A computer-generated image of the Vesna shopping center in the central Siberian city of Barnaul.

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Krasnodar resident Liza Shishkina recalls that during the unbearable heat two summers ago, the malls in her southern city offered an air-conditioned haven. "They turned out to be a getaway place of sorts during the hot weather," the forty-something lawyer said.

She had lots of cool shopping options to choose from. Her native Krasnodar, a city of about 750,000 people close to the Black Sea, is Russia's foremost city in terms of retail real estate compared to its population. That's according to research into 22 cities done by the INFOline market research agency earlier this year.

Krasnodar has 937 square meters of retail space per 1,000 people, more than Voronezh, which comes in second with 884 square meters. St. Petersburg is next, with 858 square meters per 1,000 people, while Moscow is fourth, with 580 square meters.

With consumer spending picking up after recent down years, developers of retail real estate are looking for new markets and trying to expand into cities with populations of 300,000 to 500,000 people, or even fewer. "When a new shopping mall is opened in a small city, the competition among retailers to get into the mall is high," even if the purchasing power of local consumers isn't a lot, said Galina Maliborskaya, head of the retail real estate department at Colliers International.

The cities with fewer than 1 million inhabitants are a lucrative market. According to data provided by INFOline, cities with populations ranging from 100,000 residents to 500,000 residents currently possess only 13 percent of the country's retail space. St. Petersburg-based INFOline said developers will be looking to get into cities, such as Stavropol and Perm, that have a large amount of purchasing power but lack retail space.

Maliborskaya said the cities of eastern Siberia are the most underdeveloped in terms of retail real estate, giving as an example Irkutsk, a city that until recently had just one shopping center, a Soviet-era TsUM department store with vendors packed in like sardines. Now the city has two large malls, with another mall boasting 105,000 square meters to be completed by 2014.

Careful Consideration

Real estate market conditions have changed since the economic crisis, however. Developers have become more cautious, since they have to wait much longer for shopping centers to begin turning profits. "The biggest problem today is that the payback period has increased," said INFOline general director Ivan Fedyakov. "Before it might be three years. Today it can be five, seven or even 10 years or more. The time for easy money has passed," he said.

Banks, too, have started to examine project proposals more carefully. Getting loans for the construction of new commercial real estate has become tougher, as banks now want the borrower to put down at least 30 percent of the loan. That compares with 10 percent in previous years.

Fedyakov added that long-term payback conditions make more sense for foreign investors in the regions. "Russian business is less interested in a five-to-seven year period," he said.

Investors themselves also must adjust to varying conditions, building retail outlets in the regions that are smaller than those in Moscow and St. Petersburg. "There is no single pattern that can be good everywhere," Fedyakov said.

IKEA has already opened 10 of its Mega superstores in or near Russian cities. By some accounts, the Swedish discount furniture retailer changed Russia's long-standing approach to retail real estate. Alexander Nazarov, head of Novosibirsk real estate company Nazarov & Partners, said IKEA raised eyebrows when it decided to open a store in 2007 in both the industrial part of the city and its business hub.

But the strategy paid off, with the Mega center near Novosibirsk becoming a popular spot for local shoppers, who can reach it easily by car.

An accessible, convenient location is generally the most important factor where retail real estate is concerned, Fedyakov said, but that rule doesn't carry as much weight when the developer is operating in a saturated market. "Then concept becomes most important," he said.

From St. Pete to Surgut

St. Petersburg's oldest shopping arcade, Gostiny Dvor, provides an example of the significance of concept in the retail real estate battle. Built on Nevsky Prospekt about 250 years ago, the modern-day mall version of Gostiny Dvor began to lose clients when Stockmann, a Finnish retail chain that sells clothes, home goods and cosmetics, opened a mall further along Nevsky Prospekt.

"Gostiny Dvor doesn't have a cinema or an entertainment center, but those are the things that the buyer is looking for," Fedyakov said.

Giving a mall an unusual design is another way to attract consumers, analysts said, pointing to Vershina, a shopping mall in Surgut, a major city in Siberia's Khanty-Mansiisk autonomous district. The mall's post-modern exterior looks like a giant stack of boxes, while the multi-story interior has lots of curves and sleek surfaces.

When it opened in 2010, the 36,000-square-meter mall teemed with customers like in the heyday of Soviet department stores.

Following Vershina's success, local developers are planning to build another even bigger retail trade center, the Surgut mall. "It is being built fast, and the size of construction is enormous," said Stanislav Bukhlov, a local sports promoter who lives near the construction.

A even larger center is expected to be launched by the third quarter of 2012. To be called the Surgut City Mall, It will take up more than 154,000 square meters. Its developer is Surgutgazstroi.

The company has already attracted a couple of anchor tenants such as the O'Key superstore chain and Sportmaster athletic goods chain.

"Anchor retailers are one of the most important part of a project's success, since [their presence] allows investors to create long-term relationships," said Fedyakov.

Along with Surgut Mall, the Aura Surgut shopping project is also under way in oil-rich Surgut. A Russian affiliate of Turkey's Ronesans Gayrimenkul Yatirim is developing the project using a 70 million euro loan from the European Bank for Reconstruction and Development.

"Although Surgut's economic development and above-average household income are attractive for retailers and investors, it has long been under-served in terms of modern retail space," the bank said in a press release in September.

Shopping in Smolensk

With substantial oil prices helping the country's macroeconomics, Russia is currently a world leader when it comes to constructing new retail space. Cushman & Wakefield estimated that companies built 404,000 square meters of retail real estate in Russia in the first six months of this year and that they will have built a total of 2.9 million square meters in 2011.

In the Smolensk region, located a five hours' drive west of Moscow near the Belarus border, the WOTT superstore chain is planning to invest about 3 billion rubles to build a chain of superstores in the region.

In addition to the money from St. Petersburg-based WOTT, the regional government is planning to invest about 3 billion rubles to build the Galaktika shopping and entertainment center in the region, Olga Kirilets, head of the economic development department in the regional government, told Rossiiskaya Gazeta in August.

The representatives for Invest-Development, the owner of WOTT, declined to comment for this article, but the company has said that it now will launch a similar chain of superstores in the Rostov region in 2012 rather than this year, as it had initially planned.

Sergei Mitrofanov, the Invest-Development executive in charge of the project, told Kommersant in July that construction is postponed because of various administrative barriers. "As a result, we had to spend three years to deal with issues related to land in various areas of the region," Mitrofanov said.

Mall developers are often reluctant to speak about the bureaucratic difficulties they face in building and opening their shopping centers because of political pressure from local authorities. Fedyakov from INFOline said governors of some regions ask developers to create infrastructure projects in the area of construction. "Those demands can increase the duration and financial cost of construction," he said.

Enlarging retail real estate in the regions isn't without its troubles — or even scandals. In September, the regional arbitration court in Krasnoyarsk halted the construction of a shopping center and a surrounding townhouse village. The court stated that the Inkom Nedvizhimost company that had developed the site had no documents that actually allowed it to begin construction.

Now Trending in Retail

Also in Krasnoyarsk, the construction of a two-story shopping mall was stopped by the city's mayor following protests by citizens who complained that construction would ruin a local park. In fact, the central Siberian city has the fewest high-quality shopping centers, according to INFOline.

In the European part of Russia, the opposite trend is poised to take hold, since it is home to the potential host cities for Russia's hosting of the 2018 FIFA World Cup. Those 13 cities include Rostov-on-Don, Nizhny Novgorod and Volgograd.

The federal and regional governments are expected to complete major infrastructure projects in the host cities: In its winning proposal, the Russian FIFA delegation pledged that the Russian government and private companies together would spend a total of $11 billion on infrastructure in preparation for the football championships. But the official announcement of host cities will be made only in October 2012.

The Finstroi Holding developer has recently built a 31,500-square-meter mall in Barnaul, a city in the Altai region with 670,000 residents.

"The main advantage was the absence of modern trade centers," said Sergei Rodin, head of Finstroi's public relations and analytics department. He added that the construction of the Vesna, or Spring, mall has allowed the company to invite a number of major retailers into the city.

Rodin said developers like Finstroi are interested in cities with fewer than 300,000 inhabitants if they are located in regions rich with natural resources. "The income level in those cities is above the average, but quality shopping centers are non-existent," he said.

Regarding the 2018 World Cup, Rodin doesn't see a direct correlation between the event and the construction of malls. He noted that Vladivostok's hosting of the 2012 Asia-Pacific Economic Cooperation, or APEC, Summit hasn't increased demand for malls in that Pacific city.

"The emergence of retail centers depends on the regional plans for long-term development," Rodin said. A good example of such a center is the Black Sea resort city of Sochi, which "will remain a tourist mecca even after" the 2014 Winter Olympics are held there, he said. "That makes developers to invest money into retail real estate," he added.