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Moscow Warehouse Market at a Glance
• Demand for modern warehouse space exceeds supply. Pent-up demand is estimated at 1 mln. sq m. Space absorption is equal to the delivery. Retail chains and logistic operators are the main demand generators.
• Three break-through logistic development projects took off in 2005 in the Moscow Region. 350,000 sq m of prime space added.
• Despite the gradual growth of new space supply Moscow’s warehouse space rates remain among the highest in Europe at $115-140 per sq m per year.
• Lack of transparency in the local land market limits the site choice for the international developers.
• Development costs, rental rates for industrial properties are much higher than in most of the European countries.
Development permitting process remains costly and time consuming.
• Cost of development for prime w/h space is in the area of $800/sq m.
• Price of industrial land in Moscow Region - $30-120 per sq.m.
• The cost of bringing utilities to the site may only be definitely determined after the site is acquired.
• Inflow of petromoney into Russia is a major factor for the continued growth of prices for land as well as the construction materials and services.
The Industrial Market
Russia’s industrial real estate market is still very young but maturing quickly. The development of large scale warehouse schemes is gaining pace. Though the market is still largely limited to Moscow and St.Petersburg, quite a few regional plans were announced in 2006.
Rents
Warehouse space lease rates have not seen much change during the last 2 years staying at $115-140/sq m per annum, triple net. Operational expenses are estimated at $30/ sq m per year. There is no vacancy at the high-grade properties. All space is pre-leased indicating high demand for quality product. Average lease term is 5-7 years.
Year 2005
360,000 sq m of prime space was added in 2005.
2005 was the break-through year for this sector of the market with the construction commencing on 3 large multi-phase projects around Moscow (and continuing throughout 2006): MLP-North with total area of 200,000 sq m (developed by Multinational Logistic Partnership), Pushkino Logistic Park – 180,000 sq m (Capital Partners/Lone Star), Krekshino Park – 380,000 sq m (RosEuroDevelopment/Raven Group). Three substantial investment deals happened in 2005 in the warehouse market with international institutional players being involved.
Year 2006
Total quality warehouse stock in the Moscow Region is set to grow from around 1 mln sq m at the beginning of 2006 to 1.4 mln. sq m by 2006 end.
Construction started on the MLP-South project, 180,000 sq m in 2006. Other substantial schemes announced in 2006 were 500,000 sq m by Giffels, 600,000 sq m by Capital Partners and ICD International, 220,000 sq m by Ghelamco, 470,000 sq m by Kulon, and 50 000 sq m by Belaya Dacha. All those are multi-phase schemes.
Typical rental terms for prime industrial properties in Moscow region
• Rental rates for warehouses range from $115 to 140 per 1 sq m per annum (triple net) depending on the leased area, quality of tenant, length of lease, property location
• Office rental rates $220-280 per 1 sqm per annum (office as part of warehouse complex)
• Utilities (electricity, heating, water) – at cost (estimation $10-15 per sqm per annum)
• Security deposit – applicable in the form of down payment or guarantee (3 month for large occupiers, up to 6 month small occupiers)
•Telecom – landlord provides access to telecom services / tenant may enter into contract with any telecom provider available at the site (typically two or more)
• Rent mark-up for the properties located inside the MKAD (Moscow Outer Ring Road) +10-15%
Moscow Warehouse Market Trend Forecast
• Warehouse Rental Rates are expected to remain high in 2007-2008. Any substantial drop in the rents is unlikely due to the high local development costs.
• The inflow of investment in the industrial sector will accelerate as the office and retail markets approach saturation.
• Industrial sector will remain attractive for investment due to great demand, little competition, shorter and simpler construction cycle.
• Geographical directions strategic to the new warehouse developments – North West, West, South, South East within the 40 km distance of Moscow.
• Principal risks for the new speculative warehouse projects
– Unexpected change of macro-economic situation in Russia that may occur due to the fall of oil prices or other events of catastrophic nature
– Poor site choice
– Construction-related risks
• Poor design of the facilities
• Uncontrolled growth of development costs
• Poor quality of construction
• Delays related to permissions and licensing
– Political risks that may result in a slump of demand for new warehouse space
Warehouse projects pipeline, Moscow region
| Site | Developer | Distance from Moscow (km) | Location, Motorway (Mw) | Area (m²) | Submarket | Status | Start | Completion | | Krekshino L. P. | RosEuro Development | 24 | South-west, Ukraine Mw (M3) | 380 000 | South-West | Under construction | 2006 | Q4 2008 | | Multinational Logistic Partnership (MLP Podolsk) | Pascalis Garner & Partners | 15 | South, close to Crimea Mw (M6) | 180 000 | South | Under construction | 2006 | Q4 2007 | | Multinational Logistic Partnership (MLP Leningradsky) | Pascalis Garner & Partners | 13 | North-west, St Peterburg Mw (M10) | 200 000 | North-West | Under construction | 2005 | Q2 2007 | | Giffels Park | Giffels | 30 | South, Caspian Mw (M4) | 500 000 | South | Planning & permits | Q4 2006 | Q4 2009 | | Ghelamco Park | Ghelamco | 30 | North, Dmitrov Mw | 220 000 | North | Planning & permits | Q4 2006 | Q1 2008 | | Northpoint Distribution Park (AIG/Lincoln) | AIG/Lincoln | 0,7 | North, Moscow ring road (the MKAD) | 88 000 | North - Moscow | Planning & permits | Q1-2 2007 | Q2 2008 | | Pushkino L. P. Phase I | Capital Partners | 15 | North-east, Yaroslavl Mw (M8) | 180 000 | North | 80% delivered | 2004 | 2007 | | Pushkino L. P. Phase II | Capital Partners | 15 | North-east, Yaroslavl Mw (M8) | 100 000 | North | Land rezoning | Q1 2007 | 2008 | | KS Development | KS (Komplekt Service) | 30 | South, Crimea Mw (M6) | 40 000 | South | 40% delivered | 2004 | 2007 | | Gema (South) | Gema | 32 | South, Crimea Mw (M6) | 100 000 | South | Rezoning | Q2 2007 | 2008 | | Kulon (West) | Kulon | 40 | West, Baltia Mw (M9) | 170 000 | West | Rezoning | 2007 | 2008 | | Kulon (East) | Kulon | 35 | East, N. Novgorod Mw (M7) | 197 000 | East | Rezoning | 2007 | 2009 | | Belaya Dacha | Belaya Dacha | 6 | East, Moscow ring road (the MKAD) | 50 000 | Moscow - East | Under construction | 2004 | 2008 | | | | | 2 405 000 | | | | |
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