estate can be a profitable way to play the country's economic growth theme," Aton said in a note. "We note that Open Investment's shares have outperformed not only the broader Russian market, but also the real estate sector as an asset class."

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