The fourth annual conference on the warehousing property market organized by Knight Frank Russia and CIS took place on September 23rd at the Ritz Carlton Hotel in Moscow.

25 September 2008

The industrial segment of the market in both the Moscow region and Russia as a whole got fresh incentive to develop new industrial real estate formats. The fourth annual conference dedicated to the warehousing property market took place at the Ritz Carlton in Moscow on September 23, where participants determined that the next five years will see a strong demand for industrial zones, business parks, construction of turn-key sites in the build–to–suit format, and the development of large territories.

The event was organized by the international property consultancy Knight Frank, which has maintained leading positions in the warehousing property market for the past ten years.

Conference participants discussed the latest market trends and forecasts for the development of industrial real estate in Russia and overseas. Evgeny Semyonov, director of capital markets at Knight Frank Russia and CIS, pointed out the impact the global financial crisis has had on the general environment of the warehousing property market in Russia. Compared to 2007, market growth has slowed this year.

“The crisis has made it more difficult to attract investments in development projects. For example, the interest rate for construction and investment lending programs has grown, and many banks have either limited their quota for the financing of commercial real estate projects considerably, or closed them altogether. Now borrowers have to meet tougher requirements regarding the profile of the project, professional reputation and previous development experience. They must have good credit history and a portfolio of successfully-completed projects,” said Evgeny Semyonov.

The liquidity crisis is forcing banks and funds to cooperate with large chain developers like Eurasia Logistics, “Multinational Logistics Partnership” (MLP) and other companies. Since early 2008, the company Raven Russia has completed over five large loan agreements totaling over $500 mln.

The dynamics of the regional warehousing property markets gave rise to the most heated discussions at the conference. Knight Frank Russia and CIS analysts pointed out the fact that in 2008 large network companies specializing in the warehousing sector, such as Green Gate, Megalogix, MLP, PNK, and Espro, began construction of Class A warehouse complexes. However, forecasts for regional market dynamics are quite ambiguous, and Knight Frank Russia and CIS experts believe that intensive activity by developers might result in oversaturation of certain regional markets.

In addition to Moscow and St. Petersburg, the most promising warehousing markets are Yekaterinburg, Novosibirsk, Krasnodar, and Rostov-on-Don. This rating is consistent with that for 2007. “These three cities have three strengths that ensure strong demand for warehousing premises: intensive transit flow, strong industrial activity, and large consumer markets,” says Viacheslav Kholopov, director of the Industrial, Warehouses and Land Department at Knight Frank Russia and CIS.

The average price of a lease on the regional markets is nearly equal to that in Moscow and St. Petersburg, hitting $120-$145 per 1 m2 (excl. VAT and operational costs).

In terms of warehousing rates, the Moscow region is ahead of Madrid ($130), Amsterdam ($116), Frankfurt ($104), Budapest ($87), Rome ($83) and Paris ($80), and is second only to London ($300) and Dublin ($187). See Table 1.

According to Knight Frank Russia and CIS forecasts, the average lease rate for Class A warehousing premises will show steady growth in the Moscow region. In 2009, this rate will reach $155 – $165 per 1 m2 (excl. VAT and operational costs). See Table 2.

According to Roman Bourtsev, a partner at Knight Frank Russia and CIS, investment funds (especially foreign funds) have shown interest in the Moscow region’s warehousing market since 2006. This trend was first identified three years ago and is still quite strong. Return on investments in the Moscow warehousing market is higher than in Europe, i.e. in cities such as Rome, Milan, Budapest, Frankfurt, Vienna etc. See Table 3.

In a speech delivered at the conference, Roman Bourtsev said, “Due to the instability on the global stock exchanges and financial markets, diversification of products might become a winning strategy for foreign and Russian developers and investors: the development of the built-to-suit format, land development projects, and industrial and technology parks.”

Table 1

Table 2

Table 3