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Ekaterinburg warehouse market 2Q 2007

Апрель 2nd, 2007 · Нет комментариев

General Description
The key characteristic of Ekatherinburg warehouse facilities market is a disproportion between the market potential, existing demand for warehouse facilities, on one side, and slow response from the local developers, on the other side, as the current market projects of the local companies do not have any clear implementation prospective, the project concepts are vague and the companies are not quite sure about their own promotion plans. Meanwhile, the land market of the city and the region is relatively closed, and free entry of a large number of external players with development projects to the Ekatherinburg warehouse facilities market is unlikely in 2-3 year run.

Transport Infrastructure
Ekatherinburg is one of the four key transport hubs of the region. The rail hub was the last to be established (early 20th century), however, it has outstripped Chelyabinsk, Ufa and Perm rail centres by the cargo turnover and its size in the period of Tyumen region northern okrugs development. So, for this territory Ekatherinburg is a natural transport link with the main territory of the country. The city encompasses more than ten rail stations. The major railway lines go from the north-west (Perm direction) to the south-east (Tyumen direction) of the city; there is also a branch to the south (Chelyabinsk). Most city and suburban industrial zones are located close to railway.

Road transport hum connects roads to Chelyabinsk and Perm (federal highways of primary importance), to Tumen, Kurgan and Ufa (federal highways of secondary importance), and local highways to Serov – Nizhny Tagil, Irbit and Polevskoy. The most popular highway, however, is Kazan-Perm-Ekatherinburg-Tumen-Omsk. It is most convenient to access Chelyabinsk and Kurgan by highway (minimal time is 3 – 3.5 hours); Tumen and Perm are quite accessible – 4-6 hour trip, and the least accessible is Ufa (6-8 hour trip by a number of secondary highways). A circle road is being built around the city, which presently provides access to all key radial highways. The traffic system within the city is quite complicated. The road situation has recently been intense; there are traffic jams between various parts of the city.

Total stock
Ekatherinburg warehouse facilities market is mainly formed based upon production facilities and trade depots. They are mostly used for intermediate (accumulative) warehouses with low intensity of dispatches. The existing facilities are mainly outdoor sites and unheated warehouses.

The largest warehouse complexes of Ekatherinburg (Vostokneftegazstroykomplekt, Northern Terminal, Obornstabsbyt) are relatively large sites within the city limits (industrial zones), encompassing a number of small and medium scale facilities of C class with total area up to 40,000 sq. m. The sole modern warehouse complex (Istok with total area of approximately 10,000 sq. m) is located near Koltsove airport and renders custodian services.

Estimates of the total area of warehouse facilities vary from 650 to 750,000 sq. m. The area of relatively high-quality facilities (class B, B-) is estimated at the level of 40-50,000 sq. m of mainly built-to-suite warehouses.

Potential areas of warehouse projects development in Ekatherinburg and its suburbs are central and northern parts of the city (Gypsovaya station – areas allotted by the authorities for Eurasian logistics complex project, existing industrial zones of Uralmash with low-quality facilities); Vtorchermet area (southern part of the city); Koltsovo airport area (south-eastern suburb of the city, Koltsovo, Istok, Bolshoy Istok and Aramil villages), Pyshma and Beresovsky villages. All circle highway intersection with major highways (to Chelyabinsk, Tyumen and Nizhny Tagil) and towns within 60 km from Ekatherinburg, such as Aramil, Verkhnaya Pyshma, Polevskoy, Pervouralsk and Revda, are also potentially interesting.

Operating and projected facilities
NLC Ekatherinburg.
Location: 12 km to the east from the city centre (near Novosverdlovskaya Thermal Power Plant);
Total project area – 40,000 sq. m;
First line construction – 10,000 sq. m; expected launch – 1st-2nd quarter of 2007;
Second line – 30,000 sq. m; launch is scheduled until the end of the current year;
Project competitive edge – competent operator, which entered the market several years ago, favourable location.

Oboronsnabsbyt Warehouse Complex.
Location – Koltsovo settlement (close to Ekaterinburg airport);
Existing capacity – about 9,000 sq. m of C and D class warehouses;
Tenants – Russian Logistics Service, tenants of Oboronsnabsbyt construction bazaar;
Total project area is 70,000 sq. m;
Construction stages – 25-30,000 sq. m;
First stage – Class-A facility, 4Q 2008;


Project competitive edge: local player, well aware of the market; relatively favourable location; railway line, communications. Project drawbacks are small area and non-professional developer.

Istok Warehouse Terminal.
Location – Koltsovo area;
Existing capacities – about 10,000 sq. m of Class-B facilities (as of year 2006);
Developer and operator – Uralstroykomplekt;
Partners – Frans Maas (DSV), the National Logistics Company;
Total project area of the project - 50,000 sq. m.;
Second phase is to be completed in 2007 (40,000 sq. m);


This warehouse complex of B+ class has the total area 9,956 sq. m and capacity of 10 thousand pallets. Four new buildings are constructed at the guarded site. The facilities are not for rent, the complex renders custodian services. The complex is planned to be expanded up to 60 thousand pallets (plus 50,000 sq. m) in 2007. Project competitive edges are professional consultant, professional partners, state-of-the art work technologies (for the local market), already operative first line, market awareness of the project; the facilities are put into operation at rapid pace. Project drawback is less favourable microlocation (inconvenient access to M5 highway and circle highway).

Chkalovsky Terminal.
Location – Koltsovo area;
Existing capacities of 4-5,000 sq. m.;
Total project area is 220-250,000 sq. m.;
The project includes total of 4 phases;
By the end of 2007 30-40,000 sq. m are to be put into operation;
The entire facility is scheduled for launch by the end of 2010;
The project is implemented by RED investment company*;


The development concept is designed by Iris Russia (nov.-dec. 2006). Two buildings used for trade, office and warehouse purposes (for the operator’s own operations) and a number of sporadically located structures are located at the project site. Presently the key line in the project implementation is the sale of areas in the constructed complex. The part of the complex may be retained by the company for ownership. The project competitive edges are direct access to the 'Ekatherinburg circle highway', professional consultant, operative project first stage and market awareness of the project. The key project problems are uncertain strategy, unclear objectives pursued by the developer’s management, lack of professional brokers, peat land and a lack of engineering and technical communications.

MPSF Module Logistics Centre.
Location – Koltsovo area;
Prime contractor – Uraltransspetsstroy Trust;
Project competitive edge is a direct access to the 'Ekatherinburg circle highway';


Key project problem is that it includes semi-professional facilities. Obviously, at the initial implementation stages the project will not be able to compete with the complex under consideration in the same niche. One more project may be implemented near Chkalovsky. One of the project participants is Atomstroykompleks.

Eurasian Transport and Logistics Centre.
Location – north-western part of the city (Gypsovaya railway station).
Involved parties are Sverdlovsk Region Administration, Ekatherinburg Administration, Lorry JSC, Uralcontainer CJSC;
Total project area is 130,000 sq. m.;
Existing facilities are container terminal (40 thousand TEU);
The contraction in process is 10,000 sq. m with further expansion up to 30,000 sq. m (Lorry);

Initially the site was considered as container terminals, but presently the plans provide for construction of terminals for trucks servicing. Project competitive edges are political support and administrative resource. Project drawbacks are its location (close to residential buildings, transport problems), uncertain project details and terms for completion, non-professionalism and conflict of interests of the project participants.

Logisic park Pyshma.
Location: 2 km to the north from the city (Pyshma settlement area);
Total project area – 270,000 sq. m;
First line construction – 95,000 sq. m; expected launch – 4th quarter of 2007;
Project competitive edge – only class A facility realised by professional federal-scale operator.

Demand
Presently one may discuss hidden or latent demand for high-quality warehouse facilities due to lack of any major projects. Unavailability of fundamental logistic infrastructure simply hinders the development of consumer sector of local and regional economy and impedes higher investment in adjacent sectors. When first modern logistics facilities have been launched, one may be able to assess the acuteness of the imbalance between demand and supply in terms of quantity and quality.

Three categories of warehouse facilities tenants may be identified in the city warehouse market: non-resident companies, large (medium) local companies and small companies; Meanwhile, non-resident companies account for approximately 40-45% of the market.

There are still many industrial zones in the region, but demand has emerged for brand new services of logistics operators – inventory level optimization of joint cost management to minimize them. Old warehouses are not fit for this purpose.

According to Ekatherinburg administration estimates, warehouse facilities market deficit is 750-800,000 sq. m. More conservative estimate, which takes into account needs of retail and wholesale trade only (based upon ratio between retail trade turnover and high-quality warehouse facilities in Moscow market) is 400-450,000 sq. m of modern warehouse facilities presently required for proper operation of the consumer market. The estimate of the city administration also seems relatively adequate, taking into account increasing figures of retail and wholesale trade in middle run, expanding market of business estate and Ekatherinburg development prospects as the logistics centre of the Urals region.

Demand growth in the current year may be estimated at the level of 20-30,000 sq. m per year. In the middle run increase in the consumer market, development of the modern forms of business estate and higher turnover of the modern trade operators of Ekatherinburg and neighbouring regional centres are likely to change the demand trend. Should the situation develop under this scenario the growth of demand for logistics outsourcing and, respectively, modern warehouse facilities should equal at least 50-100,000 sq. m per year.

The additional source for the market growth must become the switch by the current users of low-quality warehouses to higher class facilities, increase in their turnovers and required areas. Given this trend, the present small format supply in the warehouse market will cease to meet the requirements of the considerable consumer segment.

The key operators of the Russian logistics services market are present in the city – NLC, Russian Logistics Service, DHL, Tablogix, Lorry, Asstra AG. Relogix plans to enter the local market which plans are most likely to be adjusted taking into account the lack of high-quality supply. Interest expressed by other national level logistics operators to Ekatherinburg may be assessed as high.

Supply Forecast
The market supply growth is insufficient. Major players have failed up to now to find any mechanisms to enter markets to the larger extent, which local players still have no sufficient investment resources to implement major warehouse projects.

Supply growth in 2007, without taking into account the project, is estimated at the level of 110-140,000 sq. m of new facilities, of which 80-90,000 sq. m are of A-B+ class, and 80,000 sq. m for own needs (logistic operators), 30-50,000 sq. m of C, B- classes.

Supply growth in 2008 will total 95-170,000 sq. m of respectively high-quality facilities and 30-50,000 sq. m of C and B- class facilities. The facilities are expected of mostly speculative nature. The total forecast for the two years to come is 205-310,000 sq. m of warehouse facilities, partially built-to-suit, and partially non-complying with the demand structure and increasing requirements to quality.

By years 2008-2009 major Moscow developers expressing interest in the market (MLP, Capital Partners) are likely to have found possibilities to enter it, or the investment resources of local financial and industrial groups will be aimed at warehouse market.

Vacancy rates
Presently there are almost no vacant warehouse facilities with characteristics are close to high-quality ones. The zero level of vacant facilities is most likely to preserve in the first high-quality projects launched under the conditions of relevant deficit.

Rents
The major part of low-quality warehouse facilities is rented at rates varying from USD 65 to 85/sq. m/year (including VAT); rates for unheated warehouses now can reach the upper level of the above interval. Rent for upgraded facilities (of C+ or B- class) amount to USD 100-125 /sq. m/year (including VAT). Possible launch of major warehouse projects may adjust the situation: rates for C class facilities would shrink by 10-20%, and the interval from USD 100 to 125/sq. m/year will remain the price level for B class facilities; rates for class A facilities will amount to USD 120-140/sq. m/year (triple net) depending on the nature of the tenant’s business.

Forecast
In the middle run the up-to-date warehouse facilities market will not be established in Ekatherinburg. Activity will be limited to a few high-quality and a few semi-professional projects, which will partially satisfy the current demand and underlie new demand segments and volumes. By 2009 the area of the modern warehouse facilities will reach the level of 200-250,000 sq. m in Ekatherinburg, some 100-150,000 sq. m may be constructed in semi-professional sector. Starting from 2009-2010, the full-scale market entry of international and federal investors and developers is most likely. Upon their entry, a new stage will begin, which will imply massive construction of warehouse facilities and replacement of semi-professional and non-professional warehouse facilities, both existing and planned to enter the market in the two-three years to come.

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