CRE Russia #6 (43) 16-31.03.06 Market Peport
Review of the Warehouse Real Estate Market in Moscow Region

In 2005, the warehouse real estate market underwent a number of fundamental changes. The first investment deals, high volumes of speculative areas, and a shift towards premium quality warehousing all bode well for future dynamic market development. At the same time, the shortfall in supply looks likely to remain and rents are set to stay at their current levels for at least the next two years.

Supply
According to the year end results for 2005, the estimated overall supply of modern high quality warehousing areas in Moscow and Podmoskovye ranges from 1.4 to 2.6 million sqm depending on the differing calculation methods and classification approaches for Class A and B adopted by companies.
  • Specialists from Cushman & Wakefield Stiles & Riabokobylko (CWSR) estimate total supply at 2.27 mln sqm of which 1.19 mln sqm qualifies as Class A and A- and 1.08 mln sqm as Class B;
  • Knight Frank put the same figure at 2.4 mln sqm with 0.96 mln sqm as Class A and 1.4 mln sqm as Class B. and estimate the total volume of warehousing areas in Moscow region at 5.7 mln sqm i.e. including Class C and D which make up about 3.3 mln sqm;
  • Jones Lang LaSalle estimate the modern warehousing segment at 1.8 mln sqm of which about 1 mln sqm is Class A. Praedium and Colliers estimate the overall volume of modern warehousing respectively at 1.65 mln sqm and 1.4 mln sqm with Class A constituting 0.67 mln sqm and 0.68 mln sqm.
There are also varying estimates for the total volume of new delivery in 2005:
  • According to Knight Frank in 2005 the total volume of new delivery was 410,000 sqm;
  • CWSR put the same figure at 450,000 sqm and Colliers Int. at 280,000 sqm;
  • NLK and Praedium respectively estimate 350,000 sqm and 380,000 sqm and Jones Lang LaSalle put the figure at 390,000 sqm.
The total volume originally announced for realization at the beginning of last year was about 600,000 sqm so even taking into account the most optimistic estimates, the introduction of a significant number of these did not take place on schedule. Coordinating with municipal and state authorities, receiving all the necessary permits and establishing the right technical conditions are all extremely problematic tasks which often prevent sites being delivered on time. Not to mention the traditional difficulties associated with attracting financing.
The realization has started of a number of large speculative projects including the commissioning of the first phase of the Tomilino logistics park, Belaya Dacha, and NLK-Krekshino; and the soon to be realized phases of the Leningradsky Terminal and Pushkino. The launch this year has also been announced of the first areas in the Domodedovo logistics park and the Kulon-Istra and Noginsk-Vostok industrial parks. According to information provided by NLK, in 2005 about 55% of new delivery of Class A and Class B came from speculative developers. Specialists from Cushman & Wakefield Stiles & Riabokobylko, take note that for many companies the idea of building premises for themselves has become outdated since it has become possible to rent already prepared Class A and B areas for foreseeable terms principally from logistics operators who last year concluded a number of large deals concerning the projects mentioned above.
It is also worth pointing out that in newly realized projects Class A areas predominate. This trend is expected to continue in the future because of the liquidity of these sites and of course the entry into the market of large international investors. In the Class B segment, a yield comparison between newly constructed and renovated areas vastly favors the latter. Renovation often only requires quite small investments and the demand for inexpensive areas which meet all the necessary minimum requirements is high. Growth in Class B is relatively small since renovation projects are typically low volume.
Because of these larger sites the average area of realized warehouses is growing. Knight Frank note that developers are orienting themselves towards projects with an average area of between 150-200,000 sqm. These projects generally comprise several phases each of which, clarified specialists from Cushman & Wakefield Stiles & Riabokobylko i...

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