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Moscow

Vacancy continues to fluctuate on the Moscow warehouse market

The vacancy rate declined in Q2, extending a year of up-and-down alternations


Moscow, July 14, 2017 – According to JLL estimates, in Q2 2017 the vacancy rate in existing warehouse premises in Moscow Region declined to 11.3% from 12.8%. In absolute terms, the volume of vacant warehouse space amounted to 1.47m sq m, the lowest figure in the last 12 months.

“Vacancy on the Moscow Region warehouse market has been showing quarterly up-and-down alternations of 0.5-1.5 ppt,” – said Oksana Kopylova, Head of Retail and Warehouse Research, JLL, Russia & CIS. – “The increase of the figure has been caused by delivery of new large blocks or growing vacancy on the secondary market, while the decline by absorption of premises in existing buildings, both on primary and secondary markets. Overall, the vacancy rate is relatively stable, fluctuating between 10-12% for the past 2.5 years.”

Available space dynamics on the Moscow Region warehouse market
1407 1Available space dynamics on the Moscow Region warehouse market.png
Source: JLL

H1 2017 warehouse completions of 200,000 sq m were the lowest in the last five years and half the level of H1 2016. Of this, 142,000 sq m was delivered in Q2 2017. Klin Logistic (56,000 sq m) and a new block in Logopark Sever - 2 (25,000 sq m) were the largest objects. 

Some 470,000 sq m of warehouses are expected to be completed by the year end, including Borisovka (phase 1, 63,000 sq m), Vnukovo 2 (phase 2, 50,000 sq m), Kozhuhovo (48,000 sq m). This will bring the total annual volume to 670,000 sq m, 13% lower than in 2016. 

About 24% of new supply in H1 2017 was contracted, and 20% of announced completions in H2 have been let, bought or built for end-user. “These figures are quite low. For example, about 40% of projects under construction was either pre-let or pre-sold in 2016, and in 2012-2014 his share was 50-80% of new supply on average.” – noted Oksana Kopylova

Completion dynamics by class in the Moscow Region warehouse market
1407 2Completion dynamics by class in the Moscow Region warehouse market.png
Source: JLL

Take-up in Q2 amounted to 343,000 sq m, bringing the H1 2017 figure to 472,000 sq m compared to 391,000 sq m in the same period of 2016. The annual volume may reach about 900,000 sq m, comparable to the 2016 result. 

“The average period of closing a deal has increased: warehouse occupiers are accustomed to a wide selection on the Moscow Region market and they take the time before making a decision. The financial factor also plays a role: often warehouses built several years ago are offered at lower rental rates, extending the period it takes tenants to decide.” – observed Viacheslav Kholopov, Regional Director, Head of Warehouse & Industrial Department, JLL, Russia & CIS.

In H1 2017, 81% of the deals were made in completed objects. Manufacturing and retailer companies were the main demand drivers, accounting for 32% and 26% of take-up respectively. The share of production companies was twice the usual level, at about 15% of the total take-up.

 
Demand distribution by business sector in the Moscow Region, H1 2017
1407 3Demand distribution by business sector in the Moscow Region, H1 2017.png
Source: JLL

“The last six months showed high activity from retailers and distributors, with the majority looking for space to relocate, rarely to expand their logistics platform, and from industrial companies,” – commented Viacheslav Kholopov. – “Optimization of the occupied areas, reviews of internal business processes and focus on the logistic costs optimization are changing warehouse occupier requirements. Tenants look for premises with more gates, they review the internal operational logic. The latter requires certain changes of configuration and building formats. In addition, production companies consider long-term solutions and opportunities for construction of specialized buildings; these transactions will be announced later and will significantly affect the volume of construction and take-up in 2018.” 

The average level of asking rents in new deals in Moscow region remained in the range of RUB3,000 – RUB3,800 sq m per year (triple net). The rent range has narrowed generally. The differentiation of the offers is less affected by the proximity to Moscow and is observed only in remotely located projects (beyond 50 km from MKAD). 

Average asking rents by proximity to MKAD
1407 4Average asking rents by proximity to MKAD.png
Source: JLL

According to JLL, average rents in the Moscow region will be stable until the end of 2017. “Rental growth is possible only if the vacancy rate declines by at least 5 ppt or if the selection of large warehouse areas (from 30,000 sq m) offered in one building drops significantly,” – added Viacheslav Kholopov. – “H1 2017 was characterized by stability: the volume of construction was moderate, rents remained flat, the vacancy varied in the range of 11-12%. It may indicate a gradual market stabilization.” 


About JLL
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 its clients managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At the end of the first quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 78,000. As of March 31, 2017, LaSalle Investment Management had $58.0 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, 2006-2017 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, 2016, St. Petersburg; Consultant of the Year at the RCSC Awards in 2015.