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Only 16% of announced warehouse projects for 2018 were delivered in H1

1,1m sq m more expected by the end of the year in Moscow Region 

MOSCOW, July 19, 2018 – According to JLL, warehouse completions in Moscow region in Q2 2018 amounted to 148,000 sq m, comparable to 142,000 sq m delivered Q2 2017. 

About 74% of Q2 2018 supply was constructed for end users, including the Major building in Pavlovskaya Sloboda (57,300 sq m), the Online Trade logistic complex (23,300 sq m) and new blocks in the Lakoniya Logistic warehouse complex (15,600 sq m). 

In H1 2018 completions totaled 216,000 sq m which is only 16% of the volume announced for delivery in 2018m, while up by 8% YoY. About 56% of Q1 2018 completions were contracted before commissioning, a rather high share (in 2017 this figure was only 33%).

Completion dynamics by class on the Moscow region warehouse market 

Source: JLL

“Inactive development activity in H1 2018 may be compensated by completions in Q3-Q4 2018. About 1.1m sq m of new warehouse areas are announced for delivery by the end of the year, which will be three times higher than in the same period last year.” – said Oksana Kopylova, Head of Retail and Warehouse Research, JLL. – “The shift towards the second half of the year was caused by the emergence of a new development cycle, which has resulted in such a sharp construction spike for the first time in the modern market history. If all declared projects are delivered on schedule, annual completions will total 1.3m sq m versus 0.5m sq m in 2017.” 

The projects expected in Q3 and Q4 2018 have high shares of contracted spaces, with 45% built for end-users and 7% pre-let. The largest projects are distributional centres for federal retailers: Wildberries DC (148,000 sq m), Auchan DС in South Gate Industrial Park (138,000 sq m), IKEA DC in Solnechnogorsk District (90,000 sq m). 

“The largest projects of this year are defined by a phased approach. Typically, a land plot was selected and acquired, utilities connected and then a contractor or developer which provided the most effective solutions was chosen via tender. Such an approach offers a risk diversification for project owner, providing multiple options for each project phase in contrast with a BTS-sale, when selecting the industrial park comes with a default developer.” – commented Evgeniy Bumagin, Head of Industrial & Warehouses Department, JLL. 

Warehouse take-up in Q2 in the Moscow region totaled 289,000 sq m, bringing the H2 2018 figure to 658,000 sq m which is 1.3 times more than in the same period of last year. In Q2 2018 retailers and distributors were the main demand drivers, accounting for 33% and 28% of take-up respectively. 

“Given the current market conditions and the stage of announced projects, we expect the warehouse market activity to maintain its pace in H2 2018. The retail sector actively develops logistics platforms, including space consolidation. The annual take-up volume may exceed 1.4m sq m, which will be 17% higher than the result of last year.” - added Evgeniy Bumagin. 

Limited completions with a significant share of contracted spaces and high demand generally contributed to the ongoing decline of the vacancy rate. 

The volume of vacant spaces on the Moscow region warehouse market in H1 2018 reached 1.03m sq m in absolute, and 6.1% in relative terms. The vacancy rate has declined by 0.3 ppt in Q2 2018. The gradual decline of the vacancy rate occurs on the back of active changes in the vacancy structure. During Q2 0.4m sq m were absorbed, equally split between the primary and the secondary market, while about the same volume of vacant space was released, mainly from the secondary market. 

Until the end of 2018 JLL analysts expect a slight increase of vacant spaces, up to 6.8%. However, this will be a short-term leap due to the delivery of 0.5m sq m, some of which may be absorbed by the end of the year.

Available space dynamics on the Moscow region warehouse market

Source: JLL

Generally new projects announced in 2018 are distinguished by a conservative approach, with a focus on customer requirements. 

Among the largest projects announced for 2019-2020 are Orientir Zapad (400,000 sq m) and Orientir Sever 3&4 by Orientir, two new PNK Group industrial parks, PNK Park Zhukovskiy (500,000 sq m) and PNK Park Novaya Riga (300,000 sq m), and two new projects in the Beliy Rast village district in the north. The terminal logistics centre Beliy Rast will be a platform for the future joint dry port of RZD (Russian Railways) and China Yingkou Port Group Corporation. Approximately 375,000 sq m were announced there for delivery by the end of 2022. The second one, MLK Beliy Rast by Saint Gothard Investments, has a good potential for up to 400,000 sq m development and will be phased in accordance with client orders.