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. Last Updated: 07/27/2016

Projects Start to Fill High-End Warehouse Need

Afraid the two tons of ice cream and color televisions per month you're about to start importing to Moscow won't find a safe resting place? What to do but turn on the tube and eat the profits?

Finding warehousing and storage space has been a particular frustration for companies working in Russia. A number of new warehouse construction projects have recently been launched but even with these projects coming on line, international-style warehousing is in higher demand than Soviet-style facilities, and in much scarcer supply.

In the search for a place to store goods, it's important to know that not all warehousing is created equal. An accessible location, adequate loading facilities, security and good management are the keys to suitable warehouse space.

"Despite the high volume available in Moscow, the quality of [warehouse] space is inadequate for the needs of Western companies. Many ... are unprofessionally managed, offer substandard technical conditions, poor road access, inadequate security and inefficient dispatch facilities," said a study conducted by property advisers DTZ Debenham Zadelhoff

According to the DTZ study, the Moscow warehouse market consists of four types of storage facilities:

?traditional storage facilities constructed during the Soviet era;

?international standard facilities with reasonable levels of security, equipment, delivery and insurance; many of these have been reconstructed from Soviet-era facilities;

?warehouse space converted from sites such as bomb shelters, garages or factory facilities;

?incomplete buildings and factories which provide storage, but also require considerable investment.

Within each category, according to Anna Fomin, who wrote the study for DTZ in Moscow, warehouse space can be divided into three storage levels that vary in supply and quality: dry (+15 degrees Celsius to +20 C), cold (0 C to +5 C) and refrigerated storage (-18 C to -25 C). In addition, warehousing can be "bonded," or secured.

There is currently 1 million to 1.2 million square meters of dry storage warehouse space is available in Moscow -- 30 percent of that is new or introduced in the past five years, Fomin said. Supply, she said, is roughly 20 percent higher than demand. Cold storage capacity in Moscow is 770,000 tons. Demand for refrigerated storage stands at about 220,000 to 250,000 tons, exceeding a supply of 180,000 to 200,000 tons. Soviet-style facilities dominate the refrigerated storage market and account for 160,000 tons; less than 20,000 tons of the remaining capacity is newly constructed.

The biggest drawbacks of Soviet-era warehousing seem obvious -- poor security and management, no racking (shelving) and often no loading docks. The other drawback is low ceilings -- usually at about four meters high.

International-standard warehouses usually have ceilings at least 14 meters high to allow space to easily load, stack and store large containers.

"Companies need to move things in and out quickly and efficiently, and Russian warehouses aren't capable of that," said one real estate broker, who asked not to be identified.

A number of companies, including McDonald's Corp. and Coca-Cola Co., have built their own facilities rather than waiting for the market to catch up with their needs. "Most new development in the industrial [warehousing] area is by multinationals looking for themselves -- most of the market we deal with is helping them find sites or finding the best Russian space," said Darrell Stanaford, a real-estate adviser with The Western Group.

Nevertheless, there is a long list of companies waiting for good facilities.

"There's still a growing market, no doubt about it," said Jeffrey Sweetbaum, general director of Items, a warehouse storage and distribution service. "There are a number of big companies that have yet to come in to Russia, and there are small and medium-sized companies who can't afford their own [warehouses and] are willing to pay higher prices" for what's available immediately.

Prices depend largely on location (see table), and how critical the customer's needs are.

"It really depends on how long you've been here," Sweetbaum said, explaining that companies just starting up here are desperate for a place for goods to be unloaded once shipped in country -- and will pay premiums. "Price is everything -- quality is less important."

"International standard means loading docks and racking, and a large percentage of Russian space doesn't have that, so clients will pay a premium," said Stanaford. "Most are satisfied with good space, security, reasonable heating, and a reliable landlord." Such space, he said, averages about 50 cents per square meter per day.

As for new warehouse construction, "Warehousing is often not that profitable of a business for big companies to get into," Sweetbaum cautioned.

That's backed up by Guido Benedetti, director of operations in Russia for Italian construction engineering firm Codest. "We are working on many projects, but not for warehouses. Warehousing means investment -- it means goods coming in, and for the moment things are somewhat quiet. Maybe next year when the political situation is more clear, things will improve."

With this in mind, the market is watching closely the Moscow Logistics Park and the recently unveiled Samsung Engineering warehouse.

Located near Sheremetyevo 1 airport, the MLP is targeted toward Western multinational tenants seeking a rail and road distribution center in Russia. Ground-breaking started about a month ago on the 40 hectare site and MLP's first three units are under construction. About 20,000 square meters -- out of a planned 160,000 square meters of single-level warehousing with internal heights of 10 to 14 meters -- should be ready for occupation by June 1997. Facilities will be built to suit customers needs.

One of the Logistics Park's best selling points over competitors is the chance for its clients to gain exemptions from local taxes by virtue of the project's location in the "Sherezone" free economic zone, according to Mark Wrong, project director for Moscow Logistics Park.

The Logistics Park will face competition from Samsung Engineering & Construction Co.'s Stroghino Warehouse, with 8,400 square meters of warehouse space plus office space, in the Troyitse-Lykovo region of the city. Officials with Samsung said they are hoping to sell the building, which they said will be completed by the end of October, for an estimated $1,000 per square meter, but are considering long-term leases as well.