JLL: MKAD restrictions enforce warehouse decentralization (RU)

New completion volume kept increasing: about 100,000 m² was delivered to the market in Q1 2013, which is 100% growth on YoY basis. Despite increased completion the volume of vacant spaces did not rise considerably, as almost all new projects were pre-let or sold before completion. Total expected for 2013 projects account for 930,000 m² it is more than 50% YoY growth, reported Jones Lang LaSalle experts.

Key trend in Moscow warehouse market is new projects decentralization. Majority of existing projects is located within a radius of 20km from Moscow Automobile Ring Road. Although We expect total demand of 1.5 million m² by the year end with the increasing sales share approaching 1/3 of annual take-up. In 2012 it was about 26% and in 2011 only 10%.

Ilya Vydumkin, Head of Industrial Research, Jones Lang LaSalle, Russia and CIS, commented: «We estimate current prime rents on level of USD140/m²/year. Anyway there are almost no available areas, the current market is a market of ‘future projects’ and average rent for BTS project or early prelease is lower, USD130-135/m²/year. Large amount of projects are announced for 2013-2014, but developers prefer to wait occupiers in order to start construction, so supply is growing only in response of demand and we expect commercial terms to remain approximately the same by year end».

Recently established truck-weight restrictions force developers to locate projects on А-107 and upcoming Moscow Central Ring Road (20-40km from MKAD).

On the other hand pipeline is divided between two key directions, North and South. This is largely because of good transport access, existing in the south (M-4 – Kashirskoe Highway, M-2 – Semfiropolskoe Highway) and under construction in the north (new Moscow-St. Petersburg road).

Next phases of PNK-Chekhov (312,000 m²) and South Gate (233,000 m²) projects in the south are among the key projects of 2013-2014. There are several new big projects in the north, starting from Logopark Sever (110,000 m²) planned to be delivered in Q2 2013, Nikolskoe LP (106,000 m²) and Dmitrov LP II (63,000 m²) – in Q1-Q2 2014, to Radumlya LP and PNK-North – during 2014-2015. This variety of projects gives a wide choice for potential tenants and encourages developers to pre-lease or pre-sell projects before start of construction, in order to minimize competition.

Demand for industrial real estate in Moscow region remained stable with take-up amounted to 190,000 m² in Q1 2013 (12% YoY drop). Main drivers of the demand activity remained retailers and distribution companies (about 66% of total demand).

More than 30% of demand activity was carried up by e-commerce, multi-channel retailers and IT distributors.

There is still a deficit of warehouse space in the market and the vacancy rate remains negligible at 1.07%. Almost all new completions were fully let or sold before the end of construction, thereby not influencing availability. Occupiers requirements for large premises (more than 10,000 m²) can only be fulfilled by pre-leases (usually 6-8 months before completion) or build-to-suit contracts. We expect the same situation over 2013, the vacancy rate could fluctuate slightly, yet not exceeding 2.5-3%.

Source: JLL

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