The ratio of retail and warehouse space is practically 1:1 in Moscow and 13:1 in Volgograd

19 November 2013

Analysts of the international consulting company Knight Frank ranked the Russian cities in terms of availability of high-quality warehouse space for professional retail. According to their research, for every 100 sq m of high-quality warehouse space, there are 93 sq m of retail one in Moscow. Meanwhile in Volgograd, for every 100 sq m of high-quality warehouse space, 1340 square meters of retail space are built.

Perm and St. Petersburg occupy the top three leading positions alongside the Russian capital, while Krasnoyarsk and Volgograd are at the bottom of the list. However, it would be incorrect to speak about the lack of high-quality warehouse space in the regions, since in many cases the existing Class A and B warehouse supply stock meets the current needs of trade operators present there. Currently, the warehouse real estate market of Russia is largely centralized: several major logistics hubs act as distributors providing the neighboring regions with required warehouse space. In this sense, Moscow is the largest distribution center, which often services not only the surrounding regions, but also fairly remote cities.

Rating of the Russian Federation regions by the ratio of retail and warehouse space stocks*

# Region Retail space per 100 sq m of warehouse space
1 Moscow 94
2 Perm 118
3 St. Petersburg 125
4 Yekaterinburg 135
5 Novosibirsk 138
6 Rostov-on-Don 187
7 Kazan 205
8 Nizhny Novgorod 236
9 Voronezh 290
10 Chelyabinsk 328
11 Ufa 367
12 Krasnodar 380
13 Samara 415
14 Krasnoyarsk 612
15 Volgograd 1340

Source: Knight Frank Research, 2013

*When ranking, in addition to the high-quality shopping centers located in the indicated cities, objects in the transport leg range were also considered: high-quality warehouse complexes provide logistics operations for townships at a distance of 400-600 km.

The expansion of major trade operators, together with industrial development requiring distribution centers, are the main driving forces behind the development of warehouse market. The main tenants of high-quality warehouse space in the regions are before all trading companies: distributors and retail operators. Such companies accounted for about 70% of the total transactions volume on lease and purchase of warehouse space in the regions concluded in the past three years.

In turn, 76% of retailers either have their own warehouses or lease warehouse space, the rest rely on the services of logistics operators.

A warehouse in the region is necessary primarily for trade operators because of high goods turnover and the need for storage of perishable products. Whereas for companies of such profiles as clothing and household appliances, warehouse space in the region is rather an additional competitive advantage.

Active expansion into untapped markets has lately become the main development vector for trade operators. In recent years, such cities as Krasnoyarsk, Surgut, Irkutsk, Tomsk, Novokuznetsk, etc. have come into the sphere of interest of such major retail chains as Auchan, Lenta, M. Video, Media Markt and others. Meanwhile, the markets of Central, Volga and Southern federal districts remain the most developed in terms of the trade operators’ presence.

It is worth noting that five key statistical indicators can be relied on to determine the prospects of development of the market in a particular region of the country for both the retail and warehouse segments: population, income per capita, the retail trade turnover, gross regional product and the volume of shipped goods of own production.

Moreover, while the first three factors are important in both segments, as they determine the consumer activity in the region and affect the consumption volume of products stored in warehouses. The last two are of interest primarily for the warehouse segment: they determine the volume of goods manufactured in the region, which can potentially be placed in warehouses serving as distribution centers. According to these indicators, besides the Moscow region and St. Petersburg, the leading cities are those in which high-quality retail and warehouse projects are already in place. They are Yekaterinburg and Chelyabinsk, Krasnoyarsk, Nizhny Novgorod, Samara, Kazan, Rostov-on-Don, Krasnodar, Ufa, Perm, Volgograd and Novosibirsk. While Tyumen, Irkutsk and Omsk show development potential according to these parameters.

Olga Yasko, Director of Analytics and Market Research, Knight Frank Russia & CIS: “The mutual development of warehouse and retail real estate markets resembles a snake and turtle symbiosis: “I throw it off – it will bite, I bite – it will throw me off”. The commercial real estate market is slow to grow without active development of the warehouse one. Similarly, the warehouse market is developing with caution if there is no demand from the retail sector. Here it is rather useful to refer to statistics showing that for the total demand volume throughout the years trade operators accounted for 25 to 35%, distributors – for about 25%, logistics operators, whose services are used by trade operators – for about 20% (it is worth noting that prior to the recession, this figure was 50%).”