According to JLL estimates, in Q2 2017 the vacancy rate in existing warehouse premises in Moscow Region declined to 11.3 percent from 12.8 percent. In absolute terms, the volume of vacant warehouse space amounted to 1.47 million 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 percent for the past 2.5 years.”
H1 2017 warehouse completions of 200,000 sqm were the lowest in the last five years and half the level of H1 2016. Of this, 142,000 sqm was delivered in Q2 2017. Klin Logistic (56,000 sqm) and a new block in Logopark Sever – 2 (25,000 sqm) were the largest objects.
Some 470,000 sqm of warehouses are expected to be completed by the year end, including Borisovka (phase 1, 63,000 sqm), Vnukovo 2 (phase 2, 50,000 sqm),Kozhuhovo (48,000 sqm). This will bring the total annual volume to 670,000 sqm, 13 percent lower than in 2016.
About 24 percent of new supply in H1 2017 was contracted, and 20 percent of announced completions in H2 have been let, bought or built for the end-user.
“These figures are quite low,” noted Oksana Kopylova. “For example, about 40 percent of projects under construction was either pre-let or pre-sold in 2016, and in 2012-2014 his share was 50-80 percent of new supply on average.”
Take-up in Q2 amounted to 343,000 sqm, bringing the H1 2017 figure to 472,000 sqm compared to 391,000 sqm in the same period of 2016. The annual volume may reach about 900,000 sqm, 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 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 percent of the deals were made in completed objects. Manufacturing and retailer companies were the main demand drivers, accounting for 32 percent and 26 percent of take-up respectively. The share of production companies was twice the usual level, at about 15 percent of the total take-up.
“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 – RUB 3,800 sqm 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).
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 sqm) 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 percent. It may indicate a gradual market stabilization.”