2010 warehouse real estate - knight frank...mkad (the moscow ring road) by heavy-goods vehicles, as...
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overview
2010warehousereal estateMoscow
Knight Frank
Main points• 405,000sqmofqualitywarehousespacewascommissionedin2010,whichisnearly50%lessthanin2009.
• Atotalof800,000sqmofwarehousepremiseswereboughtorleasedin2010,whichisnearlydoubletheamountin2009.
• Atpresentratesofconstructionandtake-up,thevacancyrateforwarehousespacewillsinkto3%bytheendof2011.
2010warehousereal estateMoscow
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Main events
• Therewereseveralnotablepurchasetransactionsonthewarehousemarketin2010.AttheendoftheyearanaffiliateofBINGroupboughttheNorthernDomodedovocomplexfromEurasiaLogisticforanestimatedsumof$450–500million,representingthebiggest-evertransactionontheRussianwarehousemarket.TheAustrianfundImmofinanzsolditsshare(53,000sqm)intheTomilinologisticscomplextoSberbankfor$39million.RavenRussiasoldits28,000sqmBaltialogisticscomplex,located7kmfromMKADonNovorizhskoyehighway,totheCypruscompanyCasebreHoldingsLimitedfor$42million.
• TherewasamarkedupturninRussianfreighttransportduring2010.Freightcarryingbyallformsoftransportroseby7.6%inJanuary–Novembercomparedwiththesameperiodin2009.This
representsastrongrecoveryafter11.6%declinein2009.(FiguresfromRosstat)).
• Growthofretailturnoverwasalsoimpressive.TurnoverinRussianretailduring2010was16,436billionrubles,whichis4.4%morethanin2009.Thatcompareswitha4.9%declineofturnoverin2009.(Rosstatfigures).
• ReplacementoftheMoscowcitygovernmentin2010hasspurredanumberofinitiativestoimprovethesituationonthecapital’sroads.TheseincludetighterlimitsonaccesstothecityanduseofMKAD(theMoscowringroad)byheavy-goodsvehicles,aswellasdevelopmentofalogisticssystemforconstructionofcargoterminalsataccesspointstoMKADandtheLesserMoscowRing(theouterMoscowringroad).Thesemeasuresandanumberofothersaretobeimplementedin2011–2012.
• ARussianAssociationofIndustrialParkshasbeensetup,bringingtogether
industrialparkoperatorsandmarketexperts.ThepurposeoftheAssociationistostimulatedevelopmentofparksandfindinvestorsforprojects,includinggovernmentinvestors.Associationfoundersincludethenon-profitorganisation,DelovayaRossiya(BusinessRussia),theKalugaDevelopmentCorporation,andothers.
• Theself-storageformatarrivedinRussiain2010.Plansforself-storagedevelopmentinMoscowandotherregionswereannouncedbythecompaniesRedBoxandKRProperties(“CityBox”brand)andalsobythebusinessmanAndreiKorkunov(Mobiusproject).Self-storagecapacitiesremainverylimitedatpresent,withjust40,000sqminMoscow(lessthan0.004sqmpercapita).BycomparisontheUSmarkethasabout0.65sqmofselfstoragecapacitypercapita,andUScapacityisgrowingbyabout10%perannum(datafromtheSelfStorageAssociation).
warehouse real estate. Moscow.
Main indicators
Totalsupply(classesА,В,С),millionsqm 10.54
Class А Class В
SupplyofqualityspaceinclassesAandB,millionsqm 4.23 1.88
Totalsupplyofqualityspace,millionsqm 6.11
Growthofsupplyin2010,thousandsofsqm 340 65
Projectsduetobecommissionedin2011,thousandsofsqm 350 30
Leaseandsaletransactionsin2010,thousandsofsqm 800
Averagevacancyrate,% 5.0 11.5
Declaredrentalrates,$persqmperannum* 115–130 90–110
Operatingexpenses,$persqmperannum 30–45 25–40
*ExcludingVAT,operatingexpensesandutilitypayments
Source:KnightFrankResearch,2011
Vyacheslav Kholopov, DirectorofIndustrial,
WarehouseandLand,
KnightFrank
2010 was not an easy year for warehouse market participants, but signs of recovery were evident. Surplus space, which accumulated in 2008–2009, was taken up thanks to increase of tenant activity. The second half of the year saw strong growth of rents, and warehouse developments now look much more profitable than a year ago, so we expect to hear of new warehouse projects in 2011–2012. A key post-crisis trend among developers is to move beyond speculative warehouse construction: developers now aim to address specific needs of their customers and to create new models of cooperation. Turnkey projects are particularly popular.
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Supply
TherewasamajorslowdowninconstructionofnewwarehousecomplexesinMoscowanditsregionduringthecrisis,asloweringofrentalratesduetodeclineofdemandforwarehousespacecausedincreaseofprojectpaybackperiodsfrom7–9to10–12years.Loweryieldsanduncertaintyaboutfuturedemandlevelsmadewarehousedevelopmentsunattractiveforinvestorsandlenders.
Themarketfelttheconsequencesoflowerconstructionratesin2010:supplygrowthwasonly400,000sqmwhichisthelowestlevelsince2003.In2009completionof
projectsbeguninthepre-crisisperiodgave770,000sqmofnewqualitywarehousespace.
TotalwarehousesupplyinclassesAandBinMoscowandthesurroundingregionroseabove6millionsqmin2010,ofwhich4.23millionsqm(nearly70%oftotalsupply)isclassAand1.88millionsqmisclassB.
InH22010developersrespondedtogrowingdemandbyannouncementofnewwarehouseplans,butthesearemainlysmall-scaleprojectsorextensionstoexistingcomplexes.
Constructionofabout600,000sqmofnewclassAspacehasbeenannouncedfor2011(includedprojectsforspecificcustomers).
Weexpectthatsomeoftheseprojectswillnotbecompleteduntil2012andthatactualcommissioningofnewwarehousespacein2011willbeabout380,000sqm.Largeprojects,dueforcompletionin2011,include:
• PNK-Chekhov,buildings6–8(49kmfromMKADonSimferopolskoyehighway,classА,86,700sqm);
• VVVCompanyinLeninskyDistrictofMoscowRegion(Kashirskoyehighway,3kmfromMKAD,classА,85,000sqm).
Large warehouse projects commissioned in 2010
Name Location Space (sq m) Developer
PNKChekhov,buildings3–5 Simferopolskoyehighway,49kmfromMKAD 161,800 PNKGroup
Krekshino,building2В Kievskoyehighway,24kmfromMKAD 45,800 RosEuroDevelopment
Moscapstroy 1Dorozhnayastreet,Moscow 25,300 Moscapstroy
Istralogopark,stage5 Novorizhskoyehighway,42kmfromMKAD 18,800 RavenRussia
Source:KnightFrankResearch,2011
Source: Knight Frank Research, 2011
Growth of warehouse supply in Moscow and the surrounding region has seen a major slowdown in 2010–2011 thousand sq m
7
6
5
4
3
2
1
0 2006 2007 2008 2009 2010 2011
Total supply at the start of the year, classes A and B
Growth of supply
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
Source: Knight Frank Research, 2011
350
300
250
200
150
100
50
0
Q4 2010 set a record for lease and purchase transactionsin the warehouse segmentthousand sq m
I II III IV I II III IV I II III IV
2008 2009 2010
0
50
100
150
200
250
300
2010warehousereal estateMoscow
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Demand
Anumberofpositivefactorsforqualitywarehousedemandhavenowcomeintoplay,asfollows:
• Pent-updemand(companieswhichhadpostponedtheirplansinthecrisisenvironmentareagainconsideringrelocationorexpansionoftheirwarehousecapacities);
• Revivalofdevelopmentplansbyretailers,includingregionalexpansion;
• M&Amarketactivity,bywhichretailersandproducersareacquiringlogisticscapacityandcreatingnewdistributioncentres;
• Expansionofwarehousespacebylogisticsoperators,whichhavewontendersandneedmorecapacity.
LeaseandpurchaseofwarehousespaceinMoscowandthesurroundingregionin2010wasatitshighestlevelsincethecrisis,reaching800,000sqm.ThebusiestperiodwasQ42010whentake-upwasnearly300,000sqm(about37%ofthetotalfortheyear).
Transactionvolumesin2010werenearlydoubletheamountofnewsupplydeliveredtothemarketduringtheyear(405,000sqm).Thelasttimesuchalargedifferencebetweendemandandnewsupplywasobservedwasin2005,whentransactionswerealso800,000sqm,andnewsupplywas410,000sqm.
Rapidtake-upofspacecausedrapiddeclineofthevacancyrateatwarehousecomplexes.TheshareofvacantspaceatclassАpremisesdeclinedfrom12–13%attheendof2009to5%bytheendof2010.
Asmuchas40%oftake-uponthewarehousemarketin2010wasonthesouthsideofMoscow,wherebestresultswereshownbythePNK-ChekhovcomplexonSimferopolskoye
highway.Another20%ofwarehouseleaseandpurchasewasonthesouth-eastsideofthecity,ledbyTomilinologisticsparkandTrilogyParkTomilino,bothonNovoryazanskoyehighway.Thenorthernsideofthecityaccountedfor16%oftake-up,ledbySherland,BrackCapitalLobnya,andLeningradksyTerminal.
Itisimportanttonotethatdistributionoftake-upbyzonesaroundMoscowin2010was
Source: Knight Frank Research, 2011
The vacancy rate for quality warehouse space will fall as low as 3% by the end of 2011%
Class А
Class B
17.5
15
12.5
10
7.5
5
2.5
0I II III IV I II III IV I II III IV I II III IV
2008 2009 2010 2011
0
5
10
15
20
Source: Knight Frank Research, 2011
In 2010, for the first time since 2005, lease and purchase transactionsexceeded growth of supply by nearly 100%%
Transaction volume
New supply
Ratio of transactions to new supply, %
120
100
80
60
40
20
0
-20
0
300
600
900
1200
1500
2005 2006 2007 2008 2009 2010 2011
1400
1200
1000
800
600
400
200
0
-200
-20
0
20
40
60
80
100
Thousand sq m
Oneofonlyafewclass-Aprojectswithinthecity’sboarders—Moscapstroy,Dorojnayastreet,1
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determinedbylocationofexistingwarehousepremises,aswasthecasein2006–2008.Thenorth-eastern,north-westernandeasternsidesofthecityaccountedforonly10%oftake-upin2010,reflectingshortageofvacantspaceinthesezones,althoughtheyaccountedforabout30%ofdemand,asmeasuredbyrequestsfromclients.
Commercial terms
Growthofdemandandlimitedsupplyofwarehousepremisesin2010enabledwarehouseownerstoreviewcommercialterms.Afterremainingunchangedforaboutayear,rentalratesforqualityspaceenteredaphaseofrapidgrowthinH22010.Whiletheaverageclass-Arentalrateatthestartoftheyearwas$100–110persqmperannum,bytheendoftheyearratesof$110–115persqmperannumwereonlyavailabletolargestandbesttenants,i.e.internationalortopRussiancompanieswithgoodreputationandstrongmarketposition,whosepresenceenhancestheinvestmentvalueofawarehousecomplex.
Rentalratesgrewby5–10%overall,andthestandardratebytheendof2010(November-December)was$115–120persqmperannum(notincludingVATandoperatingexpenses).Anumberofprojectswereasking$130persqmperannum,buttransactionsatthatlevelwererare.
Thepricerangeforclass-Bcomplexesisfairlywide,duepartlytothelargevarietyofformats,whicharecategorizedasclassB.Rentalratesgrewbyapproximately10%toalevelof$80–100persqmperannum,notincludingVATandoperatingexpenses.
Theupperlimitforoperatingexpensesatwarehousecomplexesalsogrewbyabout10%in2010:from$40to$45persqmperannuminclass-Acomplexes.
Themostcommonleasetermforrentaltransactionsin2010was3–5years.Someagreementsincludeanoptionforextensionto7years,andtherearesomeinstancesof10-yearagreements.
Source: Knight Frank Research, 2011
Rent levels for quality warehouse premises grewin 2010 and the growth will continue in 2011$ /sq m per year
Class А
Class B
170
150
130
110
90
70I II III IV I II III IV I II III IV I II III IV I II III IV
2007 2008 2009 2010 2011
50
100
150
200
More than half of warehouse leaseand purchase in 2010 was concentratedin southern and south-eastern approachesto Moscow
Source: Knight Frank Research, 2011
40%
2%
South
South west
North west
North
North east
East
South east
13%3%
16%
5%
20%
outh and South east,t 60%
PNK-Chekhov49kmfromMKADonSimferopolskoyehighway
2010warehousereal estateMoscow
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Forecasts
Theswingbackfromatenants’markettoanowners’marketwillcontinuein2011,drivenbyincreasingdemandforhigh-qualityspace.
Weexpecttoseecommissioningof380,000sqmofnewclass-Aspacein2011.
Wepredictthatdemandin2011willremainatthelevelof2010andthat750–800,000sqmofspaceinMoscowandthesurroundingregionwillbeleasedandbought.Sotake-upcouldonceagainexceednewsupplybynearly100%,ashappenedin2010.
Thiswillentailfurtherreductionofvacantspaceatqualitywarehousecomplexes.Includingwarehousesvacatedbytenantsmovingtonewpremises,thevacancyrateatclass-Acomplexesshoulddeclineto3%bytheendof2011,leavinglessthan139,000sqmofvacantclass-Aspaceonthemarket.Thebiggestshortagewillbeofwarehousepremiseswithmorethan20,000sqmofspaceandpremisesthatarelocatedcloserthan20kmfromMKAD.
Rentalrateswillcontinuetorisein2011andtheaveragerentlevelforclass-Apremises
couldincreaseby7–10%bytheendoftheyeartoreach$125–130persqmperannum.
Observedandforecastgrowthofrentalrateswillencouragedeveloperactivityonthewarehousemarket,asprojectsinthesegmentofferincreasinglyhighratesofreturn.Theresultswillbecomevisiblein2012whenweexpectthevolumeofnewpremisescomingontothemarkettoincreaseby50–70%incomparisonwith2010-2011.
3PLmarket
Weexpecttoseeincreasingdemandfortheservicesoflogisticsoperatorsin2011and,asaconsequence,anincreaseinrentalofwarehousespaceby3PLoperatorsinordertoservetheircustomers.Wewillalsoseeanincreaseinthepractice,bywhichcompanieshirelogisticsoperatorstoprovideservicesattheirwarehousepremises.Rentingofwarehousespacebylogisticsoperatorswillmainlybeforthepurposeofmeetingspecificcontractswithcustomers.
Pricesforlogisticsserviceswillriseby5–10%onaveragein2011.
Landmarket
Theusuallyinertmarketforlandhasalsocometoliferecently.LargeretailershaveresumedtheirexpansionplansandarethereforereadytoacquirelandplotsforconstructionofshopsinMoscow,theregionaroundMoscow,andinothercities.Thereisalsointerestfromproducersanddevelopers.Now,aspreviously,landownersandpotentialbuyershavedifficultyinfindingamutuallyacceptableprice.However,increasingdemandsuggeststhatpricesareunlikelytocorrectdownwardstoanysignificantextent.Weexpectthenumberoftransactionsonthelandmarkettoincreasesignificantlyin2011.
IstraLogopark42kmfromMKADonNovorijskoyehighway
overview
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