Warehouse Sales Hit Five-Year Low
- By Anton Filatov
- Sep. 29 2016 00:00
In light of the high volume of ready warehouses and the low demand for them, developers are willing to adapt a pre-existing facility to a client's needs.
Stakes in logistics complexes have decreased so much that it be more profitable to rent space. Companies that have their own funds, or foreign players who have access to cheap money may consider buying.
I n the first half of 2016, the total volume of transactions on the warehouse property market was 534,000 sq.m., only 7 percent of which was sold, while the rest was leased, according to report issued by the consulting company S.A. Ricci. For purchase-sale transactions, this is a record low for the past five years, the company's analysts note. Thus, in January-June 2015, over 14 percent of warehouse space was sold, while a year earlier that portion was 28 percent.
Anton Alyabiev, director of industrial and warehouse space at CBRE, has similar data. In the first half of 2016, 7-10 percent of transactions were for purchase-sale, which is less than the same period in 2015, he confirmed. Vyacheslav Kholopov, director of the warehouse and industrial real estate department at Knight Frank, cites an even lower figure — 2.5 percent. However, he stipulated, this is not a record: in 2015, there were no transactions for the purchase of logistics space. Most enquiries from companies really are connected with leases, agreed Igor Bogorodov, head of the Moscow branch of developer Raven Russia, which has warehouses with a total area of about 1.5 million sq.m. under its control.
With reduced rental rates and a large amount of vacant office space, many companies increasingly prefer warehouse rental to their acquisition, explained S.A. Ricci warehouse and industrial real estate department director Dmitry Gerastovsky. Since the beginning of 2015, according to S.A. Ricci data, the average rental rate for a Class A building has been about 3900 rubles ($60.30)/sq.m. per month (excluding taxes and operating costs), and for Class B 3600 rubles ($55.65)/sq.m. A year earlier, those warehouses rented for 5000 ($77.30) and 4500 rubles ($69.57)/ sq. m., respectively. Rental rates have fallen to 3700-4000 rubles ($57.20-61.84)/ sq. m, and you can find options for 3000 rubles ($46.38)/ sq. m., said PNK Group executive director Oleg Mamaev, but there were no transactions at those prices. Offers of that type usually involve a short lease, which is unprofitable for the majority of tenants. Moreover, rental rates fell right along with the cost of buying warehouse space, so this is a good time to buy, Mamaev said.
Buying your own warehouse or building one on credit has become unprofitable (a payback period of 10-12 years) due to the lack of available funding, Knight Frank's Kholopov explains. Therefore, purchasing high-quality warehouse space today is for companies that have their own funds, or foreign players who have access to cheap money, he concludes. The low sales of warehouse real estate in the first quarter of 2016 is a temporary phenomenon, Alyabiev says. Historically, the majority of transactions on the warehouse real estate market take place in the second half of the year. "At CBRE now, around 50 percent of enquiries from companies are associated with the acquisition of premises in logistics projects," Alyabiev said. The share of warehouse purchase-sale transactions on the market in the second half of 2016 could rise, Gerastovsky agrees, but it is unlikely even to match annual results of 2015 (see Chart 1). PNK Group used to sell 70-80 percent of the area in its facilities, but now the figure is almost 90 percent, Mamaev said.