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. Last Updated: 07/27/2016

$500M Industrial Park Seeks Tenants

For MTSkanska St. Petersburg Development is to start developing the 64 hectares this year.
A plan to build Russia's first large, Western-style park for light-industry, logistics service providers and warehouses was presented recently at the MIPIM conference for international real estate professionals in Cannes, France.

An estimated $500 million will be needed to construct the massive 250,000-square-meter Nova Park project in St. Petersburg.

"There have been no big business parks in Russia so far," said Darrell Stanaford, senior director at Noble Gibbons/CB Richard Ellis. "They are the preferred choice of manufacturers."

Skanska St. Petersburg Development -- a 50/50 joint venture between St. Petersburg's property committee and Swedish construction giant Skanska -- intends to start developing a 64-hectare site in the northeast of the city this year.

But the joint venture's president, Risto Koppeli, said the process could take longer because it could take several months simply to obtain planning permission after investors have been found.

Koppeli said it was difficult to determine the market price for the industrial park's buildings because there are no other projects like it in Russia. An average facility could cost $3 million to $8 million, depending on the infrastructure and utility requirements of the investors.

"Typically, the facilities will be 5,000 square meters to 10,000 square meters. Allowing for expansion, that will require 2-hectare to 5-hectare sites," he said in a telephone interview from St. Petersburg.

St. Petersburg company S. Zinovieff & Co. is marketing Nova Park in the northern capital and Noble Gibbons is marketing it internationally. The target tenants are foreign manufacturers.

Stanaford said the joint venture would be able to shield its tenants from the bureaucratic problems associated with opening a production facility because one of its members is the authority that issues permits.

"Many industrial organizations are frustrated with the delays and cost overruns in setting up manufacturing in Russia. The permissions process in Russia is very challenging," he said.

The tenants will have an option to take a 49-year lease on their properties.

Stanaford said Nova Park has a better chance than similar projects because Skanska has already established a development record in Russia.

Skanska has been working in St. Petersburg since 1995 and has experience in industrial and non-industrial construction in Russia -- including three office buildings and factories for Gillette and Rothmans in the St. Petersburg area.

The company has also built similar parks in Budapest, Hungary, and Riga, Latvia.

Nova Park is located in St. Petersburg's northeast Krasnogvardeisky district.

The construction project is expected to last six years, with work starting on the first sites this summer.

Fifty-six hectares will be dedicated to manufacturing and storage facilities and 8 hectares are to be developed later as a technological park.

Stanaford said the industrial market in St. Petersburg is almost as developed as Moscow's.

"The city government and the Leningrad region have been very receptive to foreign manufacturers," he said. "Costs are generally lower than in Moscow. If you look at greenfield manufacturing projects, the split is pretty even between Moscow and St. Petersburg."

Another attraction has been the northern capital's proximity to the border, with Caterpillar and Ford establishing facilities there because of their interest in exporting, he said.

Rouben Alchoujian, associate director at Jones Lang LaSalle, said Nova Park's size, location and the involvement of Skanska and the St. Petersburg government make the project attractive.

Despite this, and although demand for industrial space exists, the project's Achilles heel could be a request that investors commit before anything has been built, he said.

"In a more mature market this would be more successful," Alchoujian said.

Kirill Starodubtsev, managing director of PMC, agreed that Skanska is a good partner but said he was unsure if there is enough demand in St. Petersburg for Nova Park to succeed.

Little progress has been made on two industrial parks covering about 40 hectares in Moscow -- the Moscow Logistics Park and YIT. And the logistics park stalled despite its location in a reduced tax zone.

Starodubtsev said one of the problems facing would-be industrial users is that they find it difficult to forecast even three years ahead, whereas their commitment to a site in the Nova Park would be for at least five years.