Among the First

Many developers announced their plans of building Class A logistic complexes in regions. However, very few have put their plans into practice. We decided to count the sparse warehouse properties currently available on the regional market and give a detailed report on several completed warehouse terminals.

Novosibirsk: Siberia Terminal Developed by NLC

Many experts assume that the Moscow, Leningrad and Novosibirsk regions are the main national trans-shipment points. Following this logic, it is not surprising that National Logistic Company realized its first regional project not far from the capital of trans-Ural region. “In fact, regional markets are divided into two types,” reasons NLC’s expert Oleg Mamaev, “one of them being the consumer market. Demand for storage facilities in this case is conditioned upon the region’s development in general and retail expansion, in particular. Even in such cities as Rostov and Yekaterinburg warehouse complexes serve more as commodity handling and sorting depots than storage facilities. As to Novosibirsk, this city has good prospects to become a major distribution center for the entire trans-Ural region. As our high-profile western partners plan two distribution centers in Russia, they contemplate Moscow and, potentially, Novosibirsk.”

Novosibirsk is the city that will directly distribute, in the opinion of Mr. Mamaev, large foreign shipments from Europe, Far East and China. “It should be understood, however, that the warehouse complex developed by NLC will not be a mere distribution center; this is just my estimation of the local market potential,” illumines Oleg. “Today our complex serves Novosibirsk, the Novosibirsk region and adjacent territories: Krasnoyarsk and Irkutsk.”

It should be remembered that the National Logistic Company is the asset held by RosEuroGroup, which does not specialize in development and builds the Siberia terminal for its own needs because it could find no worthy offer from professional developers. “Furthermore our company seeks storage space with special characteristics to cater to its established services,” adds Mr. Mamaev, “whereas developers build standardized warehouses that can hardly be adapted to our specific needs.”

The Siberia terminal lies in the town of Satalit, 10 km from Novosibirsk and 4 km from the town of Ob, just 70 meters from the Moscow – Vladivostok route of national import and 1 km from Tolmachevo Airport. The developer also built an access road as an offshoot from the national highway along with approach railway lines from Ob station.

As of today, NLC has completed only the first phase and plans to start construction on several more warehouse units in the nearest time. On the whole, according to Oleg Mamaev, they may build up to 40,000 sqm of upscale warehouse space on the area of 71,000 sqm.

The gross floor area of the first phase is modest – only 10,000 sqm. Given the scale of other regional projects announced by Moscow-based and multinational operators, this is a rather cautious strategy. “There are two reasons,” says Mr. Mamaev. “The first is sheer financial: we expand our business and implement an extensive regional program and therefore our financial resources are limited — it’s difficult for us to find money for a non-specialized business. Another reason is that it is very difficult for us, as a logistic company, to tune up quality services on the regional market within a short period of time for we need to train personnel first and describe all processes. And if we put 40,000 sqm into operation, this would mean deliberate lowering of quality standards at least for a year or so until we tune all necessary technological schemes. Hence the decision to developer our regional project in a stepwise fashion.”

Mr. Mamaev explains the dearth of completed Class A regional warehouse projects by “growth pains”. The development of Class A warehouse space follows retail expansion to regions where ample demand must be formed too. And only after it is appreciated do professional developers set to construction works, says NLC expert who is positive that many of the announced regional projects will be realized. The project owner did not disclose all financial details. It is only known that the construction cost averaged $700-800 per sqm while the triple net is $115 per sqm per year.

The developed spot area and parking area is 11,000 sqm each. All warehouse units will reportedly take up half of the land lot. “Being aware of the future heavy commodity flow, we tried to design spacious parking and maneuvering space,” says Mr. Mamaev. “I believe we are ahead of many professional developers in this respect as the latter seek denser land development in order to solve their financial problems. The project allows for two entry points. When the warehouse reaches its intended capacity, these gates will separate the flows of cargo and passenger vehicles.”

The complex is equipped with 10 automatic cargo-handling docks Doorhan, three of them installed on a railway ramp. The ceiling height is 12 meters. In addition to warehousing capacities, there is also requisite office space in a five-story annex. The 100×100-meter building has the column grid of 22 m. First category electric power supply is provided; furthermore the warehouse is equipped with its own gas boiler that can also switch to diesel, combined extract and input ventilation, a central security and access control system as well as an automatic ventilation and heating (HVAC) system.

Samara: Victor & Co Development
Samara is a rather developed region from warehouse real estate perspectives. While in most other regions developers just entered construction sites or hold negotiations over land acquisition, in Samara demand is already estimated at 300,000 sqm of quality warehouse space. The market was mainly saturated by local developers. Despite the high potential of the Samara region, large investors did not hasten to enter (as in many other regions, the dearth of high quality warehouse space made retailers, such as Nestle and Baltika, develop their own storage space). Local players turned this situation to their advantage as they were not going to wait for Moscow developers.
The project by the Samara-based company became one of the first speculative complexes in the region (another 80,000-sqm warehouse complex in Samara is also developed by a Volga-based logistic company). “In the nearest future the shortage of Class A storage facilities will become a serious obstacle to further market development. Already several years ago one could predict the large-scale construction of new warehouse terminals. Our company wouldn’t wait for this moment and tackled the construction of a Class A logistic terminal,” we were told at Victor & Co.
Demand for warehouse space in Samara, as in many other regions, was whipped up by the expansion of national and international retail chains. “Among the tenants of the logistic terminal are such companies as RLS Real Estate, Roznitsio, Light Power, Auchan et al,” reports the press service of Victor & Co. “Many of them see the warehouse complex as a distribution center for the entire trans-Volga region.”
In the opinion of Victor & Co. demand for Class A warehouse space will further swell with time by 20-25% per annum, on average. That the warehouse sector is underdeveloped in regions can be explained by the fact that the Moscow region retains a dominating role of national business center, opine the company’s experts. Only when the Moscow region market became saturated did developers turn their eyes to regions. “But while many developers are serious about regional expansion, investments in up-to-date infrastructure are not high on their priority list,” say Victor & Co.’s experts. “On the whole, every region has its own specificity, and the difficulties of regional development are often overstated.”
The 130,000-sqm project, sitting at the intersection of M5 and M32 routes of national import, is owned and developed by Victor & Co. The complex has two exits to Moscow and Rakitovskoe highways. Development is split into phases. The first 32,000-sqm phase has already been completed and both warehouse and office space has been let out. The second 50,000-sqm phase is slated for delivery in the third quarter 2007.
The complex is equipped with automatic fire alarm and fire-fighting systems and the entire territory is under control of intruder alarm and video surveillance systems. The ceiling height is at least 12.5 meters. The concrete floor with dust-repellent coating can take the load of at least 6 tons per sqm. The storage facilities are fitted out with automatic dock shelters having cargo-handling dock levelers (at least 1 per 1,000 sqm). The surface parking area is 5.5 ha. A branch railway line runs 3 km from the complex. Bezymyanka airport, handling the freight flows of national and international airlines, is also situated in this district.
As for the rental rates, they are at the level of $130 per sqm per year. The rent of office and mezzanine premises is a matter of special agreement. The developer practices long-term contracts for five and more years.

Yekaterinburg: Eurasia Logistic
Logistics Park Pyshma, potentially the largest in the Urals region, is still under construction. Yet we decided to describe it for one simple reason: according to the developer, this is the first large-scale regional project, whose first phase will soon be delivered to the market.
Several years ago Eurasia Logistic announced the development of large-scale logistics parks in biggest Russian regions. Over five years from 2006 through 2010 the developer plans to build 16 logistic complexes, whose gross floor area will reportedly exceed 5 million sqm and investments will top $3 billion.
Construction of the 85,800-sqm first phase is now close to completion. According to Aleksei Grishko, commercial director of Eurasia Logistic, the first phase is scheduled for delivery already in August this year. Concurrently, construction on the 109,000-sqm second phase to be delivered till the year’s end is under way. Therefore Eurasia Logistic plans to commission roughly 200,000 sqm of Class A warehouse space in Yekaterinburg already this year.
The Sverdlovsk region possesses high consumer potential. Yekaterinburg is one of the largest Ural cities with constantly rising living standards. Accordingly, the demand for high-end storage facilities did not keep waiting for long. “In addition, Yekaterinburg is one of Russia’s key distribution hubs, which certainly encourages the creation of cutting-edge infrastructure,” adds Mr. Grishko. As estimated by Eurasia Logistic analysts, pent-up demand for Class A storage facilities in Yekaterinburg over the next four years ranges from 600,000 to 700,000 sqm. For all that, the phased strategy of warehouse space delivery allows the developer not to run ahead of demand.
Logistics Park Pyshma lies 2 km past the Yekaterinburg Outer Ring Road (EKAD). Construction works commenced in October 2006 and the entire space is slated for delivery in 2008. The total area of the land lot is 50.3 ha.
While the second phase must be turned over for operation in December 2007, the third 84,000-sqm phase will reportedly be completed in August 2008. Logistics Park Pyshma will be a standard chain project by Eurasia Logistic. This speculative project addresses the needs of Russian and multinational logistic operators and has unified technical parameters. According to the project authors, they’ve already signed pre-lease agreements for 85% of warehouse space in the two phases. The names of future tenants are not disclosed.
The size of maneuvering ground for heavy-duty trucks and haulers is 32-40 meters (a standard size for Class A Russian warehouse projects, though in the West the length may reach 50 meters); there is 1 parking lot per 1 dock for heavy haulers and two lots per dock for passenger cars. Spur rail tracks with cargo-handling platforms, adjoining the main units, became a compulsory feature at all chain projects implemented by Eurasia Logistic. “Railway communication is an important claim laid by largest logistic operators on storage facilities,” illumines Mr. Grishko. “Therefore we included 4 spur tracks in the master plan of Pyshma Logistics Park.”
The logistics park is also equipped with an automated warehousing, stock-taking and monitoring system, a temperature test system, maintaining optimal working conditions for personnel and cargo storing, and sprinkler-type fire-fighting systems.
The working height of the logistics park’s ceilings is 12 m, the column grid is 12 x 24 m; the admissible floor load is at least 6 tons/sqm while the wall-to-wall length is at least 100 meters. One dock shelter per 1,000 sqm is provided; all dock shelters are rigged out with dock levelers and thermal shielding; also designed are spaces for vacant pallets.
The following companies were involved in the project in addition to the developer: Eurostroy as prime contractor, Olson Project Management as a project oversight agency and Form as a master planner.
Pyshma’s rental rates differ depending on the terms of lease, and are close to those at Moscow warehouses. The investment in construction works will near $160 million. The underdeveloped land market was mentioned by Mr. Grishko as one of the main regional development problems: “There’s no civilized land market in regions: most lands have not been formalized for industrial usage or provided with essential engineering lines. The regions are unprepared for the coming of large developers, laying high claims on the legal transparency pf land deals. The entry to the regional market is hampered by long searches for land properties free from considerable real burdens, meeting all necessary standards, and by a long legal verification of all available documents,” concludes Aleksei Grishko.

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