16 November 2021

Radius Group is to kick off the construction of a new warehouse.

Radius Group is to kick off the construction of a new warehouse. It is set to become one of  the largest speculative buildings in 2022. Radius Group, leading developer and warehouse real estate owner, has announced the start of construction of the new warehouse complex on the property of South Gate Industrial Park.

The development site will  include more than 30, 000 sq m space. According to Knight Frank, this is one of the largest speculative warehousing projects set for completion in 2022. Building of Grade A+ warehouse totaling 30, 000 sq m started in October this year with the potential in-service date set for QIII 2022The new building will be certified to international environmental and energy efficiency standards. Next year, South Gate Industrial Park will have  580,000 sq m of high-quality, energy-efficient warehouse infrastructure with 100% space eco-certification. The new warehouse has been pre-let to more than 50%. High demand for under-construction space is one of the trends of the last few years shaped by low volume of quality industrial space.

As Radius Group's experience shows, when the construciton is complete and speculative building enters the market, there are almost no empty units left. "According to consultants, this year we will see a new record for the commissioning of warehouses, the figure could reach 1.1-1.5 million sq m. However, demand still exceeds supply, the absorption volume will reach around 2 million sq m and the vacancy rate will remain at a critical level of 0.6-0.5%," comments Zakhar Valkov, Radius Group Executive Director. - Despite such figures, real estate developers are slow  to build speculatively, as the situation with perpetually  rising construction costs carries certain risks. For developers, it is obvious that the rental rate is not keeping pace with the growth of construction costs; on the other hand, its rapid growth will inevitably cool down the interest of some tenants and make them reconsider their own plans to expand the warehouse and logistics infrastructure". According to the expert, gradual development is the optimal solution for the real estate developers, bringing small units to the market and  deterring the cost. The rental rates for  Grade A+ dry storage warehouses rose from  RUB. 4,200 to RUB. 5,000-5,100. For the market, it is about overcoming a certain psychological level and clients need time to understand the new environment. Until the construction market stabilises, it is rather risky to launch the sale of large volumes of speculative construction.  There is a high probability that the final cost and the rental rate will be misjudged and there will be no tenants. This may be why speculative projects announced for commissioning in 2022 do not exceed 50,000 sq m. Information was provided by Knight Frank