Only three high quality warehouses were commissioned in Moscow and its surrounding region in the first quarter of this year, a significant slow down in the pace of construction from the same period a year earlier, reports Jones Lang LeSalle (JLL).
Warehousing is the one part of the real estate sector that has been relatively immune to Russia's economic slowdown as big retailers rushed to lock in low prices by buying or signing long-term leases on warehouses in the last year. The main drivers of demand for new warehouse space in the first quarter were retailers and logistics companies, accounting for 46% and 34% of all transactions respectively.
But that process seems to have now run its course. The three warehouses have a total area of 92,000 sqm reports JLL, a quarter of the floor space that was being built a year earlier. For the full year, JLL is predicting a total of 650,000 sqm will be built in 2016, down 23% from the volume constructed in 2015.
"In the longer term, further decline in the amount of new deliveries is expected. The bulk of future supply in 2017-2018 is represented by built-to-suit schemes, implying that the construction begins only in case of actual demand for warehouse space," JLL said in a note on the sector.
Despite considerable demand in the first quarter of 2016, coupled with the decreasing supply, the vacancy rate in existing warehouse premises saw almost no change both in q/q and y/y terms and stood at 10.2% versus 10.5% at the end of 2015 and 10.4% in January-March 2015.
"The occupier activity was seen mainly on the secondary market, as tenants were moving out of expensive stock to more affordable new warehouse premises. This process, however, did not affect net absorption and led to a significant increase in vacant space on the secondary market," commented Petr Zaritskiy, Regional Director, Head of Warehouse and Industrial Department, JLL, Russia & CIS. "At the same time, due to demand for warehouse space, particularly from food retailers, the amount of take-up this year is unlikely to fall below 850,000-900,000 sq m, which will likely lead to a gradual decline in the overall vacancy rate to 9-9.5% by the end of 2016."
Over the course of the first quarter, the average level of asking rents for new deals in Class A decreased by 7.5% q/q to RUB3,700 sq m per year (triple net). The level of prime rents stood unchanged q/q at RUB4,200 sq m per year (triple net). The actual level of rents varies quite significantly depending on particular object and its location, with relatively expensive supply located on the most demanded locations close to Moscow.