Money Growing: High Tech Plantations

“In the essence, a technology park is the initial stage in organizing a large entity, which constitutes a town, such as the Silicon Valley. Technoparks will be developed at universities and research centers, whereas substantial support from the government will offer an additional incentive for private businesses, while risks are low,” says Vladimir Zhuravlyov, head of commercial real estate and investment at NAI Global.

Traditionally, creating a technology park implies consolidation of innovative R&D and manufacturing facilities on a single territory. “The key objective is to create certain conditions for promotion of high end industries of our economy. [A technology park] is a free economic zone creating which helps foster scientific manpower, new labor-intensive manufacturing, and in the long run create an incentive for development of small businesses,” Roman Kosti, head of sales at Konti Group, explains.

Western Experience

Like many other inventions, the idea of technology park development arrived in Russia from the West. “Nowadays, most Russian market operators have a very vague idea of what a technology park is. Quite often conventional mixed-use facilities featuring offices and storages, or industrial territories are labeled as technoparks. Meanwhile, abroad the term “technopark” has a more profound meaning,” says Igor Zhukov, CEO at BEL Development.

A Western model technology park is a large territory with developed infrastructure, divided into separate units, he says. “Those units are bought or rented by investors who use "turn-key" building sites for development of their production facilities and research labs. This symbiosis helps foster innovation and information technologies. In some countries, such as China, technology parks' clients are high-tech companies who enjoy government backing in the form of tax privileges or cheap loans," the expert adds.

Andrei Bushin, head of commercial real estate and development at Miel Nedvizhimost, says the first-ever technology park was launched in the early 1950s in the U.S. by Stanford University. . Back in those days the university, which is now one of the most prosperous and prestigious institutes of higher learning on the globe, was in dire need of cash although it had a vast territory at its disposal. The university was not allowed to sell the land so it opted for a long-term lease to manufacturing companies. Today, Bushin says, every developed nation runs a certain number of technology parks. The U.S. has more than 160 technoparks, China approximately 50, Finland 20. Tunisia and Uruguay, too, have such facilities. Most technology parks enjoy financial support from the state or municipalities, scientific research foundations or chambers of industry. The majority of enterprises operating at technology parks are bioengineering and IT companies.

The Silicon Valley may be considered the world’s most popular technology park. “[Silicon Valley] is but an example of a technology park, the one that has received the widest possible publicity and media coverage. If this is the case, Hollywood may as well be called a technology park for the cinema industry,” holds Ilya Shershnev, development director at Swiss Realty Group. “A technology park constitutes rather a local formation that ties up resources of a certain region on a territory organized especially for the purpose," Vladimir Zhuravlyov explains. A component part of a technology park is a business incubator whose role is to support small and start-up companies.

“A business incubator is a campus of buildings housing offices for small companies. Tenancy duration is restricted as small firms are entitled to discounts on rent for the period of no longer than 2 to 5 years whereupon, having grown larger and stronger, a tenant must leave the building. The company can move to a more spacious office within the same park where no duration restrictions are imposed," Zhuravlyov says.

Ilya Shershnev adds that such models make it possible to launch a manufacturing cycle on a small territory and promote industrial growth and research. "A business park is a different model designed rather for lab research,” he says.

Adjusted for Russia

Russia has its own tradition and history of technopark development. “The USSR saw construction and development of projects, which, perhaps, were among the most efficiently operating of all technology parks around the globe; their names and locations were classified. Those unique spots offered the best conditions, indeed, for promotion of new ideas and projects," Shershnev says.

That was how the leading Soviet R&D centers (“science towns”) Korolyov, Troitsk, Obninsk and others came into being. They are also often referred to as technology parks. “Today, there are over 60 of such technology parks in this country," says Andrei Bushin.

The most successfully operating parks are the scientific research park at MEI (Moscow Energy Institute), scientific research technology park Volga Tekhnika at Saratov State Technical University, technopark at St. Petersburg State Electrical Engineering University and scientific research park Bashkortostan at Ufa State Aviation & Technology University, Bushin says. Igor Zhukov admits that “Russia still has but a handful of technology parks fully equipped with modern engineering and road infrastructure, combining scientific research and manufacturing.”

Russia's Ministry for Economic Development moved to rectify the situation by drawing up a plan for development of technology parks, which received approval of the Russian government last year.

The plan entitled “Establishment of High Technology Parks" calls for development of pilot projects in seven regions across Russia – in Moscow Region (Oblast), Tyumen, Nizhny Novgorod, Kaluga and Novosibirsk, the Republic of Tatarstan and St. Petersburg. "As a result, a project aimed at developing a number of technology parks with considerable government funding will be implemented in Russia. The bulk of financing will go to the province. The federal budget will assume 50% of costs, whereas regional governments are expected to provide 25% with the rest to be covered by private investors,” Vladimir Zhuravlyov says.

This year the government plans to spend 170 million rubles on the launch of a technology park in Moscow countryside; St. Petersburg will receive 420 million rubles, Novosibirsk will get 680 million, Nizhny Novgorod 650 million, Tatarstan 420 million, Kaluga 800 million and Tyumen 600 million. “The government is interested in construction of technology parks, hence extra benefits. Both parties will benefit from the arrangement as the government secures a real estate investment vehicle while businesses get extra cash," Andrei Bushin explains. By 2011 the federal government will have spent 26.3 billion rubles for those projects.

The technology park planned in Dmitrov District of the Moscow Region will focus on software development, petrochemicals and pharmaceutical technologies. St. Petersburg’s technology park will pursue IT and development of television systems, communications and data transmission. The project in Tatarstan will promote IT, petrochemical and bioengineering.

“One of the most ambitious projects – the innovation and industrial park Ideya (Idea) – is planned in Kazan. The technology park will measure a total of 30,000sqm.

The project is designed to include the following units: an innovation business incubator providing office space for innovation projects in early development stages; an innovation technology center with production facilities for start up investment companies and a business park providing office space for support companies and expanding firms,” adds Alexandra Kadchenko, deputy head of research and analysis at Praedium. Major international and domestic companies have already shown interest in the project. In mid-2006, the World Bank said it had approved a credit facility for specialized innovation complexes in Russia. Technology parks in Tomsk, Novosibirsk, Moscow Region and Kazan taken together will receive a total of $100 million.

“Tyumen’s technology park will be run by Finland’s Technopolis, while its first tenants will be Lukoil and Schlumberger. The park will house Tyumen University, oil & gas and design & construction universities. The largest prospective tenants in Moscow Region are IT firms R-Style, KROK Incorporated, National Computer Corporation, RBK Soft, AiTi and Borlans," says Vladimir Zhuravlyov. A business park at the 600,000sqm technology park planned in Novosibirsk is to be raised by RosEuroDevelopment.

“Our vision of a technology park is somewhat different from the U.S. model. The U.S. technology parks are independent from their founders and free to select their clients and lines of business on their own. In Russia the situation is somewhat different, and time will tell what course of development it takes. Such projects are still in their early stages of development here,” Roman Kostin notes. Andrei Bushin says that Russian technology parks pursue an objective similar to that of the U.S. projects, i.e. to bring together professionals operating in related sectors. "The only difference lies in the approach towards institution of technology parks. In the U.S. they were initiated from below as a natural stage in commercial development, while the government, on its part, provided land and other conditions for existence, in Russia of today the approach is different – the government itself launches technology parks with a view to boost industrial development,” Bushin explains.

“Although the program is aimed at backing provincial technology parks, the prospects for projects in Moscow and St. Petersburg are deemed the best. The two Russian capitals are places of business for the majority of operators, who may take interest in such projects and agree to move their offices there. Those companies will not move to remote regions. For example, in Tyumen or Novosibirsk the demand for space at technology parks will depend on the number of potentially interested local players,” Vladimir Zhuravlyov says.

Google, he says, has already expressed interest in the technology park planned in St. Petersburg, at the Bonch-Bruyevich State Telecommunications University. The global Internet giant is keen on establishing a foothold in the region namely by joining the project.

The most ambitious and exciting project planned in the Moscow Region is the development of Nagatino i-Land on a 32-ha plot of the former Likhachev car plant AMO Zil in Nagatino. The 1 million sqm project will provide technology parks, offices, hotels, apartments, restaurants, sports facilities and exhibition grounds. The initial stage of construction will provide six class B office buildings and two 9-level car parks. Firms controlled by Shalva Chigirinsky are expected to act as co-investors for the project whose authors plan to ask world’s renowned architect Sir Norman Foster to design the complex; Knight Frank is a consultant for the project.

Advantages and Disadvantages

The advent of technology parks is expected to boost development of high-end technologies and bring new investors onto the real estate market. “In Russia, technology parks could help eliminate the shortage of R&D funding. Direct financing of research labs by private investors is impossible given the status of the former. Venture funds, which in theory could solve that problem, are being established so far chiefly for the purposes of tax optimization by holding companies undergoing reorganization. Technology parks could become an excellent link between investors and cash-strapped scientists. The first to grow will be offices, warehouse facilities and production companies," Andrei Bushin notes.

Vladimir Zhuravlyov shares that point of view. “Russia has long felt the need for construction of technology parks. Such entities will boost development of high-end technologies creating favorable conditions for further economic growth. Substantial support on the part of the government guarantees effective development as private investors' risks will be lower, which will give them more incentives to join the project,” Zhuravlyov says. If all the goals are achieved and companies based in technology parks succeed in boosting production and lowering costs in the first years of their operations such projects may prove extremely rewarding, he adds. But not everything runs so smoothly.

“Major companies at first may prove reluctant to move their offices should they find a technology park's location inconvenient; lengthy time will be required before the new project begins to function normally and achieve rapid growth. In the U.S. that period took some ten to fifteen years; Russia’s most promising project are likely to follow the same pattern," Vladimir Zhuravlyov says.

Ironically, that problem is likely to arise first and foremost for the Moscow-based projects that are believed to have the best prospects, experts say. “Moscow is a city of small offices, after all. Silicon Valley’s experience shows that a project like that should better be based outside the capital. I think the scheme is more acceptable rather for Novosibirsk – a city of scientific research, or Dubna. Moscow is not where scientific elite is concentrated, while any technology park requires a certain technical base,” holds Alexander Geniyevsky, deputy general director at the company Novy Gorod.

“Today, Moscow has no technology parks. There are plans to build or redevelop existing industrial territories into industrial parks but all those plans are still in the early stages where ideas are discussed or - at best - the concept is being developed. New projects are, of course, necessary but their viability will depend on location, professionally thought-out concept and competent selection of tenants/industry branches,“ holds Maxim Shakirov, head of warehouse and industrial real estate at Colliers International.

Technology parks are not likely to influence the entire real estate market, analysts believe. “The project to organize technology parks will bring about an increase in the stock of office and industrial space. But those facilities will not tell on rental rates as the demand for space in technology parks is generated mainly by narrowly specialized companies and the projects themselves are largely isolated. Rents at technology parks may prove much below the market average," says Vladimir Zhuravlyov.

Alexandra Kadchenko says: “With technology parks catering specifically for young innovative small businesses, letting spaces at low or non-existent rates, and given their location they are not likely to create competition for other office and production facilities." However, she continues, along with offices and production facilities technology parks will also house storages and hotels, catering for the park tenants.

Analysts have certain doubts about the proposed scheme of financing of technology park projects. “Projects to develop industry-oriented technology parks have been widely discussed lately. The government seeks to pursue isolated projects across Russia but the majority of plans remain forever on the drawing board. I am convinced that a considerable portion of programs will be financed from the budget as part of nationwide projects, but I do not approve of such policies,” notes Ilya Shershnev. It would be more correct, he says, instead of planning a billion-dollar project where “half of cash allocated will surely vanish, to offer some discounts on taxes due to the region and in some cases to the federal budget, which could really contribute to promotion of such projects." Besides, he says, the government should learn from its previous mistakes.

“At any rate such projects require comfortable housing and infrastructure, for without that the work will not be effective. Although I am convinced that technology parks should not become a permanent place of residence for individuals. Namely this brings about unemployment and other social problems in the long run," Ilya Shershnev notes.

On the whole, analysts agree that the idea behind technology parks is good. “There are all grounds to assume that very soon that sector will witness rapid growth. Especially in the areas where the government either offers support to developers or itself takes measures to prepare building plots for development of technology parks,” holds Igor Zhukov. In his opinion, it is highly important not just to create infrastructure and put in communication lines but also to allot plots that would meet the needs of would-be investors. Only in this case plots in technology parks will be sought-after by businesses.

“All that is left to do is to devise a sound financial model that would appeal to companies and individuals. Depending on tenants’ line of business, favorable regime may include various tax cuts, including social taxes, whereas construction of properties as such is a standard process which is easy to tackle,” Ilya Shershnev adds.