Moscow warehouse market

Transcription

1 Moscow warehouse market Moscow warehouse market returned to a supply deficit. Vacancy rates tighten at 3% and below 3% for Class А. Rental growth continued in, with prime rents reaching USD135/sq m/year Increasing supply deficit resulted in growing share of prelets and further progress in built-to-suit practice

2 On Point Warehouse market 2Q Recovery of demand for warehouse space started in the second part of the last year resulting in a considerable decrease of vacancy rate. Shortage of new supply and rental growth indicate a return to the state of demand overshadowing. Supply Approximately sq m of warehouse space were completed in 2Q. Total completions of the first half of amounted to sq m. The limited amount of new completions can be explained by the fact that most projects which are currently being completed were stalled during the crisis and a limited number of new projects during this period. Total high quality warehouse stock reached 7.9 mn sq m by the end of. * With only a few projects to be finished by the end of the year, we expect that the volume of total completions for will not exceed 500, ,000 sq m (the lowest level since 2005). Completion dynamic by classes '000sq m H1 F Class A Class B Share of Class A warehouses of total stock of quality supply continues to grow (currently it is 6), but at a lower pace. An increasing number of tenants realize advantages of multilevel storage (large number of docs and other amenities) associated with Class A warehouses. The majority of warehouse supply is situated in the south and south-east of the Moscow region, while the strongest deficit of * Jones Lang LaSalle revised the historical stock based on update of database. The stock was increased mostly due to Class B warehouses built in early The Class A quality warehouse stock was not affected. warehouse space is in the south-west and north-west zones (vacancy rates are 0.64% and 0.7 respectevely). Geographical distribution of supply west south-west 9% south 3 north-west 15% north 7% north-east 9% east south-east 1 The intense deficit of quality warehouse space on the market makes the emergence of new projects and construction of the next phases of existing projects inevitable (MLP Podolsk and LP Klimovsk). However many of those will only be finished in Therefore significant proportion of new deals will be signed at the construction stage. A number of developers are ready to start construction, but prefer to find a potential tenant first. Built-to-suit schemes are also becoming increasingly popular. Such schemes allow implementing specific tenants requirements, and at the same time, it guarantees stable income inflow for the developer. Nevertheless a majority of the developers prefer to construct warehouses with rather standard features, wary of not finding a new tenant, if problems arise with existing space. Built-tosuit warehouses for special usage (freezers or storage of flammable goods) are generally completed succesfully for further sale (freezer in PNK-Chekhov project). Developers have become more selective. During the Crisis many small companies took advantage of lower rents and moved from Class B- or Class C warehouses to Class A. At the same time, developers paid little attention to their financial situation, bank or mother company guarantees. As the market situation changed developers began to examine financial guarantees of potential tenants more carefully. Some owners prefer to renegotiate or eliminate existing agreements with small tenants in order to free

3 On Point Warehouse market 2Q 3 space for large and reputable tenants. This also allows signing new deals at significantly higher rents. Demand Growing demand and the number of current deals clearly illustrates a recovery of the market. Take-up reached sq m in which demonstrates 2.5 times compared with the previous quarter. The biggest deals of H1 The biggest deal (77,500 sq m) was signed in April by Х5 Retail Group in LP Noginsk. The increasing number of deals is a clear indicator of growing market activity. If we do seasonal adjustment (green line), it is clear that a number of deals demonstrates stable growth during the last quarters. Importantly growth rates demonstrate a decrease when there is severe shortage in certain areas, accompanied by high rental rates. Dynamic of warehouse market activity* Distribution of demand by sectors Logistic Manufacturing Retail Manufacturing companies increase in market share indicates growth in the industrial production sector, with a large share of retail companies showing a recovery in the consumer sector. With the current economic situation, continue recovery is expected. This means further growth in demand for warehouse space. The growing number of logistic companies can be explained by the fact that before the crisis they were the most active occupiers and take large warehouse areas planning further business expansion. During the crisis they lost part of their clients and offered much of their space for sublease. With the economic recovery they continue to fill these areas with new logistic clients and need new areas to expand their business operations. We expect that take-up will reach mn sq m by the end of the year. Share of prelets is expected to grow up to 4 (comparing with current 10-15%). Market balance 30 Due to the shortage of new supply and growing demand, vacancy rates dropped sharply. Vacancy rates reached 3% by the end of 2Q. For Class A warehouses it is lower than 2%, while in Class B - about 5.5%. There are often limited options available for immediate occupation. Rental growth is expected. *based on the deals done by the leading consultants The share of logistic companies expanded in. At the same time in absolute figures demand from all sectors increased in.

4 On Point Warehouse market 2Q Warehouse market balance 000' sq m F Take-up Completion Vacancy rate Rental rates grew by 20-25% on average during the first half of. Prime rents reached USD135/sq m/year by the end of, average rents were at USD125/sq m/year. We expect the same growth rate in the next six months. Rents are expected to achieve the 2007 maximum of USD140/sq m/year in the next few quarters. Prime and average rents USD/sq m/year H1 Average rents Prime rents Vacancy rate 14% 12% 4% 2% 14% 12% 4% 2% Low vacancy rates also lead to qualitative changes in relations between tenants and owners. When vacancy rates decrease below 3% companies need to do earlier planning and reallocation of financial resourses. This increases risks taken by the company. Companies take additional risks in addition to paying high rents. Contract terms are also changing: required deposit has reached reach 2-3 months; rent-free period have shortened; requirements for guarantees and financial statements have increased. Lease terms have become longer (5-7 years); break point is hardly achievable. Market Outlook In the second quarter of the deficit on warehouse market intensified. There are currently very limited options available for immediate occupation. Vacancy rates are decreasing rapidly. New large projects, that can change the market situation are only at an early development stage and will be delivered only in the beginning of next year. A number of developers are ready to construct, but they prefer not to start construction without potential client. So construction activity is slightly limited. We expect stabilization in vacancy rates and possible decreases in rental growth rates only in the first half of the next year. Later with the growth of supply we will see some rental correction. At the same time we expect that long lease terms, bank and mother company guarantees, and complicated lease termination have already become common market features. This may be regarded by many as a qualitative development of the market. We Key warehouse market indicators dynamics H1 Completion ( 000 sq m) 823 1, , Stock ( '000 sq m) 3,286 4,969 5,827 7,038 7,717 7,882 Take-up( 000 sq m) 710 1, , Vacancy rate 0.4% % 10.1% Average rent (USD/sq m/year) Prime rent (USD/sq m/year)

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