BRICKS & MORTAR: Kazakhstan faces growing need for warehouse space

By bne IntelliNews September 21, 2011

Clare Nuttall in Almaty -

New modern warehouses are being built in Kazakhstan, but the country still has a pressing need for more, especially in the far-flung central and western cities where food is still stored in rat-infested Soviet buildings.

Kazakhstan's capital Astana and Almaty, the country's main logistics hub, have existing capacity at international standard warehouses. However, prices are rising and vacancy rates falling. Demand is set to increase further as the consumer market grows and new transport corridors are opened up.

Outside these cities, Kazakhstan has virtually no class-A or class-B warehouse space. Food producers and wholesalers have to rely on Soviet-era warehouses (or disused factories now being used for storage), which are often infested with rats and insects. This results in high levels of losses, which are passed on to the consumer in the form of higher prices.

Together with transportation costs, this is one of the main reasons behind the wide variations in prices for consumer goods across Kazakhstan. A bottle of "Asem Ai" mineral water, for example, costs twice as much in the western town of Aktau as in Shymkent where it is produced. Retailers in Zhezkazgan, central Kazakhstan, put boards outside their shops advertising "Groceries at Almaty prices" to attract customers.

Retail demand

Consumer confidence is back in Kazakhstan post-crisis, and the retail sector is booming. Retail turnover was up 12.4% in the first seven months of 2011, and this followed a 17.9% increase in 2010. Demand for warehouse space is an immediate consequence of this growth. "Warehouses are a good predictor for the general economy, because it is the first stage in the supply chain," James Palmer, partner at Veritas Brown Cushman & Wakefield, tells bne.

Palmer points out that Kazakhstan has a modest amount of good quality warehousing considering the population and the size of the country. "Retail turnover fluctuates depending on the season, so it is good to have around 10% spare capacity. The vacancy rate is now falling in Almaty and Astana, and we expect to see prices increase in the short to medium term," he says.

Most of Kazakhstan's modern warehouse space is in Almaty, where the majority of cargo traffic from China and the Asia-Pacific region enters the country, and is then re-distributed to other regions. According to Veritas Brown, there are around 400,000 square metres (sqm) of class-A and class-B warehouse space in Almaty, 30% of the total - the remaining 70% is old Soviet facilities. "There is not yet the required amount of European standard warehouses in Kazakhstan," says Sultan Zhassybay, director general of French logistics company GEFCO's Kazakhstan operations, which were launched in June 2011. "There is still a lot of work to do and as GEFCO has been involved in bringing class-A warehouses from Europe to Russia, we would like to do the same in Kazakhstan."

Kazakhstan's largest warehouse operator, Damu Logistics, currently has operations in seven locations across Kazakhstan, including Central Asia's largest logistics park near Almaty, and warehouses in Astana and Temirtau. It has a total of 235,000 sqm of class-A and class-B warehouse space (mostly class-A). Within the next two to three years, Damu plans to build logistics parks in Astana and Aktobe. Kazakhstan Kagazy, the London-listed company that is Kazakhstan's second-largest warehouse operator, also built a logistics centre near the city in 2007. Kagazy previously announced expansion plans, but is now in debt restructuring negotiations with creditors including the Development Bank of Kazakhstan and the European Bank for Reconstruction and Development.

Astana's warehouse market is now the fastest growing in Kazakhstan. The city's warehouse stock grew by almost 6,000 sqm in the first quarter of this year, and modern warehouse stock now stands at around 28,000 sqm. Astana has a high demand for storage space since due to the extreme continental climate in north Kazakhstan, foodstuffs need to be brought in from abroad or from the south.

Roads to growth

The picture will also change as new transport links come into operation. Massive investments in infrastructure are underway in Kazakhstan, with financing from the Kazakh government and international development banks. These are aimed both at improving transport within the country and at establishing Kazakhstan as a transit state between Europe and Asia. "Our decision to set up in Kazakhstan was both because we are expanding geographically and using Kazakhstan as a transit territory, and because Kazakhstan's economic and political situations are improving and the country is attracting a lot of foreign investment," says Zhassybay.

Reconstruction of the Western Europe-Western China highway, 2,787 kilometres of which runs through Kazakhstan, is due to be completed in 2012. The western city of Aktobe, one of the town on the route, is expected to become increasingly important as a distribution point for north and west Kazakhstan.

Also being constructed are a new rail link to China to the Almaty suburbs, the Korgos-Zhetigen line, and the Iran-Turkmenistan-Kazakhstan railway, which terminates near the Uzen oilfield in west Kazakhstan will open up another new export route, facilitating Kazakhstan's access to the Persian Gulf. These are all set to increase freight transportation through Kazakhstan, but additional logistics infrastructure will be needed.

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