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First Quarter Results for Warehouse Segment: more than 70% of new build concentrated in the south and southwest of Moscow

Colliers International, the leading international real estate consultancy, has analysed the current supply and demand in the Moscow market for warehouse and industrial properties. In Q1 2014 the volume of new construction of prime warehouse complexes in the Moscow region continues to increase. Over the first three months of the year approximately 287,000 sqm of Class A warehouse space were commissioned, which is 1.5 times more than same period in 2013. More than 70% of the new warehouse complexes are located in the south and southwest of Moscow.
In Q1 2014 the Moscow market for quality warehouse space saw the inauguration of the following major warehouse projects: PNK-Chekov 2 (82,000 sqm), second phase of Nakhabino (68,000 sqm), first phase of SST-Britovo (80,000 sqm) and others. Despite the negative impact of macroeconomic factors and the geopolitical situation in Russia, there is sustainable demand for quality warehouse. More than 70% of the space commissioned in Q1 had already been absorbed by the market during planning and construction stage.  

The decline in the value of the rouble during Q1 2014 led to lower tenant activity and fewer lease and sale agreements for warehouse space. As a result the volume of warehouse take-up in the Moscow region was at the level seen during Q1 2012, amounting to 163,000 sqm or approximately 55% of the volume of newly commissioned space. The decline in the number of deals can also be linked to the completion of projects which were absorbed earlier and the general deficit of available warehouse space.

Some of the major deals of Q1 2014 include the lease by Incity of 30,000 sqm at Bykovo logistics park, the investment purchase by Stone Hedge of a 14,000 sqm warehouse as well as the lease by Hilti of 13,000 sqm and OSG of 11,500 sqm at PNK-Severnoye Sheremetyevo.

According to Colliers International, volatility on currency markets led to a slight correction of lease rates, which in early 2014 were at $130-135 per sqm per year for Class A warehouse premises. The increase in new build has led to some growth in vacancy rates, which averaged 2.1% at the end of the quarter.

At present the total supply of quality warehouse space in the Moscow region exceeds 9.5 million sqm. More than 1.5 million sqm of new space has been announced for completion by the end of 2014. Approximately 600,000 sqm is expected to be completed to the north of Moscow, which will lead to higher competition among developers and subsequently lower lease rates in this area.

Vladislav Ryabov, Partner, Regional Director of the Warehouse, Land and Industrial Department, Colliers International Russia: “Despite the negative macroeconomic factors and unstable geopolitical situation, the market for quality warehouse space in the Moscow region continues to see stable demand, which is confirmed by the major deals which were signed in the first quarter of 2014. Currency fluctuations have driven tenants to seek rouble-based agreements or agreements with an fixed currency exchange corridor in order to lower risks. However, developers have rarely been willing to compromise with tenants on this and most agreements continue to be denominated in dollars. The slight decrease in tenant activity will not impact the volume of deals over the mid-term perspective. We expect that the volume of space absorbed by the Moscow market this year will remain at the level seen in 2013.”