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27 Декабря 2010, 13:52
Warehouses: Overview for 2009-2010
In times of crisis, the industrial real estate market has become small, tough, competitive and balancing on the brink of profitability. What are the trends and forecasts?
General Overview A big chunk of real estate was delivered to the commercial real estate market during the crisis year of 2009. However, only quality properties have found their tenants. While in Moscow and its region at least some demand for new properties is present, in the regions all transactions can be counted by fingers. Here is the list of the most important industrial facilities (Class A) put into operation in the Moscow region in 2009:
• Logistics Park Lobnya; developer: Brack Capital Real Estate; GBA: 30,000 sq m;
• Three phases of SLT (Southern Logistics Terminal); developer: Raven Russia/ construction company Felix, GBA: 53,200 sq m
• First phase of PNK-Chekhov by PNK Group, GBA: 135,000 sq m;
• First phase of the industrial park Vostochny (EsproDevelopment/ Raven Russia), GBA: 121,400 sq m;
• Fourth phase of the Industrial park Istra (Espro Development), GBA: 26,000 sq m;
• First phase of Southern Gates (Giffels), GBA: 75,000 sq m;
• Agroterminal (Accent Real Estate), 55,000 sq m;
• First phase of Logistics Park Lobnya (Raven Russia), GBA: 42,000 sq m; • Trilogy (Investment Trust), GBA: 92,000 sq m.
On the whole, the year 2009 was very difficult for the industrial sector. The market perked up only in the second half of the year when some deals were made on the market. The first two quarters of 2009 were characterized by analysts as “the waiting time.” Consumers analyzed the market, corrected their purchasing plans and waited for maximum discounts. The best illustration is the analysis of total transactions by quarters of 2009: 9% in the Q 1, 20% in Q 2, 35% in Q 3, and 36% in Q, 4, according to Colliers International. The total amount of transactions during the 12 months of 2009 is estimated by this company at 600,000 sq m.
The biggest deals are: Eldorado rents 67,000 sq m at PNK Chekhov, X5 Retail Group rents 23,000 sq m in the same terminal; John Deere leases 45,000 sq m in Southern Gates, Novy Impulse (Utkonos) – 23,500 sq m in North Domodedovo. As for the regions, the logistics center Tyumen leased 22,000 sq m in Pyshma (Yekaterinburg), X5 Retail Group – 13,000 sq m in PLK (Kazan) and 10,500 sq m in Megalogix (Rostov-on-Don), FM Logistic rented 10,600 sq m in Megalogix (Novosibirsk).
Demand In spite of certain invigoration at the year’s end, the warehouse market is still feverish. In the wake of the crisis the market of logistics operators — key tenants of storage areas — has shrunk remarkably. Some companies were forced to curb their appetites, while others had to phase out their business activity. By mid 2009, the prices on services providers halved compared to late 2008, according to Knight Frank. In a number of cases logistics operators cut their prices and changed other commercial terms — for instance, they agreed to operate without compulsory reservation of pallet spaces for commodity storage, etc. As a result, it is logistics operators that became major suppliers of warehouse premises for the secondary lease market. As reported by Colliers International, they vacated around 220,000 sq m in 2009 (by comparison, other operators vacated about 47,000 sq m). Colliers International experts say that in the first half year of 2010 another 125,000 sq m can be vacated. Retail companies set the mood in today’s lease market. In particular, this is corroborated by recent deals with the involvement of X5 Retail Group and Eldorado. According to Colliers International, the share of logistics operators dropped to 9.6% in 2009. The main tenants are FMCG operators (around 12.2% against 1.6% in 2008), retail operators (48.1% against 26.3% in 2008) and industrial companies (15.6% against 6.5% in 2008).
The situation is complicated by the fact that many tenants were caught unawares by the crisis: they leased large areas (50-60-70,000 sq m), being guided by their optimistic plans, rather than the demands of real business
– they believed in the shining tomorrow. Furthermore the constant growth of rent rates made them lease warehouse premises “with a margin.” And consultants were willing to mediate in such deals. A bubble was formed which began bursting as soon as the crisis began.
Yet the recent reports of consulting and brokerage companies are full of optimism: they say the situation is not as positive as before, but they already see light in the end of the tunnel and exit the crisis. Thus Jones Lang LaSalle estimates the amount of bought and leased areas for the entire 2009 at 938,500 sq m (260,000 sq m in the first half and 678,500 sq m in the second half). They comment that while these parameters are inferior to last year’s results, they are among the best in Europe. According to Cushman & Wakefield, roughly 580,000 sq m of quality warehousing areas (58% of the announced construction volume) were put into operation during the year 2009 in the Moscow region; and according to Knight Frank, 785,000 sq m were commissioned.
For all that, all respondent consultancies estimate today’s demand as high in their reports.
However some opinions are not so positive. In the opinion of Vitaly Antonov, Director General of Espro Development, most of the closed deals are either about sublease or revision of the earlier terms. And this did not reduce the amount of vacant space (as estimated by Espro Development, the total amount of transactions was 450,000 sq m, having plummeted almost thrice as compared to 2008).
“Many transactions were completed at low rates – $60-70/sq m, – continues Oleg Mamaev, Executive Director of PNK Group. – Evidently, the developer agrees to such deals in order to ensure the current cash flow, but such contracts cannot form the basis of business. They are temporary solutions somewhat mitigating the acuteness of current problems.” In the opinion of Mr. Mamaev, developers currently operate on the brink of profitability. The rates around $100 do not allow developers to announce new industrial projects.
Ruslan Suvorov, Vice-President of Giffels Management Russia, believes that construction works will resume only if the rates go up at least to the level of $120. Only then will investors be able to get a satisfactory return on the invested capital. Experts are certain that for the market to develop a requisite number of potentially active clients in the market is an essential condition for forming a high level of solvent demand. There are some promising developments in the market and some experts are rather optimistic about possible results of 2010. Yet everything will depend on further unwinding of the economic situation, the state of the market and other factors.
As noted by the experts of Knight Frank, the nature of demand has changed dramatically: the cost of lease was the main parameter in warehouse selection. Requirements to the property class and locations melted into the background. The current situation will benefit those whose financial standing is stable. “There exist all prerequisites for business expansion: paying rent rates, fortunate location of vacated premises, lesser cost of services rendered by management companies and suchlike,” says Vitaly Antonov.
Vacancy Rates Vacancy rates in the Moscow region are estimated at 12.5%, according to Cushman & Wakefield, and in real terms – about 550,000 sq m). On the other hand, Colliers International give the figure of 10% (in 2008 the vacancy rate did not exceed 2%). The regions have altogether different statistics. The structure of demand was not quite clear there even before the crisis, and now it is absolutely obscure. Moreover, regional projects were sold on the wave of poor demand (late 2008 and 2009). As a result, completed projects remain vacant, in spite of better terms and lower rates compared to Moscow. According to Cushman & Wakefield, the vacancy rate varies between 50% and 80%.
The rates for higher class properties are estimated by analysts to remain at the level of $100 (in some reports $100-110) per sq m less VAT, operating expenses and utility charges (in early 2009 – $125). They forecast at Colliers International an insignificant reduction of rates in the first half of 2010, which will grow in the second half of the year. In the opinion of the company’s analysts, this may lead to the leap of demand, decreased vacancy rates and the general lack of new announced projects.
The rates are slightly lower in Class B ($90/sq m/year against $115 in early 2009).
An unstable situation affected the terms of contracts: tenants are not ready to look far ahead and the term of lease has shortened from 7-10 to 3-5 years. Moreover, property owners themselves are unwilling to sign longterm contracts at today’s low rates. The amount of security deposit has constricted from 3-6 to 1-3 months and a more flexible approach to the contract currency is now used. As reported by Knight Frank, the average rented warehouse space has shrunk from 13,000 sq m (before the active phase of the crisis) to 8,000 sq m. Most frequently leased warehouse premises cover 4,000-6,000 sq m.
Supply Falling demand changed the rules of the game in the industrial real estate market. The approach to construction has also changed. Developers say it made little sense to build quality warehouse facilities prior to the crisis, since consumers were happy with what was available on the market. Now they’ve started building warehouses for the consumer, rather than for investment funds. As experts at Knight Frank estimate, the majority of developers phased out their plans to develop speculative facilities. Today, the market does not need old days unified properties anymore. As an alternative for the development of existing sites property owners now offer built-to-suit services. Tenants have become more fastidious and they can lease only quality premises with developed infrastructure. “It is important to compete in all areas in this market at present, including the quality of construction works, construction costs and client services. The importance of the latter has grown tremendously,” says Mr. Mamaev. In today’s reality developers have to offer the client as flexible and adaptable concepts as possible, in order to be able to enter maximum alterations.
“Warehouses are drawing nearer to the client, – confirms Alla Soloviova, Executive Director of MLP. —Projects allowing maximum adaptation are interesting and developers are changing their approaches to meet the new requirements: they alter configuration, increase the number of gates etc. Another example is industrial areas which are in short supply in today’s market.”
The structure of the land market has also changed. While in spring-summer of 2008, everybody was interested in 5-10-ha plots, in 2009 1-3-ha plots were in highest demand (accounting for almost 70% of all requests). Only plots dedicated for industrial use or those having construction permits with freehold ownership and fully installed engineering lines were in demand.
Projection Alla Soloviova is certain that we won’t see any new projects until the situation with demand and rental rates clears up. Only companies possessing prepared sites may launch a construction project. And then only if they feel the market is awakening. However, in her opinion, the market may again face the lack of quality projects.
The experts at Cushman & Wakefield share this view: “If the demand remains at the level of the III and IV quarters of 2009, the shortage of supply and growing rent rates should be expected by the end of 2010.” “We’ll see market consolidation, – continues Alla Soloviova. – Some investors will keep on looking for profitable assets generating cash flows in 2010.”
• Logistics Park Lobnya; developer: Brack Capital Real Estate; GBA: 30,000 sq m;
• Three phases of SLT (Southern Logistics Terminal); developer: Raven Russia/ construction company Felix, GBA: 53,200 sq m
• First phase of PNK-Chekhov by PNK Group, GBA: 135,000 sq m;
• First phase of the industrial park Vostochny (EsproDevelopment/ Raven Russia), GBA: 121,400 sq m;
• Fourth phase of the Industrial park Istra (Espro Development), GBA: 26,000 sq m;
• First phase of Southern Gates (Giffels), GBA: 75,000 sq m;
• Agroterminal (Accent Real Estate), 55,000 sq m;
• First phase of Logistics Park Lobnya (Raven Russia), GBA: 42,000 sq m; • Trilogy (Investment Trust), GBA: 92,000 sq m.
On the whole, the year 2009 was very difficult for the industrial sector. The market perked up only in the second half of the year when some deals were made on the market. The first two quarters of 2009 were characterized by analysts as “the waiting time.” Consumers analyzed the market, corrected their purchasing plans and waited for maximum discounts. The best illustration is the analysis of total transactions by quarters of 2009: 9% in the Q 1, 20% in Q 2, 35% in Q 3, and 36% in Q, 4, according to Colliers International. The total amount of transactions during the 12 months of 2009 is estimated by this company at 600,000 sq m.
The biggest deals are: Eldorado rents 67,000 sq m at PNK Chekhov, X5 Retail Group rents 23,000 sq m in the same terminal; John Deere leases 45,000 sq m in Southern Gates, Novy Impulse (Utkonos) – 23,500 sq m in North Domodedovo. As for the regions, the logistics center Tyumen leased 22,000 sq m in Pyshma (Yekaterinburg), X5 Retail Group – 13,000 sq m in PLK (Kazan) and 10,500 sq m in Megalogix (Rostov-on-Don), FM Logistic rented 10,600 sq m in Megalogix (Novosibirsk).
Demand In spite of certain invigoration at the year’s end, the warehouse market is still feverish. In the wake of the crisis the market of logistics operators — key tenants of storage areas — has shrunk remarkably. Some companies were forced to curb their appetites, while others had to phase out their business activity. By mid 2009, the prices on services providers halved compared to late 2008, according to Knight Frank. In a number of cases logistics operators cut their prices and changed other commercial terms — for instance, they agreed to operate without compulsory reservation of pallet spaces for commodity storage, etc. As a result, it is logistics operators that became major suppliers of warehouse premises for the secondary lease market. As reported by Colliers International, they vacated around 220,000 sq m in 2009 (by comparison, other operators vacated about 47,000 sq m). Colliers International experts say that in the first half year of 2010 another 125,000 sq m can be vacated. Retail companies set the mood in today’s lease market. In particular, this is corroborated by recent deals with the involvement of X5 Retail Group and Eldorado. According to Colliers International, the share of logistics operators dropped to 9.6% in 2009. The main tenants are FMCG operators (around 12.2% against 1.6% in 2008), retail operators (48.1% against 26.3% in 2008) and industrial companies (15.6% against 6.5% in 2008).
The situation is complicated by the fact that many tenants were caught unawares by the crisis: they leased large areas (50-60-70,000 sq m), being guided by their optimistic plans, rather than the demands of real business
– they believed in the shining tomorrow. Furthermore the constant growth of rent rates made them lease warehouse premises “with a margin.” And consultants were willing to mediate in such deals. A bubble was formed which began bursting as soon as the crisis began.
Yet the recent reports of consulting and brokerage companies are full of optimism: they say the situation is not as positive as before, but they already see light in the end of the tunnel and exit the crisis. Thus Jones Lang LaSalle estimates the amount of bought and leased areas for the entire 2009 at 938,500 sq m (260,000 sq m in the first half and 678,500 sq m in the second half). They comment that while these parameters are inferior to last year’s results, they are among the best in Europe. According to Cushman & Wakefield, roughly 580,000 sq m of quality warehousing areas (58% of the announced construction volume) were put into operation during the year 2009 in the Moscow region; and according to Knight Frank, 785,000 sq m were commissioned.
For all that, all respondent consultancies estimate today’s demand as high in their reports.
However some opinions are not so positive. In the opinion of Vitaly Antonov, Director General of Espro Development, most of the closed deals are either about sublease or revision of the earlier terms. And this did not reduce the amount of vacant space (as estimated by Espro Development, the total amount of transactions was 450,000 sq m, having plummeted almost thrice as compared to 2008).
“Many transactions were completed at low rates – $60-70/sq m, – continues Oleg Mamaev, Executive Director of PNK Group. – Evidently, the developer agrees to such deals in order to ensure the current cash flow, but such contracts cannot form the basis of business. They are temporary solutions somewhat mitigating the acuteness of current problems.” In the opinion of Mr. Mamaev, developers currently operate on the brink of profitability. The rates around $100 do not allow developers to announce new industrial projects.
Ruslan Suvorov, Vice-President of Giffels Management Russia, believes that construction works will resume only if the rates go up at least to the level of $120. Only then will investors be able to get a satisfactory return on the invested capital. Experts are certain that for the market to develop a requisite number of potentially active clients in the market is an essential condition for forming a high level of solvent demand. There are some promising developments in the market and some experts are rather optimistic about possible results of 2010. Yet everything will depend on further unwinding of the economic situation, the state of the market and other factors.
As noted by the experts of Knight Frank, the nature of demand has changed dramatically: the cost of lease was the main parameter in warehouse selection. Requirements to the property class and locations melted into the background. The current situation will benefit those whose financial standing is stable. “There exist all prerequisites for business expansion: paying rent rates, fortunate location of vacated premises, lesser cost of services rendered by management companies and suchlike,” says Vitaly Antonov.
Vacancy Rates Vacancy rates in the Moscow region are estimated at 12.5%, according to Cushman & Wakefield, and in real terms – about 550,000 sq m). On the other hand, Colliers International give the figure of 10% (in 2008 the vacancy rate did not exceed 2%). The regions have altogether different statistics. The structure of demand was not quite clear there even before the crisis, and now it is absolutely obscure. Moreover, regional projects were sold on the wave of poor demand (late 2008 and 2009). As a result, completed projects remain vacant, in spite of better terms and lower rates compared to Moscow. According to Cushman & Wakefield, the vacancy rate varies between 50% and 80%.
The rates for higher class properties are estimated by analysts to remain at the level of $100 (in some reports $100-110) per sq m less VAT, operating expenses and utility charges (in early 2009 – $125). They forecast at Colliers International an insignificant reduction of rates in the first half of 2010, which will grow in the second half of the year. In the opinion of the company’s analysts, this may lead to the leap of demand, decreased vacancy rates and the general lack of new announced projects.
The rates are slightly lower in Class B ($90/sq m/year against $115 in early 2009).
An unstable situation affected the terms of contracts: tenants are not ready to look far ahead and the term of lease has shortened from 7-10 to 3-5 years. Moreover, property owners themselves are unwilling to sign longterm contracts at today’s low rates. The amount of security deposit has constricted from 3-6 to 1-3 months and a more flexible approach to the contract currency is now used. As reported by Knight Frank, the average rented warehouse space has shrunk from 13,000 sq m (before the active phase of the crisis) to 8,000 sq m. Most frequently leased warehouse premises cover 4,000-6,000 sq m.
Supply Falling demand changed the rules of the game in the industrial real estate market. The approach to construction has also changed. Developers say it made little sense to build quality warehouse facilities prior to the crisis, since consumers were happy with what was available on the market. Now they’ve started building warehouses for the consumer, rather than for investment funds. As experts at Knight Frank estimate, the majority of developers phased out their plans to develop speculative facilities. Today, the market does not need old days unified properties anymore. As an alternative for the development of existing sites property owners now offer built-to-suit services. Tenants have become more fastidious and they can lease only quality premises with developed infrastructure. “It is important to compete in all areas in this market at present, including the quality of construction works, construction costs and client services. The importance of the latter has grown tremendously,” says Mr. Mamaev. In today’s reality developers have to offer the client as flexible and adaptable concepts as possible, in order to be able to enter maximum alterations.
“Warehouses are drawing nearer to the client, – confirms Alla Soloviova, Executive Director of MLP. —Projects allowing maximum adaptation are interesting and developers are changing their approaches to meet the new requirements: they alter configuration, increase the number of gates etc. Another example is industrial areas which are in short supply in today’s market.”
The structure of the land market has also changed. While in spring-summer of 2008, everybody was interested in 5-10-ha plots, in 2009 1-3-ha plots were in highest demand (accounting for almost 70% of all requests). Only plots dedicated for industrial use or those having construction permits with freehold ownership and fully installed engineering lines were in demand.
Projection Alla Soloviova is certain that we won’t see any new projects until the situation with demand and rental rates clears up. Only companies possessing prepared sites may launch a construction project. And then only if they feel the market is awakening. However, in her opinion, the market may again face the lack of quality projects.
The experts at Cushman & Wakefield share this view: “If the demand remains at the level of the III and IV quarters of 2009, the shortage of supply and growing rent rates should be expected by the end of 2010.” “We’ll see market consolidation, – continues Alla Soloviova. – Some investors will keep on looking for profitable assets generating cash flows in 2010.”
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