RESEARCH 2017 WAREHOUSE MARKET REPORT Russia WAREHOUSE MARKET REPORT. RUSSIA Warehouse Market Report. Russia The total quality warehouse stock of Russia reached about 23 million sq m in 2017, where 58% or 13.4 million sq m were located in the Moscow region, 14%, or 3.2 million sq m – in St. Petersburg and the Leningrad region, and 28% or 6.4 million sq m in the regions of Russia. Distribution of total quality supply volume of Class A and B warehouses in Russia, 2017 Population, mln people 3–5 2–3 Other regions 1–2 28% M . S. P . St. Petersburg Moscow region St. Petersburg 58% and Leningrad region Tver 14% Kaluga Moscow Tula Nizhny Novgorod Voronezh Kazan Rostov-on-Don Perm Yekaterinburg Samara Krasnodar Ufa Chelyabinsk Novosibirsk Krasnoyarsk Khabarovsk Total stock of the quality warehouse space, as for June 2016 (Class A and B), thousand sq m Vladivostok 100–200 200–500 Dynamics of distribution of transactions by tenants/buyers 1,600 1,400 1,000–7,000 1,200 1,000 800 600 400 200 TS R 0 S U 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 M region S. P region O Source: Knight Frank Research, 2018 Source: Knight Frank Research, 2018 2 2017 RESEARCH Supply Over 350,000 sq m of quality warehouse Significantly, developers did not announce space was put into operation in the regions the entry of large speculative projects on of Russia in 2017 (excluding the Moscow the market despite the increased demand Vladislav Ryabov region, St. Petersburg and the Leningrad for quality warehouse property in the Regional director, Industrial, Warehouses region), which was 27.7% higher than the regions of Russia, but they signed contracts and Land, Knight Frank, Russia and CIS delivery rate for 2016. The largest volume for the construction of warehouses in built- "2017 was more dynamic to deliver of warehouse space was completed in to-suit format or with the involvement of new properties to the regions of Russia Yekaterinburg – about 61,000 sq m and the general contractor. about 50,000 sq m in Vladivostok. 87% than 2016. However, the old Soviet-built There was a limited supply of quality of the total volume of properties delivered facilities still dominated in the supply warehouse units in most regions of Russia in 2017 was built for end users both in built- structure of the regions of Russia despite following the results of 2017. The vacancy to-suit format and with the involvement the growth of construction volumes. New share (excluding the Moscow region, of the general contractor, the remaining properties are mostly built for the end use, St. Petersburg and the Leningrad region) 13% were built speculatively. The largest and I believe this vector of development was 4.4% or 280,000 sq m in absolute speculative projects, completed in 2017, will prevail in the regional warehouse real terms by the end of 2017. estate market. As in the previous years, in were the second phase of the Dockland The largest vacancy rates were in Kaluga – 2017 the leading position in the demand warehouse complex in Tula with an area of 38.4%, in Tula – 11.4% and in Rostov- structure was held by food retailers, who about 21,000 sq m and the fourth phase in on-Don – 8.8%. However, despite the were the main customers of built-to-suit the Aviapolis Yankovsky logistics complex high percentage, the amount of vacant projects with multi-temperature chambers, in Vladivostok with an area of about warehouse space was low in absolute terms. and they boosted their activity not only 25,000 sq m. Some of the largest facilities The smallest share of vacant warehouse in cities with population over a million built for the end users in 2017 were space was observed in Krasnodar – 0.5%, people, but also in small cities. According the distribution centres of the following in Omsk – 0.5% and in Vladivostok, where to our estimates, the volumes of delivery federal retail chains: X5 Retail Group in there were no vacant premises by the end and transactions of the regional warehouse Yekaterinburg and Auchan in Samara with of 2017. market in 2018 will exceed the indicator an area of about 35,000 sq m each; Magnit of the year 2017, and the structure of in Murmansk and Kirov with an area of demand will remain unchanged". about 33,000 sq m each. Distribution of new delivery volume in Dynamics of growth of quality warehouse space regions of Russia by type, 2017 (excl. the Moscow region, St. Petersburg and the Leningrad region) 100 100 100 1 1200 1000 2 00 63% 00 00 200 Built-to-suit 0 Ownership 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 S region S region Source: Knight Frank Research, 2018 Source: Knight Frank Research, 2018 3 WAREHOUSE MARKET REPORT. RUSSIA Supply and vacancy rate Kaluga Tula Kazan Yekaterinburg Omsk 1 221 400 474 1 039 0 S 38.4 11 2.2 5.9 2.3 0 Vacan Voronezh 335 5.7 R 477 8.8 Krasnodar 7 0 Volgograd Vladivostok 231 1 2.6 C Krasnoyarsk 0 S 22 17 538 7.3 2 3.1 Ufa Perm Novosibirsk 110 177 998 1 8.3 21 Source: Knight Frank Research, 2018 Victor Vorobiev, shareholder of Dockland LLC The largest warehouse complexes delivered in the regions of Russia in 2017 Total area, KF: Does the design of the warehouse City Title sq m affect its technical characteristics? Yekaterinburg Yekaterinburg distribution centre (Х5 Retail Group) 38,000 V. V.: Such tool as design is rarely used professionally in industrial real estate, Samara Pridorozhny logistics сomplex, building 6 (Auchan) 33,800 and this gives a significant competitive Murmansk Magnit distribution centre 33,000 advantage to those companies that invest in it. It is important to understand Kirov Magnit distribution centre 32,680 that design is not only how the object looks, but also how it functions. When Tyumen X5 Retail Group distribution centre 26,000 a client, employee, or business partner Vladivostok Aviapolis Yankovsky logistics complex, phase 4 25,700 gets acquainted with your complex, the first thing he does is unconsciously assess Ufa Sigma logistics complex (building of X5 Retail Group) 25,000 the aesthetic appeal and the conceptual Vladivostok Aviapolis Yankovsky logistics complex, phase 5 24,200 design of the building, while deciding whether he wants to lease this facility or Perm X5 Retail Group distribution centre 23,800 work in this space. Tula Dockland warehouse complex, phase 2 21,000 At Dockland we pay a lot of attention to design, and I'm sure that the professional Novosibirsk Х5 Retail Group distribution centre 17,000 approach to design pays off on multiple Yekaterinburg PNK Park Kosulino (X5 Retail Group) 13,690 occasions. Source: Knight Frank Research, 2018 4 2017 RESEARCH Demand Over 440,000 sq m of warehouse space was leased and purchased as a result of Dynamics of distribution of transactions by tenants/buyers 2017 in the regions of Russia (excluding % the Moscow region, St. Petersburg and 100 the Leningrad region), which was almost 0 25% higher against 2016. The largest volume of transactions was concluded in 0 Yekaterinburg – about 125,000 sq m and in 70 Novosibirsk – about 51,000 sq m. 0 About 67% (or 296,000 sq m) of the total volume of regional lease and purchase 0 Other transactions of 2017 was concluded in 0 Manufacturing completed facilities, up by 37.5% over the same indicator for 2016. The average 0 Transport tics transaction volume was 6,000 sq m, which Distribution was equivalent to the average volume 20 Online-retail of transactions of 2016. The number of 10 new lease transactions in completed R facilities in 2017 grew by 30% against 0 201 201 201 201 2017 2016. The remaining 33% of the total volume of regional transactions in 2017, or Source: Knight Frank Research, 2018 144,000 sq m was concluded for the construction in the built-to-suit format or with the involvement of the general contractor. As a result of 2017, the share of retailers, which historically formed the largest demand in the regions of Russia, reached more than 76% of the demand structure. The largest transaction of this segment Vyacheslav Zelepuga, was the lease of about 46,000 sq m in commercial director of A Plus Development the Yuzhnouralsky warehouse complex in Chelyabinsk by Detsky Mir company. KF: Please, tell us about the design features and the remoteness of the facility from major The warehouse complex with a total of the facilities built/currently under cities, from where it is necessary to deliver area of about 82,000 sq m was put into construction for the end users. construction materials. For example, the operation in 2015. The largest built-to-suit acceptable delivery distance (economically transactions of 2017 in the retail segment V. Z.: Today, the vast majority of projects for feasible) of reinforced concrete is 300 km, was the signing by the federal retail chain the construction of warehouse complexes metal structures – 500 km. Exceeding these Auchan of contracts for the construction in all regions of Russia are implemented in parameters leads to a significant rise in the of facilities with an area of about built-to-suit format. Therefore, all warehouse project cost. 35,000 sq m within the Prigorodny facilities are different, each is built for the warehouse complex in Samara and technology of a particular customer and is There are also some difficulties with attracting 30,000 sq m in the PNK Park Kosulino unique in some way.