With a Mall Boom in Russia, Property Investors Go Shopping

While it sounds like the Mall of America, this mall is outside Moscow, not Minneapolis.

“I feel like I’m in Disneyland,” Vartyan E. Sarkisov, a shopper toting an Adidas bag, said recently while making the rounds of the Mega Belaya Dacha mall.

Instead of bread lines, Russia is known these days for malls. They are booming businesses, drawing investments from sovereign wealth funds and Wall Street banks, most recently Morgan Stanley, which paid $1.1 billion a year ago for a single mall in St. Petersburg.

One mall, called Vegas, rose out of a cucumber field on the edge of Moscow and became, its owners say, larger than the Mall of America if the American mall’s seven-acre amusement park is not counted in the calculation of floor space.

A few offramps away on the Moscow beltway, another mall scored a victory by another measure: the Mega Tyoply Stan shopping center attracted 57 million visitors at its peak in 2007, well ahead of the 40 million annual visits reported by the Mall of America.

As American malls dodder into old age, gaptoothed with vacancies, Russia’s shopping centers are just now blossoming into their boom years, nourished by oil exports that are lifting wages.

“It’s 1982 all over again in Russia,” said Lee Timmins, the country representative of Hines, a Texas-based real estate group that is opening three outlet malls in Russia, referring to the heyday of the American mall experience. Russians, he said, love malls.

The mall boom illustrates an extraordinarily important theme in Russian economics these days. The growing crowds at malls, and the keen interest in Russian malls on the part of Wall Street banks, are signs that the emerging middle class that made up the street protests against Vladimir V. Putin in Moscow last winter is becoming a force in business as well as politics.

Investors, who with money at stake are a bellwether of the new trends, are not waiting for the next round of protests; they are already placing bets on the rise of a broad affluent class in Russia.

“Over the past 10 years, Russia has turned into a middle-class country,” Charles Slater, a retail analyst at Cushman & Wakefield, a commercial real estate consulting firm, said in an interview. “What better to do than go to an enclosed, warm environment with many things on offer, whether that be bowling, cinema or food courts, things the customers have not been used to in the past?”

Moscow now has 82 malls, including two of the largest in Europe, according to the International Council of Shopping Centers, a New York-based trade association. Both are owned by Ikea Shopping Centers Russia, the branch of the Swedish assemble-it-yourself furniture franchise that manages 14 malls here. In Russia, malls are still novel; the first Western-style suburban mall opened in 2000. They are now changing hands as developers sell to institutional investors, like Morgan Stanley, shedding light for the first time on their eye-popping values.

At the core of the attraction for investors is the rising disposable incomes of Russians, nudged along by policies favoring the middle class, lest their challenge to President Putin’s rule intensify.

Russia has a flat 13 percent income tax rate. Most Russians own their homes, a legacy of post-Soviet privatizations, and so pay no mortgage or rent. Health care is socialized.

Not surprisingly, then, Russians have become fanatical shoppers. Russians spend 60 percent of their pretax income on retail purchases, a category that includes food, according to Jones Lang LaSalle, a real estate consulting firm. The country in second place in Europe is Sweden, where retailing accounts for 40 percent of total private spending. Germans, by comparison, spend 28 percent of their salaries shopping, according to Jones Lang LaSalle..

Malls, where the secrets of Western capitalism were finally peeled open and laid bare, with fast food, clothes, ice rinks, electronics and appliances wherever the eye falls, have mesmerized shoppers here — much as they did in their early years in the United States, from the 1960s to the 1980s.

Olga N. Zaitsova, 55, who was in the Mega Belaya Dacha mall with her granddaughter Anastasia, said she came every weekend, drawn by the warm play area for toddlers. “It’s just not comfortable to be outside when it’s so cold,” she said.

When she shops, she said, “now we buy things we want, not things we need.”

Zuckerberg Visits Russia and Meets With Medvedev

MOSCOW — The hoodie stayed back at the hotel when Mark Zuckerberg, the founder of Facebook, met Russia’s prime minister and former president, Dmitri A. Medvedev, on Monday.

“Good conversation with Prime Minister Medvedev,” Mr. Zuckerman wrote on his Facebook wall beside a picture of the two, in suits and grinning, at the Russian leader’s residence outside Moscow.

Mr. Zuckerberg also visited Red Square — in his hoodie — ate at McDonald’s and helped judge a competition for Russian programmers under way in Moscow in his first visit to Russia, a country that is in important ways pivotal for Facebook.

One of Google’s founders, Sergey Brin, is Russian by birth. For Facebook, the tie is more oblique: The country is an important test case for the balancing act Facebook is undertaking as a new media company in countries that are important commercially but have traditionally heavily regulated their old media, if not censored it. And two of Facebook’s largest investors are Russian.

Mr. Zuckerberg and Mr. Medvedev talked about Facebook’s role in politics, though only jokingly in reference to its importance in the American presidential campaign, according to Mr. Medvedev’s press office.

They also discussed copyright rules and high-tech business. Mr. Zuckerberg gave the Russian leader a T-shirt; the meeting lasted about 20 minutes.

Facebook, in Russia as elsewhere, plays a double role as a tool for posting silly party pictures and a tool for political organizing.

Facebook played an integral role in political dissent in Russia last winter, allowing street protests to coalesce when handing out fliers or posting notices on corkboards would not have worked.

Russia is also home to two large and early Facebook investors, Alisher Usmanov, a steel tycoon, and Yuri Milner, an expert on monetizing social network traffic in emerging markets. The two partly cashed out in the initial public offering of Facebook stock earlier this year but still own billions of dollars’ worth of shares.

More Russians are online today than Germans, making Russia the largest Internet market in Europe. Russians also, strangely, have spent more freely relative to their income than Americans on virtual products, like special powers for online games, making their country a useful market for testing revenue streams other than advertising.

Earlier this month, in another step deeper into the Russian market, Facebook made a deal with one of Russia’s mobile phone operators, Beeline, to provide a free application to subscribers.

The Russian government, led by Mr. Medvedev, a technology lover, has embraced the Internet for its commercial potential even as it has been subtly trying to rein in the politics.

Such features as most-viewed lists of blogs, for example, are frowned on at Russian-run sites beholden to the Kremlin, lest a critical text go viral based on user approval.

In its prospectus for the initial public offering, Facebook had cautioned of the business risk of being banned from foreign markets, as it has been in China by the “Great Firewall.”

For now, Russia’s Internet is mostly unfettered.

In that spirit, pictures of the Facebook founder’s dog, Beast, which he posts on his Facebook page, became the topic of conversation in an episode Mr. Zuckerberg filmed for a Russian late-night comedy show on Monday.