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The record was set up in development of warehouse space in the Russian regions in 2015

- Food retail – key demand source on regional markets -

Moscow, 23 March 2016 – Global real estate advisor CBRE indicated the key trends of the Russian regional industrial and logistics (I&L) property market for 2016. 

For the whole year, total new delivery of I&L space in the Russian regions amounted to 683,000 sq m, which is 16.8% higher than in 2014. This result represents all-time record for regional markets – previous maximum was seen in 2009 (673,000 sq m).

Significant trends for I&L market in the Russian regions in H2 2015 include: 

• In the second half of 2015, total new delivery in regional centres (excluding Moscow and St. Petersburg) amounted to 449,000 sq m, which is almost two times higher than in the first half of the year.
• Occupiers’ activity significantly increased in Q3-Q4 2015 – total take-up jumped to 223,000 sq m, which is 4.6 higher than in H1.
• Vacancy rate stays at 9% level, while the amount of vacant premises has slightly increased.
• Average rental rates remain constant and stay at the level of RUB4,500 per sq m per annum for class A properties and RUB3,500 – for class B.

Demand

Total take-up in the regions in 2015 stood at 271,000 sq m, which is 10.5% lower than in 2014. 

Nevertheless, market activity in regions is still high and comparable to results of two previous years.

Demand is mainly fuelled by food retail. Despite slight decrease of this sector activity (-3% of take-up compared to 2014), its share in total take-up reached 63%. More than a half of taken-up premises relates to this sector for the second year in a row. 

The major demand driving force was federal retail chains, which use current economic environment as an opportunity for expansion of their business.

Production sector showed good performance as well and took 2.8 times more premises than in 2014. The reason of its growing activity was number of deals with involvement of food industry companies and alcohol producers – 54% of production sector take-up. 

The largest deals of 2015 were completed with X5 Retail Group in Krasnodar, Kaluga and Perm (47,000 sq m, 38,665 sq m and 26,367 sq m accordingly). Leroy Merlin leased 19,856 sq m in Samara in nonfood sector.

Demand volume is expected to be moderate in the coming years, and the need for new warehouse space will depend on retail chains expansion plans more than it was before.

Take-up structure in 2015 was very similar to previous years – lease transactions (89% of all deals) overwhelmed purchases (11%).

New delivery

New supply is expected to decline in 2016 through shrinkage of speculative development.

375,000 sq m of warehouse premises on regional markets is already under construction. All-in-all 2016 completions may reach 400,000 sq m. 

The majority of regional markets are facing quite high vacancy rates. Thus, developers are likely to focus on letting vacant premises in existing buildings or on build-to-suit projects.

55% of projects built in 2015 relates to Top-10 regional markets, including Yekaterinburg, Novosibirsk, Samara, Rostov-on-Don, Nizhniy Novgorod, Kazan, Voronezh, Tula, Chelyabinsk and Krasnodar. Almost the same proportion was seen in 2014 – 53% of total completions.

Highest delivery was seen in Yekaterinburg, where new supply increased by 4 times as compared to 2014, and reached 98,000 sq m. As a result, Yekaterinburg became the largest regional market in terms of modern logistic premises, slightly ahead of Novosibirsk (764,000 sq m vs 757,000 sq m).

Vacancy rates in the Russian Regions in the relatively developed markets amounted to 4-8% of the total stock. 

Commercial terms

Average rent for class A and B warehouses stays at mid-2015 level of RUB4,300 per sq m per annum, including OPEX and VAT.

Average asking rental rate: 

• for class A properties – RUB4,700 per sq m per year, including OPEX and VAT
• for class B properties – RUB3,500 per sq m per year, including OPEX and VAT

Vasiliy Grigoriev, Senior Consultant, Research Department, CBRE in Russia, said: 

“In 2015 regional markets saw the record-breaking supply volumes. However, we cannot say that regions were oversupplied with such huge delivery pipeline – 80% of commissioned space is already occupied by end-users.

“In coming years need for new warehouse space on regional markets will persist at current level entailed by food retailers activity. We expect new supply will come to markets, in most cases, through build-to-suit projects intended for specific companies, in particular for retail chains.”

Anton Alyabyev, Director of I&L Department of CBRE in Russia, commented: 

“Largest food retailers such as X5, Magnit, Lenta and others are the key consumers of warehouse space in the regions. These companies increase their activity in the regional markets and expand their logistic infrastructure alongside with new store openings.

“In 2016 this tendency to preserve. Even now almost half a million of new distribution centers of federal retail chains is being constructed.”