Development Projects for Municipalities in the Moscow Region

Timeframe: June–October 2018

Location: Moscow Region, Russian Federation

 

Services:

– Spatial analysis;

– Sociodemographic analysis;

– Assessment of land resources and human capabilities;

– Financial modelling

 

Client: Government of the Moscow Region & Skolkovo Moscow School of Management

 

Objective: Establish a conceptual foundation for spatial development and master planning

In 2018, the Skolkovo Moscow School of Management launched a competition-based education programme titled Growth Territories: Development Projects for Municipalities in the Moscow Region. Over a five-month period, the programme convened a group of experts — including government and business leaders — to develop ideas for regional economic growth.

 

Novaya supported teams focused on Balashikha, Domodedovo, Kolomensky, Korolyov, Lukhovitsy, Ozyory, Reutov, Voskresensky, and Zaraysk. We helped them examine spatial and sociodemographic contexts — identifying potential problems, evaluating land resources, and assessing human capabilities. We also helped prioritise project proposals and predict their economic impacts.

 

Detailed sociodemographic analysis shed light on migration patterns and the capability of specific municipalities to attract skilled workers. The areas closest to Moscow (Balashikha, Reutov, Korolyov, and Domodedovo) draw educated migrants from throughout Russia. For every 1,000 population units, they acquire up to 30 new residents per year — over half of whom have postsecondary education. This trend is growing due to a boom in residential development: approximately 500,000 square metres of housing construction is curreunderway in Balashikha and Domodedovo alone. However, these areas offer few local employment opportunities for skilled workers. Their major enterprises tend to be of a closed, defence-oriented nature, and their locations — like much of Moscow’s southern, eastern, and north-eastern suburbs — are not prestigious for office real estate. Only Domodedovo shows signs of vitality in this sector (i.e. industrial-logistics and commercial complexes), due to the proximity of an international airport. Balashikha, Reutov, and Korolyov have notable potential for growth derived from small businesses (including microenterprises), which currently range from 35 to 50 per 1,000 residents. Yet they remain bedroom communities on the whole, with insufficient tax revenue to shoulder the colossal burden of commuter flows on transportation infrastructure.

 

Voskresensky and the Southern Cluster (Kolomensky, Lukhovitsy, Ozyory, and Zaraysk) have rich industrial legacies and natural resources but not much to offer young professionals. Wages there are 25% below the regional average, and educational institutions have not stimulated the development of a tertiary sector. Still, local economies and labour markets can be strengthened by re-establishing ties between major employers and higher education institutions, and by raising the area’s prestige through branding.

 

In light of municipal budgets, Novaya thoroughly evaluated the fiscal integrity of projects submitted during the programme’s first stage. Municipalities currently allocate substantial funds each year to physical infrastructure (e.g., roads, public amenities) but almost completely neglect to invest in tourism, cultural attractions, and historical sites — in particular, distinguished parks of the Soviet era.

 

Spatial analysis revealed weak internal connectivity in some municipalities. High-density sections of Balashikha and Korolyov — both of which expanded considerably due to administrative reforms — are divided in terms of transportation and resident perceptions. The city of Zheleznodorozhny is now part of the Balashikha territory, for example, but its residents are more likely to spend leisure time in Moscow than in Balashikha’s historic centre. And although municipalities in the Southern Cluster could be popular one-day tourist destinations, only Kolomensky’s administrative centre has convenient transit links to Moscow.

Balashikha and Reutov

The Pekhorka Valley concept for Balashikha and Reutov expanded to incorporate not only development of the riverbank by introducing commercial attractions but also the establishment of authentic urban nuclei by revitalising industrial heritage. Light industry — a relatively new phenomenon in the Russian market — will anchor the updated territories. Its distinguishing features are proximity to consumers (Balashikha and Reutov have a combined population close to 600,000), little to no need for industrial buffer zones, and an orientation toward customisation rather than mass production.

 

Market analysis helped us identify the most dynamic forms of light industry in Russia and abroad, which informed our recommendations for placing enterprises in renovated industrial sites based on historically rooted specialisations, environmental conditions, transport accessibility, and required buffer zones. Our recommendations also drew upon “chains of cooperation” approaches to locating complementary enterprises — such as marketing, accounting, legal services, logistics, packaging, and advanced printing — within easily accessible proximity. Because the sites are near high-density residential areas, we recommended socio-cultural resources and food services as well.

Southern Cluster: Kolomensky, Lukhovitsy, Ozyory, and Zaraysk

Despite the Southern Cluster’s abundant industrial heritage, the main development approach submitted for Kolomensky, Lukhovitsy, Ozyory, and Zaraysk involved creating a tourism cluster branded the Territory of Impressions. According to official data, Kolomensky’s administrative centre receives 1.2 million tourists per year. Media analysis revealed that 88% of visitors are residents of Moscow or the Moscow Region, and 64% are between the ages of 25 and 44. Market research showed that the most popular tourist destinations are not historical or archaeological sites but contemporary museums dedicated to local products. For example, the museums of Kalach bread, Pastila sweets, and soaps each bring more than 150,000 people per year. Museums of this kind require minimal investment and can be managed by private entrepreneurs, placing less burden on municipal and regional tax revenues. The Territory of Impressions concept envisions an extensive shopping area composed of museums dedicated to local products, hotels with historic themes, and market fairs at cultural heritage sites. Thus, knowledge of a place’s history and culture emerges through consumption of goods and services.

 

Analysis of the origins and incomes of international tourists to the Russian Federation helped identify target groups with potential interest in local industries, cuisines, and excursions. China, Germany, and Poland were among the prospective source countries. We compared present tourist attractions with demand from Moscow and abroad, compiling a custom matrix to gauge potential. This matrix will be important for developing related infrastructure for the Southern Cluster — that is, a brand and navigation system.

 

International benchmark analysis indicates that popular tourist sites are part of thematic routes and highly specialised umbrella brands. An umbrella brand is essential for helping the Southern Cluster attract tourists with diverse interests — from shopping and active recreation to cultural experiences and quiet rest in natural settings — and inspiring them to return. This would bring new economic development to Lukhovitsy and Ozyory, which do not yet have their own tourist flows. At the same time, successful implementation of a tourism cluster is dependent upon proposed transportation measures: establishing a transit hub in Kolomna’s historic centre, dedicating parking areas for tourist vehicles, setting up pedestrian-oriented shopping streets, developing a transit hub in Zaraysk with updated railway lines, and providing effective signage systems.

Domodedovo

Due to the extensive land resources of a private investor (the owner of Domodedovo International Airport), the conceptual plan — titled Aerotropolis — involved substantial new construction. Proposed additions encompass a wide variety of commercial real estate: a conference centre, office space, an expo venue, an amusement park, an industrial-logistics park, an apartment complex, and a big-box shopping area. Novaya’s market analysis included a review of best practices for placing certain enterprises near airports and an examination of similar commercial real estate projects in Moscow and the Moscow Region; this informed our collaboration with local stakeholders to optimise the Aerotropolis concept in terms of priority locations and promising courses of action.

 

The research team selected nine comparable international airports based on of passenger traffic, distance from the city centre, transport accessibility, and related business activity. Analysis of these cases provided a basis for recommending components of the airport zone: hotels, exhibition spaces, conference venues, industry, logistics, offices, shopping, and entertainment. It also revealed significant potential for developing business tourism, which makes up 10.4% of average GDP worldwide but less than 5% in the Russian Federation. It is also promising in terms of economic impacts, which include direct expenditure for accommodations and catering as well as spending by employees of event operators, booking services, and translation firms — not to mention the future impacts of business agreements.

 

At present, there is a shortage of large, high-quality conference and exhibition centres in Moscow and the regions. Many local facilities were built during the Soviet Era and have become outdated, creating an urgent need for venues with efficient layouts and specialised equipment. Moscow has close to 800 thousand square metres of specialised exhibition space, of which approximately 600 thousand is of high quality.

 

Domodedovo’s accessible and sophisticated links to other Moscow airports have not yet given rise to an exhibition complex on site, and major events in coming years will likely take place at VDNH-Expo. Construction of an Expocentre in the airport zone is only justified if the Moscow Region establishes a conference and exhibition bureau to supply it with important business opportunities.

 

Compared to the other international airports serving Moscow, Domodedovo has the lowest supply of hotel rooms in its vicinity. Plans for accommodating more passengers include building two hotels of different classes and a combined capacity of 300–350 rooms. This complex would also contain a conference centre.

 

Regarding industry and logistics, Domodedovo is among the most advanced areas in the Moscow Region. This is due to the proximity of Moscow as well as the work of real estate development and management professionals. Existing facilities are at full occupancy, and the market can absorb 20 thousand warehouse and industrial enterprises per year. This forecast justifies the considerable space allocated to industry and logistics in the development concept, with potential for increasing the capacity and accessibility of transport corridors.

 

In contrast to industry and logistics, office real estate south of Moscow is beset with high vacancy and slow return on investment. Thus, we decreased office real estate in the proposal to a compact 5–10 thousand square metres — primarily serving small businesses and other enterprises associated with the airport. Due to the area’s present saturation with shopping centres, we focused on commerce based on targeted visits. This development is to begin in the project’s next stage, after securing agreements with investors for “built-to-suit” facilities.

 

The amusement park idea was put on hold due to a lack of relevant examples for cost-benefit analysis.

Voskresensky

The development concept for Voskresensky envisions a new construction cluster. Voskresensky underwent changes resulting from the Growth Territories competition, yet market analysis clarified areas of growth and risk for the construction industry, as well as promising market niches and an organisational structure for the cluster. The district’s main growth factors are its industrial base — for producing cement, gypsum, brick, metal structures, paints, and varnishes, by local companies such as Volma, Technonicol, and Voskresensk Mineral Fertilizers — and an urgent need to process accumulated phosphogypsum waste. This development potential is due to high demand in Moscow and the Moscow Region for production associated with renovating buildings, expanding transportation systems, and improving public spaces. It is also due to scarce local competition and plentiful industrial investment (268 billion roubles over five years: 50% in the Central Federal District and over 13% in the Moscow Region).

 

Risk factors include a heavy tax burden (up to 10% of revenues), expensive credit, customer insolvency and delayed payments, local subsidiaries’ dependence on parent company policies, administrative barriers, personnel problems associated with a lack of qualified workers, and the high cost of transporting products and raw materials.

 

To foster productive interactions between the municipal government and business community, and to realise Domodedovo’s staffing potential, the development concept laid a foundation for starting a chamber of commerce. Industrial- and technology-parks for processing phosphogypsum would be built on sites owned by the municipality, facilitating efficient land use and providing future tax revenue for local and regional budgets.

Korolyov

The project for Korolyov aims to reclaim its status as Russia’s “space capital” by developing a civil space market. Since this ambition has reliable support at the federal and regional levels, market analysis focused on potential specialisations and industrial sectors as well as risks. A key risk factor is price competition from the United States, which has led internationally in space launches since 2013. This is due in large part to the Russian space industry’s reliance on government funding, along with the inaccessibility of its major enterprises to citizens, municipal administrations, and new contractors.

 

One of the most auspicious specialisations is remote sensing — that is, constant or periodic monitoring of the earth’s surface for the purposes of agriculture, geodesy, and other fields. Global revenue in this sector grew by a factor of 5.25 over the past 10 years. Consumers of such services include space agencies, military ministries, agricultural producers, and cartographic firms.

 

Russian space start-ups have focused mainly on developing and manufacturing satellites, hardware, and light rockets. The Skolkovo Foundation has given tangible support to private aerospace companies, but the government’s active role is indispensable. This is not atypical for successful space programmes, as evident in the United States and China. The public sector remains a strategic investor and primary customer; from 2006 through 2015 it accounted for at least 70% of average annual revenue from commercial orders to produce and launch satellites, and over half of sales of satellite imagery.

 

Taking present market conditions into account, the concept for Korolyov’s development includes private technology- and innovation-parks that would provide occupants with tax incentives (on income as well as property) and potential subsidies for creating new infrastructure. In the long term, it aims to establish a favourable investment climate and increase the quality of life by comprehensively improving Korolyov’s public spaces — from landscapes alongside the Akulovsky Water Utility to the central parklands and transit hub.