According to JLL, the vacancy rate in the Moscow region warehouse market declined by 0.3 ppt in the first three months of 2019, to 4.2%. The take-up volume in Q1 2019 was 348,000m², of which 60% transacted on the secondary market, in line with recent experience. Warehouse completions reached 132,000m², almost double the level of Q1 2018.
“On one hand, the positive quarterly dynamics of the main indicators is a signal of warehouse market recovery. On the other hand, there are a number of economic indicators, such as retail turnover, Purchasing Managers Index (PMI) and economic growth forecast which restrain optimism about the future market prospects,” commented Evgeniy Bumagin, Head of Industrial & Warehouse Department, JLL, Russia & CIS. “Major developers have actively started considering the purchase of land plots for industrial development in the Moscow region and they are ready to implement projects on demand. PNK Group has the largest number of new projects in Moscow region, among which there are PNK Park Veshki, PNK Park Pushkino, PNK Park Zhukovskiy. Furthermore, the Kholmogory company and Radius Group announced the resumption of speculative construction and expansion of existing industrial parks”.
Moscow region warehouse completions by class
Notably, Q1 2019 new supply is dominated by speculative developments, among them are new buildings in PNK Park Valischevo (totalling 31,000m²) and warehouse in Novoselki (28,000m²) by RCS Corporation. Only 60% of total Q1 2019 completions, or 75,000m², was available on the open market.
An additional 1.1m m² of new warehouse premises are scheduled for delivery until the year-end. If the announced projects are delivered on time, the annual warehouse completions will be 1.4 times higher than those of 2018.
As in the previous year, a significant part of under construction projects (53%) was pre-leased at the stage of construction or had initially been built for end-users. The biggest projects of them are IKEA DC in Solnechnogorsk District (90,000m²), the second and third phases of Wildberries DC (50,000m² and 46,000m²) in the Koledino industrial park and a distribution centre for Lenta (70,000m²) in PNK Park Valischevo.
Among significant speculative projects announced for delivery in 2019 are the second phase ofSofyino industrial park (49,000m²) by Logopark Management company, a new phase in the warehouse complex Atlant Park (54,000m²) and a new building in LP Tomilino (24,000m²).
The total modern warehouse stock on the Moscow region warehouse market amounted to 17.9m m², of which 755,000m² is vacant space. “The available spaces are uneven in size, location and quality. For example, of 85 available blocks, 63 are small blocks of up to 10,000m². As a result, they do not always meet demand requirements, at least in terms of the size, which leads to a sustained volume of vacant premises irrespective of the number of deals on the secondary market,” explained Oksana Kopylova, Head of Retail and Warehouse Research, JLL, Russia & CIS.
Availability and vacancy rate dynamics on the Moscow region warehouse market
According to JLL estimates, a few large speculative objects will be delivered to the market throughout the year, leading to an uptick in vacancy. If the demand stays high, we expect the vacancy rate to stabilize in the range of 4-5%. The Q1 2019 take-up volume is comparable to the result of the previous quarter and the respective period of last year. The largest deal of the quarter is the purchase of PNK Park Koledino of over 53,000m² by Mistral Trading company Among the landmark deals is the purchase of a new 50,000m² building in Vnukovo Logistics Center-2 by Russian Post.
In Q1 2019 retail has lost its leading position in the demand structure to logistics and manufacturing companies, and ranked third, with 21% of the transaction volume. Logistic and manufacturing companies showed high activity with 31% and 29% of the demand volume respectively. Nevertheless, taking into account the pipeline of future transactions, we expect retail to regain and strengthen its position in the next quarter.
“The selective growth of weighted average rental rates in particular projects were due to a sharp vacancy decline, from 8.3% to 4.5% YoY in 2018,” commented Evgeniy Bumagin. “Furthermore, the construction cost changes on the back of VAT increase and strengthening of labor and tax laws state monitoring were the factors behind rental rates growth.”
“On the other hand, there are barriers constraining rental rates growth. Primarily, moderate retail turnover growth; thus, the increase of demand by retailer sector is mainly driven by a process of consolidation,” added Oksana Kopylova, Head of Retail and Warehouse Research, JLL.
All the above factors together with the positive market indicators allow JLL analysts to expect an increase of the average rental rates by 5-10% until the end of the year, depending on the direction and distance from MKAD.