Regional Warehouses:

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Regional Warehouses Is There Life Beyond
Betonka?
Vladimir Pantyushin National Director,
Research Olga Rybakova Head of Warehouse Research
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Content

• Warehouse market overview
• Market potential
• Drivers
• Restrictions
• Conclusions

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Warehouse Market Overview
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Market Drivers

• Economic growth
• Income growth boosts consumer demand
• Expansion of retail chains
• Logistic sector growth
• Strong interest from international manufactures

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Russian Economic Growth
Russian economy has grown almost four-fold in the
last five years and will more than double in the
next five
This has brought a dramatic increase in personal
wealth, which propelled the retail market
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Warehouse Market Development

• Russia is a traditionally centralized country
• Most of existing and planned high-quality
  warehouses are located in Moscow and St.
  Petersburg
• Moscow will remain the major transport hub
• Regional distribution will develop through a few
  regional centres

Warehouse Supply
Source Jones Lang LaSalle Research 2007
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Existing Supply per 1,000 inhabitants
Russian warehouse market lags well behind Europe
in terms of supply
Source Jones Lang LaSalle Research
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Regional Market Potential
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Market Drivers
Location on Transport Hubs
Economic Development Population GRP Investments
Retail Sector Manufacturing Distribution
Logistic Sector
Warehouse Market Development
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Regional Market Potential
2,000 - 3,000 km
1,500 2,000 km
1,000 1,500 km
lt 1,000 km
gt 3,000 km
St. Petersburg
Perm
Yekaterinburg
Nizhny Novgorod
Moscow
Ufa
Omsk
Kazan
Cheliabinsk
Novosibirsk
Samara
Volgograd
Breakdown of Russian regions by GRP, 2004
Above 10 bln USD
Rostov-on-Don
- East-West Corridor
3-10 bln USD
Below 3 bln USD
- North-South Corridor
- Major transport routes inside Russia
Breakdown of Millionniki by regional retail
turnover, 2005
Above 10 bln USD
- Branches of major transport routs
6 10 bln USD
- Northern Sea Route
4 6 bln USD
Below 6 bln USD
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Factors Used to Estimate Market Potential

• 2007
• GRP
• Middle-class disposable income
• Retail Turnover
• Potential for transport hub development
• 2010
• 2007 demand
• GRP growth

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Market Potential, 2007
Market Potential, sqm
Supply, sqm
Source Jones Lang LaSalle Research
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Prospects for Regional Expansion
2007
Plans of Major Developers
2010
Perm
Nizhny Novgorod
St. Petersburg
Yekaterinburg
Kazan
Moscow
Omsk
Cheliabinsk
Ufa
Novosibirsk
Samara
Volgograd
Rostov-on-Don
Source Jones Lang LaSalle Research
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Market Potential, 2010
Market Potential, sqm
Supply, sqm
If all announced projects are completed on time,
most of the cities will be oversupplied
Source Jones Lang LaSalle Research
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Supply vs. Potential, 2010
Source Jones Lang LaSalle Research
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Potential for Regional Hubs
Retail
St. Petersburg
Perm
Yekaterinburg
Nizhny Novgorod
Moscow
Omsk
Ufa
Kazan
Cheliabinsk
Novosibirsk
Samara
Volgograd
Rostov-on-Don
Logistic hubs
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Potential for Regional Hubs
St. Petersburg
Perm
Yekaterinburg
Nizhny Novgorod
Moscow
Omsk
Ufa
Kazan
Cheliabinsk
Novosibirsk
Samara
Volgograd
Rostov-on-Don
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The Importance of Being First

• Developers who build their regional projects
  earlier have better chances to lease space
  successfully.
• Cities where first high-quality warehouses are
  completed have better chances to become major
  logistic hubs

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Market Restrictions

• Inadequate transport infrastructure
• Nontransparent land market
• Long process of getting necessary construction
  permits
• Difficulties with getting necessary
  infrastructure on site (gas, electricity, roads,
  etc.)
• Escalating construction costs affect project
  profitability
• Unwillingness of potential tenants to pay higher
  rents for better quality warehouses
• Proximity to Moscow or another large city

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Delicate Balance

• Active growth
• Ambitious plans
• Limited market size
• Market restrictions

Some announced projects will not be implemented
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Conclusions

• Regional warehouse market is just beginning to
  develop
• However, developers have already announced
  ambitious plans for regional centers
• Market size will be a binding constraint in many
  cities
• The key for developers is to enter early and
  cautiously
• If early entrance is not feasible, development
  strategy will likely need to be re-evaluated

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Thank You!