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Q3 Industrial Segment Review: Volume of Quality Industrial Space on Moscow Market Exceeds 10 Million Square Meters

In Q3 2014 in the Moscow region 231,640 sqm of new industrial space was completed, which is 13% less than the volume of new build for the same period in 2013. Over the first nine months of the year a total of 928,000 sqm of new industrial space was created, according to a report by Colliers International. This brings the total volume of new industrial space on the Moscow market to 10.14 million square meters.
In Q3 2014 the Moscow industrial market saw the opening of such major complexes as the Synkovo Logistics Park (corpuses 3 and 11), PNK-Severnoye Sheremetyevo (corpus 8), Dmitrov (first phase), Admiral, PNK-Chekhov 2 (corpus 8), Nekrasovka and others. Approximately, 35% of the new completions are located within 15 to 30 km from the MKAD, while roughly equal volumes (15-17% of new build) appeared in locations up to 15 from the MKAD and 30 to 45 km from the MKAD.

Total industrial take-up for the period totalled 220,000 sqm, which is 40% less than in Q3 2013 and little more than half of the volume absorbed by the market in Q2 2014. Some of the largest deals during the period were the sale of 53,193 sqm at PNK-Severnoye Sheremetyevo, the purchase by DMD-Cargo of 21,752 sqm at PNK-Bekasovo, and the lease by Kari of 20,000 sqm at SST Britovo, among others.

Lease rates for Class A industrial space have slid to $125 per sqm per year. However, the sales price for such space remained at the level of $1250 per sqm. The substantial increase in new build in the first nine months of the year has pushed up vacancy rates, with the average now reaching 3.4%, the highest level seen in the past 3 years.

As of the beginning of 2014 the Moscow industrial market has seen changes in the structure of the demand, the share of pre-let/pre-sale transations were only about 28% and majority of industrial complexes enter the market with a high level of vacant space. The total volume of space absorbed by the market in the first nine months of 2014 has declined 17% year on year, and the most persistent demand is seen in Russia’s regions.

Another 1 million sqm of new construction has been announced for completion by the end of 2014. Major new warehouse complexes planned to enter the market include PNK-Severnoye Sheremetyevo (corpuses 1, 3, 6, 7, 10), Logopark Sever 2, Logopark Nikolskoye, SST Britovo (second phase) and Sofino (first phase), among others.

Vladislav Ryabov, Partner, Regional Director of Warehouse, Industrial and Land, Colliers International Russia: “Competition among developers has grown more intense on the Moscow market for quality industrial space. With the weakening of the rouble, developers are willing to make concessions and provide additional discounts and preferences to retain current and attract new tenants. The competition in the north and south-east of the Moscow region has become especially intense due to the large number of industrial complexes under construction. However, in the third quarter we saw a relatively low volume of new build. This can be attributed to the fact that developers are trying to postpone the launch of properties, as preliminary lease agreements have not been signed for a most of the space now under construction.”