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Warehouse Market overview
Warehouse market demonstrates unexampled high level of investment activity. Several funds interested in buying large and profitable warehouse premises entered the market. This tendency is explained by:
- Investment attractiveness of warehouse segment (great backlog of demand, early stage of warehouse market development).
- Supply of investment quality product in the market.
A striking example of that is Raven Russia Limited which purchased several warehouse complexes and established the joined
enterprise with Aldama Limited (company created by Russian Espro (Kulon) group of companies) for building warehouse objects. Their first announced project – Class A warehouse complex, total area – 300,000 sq.m, located in Noginskiy region on 61,8 hectares land site, at a distance of 44 km from MKAD.
Supply
Total amount of high-quality warehouse space delivered in the first half of 2006 is 100,000 sq.m. There are approximately 510,000 sq.m planned for delivery in the second half of 2006. In total it is less than expected for the year 2006. This is caused by the time lag in construction of several announced projects, led by:
• Difficulties in project fund raising;
• Difficulties with land legislation and land conversion into
industrial;
• Insufficient infrastructure.
Demand
Economic development inflated the demand for high-quality warehouse spaces. Current backlog in demand is estimated at over one million sq.m and remains stable as a result of high growth of retail trade. The same volume of supply shortage is forecasted for the nearest several years taking into account all warehouse premises announced for delivery and construction.
- The largest part of warehouse space is rented by super- and gypermarket chains and logistic companies.
- There are growing requirements for warehouse premises quality since the demand for warehouse logistics efficiency is growing along with the companies’ turnover increase.
Vacancy rate
Class A 0%
Class B approximately 3%
Trends
- Unexampled investment activity;
- Development of investment high-quality large-scale projects complying with international standards creates supply with optimal price-quality ratio for prominent consumers;
- Selective developers’ approach to tenants which takes into consideration the future sale of the object;
- Increase of development activity in regions;
- Use of triple-net rent rate, transaction costs are added open book (rental rates are forming on the basis of triple net, transaction costs are added according to actual expenses);
- Forecasts of rental rates’ decrease do not appear to be correct.
Rental rates’ level remains stable;
- Logistic companies rent warehouse premises (several large logistic companies rented warehouse premises and there was one sale and lease back transaction);
- Increase of new projects’ average area;
- Signing of long-term pre-lease contracts at the early stage of construction;
- Increase of acquisition deals and industrial land plots conversion transactions (domestic chains build distribution centers and a lot of foreign companies start production in the Moscow region);
- Increase of the companies’ built-to-suite activity, which is explained by the following factors:
• Limited supply in the market (rent of large areas is complicated by the existing shortage);
• Tendency towards companies’ investment and credit attractiveness’ increase by having real estate on their balance sheet.
Rates
The first half of 2006 shows rental rates’ level stabilization.
• There is more flexible approach to the rental rates’ formation depending on lease area, lease terms, tenant’s reliability;
• A large number of new professional developers have entered the market and therefore only high-quality projects can count on maximum rental rates.
Sale offers are limited.
Prices for Class A warehouse complexes vary within the range of $1,000 – 1,200/sq.m.
Cost is diversified depending on location and quality of an object.
Proximity to MKAD and to highways increases the price.
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