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. Last Updated: 07/27/2016

Crop of '98 May Help Sate Warehouse Thirst

Retail sales have been booming in Moscow, but retailers and consumer-goods companies are bumping their heads on a very real ceiling -- the lack of quality warehousing.

Companies are set to see a little relief in 1998, however, when two large projects -- the Moscow Logistics Park and the International Trade and Commerce Center -- will come on line and nearly double the amount of international-standard warehouse space available in the Russian capital.

Currently, most of the estimated 2 million square meters of warehouse space in Moscow fails to meet the needs of international clients.

"There is a tremendous demand for international-standard warehousing," said Peter Shashko, the marketing director of Samsung, which has developed warehouse space in Moscow. "In the Soviet spaces, the ceilings are too low, the rows too small, there are several floors, loading facilities are inadequate or nonexistent, and there is not enough open space to stack palettes."

Multinational firms generally demand service that includes temperature control and an inventory system. Since Russian retailers usually replace stock only once they have completely sold out of an item, warehouse inventories are typically double the European average.

Moscow's available space can't meet that demand, retailers said, and the existing space is at best a compromise.

When Kodak was looking for 3,000 square meters of palette space last summer, they found that out of the six big logistics companies operating in Moscow -- European companies FM Logistics and Rewic, U.S.-run Items and JD Logistics, and Russian Molcom and Oton -- only one of the companies was able to deliver space to their specifications within the three months they required.

Some logistics companies and producers have invested in fixing the worst of the problems by rebuilding suitable space. Amont them, the big six logistics companies control 190,000 square meters of Moscow's roughly 300,000 square meters of reconstructed space. Although reconstruction may improve the temperature and inventory control systems or improve security, it will not fix a bad floor plan.

Large companies such as McDonald's, Coca-Cola and Mars have solved the problem by building their own warehousing, but only large consumer-goods companies can afford such an investment or effort. Russian logistic companies are beginning to build new space, and Molcom is reportedly building 10,000 to 20,000 square meters of space to be completed in 1998.

What little international-standard warehousing that has been built in Moscow has been snapped up quickly. Only two such projects came onto the market this year: An 8,400-square-meter warehouse in Strogino built by Samsung, which was quickly bought by the U.S.-based cosmetics firm Mary Kay, and Oton's 10,000-square-meter warehouse, which also went quickly.

A lack of supply means owners of decent warehousing can charge some of the highest prices in Europe. Whereas one square meter in a warehouse located at the back of the Gare du Nord in Paris costs 15 cents a day, the same space in Moscow runs from 75 to 90 cents, depending on the services that go with it.

Rents warehouse space may be high by international standards, but returns are still small. It takes longer to recoup an investment in a warehouse than it does in an office building, real estate sources say, and therefore most of Moscow's developers have stayed away from the warehouse business.

But that trend is about to change.

In just the past month, two huge warehouses took grand steps toward meeting the market's needs. When the two sites are running at full capacity by the end of 1998, they will more than triple the amount of the city's international-standard warehousing.

The largest project is the Moscow Logistics Park, a 160,000-square-meter facility in the Sherezon special economic zone near Sheremetyevo Airport.

In early December, U.S. real estate developer Athena bought a controlling stake in the Logistics Park project, injecting a much-needed shot of capital and getting the project moving again after almost two years of inactivity.

A rail spur to the site is now under construction, and Bob Rylee, the commercial manager of Athena, said he expects the first 40,000 square meters of space to be completed by next summer.

A second major project was announced at the same time. Moscow developers Stiles & Riabokobylko -- who are in the process of developing 15,000 square meters of warehousing for Nestl?, also near Sheremetyevo and due to be completed next summer -- announced they were beginning work on a site called the International Trade and Commerce Center, 2.5 kilometers southeast of Moscow's Outer Ring road.

Ground work for the ITCC, slated to include 120,000 square meters of combined warehouse, retail, office and industrial space, was completed before cold winter weather put construction on hold. The first of ITCC's three 40,000-square-meter phases is due for completion by the end of next year. U.S. oil company Texaco has already signed up to build a gas station there, and McDonald's is on board to build a restaurant.

Stiles & Riabokobylko's warehouse director, Andrei Ivanov, said 10 clients have already expressed "serious interest" in taking space. Ivanov said that the agency's 1997 estimate that there would be 450,000 square meters of reconstructed warehouse space on the market by the end of 1997 took into account the Logistics Park, which had been scheduled for completion this year.

Samsung, too, is looking hard at the possibility of building more warehouses.

"Warehousing is a direction we want to get into. We are not looking at just one, but something larger -- maybe 3 or 4 warehousing projects," Shashko said. "We have some sites in mind, but we are still looking."

This is more good news for the retailers and producers trying to keep their goods on the shelves. But with yearly lease prices for Moscow warehouse space ranging from $700 to $1,200 per meter, storing goods will remain expensive for the meantime.