A segment that already has system developers, nurtures system tenants and waits for system investors

The dynamic growth of new projects and at the same time the continuing serious shortage of space is the picture of the first months of 2024 in the metropolitan segment of light industrial, which is drawn by a joint study by the consulting company IBC Real Estate, the development company Parametr and the investment company Alfa Capital

Сегмент, который уже имеет системных девелоперов, взращивает системных арендаторов и ждет системных инвесторов

According to the data of the CMWP Research and Analytics department at the end of last year*, the light industrial market volume in the metropolitan region reached 424 thousand square meters, an additional 209 thousand squares are under construction with a stated commissioning period until the end of 2024.

A joint study of IBC Real Estate, Parametr and Alfa-Capital* reads: since the beginning of 2024, seven light industrial facilities with a total area of 221 thousand square meters have received permission for commissioning, which became a historical maximum and exceeded the value of last year by 45%. In general, the commissioning of 2024-2025 should amount to 374 thousand square meters already under construction, and there are 2 million more squares in the facilities, the construction of which is planned, but has not yet begun.

Valery Zhukov, CEO of Instone Development, “The new format is in great demand by developers, especially in the Moscow region. The main reason is that all industrial sites in Moscow are now being moved outside the city, and production workers will not go to industrial facilities that are developing within the framework of the KRT — business is looking for new locations. There are only a few system players in the segment now, who announced more than 600 thousand square meters of input a year ago. For light industrial, these are huge numbers, since at that time (in 2023) the entire market consisted of about 200 thousand squares. As far as we know, these projects are being implemented according to plan, and the last stages of them should be implemented in 2025-2026. If we are talking about the construction of light industrial Light by housing developers (and there are most of them), then expensive lending is more than compensated by benefits for creating places of employment (MPT). In addition, projects are implemented mainly for sale, which reduces leverage. In total, system developers are still loaded with already announced projects, and non-system ones depend more on plans for the construction of an LCD. It is said that the increase in the key rate has slowed down the pace of announcing and starting construction of new projects. But if there is a “drawdown” on projects, then it should be expected in the third or fourth quarters.”

In short, despite the growth of the key rate and the generally difficult financial and economic situation, many modern industrial premises appear in Moscow and its surroundings, divided into small blocks with individual entrance, and in some cases an administrative block, and allowing to combine production, warehouse, showroom and office in one building. However, as the study emphasizes, the shortage of space persists, and the available supply remains very, very limited: collectively, 59 thousand square meters are marketed in ready—made facilities in classes A and B, 138 thousand squares are under construction, or 37% of the construction volume.

Alexander Manuin, Managing Partner of Parametr, “Last year alone, we received requests for more than 5 million square meters of light industrial, which is several times higher than the volume of available supply on the market. The main drivers of demand growth are import substitution (56% of customers move to light industrial in connection with business development) and the integrated territory development program (according to Parametr’s own research, up to 40% of residents of industrial zones are potential customers of the format). Both of these factors will continue to affect the segment in the medium term, which will ensure high demand growth dynamics. There is also a downside to this situation: against the background of the growing popularity of the segment and the lack of a ready-made offer, some customers are beginning to consider the option of building a light industrial facility on their own. However, this path is not always economically justified and often leads to a delay in the construction period or freezing of the facility. We come across clients who, having decided to implement the project on their own, after a while return to the idea of buying premises in an industrial park already under construction. As a result, a large number of “one-time” projects appear at the moment, which appear in forecasts for the future output of space, but risk remaining only on paper, which negatively affects the market as a whole. The specifics of light industrial require a systematic approach: competencies in cost management, creation of related infrastructure, and building a comprehensive marketing and sales system. To date, there are only a few developers on the market who are systematically ready to build light industrial and develop the product. Therefore, the shortage of supply and the entry of new projects into the market is least dependent on the growth of the key rate, subject to other market factors.”

It is clear that against the background of a shortage of supply in the segment, both rentals and sales continue to rise in price. “The weighted average base rental rate in existing and under construction facilities is 9270 rubles per square meter per year,” CMWP analysts said at the very beginning of 2024. “As of March 2024, rental and sale indicators for Class A facilities amount to 12 thousand rubles per square meter per year and 101 thousand rubles per square meter, respectively. At the end of the year, the rental rate is expected to be 12.5 thousand rubles (with an increase of 25% year—on—year), the sale price is 105 thousand rubles (with an increase of 10.5% year-on-year),” the authors of the “triple” study claim.

According to Parametr statistics, the main demand seems to be for blocks up to a thousand square meters, but with the arrival of larger players on the market, who continue to face a shortage of space in the big box segment, the situation is gradually changing. Upon completion of sales, the company notes that over 67% of transactions already account for lots with an area of 2 thousand squares.

Сегмент, который уже имеет системных девелоперов, взращивает системных арендаторов и ждет системных инвесторов

Photo: Tomilino Light Industrial Park

At the same time, more than half of the buyers or tenants are manufacturers (most often equipment, consumer goods, furniture, cosmetics, packaging materials). “The main demand is formed by three segments of companies: manufacturers (55% of requests), wholesale and retail trade (15%), logistics and e-commerce (25%); the share of investors is no more than 5%. The ratio of demand between segments varies depending on the location. Thus, when moving away from the MKAD, the share of production increases and interest from trading companies decreases. In an urban location, the opposite process is observed: manufacturers are still in the first place in terms of demand, but the share of trade, e-commerce and logistics is significantly increasing,” Alexander Manuin shares details.

“Compared to a classic warehouse, more office space is required here. Often, a box with ceilings 8-9 meters high is divided by a mezzanine conditionally into two floors, because more than 4.5 meters for production or the “last mile” is not required (this is not pallet storage). The floor load is sufficient in the region of 4 tons per square meter, and the supplied capacity is about 500 kilowatts,” Valery Zhukov continues.

According to Alexander Manuin’s estimates, the demand for buying and renting is about 50-50, but the result of transactions is mainly a purchase. “It is almost impossible to rent light industrial, the entire offer is washed out of the market by end users even before commissioning. And tenants come at a stage when the facility has already been built, but all the areas in it are sold out,” the expert explains. At the same time, some buyers purchase space “for growth” and temporarily rent out the extra meters.

And another interesting observation by Alexander Manuin: today, the buyer perceives industrial facilities not only from the point of view of performing a utilitarian function, but also takes into account comfort, architecture, and the availability of infrastructure. In other words, the market has already formed a demand for high-quality light industrial projects (and not only light industrial, about which BFM.ru I just told you in detail in the article “Architecture of the indifferent”).

Against the background of increased activity, the high demand of tenants and residents for light industrial projects, and the rapid growth of rental rates, there is significant interest in the segment from investors, so that their current share of 5%, which Alexander Manuin talks about, can quickly grow by a multiple. According to Evgeny Paperin, a member of the Board of Directors, head of the Department for warehouse and production facilities at IBC Real Estate, “the current contracted volume of private investment is minimal and does not exceed 1% in the overall demand structure. But in the medium term, we expect that the growth of interest from private investors will become one of the key drivers of demand and the potential for further development of the format.”

“From the point of view of investments, light industrial remains undervalued so far. The high threshold for entry into projects, lack of professional experience and understanding of the principles of the segment’s functioning are the main constraints to realizing the investment potential. At the same time, the dynamics of the market, the specifics of tenants and the constant increase in rates, the presence of long-term indissoluble lease agreements make the segment attractive both for speculative investors and for the organization of a rental business. At the moment, the return on investment can be up to 20% per annum, depending on the stage of construction readiness and location of the facility,” Alexander Manuin believes.

Investment interest is still low due to the fact that the format is still new and the market has not been explored, continues the thought of colleague Valery Zhukov. “If we can say in classic warehouses that demand will be at a high level for three years for sure, because X5 and Magneto need a million each in this horizon, and Ozon and Wildberries need 2 million square meters each, plus there are smaller players with appetites too, then the potential demand for light industrial is so It is not possible to dissect yet. System developers have just appeared in this segment, but system tenants have not yet appeared,” the source says BFM.ru .

According to his forecasts, the investment future of light industrial is connected with the attraction of private capital through real estate funds (ZPIF). “So far, funds do not risk investing in the new format, but we will see such deals soon,” the expert is sure. And Vladimir Stolnikov, Investment Director, head of the Alternative Investment Management Directorate of Alfa-Capital, notes that banks and large investment funds are already actively considering the possibility of creating appropriate mutual funds, although so far such a product is really new and very rare for the market.

The main reason is that most of the high-quality facilities, as already mentioned, are usually sold out to end users, and this limits the possibilities for creating rental funds. But in the next two years, as the market develops and grows, a similar product will be formed. According to Vladimir Stolnikov, the solution at the moment is the creation of light industrial development funds. “Such funds will allow investors to participate not only in development activities with a minimum entry threshold, receiving significant potential returns, but also in the development of the industrial sector,” the expert concludes.

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Of course, the construction of light industrial format facilities is not the prerogative of the metropolitan region alone, this format is also trying to take root in other parts of the country. But here are the considerations I shared with BFM.ru Stanislav Akhmedzyanov, Managing Partner of IBC Global.

Stanislav Akhmedzyanov, Managing Partner of IBC Global, “The Moscow region for high profitability is the best for light industrial projects in Russia. Of course, the increase in the key rate has slowed down the announcement and launch of new projects, but developers are aware of higher profitability in this sector, so a plus of 5-8% of the rate will not scare anyone. The light industrial format is primarily a story for small businesses. And if we talk about the saturation of the market, then the areas that exist now do not cover all the needs of business, especially in Moscow. Light industrial has great prospects for Moscow, and for other regions, even for such large ones as St. Petersburg, Novosibirsk, Kazan, Yekaterinburg, Khabarovsk, Vladivostok, this type of business can hardly be attractive.”

However, “if we are still talking about regions, then light industrial may be in the focus of attention of large industrial agglomerations. Perhaps the regional business will find about 20 thousand square meters of light industrial in demand, in which there are ten “boxes” of 2 thousand squares each,” Stanislav Akhmedzyanov believes.

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