Moscow Industrial Big Box MarketView H1 2013

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1 Moscow Industrial Big Box MarketView H1 213 CBRE Global Research and Consulting NEW SUPPLY 137,22 SQ M PRIME RENTAL RATES $14 / SQ M / YEAR VACANCY 1,6% HOT TOPICS More than 7, sq m of class A warehouses are to be delivered by the end of 213 in the Moscow Region. Larger part of H1 213 new delivery was absorbed at the construction stage. Demand exceeded supply by 1.8 times. Vacancy rate remains stable (circa 1%). Rental rates have stabilized at circa USD $14 / sq m / pa. KEY INDICATORS Demand remains high and absorbs warehouse space during the early stages of development. Completions in Q2 213 amounted to 137 thousand sq m, which is 2% lower compared to Q Nonetheless, total 213 annual supply is expected to reach its highest point in the last 6 years. Demand, as usual, outstripped supply. Take-up in Q2 213 reached 29 thousand sq m and exceeded completions by 1. times. In H1 demand outran developers activity by 8%. As a result, vacancy rates have remained stable at the 1% mark. Potential tenants are negotiating prices on warehouse complexes which are still in the early construction phases, or even pre-planning stages. For example, 7% of Q2 take-up refers to already preleased or pre-purchased premises. New supply, take-up, vacancy rate Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 New supply, ' sq m Vacancy rate, % Take-up, ' sq m 2, 1, 1,,, Take-up by the physical presence of leasable area, % of take-up 1% 8% 6% 4% 2% % Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Pre-leased / Pre-purchased premises Deals with available vacant premises Significant Big Box Projects delivered in Q Project Location Developer Production-warehouse complex Leshkovo 14 km from MKAD on Novorizhskoe highway Espro Industrial park PNK-Vnukovo 19 km from MKAD on Borovskoe highway PNK Group 213. CB Richard Ellis, LLC

2 H1 213 Moscow Industrial Big Box MarketView SUPPLY The total delivery pipeline in 213 may become the highest in the last few years. However, the vast majority of premises is built on non-speculative basis for specific clients. During H1 213 in the Moscow region, 2 thousand sq m of Class A warehouse space were put into operation. Completions were 28% lower, compared to the first half of 212. Completed construction is evenly distributed between the southeast, southwest, east and northwest directions. 6% of warehouse premises constructed in H1 213 were sold or leased at the construction phase. The vast majority of the remaining 4% of properties were rapidly absorbed after being turned into operation. A significant amount of the announced projects have been rescheduled to 214. In particular, the northern part of the region will see in 213 only 16% of the space that was previously announced for delivery this year. Nonetheless, the cancellations were compensated by other projects. In H2 we expect to see 72 thousand sq m, delivered to the market. This is 2 times above new supply of H Thus, the total amount of warehouse space to be delivered in 213 will reach 97 thousand sq m, and will become the highest result since 27, when more than 1. mln sq m of class A warehouse space were put into operation. A significant part of total completions will come from the southern part of the region. New warehouse buildings will be built there within existing industrial parks such as South Gate (developer - Radius Group) and Chekhov-2 (developer - PNK Group). The total share of market completions in the southern part of the Moscow Region is around 8%. However, this situation is not expected to generate a noticeable vacancy rates there. Construction of warehouse space in these projects was initially planned for a few specific BTS clients, therefore these new premises will not be offered to the market on a speculative basis. The situation in this part of the Moscow region reflects the general market conditions overall. Due to the high demand / low supply market, we will not see any significant vacant space in the near future. New supply, ' sq m New supply by geographic directions ( ), ' sq m North-West West South-West South South-East East North-East North H1 213 H2 213F Marketable space* and geographies of the announced projects (H2 213) North-West West South-West South South-East East North-East North F Leased/sold area or properties to be constructed for own usage, ' sq m Available area, ' sq m *Marketable space space, which is exposed to the market by landlords and may be leased or sold. It includes currently available space and space under construction 213. CB Richard Ellis, LLC

3 Significant Big Box Projects announced as due to delivery in H2 213 Project Location Developer Logopark Sever 36 km from MKAD on Leningradskoe highway Caravella Logistic Park Klimovsk, III phase 21 km from MKAD on Simferopolskoe highway Raven Russia Logistic Park Noginsk, II phase 44 km from MKAD on Gorkovskoe highway Raven Russia South Gate Industrial Park, III phase 3 km from MKAD on Don highway (M4) Radius Group PNK-Chekhov 2 49 km from MKAD on Simferopolskoe highway PNK Group Infrastroy Bykovo, building L 19 km from MKAD on Novoryazanskoe highway Infrastroy DEMAND During H1 213 consumers preferred to lease, rather than purchase premises. Take up activity structure by deal type, H1 213, % 1 H1 213 Moscow Industrial Big Box MarketView Take-up in H1 amounted to almost 4 thousand sq m, which is 7.% lower compared to H It s size now is limited by supply rather than by demand. Consumers lease rather large blocks: the average size of the block was about 2 thousand sq m. The same situation is with sales: average size of the sold block was around 18 thousand sq m. It is 2 times less than average sold block in 212. Selling activity in H1 213 was quite low. This situation can be explained by current supply structure. About 43% of the total H1 213 take-up was generated on the east, south-east, west and north-west directions. Nowadays Built-to-suit or Built-to-sale development offerings within these territories are very limited or even not exist. It is worth of mentioning that significant contribution to the overall picture was generated by one huge deal (3% of Q2 take-up) on the north direction: IKEA leased 71.8 thousand sq m in Logopark Sever. The rest of market activity relates to the southern direction, where share of Built-to-suit deals in take-up was around 8%. This fact, however, did not significantly affect Q2 results Lease BTS Sale Sale Sublease Take up activity structure by average size of occupied space, ' sq m H Lease Sale CB Richard Ellis, LLC

4 H1 213 Moscow Industrial Big Box MarketView 4 Take-up structure is likely to change in H Market deals during this period will refer to properties, which are expected for commissioning in Even now share of Built-to-suit offerings among these projects amounts to 42%, pure speculative development takes 8%, and other % are developers, which offer both spec. warehouse premises and also turnkey development as an option. Demand structure by business sectors in H1 213 did not bring a surprise. Traditional group of leaders included retailers, which took 3% from the total take-up, and as well as distributors (29%), and logistics companies (21%). During H1, the market witnessed several significant transactions. Above mentioned leasing agreement signed by IKEA and the landlord of Logopark Sever was the largest transaction of the H1 and, probably, of the whole 213. Besides, it was the largest one compared to 212, as well. Among other lease transactions, closed during H1 213, one should also note BTS deal in the South Gate Industrial Park. Developer (Radius Group) will build for the tenant (a pharmaceutical company Oriola) warehouse and distribution center of 3 thousand sq m area. The degree of automation of this scheme is expected to amount 4%. According to the developer, estimated cost of construction, is expected at about $ 18 per sq m. One-fourth of the construction costs will be paid by tenant. COMMERCIAL TERMS AND VACANCY Despite clear deficit of the vacant space rental rates continue remaining stable. Vacancy rate, as well as average rents, remains on the same level for a year. Starting from the middle of 212 total vacant area in Moscow region amounts to approximately 1% of class A warehouse stock. Average market base rents have remained unchanged within range of $12-14 per sq m per annum (excluding VAT and operational expenses). It is obvious that not the whole market is in this range. Traditionally, high rents are observed for properties within 1 km zone from MKAD. The choice vacant premises within this area is usually extremely limited, so that a tenant can find available blocks only up to sq m. Any further improvement of current situation is not expected. As a result, asking base rent in this area is higher than average market rates: from $182 to $22 per annum. Built-to-suit deals & transactions with speculative projects*, % Q3 212 Q4 212 Q1 213 Q Speculative development* Built-to-suit *All transactions, which were not declared as Built-to-suit, including a preliminary agreements related to properties in a construction stages. H1 213 transactions structure by sector of tenants activity, % Prime rental rates, Vacancy, USD, % Retail Distribution Logistic operators Other Production Online retail F Prime rent Vacancy rate 213. CB Richard Ellis, LLC

5 Besides the distance from MKAD, rental values also differ depending on a warehouse location within Moscow Region. The most demanded and expensive area around Moscow is the north direction. Rental rates there continue being at average level of $1 per sq m pa, excluding VAT and Operating Expenses. The cheapest direction is the eastern part of the region. A tenant can lease there modern warehouse at a relatively low rental rate. This district of the Moscow region is characterized by the most difficult traffic situation. Therefore, developers are compensating this disadvantage by offering high-quality Class A space at $ 12 per sq m annually, excluding VAT and Operating Expenses. OUTLOOK Taking into account current development speed, new supply volumes for 213 are expected to amount to 97 thousand sq m. This will be the maximal volume for the last 6 years. Expected take-up is mln sq m. It may exceed completions by 13%. Developers are gradually increasing construction volumes to meet existing demand without high risk of the market oversaturation. Vacancy rate will remain at 1-1.%. Tenants and buyers are to start search and negotiations, at least, 6 months before planned entrance time. Share of BTS projects in the total new delivery continues its growth. Stable demand allows many developers building exclusively for specific customers (using BTS schemes). The majority of warehouse complexes is expected to be absorbed at the project or construction phase; Rental rates will remain stable within the current range. Range of asked rental rates, depending on the distance from Moscow, USD per 1 sq m per year Up to 1 km From 1 to 3 km 3 km and further Available* I&L properties with relation to the distance from MKAD, % of total availability Up to 1 km From 1 to 3 km 3 km and further *Available space warehouse space, which is offered by landlords for lease and sale. It includes vacant premises (available now), as well as projects and sites in the construction stage. H1 213 Moscow Industrial Big Box MarketView Commercial terms for Q2 213, warehouse market of Moscow and Moscow Region Commercial terms Average asking rent Operational expenses (OPEX) Average sale price Average parking rates for trucks Average parking rates for cars Average lease terms Class А $12-14 / sq m / year $32-42 / sq m / year $1,1-1,3 / sq m $2 / month $ / month -7 years 213. CB Richard Ellis, LLC

6 H1 213 Moscow Industrial Big Box MarketView Key market indicators, Moscow Region F Take-up, thousand sq m 439 1,3 1,-1,1 New delivery, thousand sq m Prime rent, $/sq m/year Vacancy rate, % of total stock 1,74,91 1-1, Prime yield (end of year), % CB Richard Ellis, LLC

7 CONTACTS For more information about this MarketView, please contact: Valentin Gavrilov Director, Research Department BC White Square, bld. B Lesnaya Street Moscow 1247, Russia t: e: valentin.gavrilov@cbre.com Vasiliy Grigoriev Analyst, Research Department BC White Square, bld. B Lesnaya Street Moscow 1247, Russia t: e: vasiliy.grigoriev@cbre.com Oxana Fedulova Senior Consultant, Research Department BC White Square, bld. B Lesnaya Street Moscow 1247, Russia t: e: oxana.fedulova@cbre.com H1 213 Moscow Industrial Big Box MarketView + FOLLOW US TWITTER 7 Global Research and Consulting This report was prepared by the CBRE Russia Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. This information is designed exclusively for use by CBRE clients or potential clients and does not constitute any part of an offer or contract. Information and recommendations shall not be used for commercial purposes like sale, publication in mass media or distribution in Internet, and cannot be reproduced without prior written permission of CBRE. CBRE shall not be liable for any projections, opinions, assumptions, estimates or decisions made by any third parties on the basis of information provided herein CB Richard Ellis, LLC. All rights reserved CB Richard Ellis, LLC