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Moscow, 24 April, 2017 – According to JLL estimates, the new supply volume in the Moscow Region in Q1 2017 has declined by 40% YoY to 60,000 sq m. Overall in 2017, approx. 650,000 sq m of new space will be delivered in the Moscow Region, 15% less than last year.
A distinctive feature of 2017 is the domination of the speculative warehouses in the completion structure. According to JLL estimations, such projects account for almost 80% of the forecasted volume of the new supply in comparison with 33% in the previous year. The share of built-to-suit (BTS) projects will decline from 40% to 10%. “Low volume of BTS projects under construction is one of the main reasons for lower new completions in 2017. The contraction of BTS projects delivery will happen as a result of longer realization of some difficult quality projects, which completions were postponed until 2018,” –
Viacheslav Kholopov, Regional Director, Head of Warehouse and Industrial Department, JLL, Russia & CIS, says.
In Q1 2017, only four warehouse complexes were commissioned: Diart (16,200 sq m), a new block in Logopark Dmitrov (20,000 sq m), part of Phase I in distribution center Radumlya (13,000 sq m), warehouse complex Khimki (8,000 sq m). It is worth highlighting that all newly constructed logistics premises are located in the north of the Moscow Region.
Here are the largest warehouse complexes under construction, planned for delivery by the end of the year: the warehouse complex Borisovka (63,000 sq m), new blocks in the PNK-Bekasovo and PNK-Northern Sheremetievo industrial parks (60,000 sq m), Logopark Klin Logistics (57,000 sq m), Vnukovo Logistic 2 (50,000 sq m), next phases in Logopark Sever – 2 (43,000 sq m), phase II in Tekhnopark Uspenskiy (42,000 sq m). The bulk of future supply in 2017-2018 is represented by built-to-suit schemes, implying that the construction begins only in case of actual demand for warehouse space.
The total take-up volume in Q1 2017 was 130,000 sq m, twice lower the Q1 2016 volume. The average deal size declined by 38% compared to the first three months last year. In Q1 2017, distributors and retailers prevailed in the demand structure (42% and 27% respectively).
Demand and supply on Moscow Region warehouse marketSource: JLL
The vacancy rate in existing warehouse complexes in the Moscow Region increased to 12.8% from 12.2% at the end of 2016 and 10.2% in Q1 2016. In absolute terms the vacancy on the Moscow warehouse market reached 1.65m sq m, showing 6% QoQ growth and 33% YoY growth.
“If the quarterly demand stays in the range of 150,000-200,000 sq m, we expect the vacancy to stay at the same level, 12-13% throughout the year,” –
Viacheslav Kholopov forecasts. – “In the long-term, the available space will be gradually absorbed, although we do not expect the reduction of the vacancy rate below 5-7%. The existence of significant amount of available space of different quality has become the new reality of the Moscow market: large vacancy with stay with us forever.”
Over the course of Q1, the average level of asking rents for new deals declined from RUB3,500 to RUB3,300 per sq m per year, triple net (-6% QoQ). The level of prime rents declined as well – from RUB4,000 per sq m per year to RUB3,800 (triple net). Besides, the readiness of the owners to provide discounts in the negotiation process has declined.
Moscow Region warehouse market balance
“The pressure on average rents occurred not only because of the existence of the vacant space but also because of the gradual obsolescence of warehouse complexes. About a quarter of the total market volume is represented by the objects constructed 8-12 years ago which quality is inferior to more modern assets. Some of the owners of such objects are ready to invest in their renovation for attracting quality demand, others – only to lower rents, thus making an impact on the average rent.” –
Viacheslav Kholopov notes. – “In the next 1-1.5 years we expect gradual exit of cheap offers from the market that will lead to an increase of the average rent. The current demand volume is not sufficient for its organic increase.”
According to Viacheslav Kholopov, “low rents and high competition undermine financial returns on speculative development in the Moscow Region. It is logical to assume that the Moscow market will drift further towards the BTS format for realization of non-standard or large projects, while traditional requests will be mostly serviced by existing facilities. In contrast with the Moscow market, there interest in developing the new projects in the main regional logistic hubs – from Rostov-on-Don to Vladivostok – where there is a lack of existing supply and interest from potential tenants, primarily large retailers. The volume of vacant warehouses in all major regional cities at 700,000 sq m is twice less the available space in Moscow Region.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.In Russia and CIS JLL has offices in Moscow, St. Petersburg and Kiev. JLL, Russia & CIS was voted Consultant of the Year in 2004, 2006-2016 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg; Consultant of the Year at the RCSC Awards in 2015.
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