Industrial market. ST. PETERSBURG

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1 Industrial market. ST. PETERSBURG Key industrial market indicators, 214 Supply INDEX VALUE Total stock 2.45 million m 2 Speculative stock 1.4 million m 2 New supply 355, m 2 Take-up 337, m 2 Vacancy rate 5.5% Rental rate, Grade A, USD Rental rate, Grade A, RUB * Net of VAT, OPEX and utilities 8 /m 2 /year* /m 2 /year* According to figures from 214, the total volume of speculative supply in the quality industrial market, which includes amount of space leased and available for lease, increased by 25, m², reaching 1.4 million m². The total warehouse market, which includes end-user buildings, increased over the year by 355, m² in total, or by 17%, reaching 2.45 million m². The highest volume of new supply was delivered in H2 214 with 132, m² being commissioned in Q3 and 23, m² in Q4. The largest warehouse properties put into operation in 214 were Armada Park, Phase I (total area of 78,7 m², developed by Adamant company), Osinovaya Roshcha, Phase III (52,7 m², developed by Sterkh corporation), Logopark Troitsky, Phase III (44,2 m², Resolute Asset Management), and several end-user properties: a distribution centre for the Magnit retail chain (5,8 m²), a distribution centre for the Verny retail chain (43, m²) and Torgovy dom ETM (24, m²). thousand m 2 The geographical distribution of the existing supply has been relatively stable over the last few years. The leaders in terms of current projects under construction are, Rybatskoye and Sofiyskaya street, which together account for about half of the existing speculative warehouse stock. As for other locations, active warehouse development can be observed in the north of the city (Parnas, Bugry, Pargolovo), accounting for a third of new supply in 214 and 16% of the city s total existing warehouse supply. Speculative stock and completions dynamics 1,5 1, New construction Total stock at the beginning of reporting period 95 1, ,

2 Demand Vacancy rate and take-up Figures for 214 show that transactions reached a record high of 337, m 2, while net absorption amounted to 237, m 2. High demand can still be observed for small warehouse spaces up to 2, m 2, and also for spaces starting from 1, m 2. For example, during 214, transactions for more than 1, m 2 each accounted for 7% of leased and purchased space. One of the trends in 214 was an increase in the number of build-to-suit projects in the St. Petersburg market. The share of rented and purchased area in built-to-suit schemes amounted to 45%. The main provider of properties built for these kinds of customers is A Plus Development Company, whose share accounted for more than a half of all lease and purchase transactions completed during 214. The main customers of built-tosuit warehouses were retail chains and logistics companies. thousand m % 2% 15% 1% 5% % During 214, we observed a decrease in demand for quality warehouse space from manufacturing companies, which decreased their share in the total transaction volume from 27% in 213 to 8% in 214. The development of retail and distribution companies has been the driver of quality warehouse market in St. Petersburg over recent years. By the end of 214, their share in lease or purchase transactions reached 68% from among all types of tenants (for comparison, in 212 and 213 the share of such companies in the total transaction volume was 63% and 53% respectively). It is noteworthy that some changes also appeared in the retail segment. While in 212 and the first half of 213 the greatest demand for warehouses was formed by distribution companies, including cosmetics, household appliances and electronics, and alcohol, in 214 the highest amount of deals in the retail segment was made with major Russian and foreign grocery chains, while distributors showed less activity. New speculative supply Net take-up Vacancy rate Lease transactions by tenant type % 3% 8% 27% 33% 8% 34% 23% 6% 19% 23% The share of vacant space in existing warehouse properties at the end of 214 amounted to 5.5% of the total warehouse market volume or around 135, m 2. For comparison, at the beginning of the year, the volume of vacant space was only 38, m 2. The leasing of speculative warehouses is to some extent influenced by the increase of build-to-suit deals; however, several tenants reduce the area they occupy or offer it for sublease. 4% 2% % 68% 63% 53% 44% Productions companies Logistics companies Retail and distribution companies 2

3 Rental rates Rental rates dynamics At the beginning of 214, the increase in rental rates for warehouse premises could still be observed. However, with new speculative warehouse properties entering the market in Q2 and Q3, rental rates declined back to the level from the end of 213, when the majority of developers closed leasing deals in USD-denominated rents. USD/m 2 /year RUB/m 2 /month Rapid change in the exchange rate in Q4 and especially in December 214 has resulted in developers shifting from USD rates to rouble-denominated rents. It should be mentioned that rents in projects denominated in roubles have not decreased since the beginning of the year and remain within the increase according to indexation levels Trends and forecasts Speculative properties are still in demand. Nevertheless, in 215, a decrease in new speculative supply available for lease is expected, and built-to-suit properties constructed under agreements closed throughout 214 will account for the main share. Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Rental rate, Grade A, RUB Rental rate, Grade A, USD Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 The volume of vacant space increased at the end of 214 due to the high number of warehouses that entered the market; however, the rate will decrease during this year. Lease contracts in roubles will dominate in the market. In connection with the changed economic conditions we expect the commercial terms of current lease agreements to be renegotiated. Furthermore, we do not expect new speculative projects to be launched in the coming year. At the same time, we note activity among new potential developers that are now doing preparation work on warehouse projects located at their land plots, or are looking for new land plots for warehouse projects in the next one or two years. Additional supply is being created by warehouses being offered in sublease. As a result of cut backs and optimisation of occupied space, major tenants may free 1, 2, m 2 on average from their leases. Breakdown of leased space in 214 by the main owners of the properties 14% 12% 15% 5% 3% A Plus Development Adamant Other Resolute Assets Management Sterkh corporation Orion 51% 3

4 Warehouse complexes completed in 214 PROPERTY ADDRESS GRADE TOTAL AREA, M 2 STORAGE AREA, M 2 INVESTOR/DEVELOPER 1 Admiral-Gorelovo Vsevolozhskiy district А 26,7 2, Admiral-TSV Logistics Group 2 Osinovaya Roshcha logopark (Phase III) Pargolovo А 52,66 5,4 Sterkh Corporation 3 Armada Park (Phase I) А 78,691 7,5 Adamant 4 Ladoga Industrial Park (Phase I) Vsevolozhsk А 6,5 6,264 Agrotrade 5 StroiSoyuz (Phase I) 6 Magnit distribution centre Tosnenskiy district B 5,44 4,72 Stroisoyuz А 5,8 5,8 Magnit 7 Troitsky Logopark (Phase III) Nevskiy district А 44,188 36,94 Resolute Asset Management LLP 8 St. Petersburg terminal complex (Phase III, 3 bld.) Vsevolozhskiy district А 27, 26, Invest-Bugry 9 Nordway Logistics Park (Phase III) А 2,63 17,5 BSV (Hanner/Girteka) 1 ETM distribution centre А 24, 19, A Plus Development/ Torgoviy dom ETM 11 Fedorovsky Posad Tosnenskiy district А 2, 17,25 As-Magistral-Service 12 Verny distribution centre Kolpinskiy district А 43, 35, PNK Group Total 398, ,374 Major lease/sale transactions in St. Petersburg industrial market in 214 PROPERTY TENANT TOTAL LEASED AREA, M 2 A Plus Park Shushary Confidential 39, A Plus Park Shushary* X5 Retail Group 33,5 Confidential* Retail chain 28,5 A Plus Park Shushary* Auchan 25, A Plus Park Shushary Logistics company 19,833 A Plus Park Shushary Norbert Dentressangle Logistics 11,942 A Plus Park Shushary* Retail distribution company 12, Confidential* Distributor 9, Warehouse complex (Gatchina)* Retail chain 6,7 Orion Logistics Confidential 6,5 AKM Logistics CentrObuv 6,4 Agroterminal Dymov 5,8 * deals completed by Colliers International 4

5 485 offices in 63 countries on 6 continents United States: 146 Canada: 46 Latin America: 25 Asia Pacific: 186 EMEA: 85 $2.1 billion in annual revenue billion square meters under management 15,8 professionals and staff Contact us Andrey Kosarev Managing Director, St. Petersburg andrey.kosarev@colliers.com Vladislav Ryabov Partner, Regional Director: Industrial, Warehouses, Land Property vladislav.ryabov@colliers.com Veronika Lezhneva Director, Research Department veronika.lezhneva@colliers.com Colliers International Russia BC Naberezhnaya Tower 1 Presnenskaya Embankment Moscow tel BC Northern Capital 3 Volynsky Lane St. Petersburg tel colliers.com Copyright 215 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.