Why are the rates going up?
In just three months, warehouse rental rates in the Moscow region have skyrocketed by 11%. What factors are pushing them up and to what level will they rise by the end of this year?
According to the results of the first half of 2024, 566 thousand square meters of warehouse space were commissioned in Moscow and the Moscow region, which is 15% lower than the same indicator last year. The largest completed projects in the second quarter were buildings in Logopark Sofyino (42 thousand square meters), building No. 36 in Atlant Park (40 thousand square meters) and a warehouse in SK Obukhovo (30 thousand square meters) for one of the Russian online retailers under the BTS lease scheme.
“Owners of warehouse real estate in the Moscow region are forced to raise rental rates for warehouse facilities in response to changing market conditions,” said Evgeny Bumagin, Head of the Department for Work with Warehouse and Industrial Premises at IBC Real Estate. In his opinion, the strategic decisions of warehouse market players were influenced by the recent increase in the Central Bank's key rate. Despite high demand and supply shortage, development companies are very careful and selective in their decisions to start construction of new facilities. This, in turn, affects the supply shortage and stimulates an increase in rental rates, which we observed in the first half of 2024.
The vacancy rate has been at a minimum level for over a year and does not exceed 1%; at the end of Q2 2024, the share of vacant space was 0.9%, or 257 thousand sq. m. Growing demand, high cost of borrowed financing and increasing construction costs affect the further dynamics of rental rates.
At the end of the first half of 2024, the average weighted rental rate for operating Class A dry warehouses in the Moscow region was RUB 10,800 per sq. m. per year (excluding VAT, operating expenses and utility bills). Thus, over three months, compared to the first quarter of this year, the indicator increased by 11%, and compared to the indicator for the first half of 2023, it increased by 71%. Rental rates for properties under construction for the second quarter of 2024 increased by 24%, to RUB 11,800 per sq. m. per year.
Such intensive positive dynamics of rental rates is associated with a shortage of vacant supply in existing warehouse space and a high degree of contracting of facilities that are still at the construction stage.
Bumagin expects that by the end of 2024, the volume of commissioned warehouse space in the Moscow region will amount to a total of 2 million sq. m and will exceed the previous value by 11%. However, even despite the new supply, the current demand for warehouse space remains unsatisfied.
Taking into account the market situation and current factors, by the end of this year, the expert predicts a further increase in rates for existing warehouse facilities to 12,000 rubles/sq. m per year. The rental rate for warehouse facilities under construction by the end of the year may increase to 12,500 rubles/sq. m per year.