Money Growing: In Search of Cold

Demand for refrigerated warehouses in Moscow is not satisfied. The majority of existing premises have become outdated, and the volume of new construction is low. Developers do not hasten to undertake capital-intensive projects, as demand for areas in less costly logistics complexes is also not satisfied yet.

According to Colliers International’s data there are approximately 40 warehouses (almost 300,000 sq.m). According to GVA Sawyer and Becar Commercial Property Moscow, in the Moscow region there are almost 45 refrigerated warehouses measuring a total of 350,000 sq.m. “All refrigerating space to an equal degree is dispersed in Moscow and the Moscow region, with almost 75 per cent of them located in industrial zones,” adds MIEL Commercial Real Estate.

“The majority of refrigerated warehouses were constructed during the Soviet period,” says Igor Ivanov, sales manager at financial-construction company Lider (Leader). “Such premises are not in a condition to satisfy the modern needs for refrigerated processing and storage of production. The equipment became outdated a long time ago, buildings need re-designing and a major overhaul.”

From zero and below

Modern refrigerated warehouses include a deep freeze refrigerator (-18 degrees), a refrigerator for cooled products (2-5 degrees), and a zone for unloading/shipment (0-5 degrees). The warehouse operates round-the-clock. The cargo comes in on palettes from motor transport and railway refrigerators, and depending on the type of goods the palettes are put in sorting zones for goods of fast and slow movement. Movement of the palettes inside deep freeze areas is completely automated and carried out by a system of conveyors and crane stackers.

The largest areas with refrigerated warehouses used for storage are rented out by such companies as Sadko, Alkor-produkt, Ikma, Inko, Nord-Kholod, Agama, Kontekh, Stragal, Kargo Terminal, Zakazy, Mosrybokombinat, Khladokombinat No. 1, 3, 5, 6, 7, 10, 11, 14, etc. Among interesting premises which have started operating in the first quarter of 2007, Alexei Ostroborodov, sales manager at Inter-regional development company, names a pharmaceutical warehouse with a total capacity of 5,000 palette places on the territory of the Rent-Tsentr warehouse complex located 12 km from the MKAD on Minskoye shosse and belonging to NLK. French pharmaceutical company Sanofi Aventis has become the sole tenant of the warehouse complex.

Of new refrigerating warehouses GVA Sawyer notes the KPD-Terminal warehouse complex on the territory of the Tomilino technical logistics complex, and also the projects of FM Logistic (warehouse complexes in the Chekhov district and Khimki) and Tablogix, with refrigerated areas within the structure of its complexes.

According to Andrei Belinsky, director of technical logistics company Tomilino, KPD-Terminal is a class A warehouse complex consisting of freezing and refrigerating warehouses. The area of the deep freeze warehouse is 8,037 sq.m, with a usable height of 8 meters. In the building there are four shelved levels with a capacity of 12,500 palette places. The complex has 17 computer-controlled loading-unloading gates with dock-shelters and hydraulic ramps.

In the deep freeze warehouse three temperature modes are observed: a zone for the storage of 3,500 palettes (-18 degrees), a zone for the storage of 9,000 palettes (-24 degree) and a dispatch zone (0-5 degrees). The refrigerated space of the warehouse measures 9,180 sq.m. It is divided into a storage zone (7,560 sq.m) and a dispatch zone (1,620 sq.m). The capacity of the warehouse is 24,000 palette places. The shelves are narrow with direct access. There are 15 computer-controlled loading-unloading gates with dock-shelters and hydraulic ramps in the building. The temperature in the storage zone (1,400 palettes) is 2-4 degrees, and in the dispatch zone is 2-4 degrees.

Need more

Dynamic demand for refrigerated warehouses in Moscow and the Moscow region is connected with growth of the market of frozen and cooled products and semi-finished items, and also with the gradual reorganization of the region in the main transport unit of the European part of the Russian Federation, Vladimir Avdeyev, partner at S.A. Ricci / King Sturge, explains. “In Moscow alone, according to various estimations, there are not enough warehouses for the storage of 190,000 to 250,000 tonnes,” he emphasizes. Vadim Prozorov, director of the warehouse and industrial real estate department at Knight Frank, estimates the current level of demand at 120,000-140,000 sq.m. "This is higher in comparison to last year when it was 45,000-60,000 sq.m,” he says.

According to experts at MIEL Commercial Real Estate, space for the storage of 437,000 tonnes of frozen and cooled produce is required to meet the needs of tenants, and according to forecasts by 2010 there will be no place to store 258,500 tonnes. "There is practically no free space in quality warehouse premises coming onto the market,” notes Mikhail Gets, vice president for strategic development at Blackwood. “They are rented at the stage of construction.”

Evgeny Bakrin, an expert at Vesco Realty, thinks that in the refrigerated warehouse segment it is rather difficult to estimate the level of demand: on the one hand, the need for areas is great from companies working with perishable production, and on the other - potential tenants are not prepared to pay high rent, inevitable in view of the cost of the development of refrigerated warehouses. “Although in the market demand essentially exceeds supply, it is possible to note that this demand is insolvent,” emphasizes Bakrin.

Belinsky notes that the low level of supply of ready premises is connected mainly with the fact that refrigerated warehouses are built for a specific customer, instead of for the rental market. Kampina Stupino, Erman Ramenskoye, Nestle Zhukovsky and Laktaziz Istra have their own refrigerated warehouses.

According to Bakrin, the main consumers of refrigerated warehouses are companies whose activity is directly connected with the storage of vegetables, fruit, delicatessen, meat, and fish. First of all it is large retail and wholesale companies. Manufacturers of foodstuffs, chemicals, pharmaceutical and cosmetic produce also use the services of refrigerated warehouses. Andrei Bushin, general director of MIEL Commercial Real Estate, names supermarket chain Perekryostok and Sanofi Aventis as the largest tenants of refrigerated warehouses.

The components of success

Dmitry Sazanchikov, director for marketing and regional development at GVA Sawyer, thinks that one of the main requirements for a successful functioning refrigerated warehouse is its distance from Moscow - the main consumer of the stored goods. The optimum is up to 15 km from the MKAD.

The second important point is good access roads. The third is the provision of services for the storage and movement of cargo within the warehouse by the operator of the warehouse complex. The fourth is modern, high quality equipment that will ensure the long-term safety of the goods.

An important condition is the optimum accommodation of goods in the warehouse depending on the speed of their circulation. For suppliers of foodstuffs to shops it is important to have the opportunity of storing great volumes of production for a long time in a warehouse. For a restaurant or cafe the presence of a necessary assortment in a warehouse and the possibility of quickly receiving it in the demanded quantity is much more important. For companies delivering products to restaurants, instant delivery of products under the first requirement is important.

“The parameters of a premises and the refrigerating equipment depends on what production it will store and also what operations will be carried out by the future user, therefore it is practically impossible, as with usual warehouses, to create a standard premises, suitable for the majority of users,” Ruslan Suvorov, head of the warehouse and industrial real estate department at Praedium, says. According to Bushin, the general requirements, as a rule, are reduced to the temperature of the refrigerating chambers: for example meat and fish products need to be stored at -24 degrees, dairy products from 0-5 degrees, and for the great bulk of foodstuff, including fruit and vegetables, from –1 to 1 degrees.

Lider thinks that reliable information exchange with the personnel of a warehouse is extremely important for tenants. In situations such as a power cut or break down of refrigerating equipment, etc, the tenant should be immediately advised in order to have time to transport the produce to another warehouse and to minimize financial losses.

Don’t miss the important

The building itself of a refrigerated warehouse is a simple construction, but there are particular requirements in the laying of engineering communications and the installation of expensive equipment, and also in the design of the building, the height of which should measure 8 to 36 meters (in a high-altitude storage zone). In constructing a refrigerated warehouse special attention is given to the floor as a change in the characteristics of the floor avoids frost penetration of the soil. To ensure the installed equipment works smoothly, the thickening of the walls and roof with heat insulating material is required. It is also necessary to envisage carrying out work on metal constructions and all other metal surfaces to prevent corrosion.

The correct zoning of refrigerated warehouses is very important, and also fitting them out with the necessary equipment. Except for storage zones additional technical premises are necessary: a compressor house, a control panel for the refrigerating equipment, a machine and hardware department for Freon refrigerating equipment. There should be an additional lifting-section gate in the deep freeze areas, and additional thermal screens at external docks. Separate equipment for special "shock" freeze chambers are required and a zone for working with the goods. All these specific requirements essentially raise the cost of the development and approval of the project, in receiving the initial-permitting documentation.

There are special requirements concerning the safety of refrigerating machinery. In the opinion of experts, even today there is still no absolutely safe coolant.

According to Sergei Lazarev, president of KFS-Group, because of attempts to reduce the price of refrigerating machinery developers try to build refrigerators as high as possible. On average the height of a modern refrigerating warehouse is 28 meters. The approximate cost price of building one sq.m of such a premises is more than $3,500, 3.5 times more expensive than building a usual warehouse. When we are talking about refrigerating departments being included in large usual warehouses, it means their height is equal to the general height of the terminal. Usually this does not exceed 12 meters. The cost of constructing one sq.m of such a refrigerator is approximately $2,000-$2,500.

Another important point is that the refrigerating equipment installed in refrigerated warehouses demands significant capacities. “A refrigerated warehouse needs at least 3-4 times more electric power, than a usual warehouse,” Lazarev specifies. According to Prozorov, for a 10,000 sq.m deep freeze warehouse a reserve of almost 1 МW of electric power is necessary, whereas for a general warehouse with the same area almost 0.4 MW is necessary. In Moscow, and especially in the Moscow suburbs, one of the main problems of any new construction is a deficit of capacities. “Sometimes it is necessary to lay cables to the nearest substation to ensure the necessary level of power supply, which essentially raises the cost of the project,” Ivanov says.

Expensive frost

Renting space in a refrigerated warehouse is more expensive than in a usual logistics complex. Roman Sokov, director of the consulting department at Becar Commercial Property Moscow, explains that cold warehouses are more costly than usual ones, both in construction, and in servicing. In class A refrigerated warehouses in Moscow rental rates including operational services reach up to $450 per sq.m, and in low class warehouses of class C or lower are approximately $180-$250 per sq.m a year.

According to Gets, in the Moscow region the rental rate of areas in a quality refrigerated warehouse are $180-$280 per sq.m a year. According to MIEL Commercial Real Estate, on average in "refrigerators" it costs 30 rubles for one ton per day (the range of prices is from 26 to 53 rubles per ton per day). According to Belinsky, the net rental rate of a refrigerated warehouse at Tomilino technical logistic complex is $170-$175 per sq.m a year (excluding operational services).

The cost of operational services depends on what company services the refrigerating machinery. Avdeyev says the range of prices is explained by the quality of the premises, the temperature mode, and the necessity of additionally cooling goods to lower temperatures (for freon premises).

No interest

According to Ivanov, today investors and developers are not interested in the construction of refrigerated warehouses. After all the projects are expensive and complex, and by far not the most profitable. “On average the cost price of constructing 1 sq.m is equivalent to the cost of five years of its rent,” he specifies. In general it takes three to six years to realize a new refrigerated warehouse from gathering all the necessary initial permitting documentation for the construction to putting it into operation, whereas the cycle of realization of a usual warehouse project is half that.

Lazarev also talks about an unformed market in Russia of “refrigerator” operators, i.e. logistics companies that specialize in the management and servicing of refrigerated warehouses. "Because there are consumers of refrigerated warehouses namely industrial and trading companies, developers are generally prepared to build refrigerated warehouses, but there is no link necessary between one part of the chain and the other," he says.

Bakrin thinks that the main complexity developers of refrigerated warehouses working in the capital’s region come across, is the location of new premises. Refrigerated warehouses need to be built on the border of the MKAD. According to a survey carried out by Knight Frank, more than 42 per cent of companies that use refrigerated warehouses would want to expand their rented space in the city. Companies that need warehouses not further than 5 km from the MKAD are close to this group. Altogether they total almost 50 per cent of those surveyed.

But the demand of tenants in areas bordering the city in the near future is unlikely to be satisfied. The deadlines for new space to come onto the market are unknown. Periodically there are announcements that on the territory of existing refrigerated centers there will be new construction. But because of a lack of financing the realization of projects is dragged out for unspecified periods. “The construction of a refrigerated warehouse within Moscow in view of the prices for land plots, the cost of connection to networks and the infinite collection of signatures for permission to construct commercial structures is completely devoid of sense,” emphasizes Ivanov.

In the opinion of experts, in the situation that has developed built-to-suit technology is most promising. Large food companies will build their own refrigerated warehouses to meet their requirements on size, lay-out, engineering communications and equipment. According to Knight Frank, large Russian manufacturers of dairy and meat produce, and also their foreign counterparts who came to the market more than five years ago, prefer to solve the problems of expansion of space themselves or at the expense of distributors.

According to Belinsky, for developers, built-to-suit technology is a unique way of guaranteeing returns. In this case the customer and developer together formulate a technical project - from the kind of equipment to be installed to the total area of the warehouse and the zoning of the adjoining territory - and in advance stipulate the rental rate, and the ways and terms of payment.

In constructing a warehouse "itself," a company can consider the potential of further expansion and add to the project several hundreds of square meters for the growth of the company. It is possible to rent out the free space, whilst the additional areas are not needed by the proprietor of the warehouse. “Considering the strongly pronounced excess of demand over supply, such a scheme should be profitable,” Ivanov notes. The class A Miratorg warehouse, located 11 km from the MKAD in the Domodedovsky district, is such an example. The warehouse with a capacity of 24,000 palette places will operate for both the own needs of the company, and for foreign organizations.

Of premises that are at the finishing stages of construction, Sokov names the Spring Park warehouse complex with a total area of 100,000 sq.m on Egoryevskoye shosse in the Podniki (Springs) settlement. The refrigerated warehouse will occupy 7,000 sq.m of the area. Building is planned to be completed at the end of 2007.

Recently, MIEL Commercial Real Estate advised on the construction and utilization of a refrigerated warehouse complex in the Leninsky district in the Moscow region. The total area of the structure on the land plot will be 8,627 sq.m of which 6,386 sq.m will be allocated for warehousing space. The warehouse will include 14,598 palette places, which will allow for the provision of a daily average turnover of goods of 500 tonnes.

There are plans to construct a refrigerated warehouse on the territory of the existing Solnechny terminal on Proektiruyem proezd in Moscow by KFS-Group. Refrigerators will occupy about one fifth of the total area of the terminal, and, according to preliminary calculations, their area will total 12,000 sq.m.

"The stirring up of the refrigerated warehouse segment will begin only when the profitablility of the development of usual warehouses starts to fall and the market becomes saturated,” emphasizes Bakrin. "Most likely it will be projects located on a land plot with an already existing large warehouse complex,” Ostroborodov speaks.