Warehouse Shortages
The present situation in the Urals warehousing sector is far from rosy, as local retailers are crammed into old-format warehouses waiting patiently for the construction of new complexes. Federal retailers, on the other hand, have already grown frustrated in the queue and are putting their expansion plans on hold. According to market experts, it will be 2009 before we will see a surplus in the Urals warehouse real estate market. Moreover, this surplus is only anticipated for the capital Yekaterinburg, which is the region’s largest distribution center.
Shortfall
According to experts at investment and development firm Alur, the greatest shortage of high quality warehouse areas among large Ural cities can be found in Perm, with a deficit of 450,000 sqm. A similar situation can be found in Chelyabinsk (405,000 sqm deficit) and Yekaterinburg (400,000 sqm). In Tyumen, the potential demand for high quality warehouse real estate is estimated at 235,000 sqm. According to Gyuzel Gerasimova, head of strategic consulting at Jones Lang LaSalle, virtually no warehouse construction is currently underway in these cities.
A well-publicized, if isolated example is the announcement by Partner of plans to construct a 70,000-sqm, class A logistics complex in Tyumen region in 2007-2009. According to Alur, the total investment cost will be approximately $65 million. Investment firm, Lainer, have announced the construction of a 130,000-sqm warehouse complex in Chelyabinsk. However, Ms Gerasimova expresses some doubts about the project, commenting that the city does not possess such a large demand for high quality warehousing areas. Alur comments, “As for as the situation in Perm is concerned, today the regional administration are developing a concept for the development of transport and logistics infrastructure in the region, which includes the construction of several multi-modal warehouse complexes.”
Jones Lang LaSalle estimates that today in the capital of the Urals, Yekaterinburg, there are approximately 670,000 sqm of warehouse areas, of which only 130,000 sqm could be described as high quality (under 20%). The remainder is poor quality, unheated warehouses built during Soviet times. “The amount of high quality (class A and B+) warehouse areas per 1,000 of the population in Yekaterinburg is lower than that in Moscow and St. Petersburg and three to four times lower than the figure in European cities,” comments Ural-Hermes.
Current demand for high quality warehouse areas in Yekaterinburg outstrips supply. However, Ms. Gerasimova notes that by 2009, we can expect to see a completely different situation, with supply exceeding demand. “But this is only provided that all the announced projects are realized.”
Company specialists comment that two zones have been set aside for the construction of warehouse complexes in Yekaterinburg. One of these is within the city on an existing warehousing site and will be aimed mainly at the city’s internal market. The second will be oriented towards the regional market and based on the continental and interregional corridors around the EKAD (Yekaterinburg Ring Road).
According to Ural-Hermes, today 8 logistics complexes are under construction in the city. There are four junctions near the EKAD (ring road) which are particularly significant: the Northern intersection (Verkhnyaya Pyshma, Sredneuralsk, Serovsky highway); the North-Eastern (the North-Eastern section of Yekaterinburg the exit from Berezovsky), the South-Eastern (the EKAD, the settlement of Koltsovo, Yekaterinburg shosse – Kotsovo airport); and the Western (planned intersection between the EKAD and the Moskovsky highway and the Perm route).
Jones Lang LaSalle comment that plans have been announced for 760,000 sqm of high quality areas, but these are mainly for small sites (10-30,000 sqm) and are being built by companies for their own use.
There are, however, some larger projects. For example, construction is starting on the large-scale class A Euroasia Logistic complex. Other large projects include the Euroasia international transport and logistics center (100,000 sqm) and the MLP complex (100,000 sqm) (information: Alur). In the city of Verkhnyaya Pyshma in Sverdlovsk region, a class A warehouse complex (43,900 sqm) will be completed by 2010. In nearby Nizhny Tagil, a class B+ warehouse complex with 48,600 sqm will be built by Mega Trade by 2010/
Despite of the fact that a lot of projects are still far from completion, retail continues to actively develop, leaving retailers with the question of what to do next.
Finding a Solution
“The absence of supply in the high quality warehouse real estate market is a restraining factor on the future development of the regional consumer market. The majority of federal chains entering the Tyumen market are experiencing difficulties organizing their logistics operations and are being forced to either push back expansion deadlines or reduce the scale and level of their investment,” says experts at Alur.
Federal retailers who are determined to enter the Yekaterinburg market are, according to Ms. Gerasimova, being forced to earmark considerable resources for the construction of their own warehouses. For example, hypermarkets are setting aside significant portions of their premises for product storage. As for local retail operators, they are less concerned about warehousing and generally use lower quality spaces. “Federal and international operators need extremely high quality class A warehouse areas and have very high standards when it comes to their specific requirements. The absence of these kinds of facilities delays large operators from entering the local market,” says Ms. Gerasimova.
Demand for high quality warehouse areas is primarily formed by federal retail chains and logistics operators. “Logistics operators are increasingly looking at Urals cities as priority targets for their business strategies. Recently, we have witnessed considerable growth in demand for high quality warehouse real estate from large local wholesalers and distributors,” report market specialists at Alur.
Overall, market experts agree that a shortage of warehouse areas equipped to international standards is one of the main obstacles to the development of local consumer markets and the Urals economy as a whole. Both local and federal players are restlessly waiting for the deficit to relieved by new, quality arrivals.