Warehouses are a stable and promising segment in the commercial real estate market. They are always in demand by manufacturers, retailers and companies working in other fields, and the available free space today does not cover the growing demand.
Briefly about the global warehouse real estate market
In the global market, it is expected that in the coming years from 2024 to 2027, the key storage sectors related to manufacturing, retail, healthcare, construction, automotive, technology, etc., will demonstrate continuous growth. In addition, demand from the e-commerce sector is expected to increase. Online shopping has gained popularity and has become available to almost all types of customers. The advent of online shopping has created a huge demand for warehouse space in both developed and emerging economies. In addition, due to the growing popularity of frozen foods, the demand for cold storage is also growing. This can be explained by the fact that frozen foods are easy to cook, healthy and readily available on the market. In addition, recent advances in information technology and transportation are also having a positive impact on the warehousing and storage market. The increased use of wearable devices, sensors, radio frequency identification tags, etc. also makes the storage and transportation of goods more efficient.
In 2021, the global warehouse and storage market reached 451.9 billion US dollars, in 2023 – 544.3 billion US dollars, and by 2027 the market will reach 805.6 billion US dollars, demonstrating an average annual growth rate of 4.9% during 2024-2027.
Warehouse real estate market in Russia
In 2023, the warehouse real estate market in Russia faced serious difficulties. The main problem was that the number of vacant warehouses had dropped to an all-time low. This circumstance inevitably influenced the growth of rental rates. Now it is important to understand why this shortage has arisen and what prospects await the warehouse segment in 2024.
There are almost no warehouse spaces available for rent/sale now. All terminal capacities are used to the maximum. This trend has been observed since the end of 2022. The reasons are the need to organize the storage of goods that are massively imported due to parallel imports. Previously, deliveries were regular, and there was no need to form such stocks. Now the business operates on the principle of "everything for the future."
There are other reasons. There are currently no new facilities being put into operation on the market, the volume of investments in this area is still lower compared to financing until 2022.
Construction is now much more expensive, and equipment issues are a separate problem altogether, since many types of equipment cannot be imported into the country.
Thus, by the end of 2023, almost 3.5 million m2 were commissioned in Russia with a total area of more than 42 million m2. There is an increase in the volume of warehouse real estate commissioning in the regions of Russia, almost 1.6 times more than last year, and a decrease in the Moscow region and St. Petersburg.
Fig.1. Dynamics of the volume of commissioning of warehouse spaces in Russia, thousand m2
Source: Ministry of Industry and Trade
By the end of 2023, the total volume of purchased and leased warehouse space throughout Russia amounted to more than 6 million square meters, which is the highest value in the entire history of the warehouse market and 2.5 times higher than last year.
The previous peak value was in 2021, when demand reached 4 million square meters, which is 1.5 times less than the new record.
The volume of transactions by the end of 2022 amounted to more than 2.6 million m2, in 2023 this figure increased to 6.1 million m2 according to the Ministry of Industry and Trade, to 6.5 – 7.2 million m2 according to various analytical agencies.
Fig. 2. Dynamics of the volume of transactions with warehouse spaces in Russia, 2012-2023, thousand m2
Source: Ministry of Industry and Trade
The following types of warehouse real estate are traditionally distinguished in the market of large cities, depending on their class:
class A: single-storey building made of high-quality materials, ceiling height from 12 m, anti-dust floor covering, automatic fire extinguishing system, adjustable temperature, thermal curtains on gates, automatic dock-type gates, hydraulic ramp, air conditioning, alarm system and video surveillance, office space, fiber-optic telephone lines, large parking area for all types of cars, convenient transport accessibility. These are, as a rule, new buildings with shelving storage, which allows the use of a full range of modern technologies for storing and processing different types of cargo in such facilities;
Class B: single- or multi-storey building, ceiling height 4-10 m, floor – asphalt or concrete without coating, fire alarm and fire extinguishing system, ramp for unloading, office premises, telephone lines, security, territory for maneuvering vehicles. Due to the low ceilings, which do not allow the installation of modern shelving equipment, there are restrictions on the use of modern warehouse cargo handling technologies;
class C: industrial premises or insulated hangars, ceiling height from 3.5 m, floor – asphalt or concrete tiles, gates at ground zero, a car enters the premises. The characteristics of the buildings do not allow handling the stored goods;
Class D: basements, unheated production facilities or hangars, open storage areas.
By the end of 2023, the total volume of high-quality warehouse supply (class A, B) throughout Russia (including the Moscow region, St. Petersburg and the Leningrad region) it is 45.7 million sq. m. Of which 54% (or 24.5 million sq. m. m) in the Moscow region, 11% (5.1 million square meters) - in St. Petersburg and the Leningrad region, 35% (16.1 million square meters) - in the rest of Russia.
Fig.3. Distribution of the supply of high-quality warehouse real estate in Russia
Source: https://logistics.ru
Warehouse real estate market in the Moscow region. Moscow and the region occupy about 54% of the total demand for the period 2022-2023 (more than 23 million square meters m of the total number of all warehouse areas in Russia).
The past year has shown impressive records in the warehouse real estate market of the Moscow region.
In 2023, the demand for warehouse real estate in the Moscow region reached a historically record 3,283 thousand square meters. m. The impressive growth is largely due to the implementation of deferred demand accumulated due to low business activity in 2022, as well as increased demand from key market consumers. These results exceeded the previous year's figure by 2.4 times, and, in response to a surge in demand, almost all available free market spaces were occupied.
Table 1. Main indicators of the warehouse real estate market in Moscow
| Indicators | 2021 | 2022 | 2023 |
| Total supply, th m2 | 20 089 | 21 746 | 23 201 |
| Commissioning, th. m2 | 1 635 | 1 994 | 1 441 |
| The volume of purchased and leased space, th. m2 | 2 706 | 1 641 | 3 283 |
| Vacancy, % | 1,1 | 2,9 | 0,1 |
| Rental rate, RUB/sq. m/year | 5 860 | 5 800 | 8 500 |
Source: http://elitearenda.ru/o-kompanii.htm
Along with the growing demand, the market faced a critical shortage of available spaces. The volume of vacant warehouse spaces fell to the level of 2012 - only 90 thousand square meters, which is only 0.1% of the total supply. %. The decrease since the beginning of the year was 1.5% percentage points.
Fig.4. The share of vacant warehouse spaces in the Moscow region, %
Source: NF Group data, https://nikoliers.ru
The deficit is caused by several circumstances:
- the pace of new construction is insufficient due to the high key interest rate, which makes it extremely difficult to take loans for development projects, or their construction is becoming so expensive that investing is simply unprofitable;
- lease deals for facilities under construction are often concluded even before they are put into operation, these areas do not even enter the market (built-to-suit projects);
- the volume of sublease offers has decreased to a minimum (it is about 0.1%) and does not actually affect the situation.
The pace of commissioning of new warehouses cannot fully meet the current growing needs of customers. Most of the commissioned facilities enter the market almost completely filled, which further exacerbates the shortage problem.
The acute imbalance between supply and demand is a key characteristic of the current market reality. It is predicted that next year will continue the trend of increasing the shortage of available space, which, in turn, may entail an additional impact on rental rates.
In the context of the ongoing shortage of available warehouse spaces, rental rates are formed on the basis of future release proposals. By the end of 2023, the average rental rate reached 8,500 rubles per square meter per year (triple net), which means an increase of 55% since the beginning of the year. There are no prerequisites for reducing the rate in 2024, according to a conservative forecast by the end of 2024, it will amount to 9,000 rubles per square meter per year (triple net).
Fig. 5. The average rental rate of warehouse real estate in the Moscow region, thousand rubles.
Source: NF Group data, https://nikoliers.ru
By the end of 2023, the volume of new construction amounted to 1,441 thousand square meters, which is 14% lower than the volume achieved in the previous year. Thus, the total volume of warehouse supply in the warehouse real estate market of the Moscow region exceeded the level of 23 million square meters.
In the context of the new offer, speculative transactions prevail, the share of which is 58%. Among the largest facilities commissioned in 2023, the multi-storey warehouse complex "PNK Park MKAD-M4" (129 thousand square meters), as well as two buildings of the 2nd stage of the Wildberries warehouse complex in Elektrostal with a total area of 170 thousand square meters can be noted.
In conditions of an acute shortage of offers on the market, customers with large requests are increasingly paying attention to build-to-suit formats. The volume of BTS transactions amounted to 979 thousand square meters, which represents 38% by the end of 2023, compared with 11% in 2022, and by 2024 it may reach a record 85%. Next year, a moderate slowdown in the volume of lease and sale transactions is expected, with a reduction to the level of 2.6–2.8 million square meters. Despite this decrease, the indicator remains at a high level, emphasizing the active development of the warehouse real estate market.
By the way, the volume of the existing high-quality supply of light industrial format facilities doubled compared to the final indicator of 2022 and amounted to 362 thousand square meters, which is equivalent to 1.6% of the total warehouse supply of the Moscow region. At the same time, more than half of the existing volume is located at a distance of up to 5 km. In 2024, subject to the completion of the planned and under construction projects, the volume of the light industrial market in Moscow may exceed the level of 1.2 million square meters.
Fig. 6. Types of warehouse real estate transactions in the Moscow region, %
Source: NF Group data, https://nikoliers.ru
By the end of 2023, the volume of investments in warehouse real estate in Russia reached 61 billion rubles, which is 15% higher than the result of 2022. More than 50% of investments were in warehouse facilities in the Moscow region. The process of selling assets of foreign companies to Russian investors continues. One example is the sale of FM Logistic IC in Dmitrov under the sale-leaseback scheme. At the same time, there is a strengthening trend in the use of collective investments in high-quality warehouse real estate. In the face of increased demand from tenants, a shortage of offers and rising rental rates, investment funds offer attractive rates of return for private investors, including individuals. Mutual fund managers are actively searching for investment sites, mainly in high-quality speculative complexes with stable rental income. The focus is also on facilities designed for federal retail chains, marketplaces and logistics companies.
Today, the warehouse real estate market in Moscow is characterized by a range of capitalization rates in the range of 10.5–12%. This range indicates the current assessment of the market profitability of investments in warehouse facilities in the metropolitan region.
However, as of the end of January 2024, there is a gradual decrease in the share of the Moscow region in the total volume of warehouse real estate commissioning in Russia, which is caused by the active expansion of representatives of the e-commerce and classic retail segments into the regions in order to expand their area of operation in the country. The largest demand (34%) is recorded from representatives of the e-commerce sector - Ozon, Wildberries etc. Manufacturing companies (19%) and grocery retail chains (17%) are also actively increasing their storage capacities.
The warehouse real estate market in St. Petersburg and the Leningrad region. The share of St. Petersburg in the total volume of warehouse space in Russia is 10% (4.7 million square meters).
By the end of 2023, more than 363 thousand m2 of warehouse real estate facilities were put into operation in St. Petersburg. Of these, 44% are speculative facilities, and another 29% are built-to-suit warehouses built for a specific customer. Thus, the total volume of warehouses in the city reached 5 million m2. Marketplaces were most actively interested in such real estate, and a record 733 thousand m2 were included in the contour of transactions for the lease and purchase of warehouses. These values, analysts say, turned out to be record-breaking. At the same time, more than 60% of transactions were on Ozon.
In 2023, St. Petersburg and the Leningrad Region showed peak demand for warehouse space: the volume was 1 million square meters, which is more than 2 times higher than the value of the previous year. Against the background of increased demand and an increase in supply that does not keep pace with it, a decrease in vacancy by 0.9 percentage points was recorded: at the end of 2023, the indicator was 0.9%, which coincides with the level of 2021.
Over the past year, the average rental rate has increased by 46.5%: the rental rate for existing facilities is at the level of 8,500 thousand rubles per sq. m. per year, for facilities under construction – 8,600 rubles per sq. m. per year without operating expenses, VAT and utility bills. In the context of the continuing tight monetary policy of the Central Bank, with the current low share of available space, rental rates will remain high at the beginning of the new year.
Demand for warehouses in St. Petersburg and the Leningrad Region is uneven: in 2023, there was a significant reduction in demand from logistics companies (-79% yoy), as well as from manufacturers (-58% yoy). Historically, these categories of tenants have accounted for a significant part of the demand in the region, but the transformation of cargo flows is making its own adjustments. The main drivers of maximum demand were online operators and multi-channel retailers, which accounted for 68% of transactions. Thus, the OZON company, having leased a total of 577 thousand square meters in 2023. The lack of storage space affected the instability of the current indicator of the amount of purchased and leased space in the long term.
As in the Moscow region, due to the lack of offers for production needs, specialized companies are beginning to consider buying or renting warehouse premises in order to further convert them to their needs. The demand for small production areas is growing, including in the light industrial format, which attracts non-core developers who bring small facilities with a volume of 3-4 thousand/sq. m to the market.
At the moment, the volume of the light industrial segment in St. Petersburg and Leningrad region is about 63 thousand square meters (about 1.5% of the total market volume). The projects are completely or almost completely filled with residents. And despite certain difficulties, today the format will grow and develop into an independent niche within the warehouse segment.
Warehouse real estate market in the regions of Russia
The total volume of warehouse real estate commissioning in the regions of Russia (with the exception of Moscow and St. Petersburg) amounted to 1.6 million square meters, which is 1.6 times more than in 2022 and 15% more than the record in 2021. Yekaterinburg (541 thousand square meters), Krasnodar (315 thousand square meters) and Voronezh (139 thousand square meters) became the leaders in terms of commissioned warehouse space. The total volume of regional transactions reached a record in 2023 and amounted to 3.3 million square meters, which is five times higher than in 2022 and 2.7 times higher than in record 2021. In addition, by the end of 2023, the regions of Russia have equaled the total volume of transactions with Moscow.
It is noteworthy that online and offline retailers accounted for about 92% of the total volume of transactions in the regions. High demand and limited free supply stimulated the growth of rental rates: in 2023, the average requested rental rate in ready-made class A facilities increased by 40% and reached 7,500 rubles/sq. m/year triple net by the end of the fourth quarter. Moreover, in the regions of Eastern Siberia and the Far East, this price may be 30% higher and reach 9,500 rubles per square meter per year (triple net).
In the regions, the share of key and developing logistics hubs accounts for almost an equal amount of warehouse space: 7.9 and 8 million square meters, respectively.
In large logistics centers (Yekaterinburg, Novosibirsk, Kazan, Krasnodar, Samara, Rostov-on-Don), there is also a shortage of available warehouses, the volume of supply does not keep pace with increasing demand. The share of vacant Class A and B facilities does not exceed 1%, and in Krasnodar, Kazan and Samara it has been below this value for more than six months.
In developing hubs (Voronezh, Nizhny Novgorod, Chelyabinsk, Vladivostok and others) in 2023, the demand for warehouse facilities exceeded the annual value of last year by 4 times. At the same time, the disparity between supply and demand has reached a record size: the volume of supply lags behind the needs by 2.5 times. This creates an acute shortage, especially in large urban agglomerations located in the zone of formation of new traffic flows.
The way out is the construction of warehouses for specific tenants, such transactions accounted for 68% of their total number. Online and multi-channel retailers remain the leaders of demand.
Almost half (753 thousand square meters or 47%) of the total commissioned volume was for build-to-suit facilities. Warehouse projects built according to the customer's technical specifications continue to prevail in the overall input structure.
Fig. 7. Distribution of commissioned warehouse facilities in the regions of Russia by type of construction in 2023
Source: https://logistics.ru
Representatives of online commerce occupy a large share (67%) of the total volume of concluded transactions. The volume of demand from traditional retailers decreased compared to 2022 and took up 25%. In general, online and offline retailers remain the main drivers of demand in the regions.
In 2024, experts expect new records for the commissioning of warehouse facilities against the background of a severe shortage of space. At the same time, experts note that in the regional warehouse real estate market of the Russian Federation there is an extreme shortage of ready-made vacant warehouse premises of class A. The bulk of available spaces are concentrated in lower-quality warehouses of class B/B+.
The trend in 2023 is an increase in demand for warehouse real estate in cities with a population of less than a million people. At the end of the year, it amounted to 900 thousand square meters, which is about 40% of the total demand in the regional warehouse real estate market.
Another trend is that the market is dominated by custom–built facilities. It will continue in 2024.
According to experts, in the future, the availability of warehouse space in the regions will continue to grow. This is due to the access of representatives of traditional and online retail to the regions, as well as the adaptation of players to changes in logistics.
In 2024, experts expect a record in terms of the volume of warehouse real estate commissioned in the regions of Russia, including in connection with the completion of construction of large warehouses of the Ozon and Wildberries marketplaces. So, the Wildberries warehouse with an area of 150 thousand square meters should open in Novosibirsk.
Conclusion
In general, last year in the field of warehouse real estate in Russia was characterized not only by record values and drastic changes, but also by challenges that require market participants to quickly make complex and balanced decisions. In the face of an extreme shortage of available space in 2023, warehouse consumers faced the need to conduct an in-depth market analysis and carefully coordinate commercial conditions to ensure access to the desired premises. In turn, developers and asset owners considered in more detail the possibilities of making their facilities more specialized and sustainable. In the coming 2024, a more acute shortage of vacant options is expected.
An analysis of the warehouse real estate market in 2023 shows that in Russia as a whole, there is almost one hundred percent occupancy of existing premises, and the volume of new supply does not match demand. As a result, rental rates are increasing significantly.
By the end of the year, the following trends had emerged in the market:
- it is almost impossible to find storage facilities for rent in ready-made buildings, and for large projects it is necessary to plan the construction of new facilities;
- vacant areas in the warehouses under construction are available for sale mainly at the initial stages of construction;
- the share of built-to-suit projects in the structure of transactions is increasing;
- there is a growing interest in the warehouse real estate segment from "non-core" developers who used to build mainly residential real estate;
- taking into account the changes in transport logistics, developing regional centers are interesting for investment.
At the moment, there are no prerequisites for a drastic change in the situation. The shortage of available space and the increase in rental rates are likely to continue in early 2024. According to forecasts, in 2024, the warehouse sector will enter with a high level of demand – about 4.5 million square meters. This figure will be the second largest in history, although lower than this year. It is expected that the volume of new construction will remain high – about 4.2 million square meters of storage facilities. This indicator will become a new record level. Rental rates will continue to rise, their average value will reach 10 thousand. rubles per sq. m. per year in the Moscow region. Free space will remain in short supply, their projected share is only 1% of the total available supply.
The implementation of projects for the construction of logistics facilities for specific tenants, contracts for which were concluded this year, can slightly reduce tension. Online retailers can also influence the market, which form a significant part of the demand for warehouses. The implementation by major players of plans to build their own fulfillment centers may gradually lead to the release of some of the leased facilities they occupy. In the current economic conditions, warehouse real estate remains one of the most stable sectors, investments in which allow you to save and increase capital. Taking into account the dynamics of rental rates, investments in high-quality facilities can continue to provide stable rental returns.
