CBRE Reported Results of the Moscow Industrial & Logistics Market

Moscow, 28 October, 2014 – According to the latest research from CBRE, the key feature of the Moscow industrial and logistics market was the decreasing level of rental rates. Prime rental rates decreased from $135 and stand at $125-130/sq m/year (excluding VAT and operating expenses) compared to H1 2014. In some projects the rental rate could be as low as $110/sq m/year in Q4 2014. Though this will not become a mid-term trend as this rental level significantly affects developers yield.

Over Q3 2014 market activity amounted to 250,000 sq m 20,000 sq m of which one was a renewal deal. Take-up rose to 230,000 sq m and was 61% up on the previous quarter. However, despite this increase, current take-up is still 20% lower than the average quarterly level in 2013. Take-up totaled 590,000 sq m during the first 9 months of 2014, which is 46% less than the same period of 2013.

77% of Q3 transactions were leased, 23% were sale of BTS. 63% of total take-up in the quarter was in the Southern and South-East directions.

The largest contribution on the demand side of the market was made by retailers, who accounted for 36% of total take-up in Q3 2014. Among the largest deals last quarter were: kids’ goods retail chain `Gulliver` that leased 30,000 sq m in a newly built complex `Berezhki`; national retail toy chain `Begemot` that leased 20,000 sq m in the second-hand Springs Park warehouse complex and shoe shop chain Kari that leased 20,000 sq m in the completed ‘Britovo’ complex.

236,000 sq m of warehouse space was commissioned in Q3 2014, which is 25% lower than average quarterly completions last year and 40% lower than in Q2 2014. More than 966,000 sq m of warehouse space was delivered to the market during the last nine months, which is higher than the total for the whole of 2013.

860,000 sq m is planned for delivery in Q4 2014. Delivery for the year will amount to 1.8 mln sq m, which will be an all-time record for the Moscow Region warehouse market. The total stock in the Moscow Region could reach 9 mln sq m.

78% of the warehouse complexes delivered in Q3 have already been sold or were built for owner-occupation. The vast majority of warehouse space (70% of Q3 delivery) was commissioned in the southern direction.

The highest amount of space that was announced for Q4 2014 will be delivered in the northern direction, where 302,000 sq m is expected to be delivered. Only 17% of this warehouse space has currently been leased or sold.

The vacancy rate increased from 4.48% in Q2 to 5.37% in Q3. The vacancy rate may reach 8-11% by the end of the year.

Commercial terms in Q3 2014 and rental rates were under the pressure of continuing uncertainty over exchange rates and pricing policies by some developers; as a result, the market saw a reduction in rental rates. The range of rental rates changed: the majority of asking rents for second-hand space fluctuated between $110 /sq m/year and $130 /sq m/year. Prime rents decreased by 5.5% compared to H1 2014 and stand at $125-130/sq m/year (excluding VAT and operating expenses).

Operating expenses fluctuate within the $32-40 /sq m/year range, average utility payments are stable in the range of $8-12 /sq m/year.

CBRE Research experts expect downward pressure on rental rates in Q4 2014 though rents below $110 / sq m / year are not perceived as mid-term sustainable as it significantly affects developers yield so it will last for a short period of time.

Anton Alyabyev, Director of Warehouse and Industrial Department, CBRE in Russia comments:

“New delivery has started the process of price range for different projects: while the projects with better location keep the rental rates on the same level and do just minimal price corrections, the others are dumping. Nevertheless, the growing vacancy rate, that can reach 10% point by the end of the year, will affect the rental rates even more. This trend is determined by the marginal level of developers’ business and its continuation will reflect on growing risks for both developers and tenants. That’s why in mid-term we expect the rental rates to be in the range of $110-$130/sq m/year. In this regard for the first time in the current market tenants are recommended to search for interesting opportunities in the most highly effective projects and fix the most attractive commercial terms.”