Moscow Industrial and Logistics Market MarketView

Q3 2012
CBRE Global Research and Consulting

NEW DELIVERY 198,000 SQ M

PRIME RENTAL RATES $140 / SQ M / YEAR

VACANCY 0,9%

MARKET CYCLE OVERVIEW

Russian warehouse market is in a strong growth phase. The market shows the capacity not only to increase volumes of new space delivered in absolute terms, but also to speed up rates of growth relative to existing stock. In 2012 the volume of new delivery of Class A properties could reach 18% of the existing stock. For 2013, projects have been announced of about 1.4 million sq m, of which 313,000 sq m (around 45% of the expected 2012s delivery) are already leased on pre-let agreements, or sold. As it usually happens, not all of the announced projects will be completed. However, 2013 has a good chance of exceeding delivery figures for 2012. A restraining influence on the market will come from the deepening recession in the Eurozone and the potential exit of, at least, Greece within the next 6-9 months. The structural deficit of supply is likely to continue for the next few years, since Moscow has 3-4 times fewer market penetration rate than, for example, Warsaw or Prague. A key factor that could systemically decrease the demand for warehouses could be the evolution of the current unstable situation in the Eurozone into a full-scale recession. This risk is not expected to pass at least until the second quarter of 2013. Market growth rates are fundamentally sound with relatively low share of the less-experienced players, contributing to the speculative supply. The share of the relatively less-experienced players in the announced 2013 construction plans is a bit over 30%. They will come under pressure first if negative market trends arise. Rents seem to be close to their local maximum. Despite the extremely low levels of vacant space, tenants are reluctant to accept a raise in rents. In case of the appearance of a steady ruble trend (for example, to a level of less than 30 rubles to the dollar), such attempts may prove more successful. However, in nominal terms, Moscow rents are already among the highest in European part of EMEA. 1 New supply, % of the existing stock 35% 30% 25% 20% 15% 10% 5% 0% 2010 2011 2012F 2013 Announced

Market optimism 8% 7% 6% 5% 4% 3% 2% 1% 0% 0

Vacancy rate

2010

2008 2011 2006 200 400

2012F 2007 600 800

2013F 1 000

Delivery pipeline, ('000 sq m)

Readiness to pay 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 90 2009

Vacancy rate

2010 2008 2011 2012F 2007 2013F 150 110 130 Rental rates, $/sq m/year

2012. CB Richard Ellis, LLC

The growing interest from the end users in purchasing warehouse property may also be pointing to limits in the growth of rents. A four-fold increase in the volume of deals on purchase of warehouses by the end users allows us talking about trend towards reassessment of the yield-risk ratio in logistics operational models. During three quarters of 2012, purchases of warehouse properties in BTS format amounted to about 230,000 sq m, or about 35% of the expected delivery of the new properties for the whole 2012. In 2013 we may see the appearance of a new trend with a shifting demand inside Class A towards higher-quality properties. The properties can be differentiated by their expected obsolescence rate and deterioration of the consumption characteristics. The arrival of a large number of international companies and a ongoing trend with end users, buying property for themselves, may increase demand for properties that can maintain their investment attractiveness and high consumption characteristics as long as possible. Developers, specializing in this kind of properties, may see additional business opportunities. The prerequisites for the new trend may appear in the mid of 2013 after successful resolution of the sharpest eurozone problems.

Rental rates for modern warehouse premises, $/ sq m / year 250 200 150 100 50 0 London Helsinki Oslo Zurich Stockholm Moscow Paris Frankfurt Hamburg Rotterdam Madrid Vienna Copenhagen Prague Milan Warsaw Lisbon Acquisitions of warehouse space by investors and end-users, 000 sq m 600 400 200 0 2011 Investment Q1-Q3 2012 BTS Sale New delivery in Q3 2012 by directions, sq m
Inside Moscow North-West West South-West South South-East East North-East North

Q3 2012 Moscow Industrial and Logistics Market | MarketView 2

ANALYSIS OF Q3 DATA
SUPPLY In the third quarter of 2012, delivery volumes amounted to 198,000 sq m. This figure is about 100,000 sq m up on the results for the second quarter of 2012, and is the same as for the third quarter of 2011. The third quarter growth of the new supply was based primarily on the projects PNK-Vnukovo, South Gate Industrial Park (Radius Group), and the DDT Logistic warehouse complex. Properties which were delivered to the market in the previous three months are located in the south, south-west, and south-east of the Moscow region, in districts that have traditionally hosted modern warehouse complexes. In this quarter we have seen the appearance of a new Class A warehouse property very close to the MKAD (DDT Logistic in just 2 km from the MKAD). The new warehouses, appearing within a few kilometers of the ring road, are in demand because the majority of properties, located very close to the city, are already leased, and new properties within easy reach to the city come on the market very rarely.

50 000

100 000

150 000

2012. CB Richard Ellis, LLC

Big Box Projects delivered in Q3 2012 Q3 2012 Moscow Industrial and Logistics Market | MarketView 3 DEMAND Whereas in the first quarter the most deals were for existing vacant premises, in the third quarter the situation changed and about 69% of deals for lease/sale of warehouses relate to properties expected to come on stream in the next 9-10 months. This situation is the result of the continuing trend for BTS development. The share of BTS deals continues to account for more than 30% where the sales of completed buildings to end users prevail. The total area under BTS construction was up 139% in comparison with the third quarter of 2011. A large number of BTS sales can be seen in the PNK-Vnukovo industrial park. The market trend for BTS construction is supported by the supply side: the majority of developers have declared their readiness to build under the BTS model in their projects, and a number of leading companies are already actively doing it. For example, in the course of this quarter the South Gate industrial park (developer Radius Group) has attracted several large BTS deals. The market also saw a few big deals (each of which was over 40,000 sq m) with Russian and foreign retailers in other logistics parks. The structure of demand has seen some changes in the make-up of tenants. In comparison with the previous quarter, the share of retail companies grew by about 16%. Project PNK-Vnukovo DDT Logistic South Gate Industrial Park Krekshino Springs Park Location 19 km from MKAD on Borovskoe highway 2 km from MKAD on Kievskoe highway 30 km from MKAD on Don highway (M4) 26 km from MKAD on Minskoe highway 19 km from MKAD on Novoryazanskoe highway Developer PNK Group DDT Logistic Radius Group RosEvroDevelopment Plemzavod Rodniki

Significant Big Box Projects announced as due for delivery in Q4 2012 Project PNK-Vnukovo Infrastroy Bykovo Atlant Park Istra Logistic Location 19 km from MKAD on Borovskoe highway 19 km from MKAD on Novoryazanskoe highway 26 km from MKAD on Gorkovskoe highway 14 from MKAD on Novorizhskoe highway Developer PNK Group Infrastroy Atlant-Metalloplast Istra Logistic

For the rest of the year, we expect new delivery of around 163,000 sq m of Class A warehouses. Thus, total growth in stock in 2012 can be about 687,000 sq m, or 96% of the total delivery of Class A warehouses for both 2010 and 2011.

Take-up by the physical presence of leasable area 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q1 2012 Q2 2012 Q3 2012 Pre-leased / Pre-purchased premises Deals with available vacant premises

Announced new delivery and pre-leased/sold area shares, by geographies (Q4 2012 - 2013)
Inside Moscow North-West West South-West South South-East East North-East North

200 000 400 000 600 000 800 000

Available area (new development Q4 2012-2013), sq m Leased/sold area (new development Q4 2012-2013), sq m
2012. CB Richard Ellis, LLC

Take-up by business sectors in Q3 2012, %

Take-up by types of the deals in Q3 2012, %

Q3 2012 Moscow Industrial and Logistics Market | MarketView 4

16,4 6,2

9,7

Logistics 18,1 Retail Production

1,0

Lease

BTS (Lease)

12,5 54,3

BTS (Sale)

58,4

Other

Sublease

The continued growth of the whole retail sector was a factor here, as well as the expanding activity of online retailers. VACANT SPACE Vacancy rates decreased slightly compared to the second quarter of 2012 and are currently a bit below 1%. The majority of vacant premises, as it was during the first half of the year, are located in the south and south-west. These are mostly either not yet leased, just recently commissioned properties, or are relatively small blocks within warehouse properties built slightly earlier in the year. In the next 6-8 months the vacancy rate will stay low. Growth of this figure will be kept in check by demand, since currently the demand for warehouse space still far exceeds the existing square footage of suitable properties. Volumes of deals in the second and third quarters of 2012 exceeded construction by 56% and 70%, respectively. In the last months of the year, traditionally a very active period on the market, the volume of rented space will remain at a high level, supporting low vacancy rate. Some short-term changes in this market trend may appear by the middle of 2013, in the event that the market actually sees all currently announced warehouses come to fruition. In that case, even if absorption rates remain strong there may still be a short-term upturn in vacancy rates. At the same time it depends a lot on the developers readiness to actually realize their announced plans.

Take-up by directions in Q3 2012, sq m

Inside North-West West South-West South South-East East North-East North

0 50 000 100 000 150 000 200 000 250 000

New supply, take-up, vacancy rate 400 350 300 250 200 150 100 50 0 4 3,5 3 2,5 2 1,5 1 0,5 0

Vacancy rate by geographies in Q3 2012, % of total market vacancy

22 37

East South South-West

New Supply '000 sq m Take-up, '000 sq m Vacancy Rate, %

41

2012. CB Richard Ellis, LLC

COMMERCIAL TERMS Overall, the base rates, the landlords are asking for Class A properties, have remained in the same range as before. The exceptions are for standalone properties, whose owners are asking higher rates basing on the strength of the current location. So in the north of the Moscow region we still may see some rates at $155-159 per sq m annum. Nonetheless, with the delivery of projects, announced for 2013, to the market and its possible temporary saturation, these peak levels could disappear as uncompetitive. A second example of inflated rents can be seen in several warehouses, located near the MKAD. But, in general, the market situation is rather even and base rates from leading developers are all at the same level. Prime rent, vacancy rate 160 140 120 100 80 60 40 20 0 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Q3 2012 Moscow Industrial and Logistics Market | MarketView 5

Prime Rent, $ / sq m / year Vacancy Rate, %

Commercial terms for Q3 2012, warehouse market of Moscow and Moscow Region Commercial terms Average asking rent Operational expenses (OPEX) Average sale price Average parking rates for trucks Average parking rates for cars Average lease terms Class A $130-140 / sq m/ year $30-40 / sq m / year $1,000-1,200 / sq m $250 / month $50 / month 7 years

FORECAST
In 2013 we may see about 800,000 sq m of new warehouse premises Built-to-suit scheme to remain popular During the next year we will see some geographical refocusing of warehouse development in the Moscow region: more then 700,000 sq m of new warehouse premises are planned to be delivered in north part of Moscow region (based on the announcements) Vacancy rate to remain quite low and comparable with current level: a slight upturn of 1-2 percentage points is possible at the end of Q2 2013 Rents are expected to stay at the apparent level Market will remain under strong influence of the economic situation in the Eurozone

2012. CB Richard Ellis, LLC

CONTACTS
For more information about this MarketVew, please contact: Valentin Gavrilov Director, Research Department BC White Square, bld. B 5 Lesnaya Street Moscow 125047, Russia t: +7 495 258 3990 e: [email protected] Vasiliy Grigoriev Analyst of Industrial and Logistics Market, Research Department BC White Square, bld. B 5 Lesnaya Street Moscow 125047, Russia t: +7 495 258 3990 e: [email protected]

Q3 2012 Moscow Industrial and Logistics Market | MarketView 6

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Global Research and Consulting This report was prepared by the CBRE Russia Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. This information is designed exclusively for use by CBRE clients or potential clients and does not constitute any part of an offer or contract. Information and recommendations shall not be used for commercial purposes like sale, publication in mass media or distribution in Internet, and cannot be reproduced without prior written permission of CBRE. CBRE shall not be liable for any projections, opinions, assumptions, estimates or decisions made by any third parties on the basis of information provided herein. 2012. CB Richard Ellis, LLC. All rights reserved

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2012. CB Richard Ellis, LLC