Russia’s warehousing sector crisis reached bottom in 2017 and is expected to start recovering in 2017 on the back of the modest economic recovery, according to a report from real estate consultants JLL.

Warehouse completions in the Moscow region totalled 297,000sqm in the fourth quarter of 2017 and for the full year 532,000 sqm were delivered -- half the 2016 volume and the lowest since 2006, according to JLL.

Among the largest projects completed in 2017 were the Orientir Sever 2 warehouse complex (83,000 sqm), Klin Logistics LP (56,500 sqm), a new phase in the Vnukovo II logistics complex (50,000 sqm), block C of Dmitrov logistics complex (45,000 sqm), Green Store multi-temperature complex (42,700 sqm), and the second phase of Technopark Uspenskiy warehouse complex (42,000sqm), reports JLL.

Only five companies dominate the construction business and between them account for half (53%) of all the new warehousing built in and around Moscow, including the Moscow region: Orientir (83,000 sqm), Amtel Properties (56,500 sqm), Logistics Partners (50,000 sqm), Ghelamco (45,000 sqm), and PNK Group (45,000 sqm).

The outlook for 2018 is much better with the volume of new warehousing to be built almost doubling to 969,000 sqm of premises that has been announced for delivery in 2018. Of this space 45% have already found occupants – the equivalent to almost the entire occupancy of new space in 2017.

e-Commerce companies are the driving force in the market for new warehouse space as this sector is growing at a pace an order of magnitude faster than the traditional economy. Three out of the four largest warehouse projects slated for construction in 2017 are for e-commerce companies.

Amongst the main 2018 warehouses projects are the built-to-order schemes for large retailers, namely: the first and second phases of a 100,000 sqm of a warehouse complex for Wildberries.ru, Russia’s biggest online store.

Another of the biggest projects is a 90,000 sqm warehouse in Solnechnogorsk District for a large international retailer, which JJL does not name; a 68,000 sqm for Utkonos in the new Orientir Sever 3, Russia’s biggest online grocer and another big player on the online shopping market; and finally a 52,000 sqm warehouse for Ulmart, which is also a big online retailer selling a broad assortment of goods.

Among other large projects for 2018 are the new Orientir Zapad park (400,000 sqm) of Orientir company and PNK Park Valischevo industrial park of PNK Group. In the latter project, about 130,000 sqm are announced for delivery in 2018, 52,500 sqm of which are already under construction for Operator Kommercheskoy Nedvizhmosti. In addition, two new industrial parks were announced by PNK Group for 2018, PNK Park Zhukovsky (500,000 sqm) and PNK Park New Riga (300,000 sqm), JLL reports.

Vacancy rates have also started to fall, albeit slowly. JJL estimates that in the Moscow region there was 1.39mn sqm of vacant warehouse space. The vacancy rate was down 1.3 pp, or 163,000 sqm for 2017, to 8.3% in December, JLL said.

“The fluctuation in the vacancy rate in the last three years was typical for the market -- by 0.1-1.5 pp per quarter -- while in absolute terms vacant premises remains at a constantly high level,” JLL opines.

 

“Sharp decline of completions in 2017, 33% of, which had already been contracted at the stage of construction, served as a balancing factor for the Moscow region warehouse market. The net absorption, that is the difference between occupied stock at the beginning and end of the year, remained at the level of 2016 and amounted to 700,000sqm,” says Oksana Kopylova, Head of Retail and Warehouse Research, JLL, Russia & CIS.

The total take-up volume in the Moscow region in 2017 amounted to 1.2msqm, 18% less than in the previous year. About 336,000sqm were leased and acquired in Q4 2017.

In the past year, the main warehouse demand drivers traditionally were retailers and distributors, with 39% and 19% of the transaction volume respectively. Within the retail segment, e-commerce showed high activity in 2017, with 22% of the total transaction volume.

Leasing deals dominated in the total demand volume in 2017 (61%). At the same time, the share of sales of built-to-suit projects increased by 6 ppts compared to 2016, to 21%, the level seen in 2014 and 2012.

“We expect a new development cycle to gather pace in 2018. At the same time, the market still has high volume of vacant premises, almost 1.4msqm, but this availability is heterogeneous both in terms of quality and size. The mismatch of demand requests and supply options stimulates warehouse development, despite the large volume of vacant premises. So, for example, if a tenant or a buyer needs a warehouse block of 30,000sqm, in most cases the best option will be a built-to-suit scheme. Moreover, in this case, the future occupier will get the building of required quality and with customized specifications,” comments Viacheslav Kholopov, Regional Director, Head of Warehouse & Industrial Department, JLL, Russia & CIS.

Weighted average asking rental rates in new transactions on the Moscow region warehouse market are at a minimum and remain in the range of RUB3,000-3,600 per sqm per year (excluding VAT and operating expenses). According to JLL analysts, the rental growth will start in 2018: new and reconstructed buildings will be offered on the market at a higher price, which will lead to a change in the average rental rate.