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ASTERA experts discuss St. Petersburg warehouse property market condition

St. Petersburg has severe shortage of high quality warehouse premises. BSN.ru portal discussed with Valentin Glazer, a founder of MSD Group, and Vera Boikova, Head of Client Relations Department at ASTERA an alliance member of BNP Paribas Real Estate, questions of how and where it is better to build, how much it will cost and how fast the investments will pay off.

In the north of Saint Petersburg the construction of OCTAVIAN warehouse complex of Class A is in progress. Total area of the warehouse will exceed 55,000 sq.m where leasable area amounts to 37,000 sq.m. LLC ‘Alliance’, a part of MSD Group (Moscow), is a client, a developer and a contractor of this project at the same time. Investments into the project will estimate to about $30 million most part of which is client’s internal resources. ASTERA an alliance member of BNP Paribas Real Estate served as exclusive consultant of the project.

BSN.ru portal talked to Valentin Glazer, a founder of MSD Group, and Vera Boikova, Head of Client Relations Department at ASTERA an alliance member of BNP Paribas Real Estate about the needs of St. Petersburg warehouse property market, its future development and some negative factors.

BSN.ru – Valentin, what generates interest in the segment of Saint Petersburg warehouse real estate market?
V.G. – Our Company entered St. Petersburg market in 2009 and faced the deficit of warehouse premises. Due to the fact that St. Petersburg market is strategically important for us (we receive all our products through St. Petersburg’s port and distribute them to other regions), we decided to construct our own storage premises in the city. The complex is called ‘Octavian’. It will consist of six buildings with total area of 55, 439 sq.m, leasable area will amount to 37,497 sq.m.

Besides, considering the shortage of high quality warehouse premises in the city (vacancy tends toward zero in complexes of Class A and B), development of warehouse market is not a very perspective business area itself. That is why, ‘Octavian’ is being constructed partially for our own purposes (we will distribute our products from this warehouse to Ural and Siberia). Another 90% of space is intended to be leased out.

BSN.ru – What are the advantages of St. Petersburg warehouse property market compared to Moscow market?
V.G. – St. Petersburg warehouse real estate market has its own specific nature compared to Moscow one. In the Northern capital mostly warehouse blocks with area up to 3,000 sq.m are in demand. Deals for larger blocks are rare. In Moscow, on the contrary, blocks with area from 5,000 to 15,000 sq.m are more requested. Such situation takes place due to the difference in economic activity of two capitals.

BSN.ru – When entering St. Petersburg market, did you have any concerns?
V.G. – Yes, we definitely had some concerns. I do not know St. Petersburg very well. Commercial real estate market follows its own laws here which are often different from the laws of a capital. When we realized the necessity to build our own warehouse complex outside St. Petersburg, I made a decision to attract a consultant to the project who was familiar with the market of Saint Petersburg. ASTERA has become such a partner for us.

BSN.ru – What are the characteristics of St. Petersburg commercial property market development? Does it follow Moscow development path or does it have its own way?
V.G. – In my opinion, the main characteristic of St. Petersburg commercial real estate market (in the segment of warehouse property) is being two years behind Moscow market. And I mean the development of warehouse real estate. Built-to-suit format (turnkey construction of a warehouse for a particular tenant) is very popular now in Moscow, but for St. Petersburg this format is rather new.

As for lease of warehouse property, St. Petersburg has its own specifications, as it was mentioned above, that are related to the level of economic development of the region. I don’t think that the Northern Capital will come near Moscow soon in terms of wholesale and retail turnover (traditionally, retailers are the main consumers of warehouse premises). As a result, demand for warehouse blocks in the city remains minimal.

BSN.ru – In your opinion, Vera, is there a single strategy of warehouse complex development in St. Petersburg and Leningrad region now?
V.B. – Currently, there is no single strategy of St. Petersburg warehouse complex development. Storage premises are being constructed in those locations where it is possible technically, and where there is a demand for such premises.

BSN.ru – What criteria did you consider when choosing this location? Will there be strict zoning according to location (office, industrial and warehouse zones) in St. Petersburg?

V.B. – As of today, there is a definite zoning of objects of warehouse real estate in St. Petersburg. Up to 70% of supply is situated in the south of the city, primarily along the Moscow highway. This location is in high demand among companies that actively work with Moscow and central districts of Russia.

In the north of the city there is 25% of supply located. Usually companies that work with northern regions of Russia and Scandinavian countries choose this location.

In the east of St. Petersburg warehouse supply is minimal. Premises located here are not in great demand, because this direction has high traffic and transport situation is very complicated.

We estimated all three zones, considered all requirements of MSD Group and decided to build ‘Octavian’ in the north of St. Petersburg.

BSN.tu – What know-how has been used when completing ‘Octavian’ project?
V.B. – Today ‘Octavian’ is the only warehouse complex of Class A in St. Petersburg where you can lease out high quality blocks with area starting from 1,137 sq.m. When being constructed, ‘Octavian’ was aimed at comfortable allocation of both large and small tenants. Layouts of warehouse premises were based on ‘puzzle’ principle. Despite of the area needed, each block has a convenient form and a fair number of dock gates. Moreover, building arrangement will allow tenants to use large and small capacity transport which is important for small distribution businesses.

BSN.ru – What is there for St. Petersburg warehouse market in the future? What is ‘the ideal market condition’ to your opinion? How many complexes does the market need? What kind of complexes? What districts will be actively overbuilt? What directions will be especially requested? What demand and supply do you consider to be ideal?
V.B. – Ideal market condition is represented by balance of demand and supply where supply corresponds to demand in technical and in commercial aspects.

New complexes will appear in already existing zones in the north, in the south of the city, and in the east to a lesser degree.

We expect demand to be shifted further outside the Ring Road. Now, area of interest is limited by 10 km from the Ring Road, but during the coming 5 years the demand can be shifted by several kilometers further to Leningrad region. Directions of city development will play a decisive role in this case.

Source: www.bsn.ru