Headed by two American expats, Radius Group designs, builds, finances and operates warehouse and manufacturing real-estate in Russia. The company is responsible for some of the largest warehouse projects in the country, as exemplified by the deal signed with Leroy Merlin this past February to build a giant omnichannel distribution center on the outskirts of Moscow.
Radius Group’s founding shareholder and managing director Christopher Van Riet has shared with East-West Digital News his views on the latest developments of the warehousing and e-commerce markets in Russia, and the attitude of US players.
What are the current trends in the Russian warehousing market?
The market conditions are the most challenging in history. Rental rates are around $75 per sq. m., the lowest rents in modern Russian history, 29% lower than in 2009, the previous worst year. In rubles, however, the rates amount to 4,328 rubles, a historically high level. So it is simultaneously the best of times (in rubles) and the worst of times (in dollars) for warehousing rents!
In the short term, the industrial market is in crisis with over 800,000 sq. m. of vacant warehouse space in the Moscow marketplace – the highest amount of vacancy ever (9.5% vacancy rate). The result will be that strong players will take market share and weak players will exit the market.
In the long term, Russia requires over $30 billion of investment into warehouses to simply have the minimum supply required for a “normal” consumer economy given the wealth level of the Russian people. Radius wants a 20% market share.
The Decathlon warehouse built by Radius Group in 2013
What is the impact of the development of e-commerce?
Three years ago e-commerce was not a factor at all from a demand perspective. Today it is emerging as an important source of demand for warehouse space from which e-fulfillment initiatives can operate. This demand is coming from both traditional retailers, who are moving to an “omnichannel” retail model, and pure-play e-commerce companies.
In a three- to five-year time e-commerce can easily account for 30% of the annual demand for warehousing in Moscow, generating an annual investment need of over $300 million for fully equipped e-fulfillment centers.
Please tell us a bit about your latest projects in developing multichannel facilities in Russia.
The Leroy Merlin deal (see press release) is for a 100,000 sq. m. national omnichannel distribution center, the largest retail distribution center in the history of the Russian Federation and the largest retail warehouse deal in the world this year.
This company has more than 34 stores in 17 Russian cities providing products and home improvement solutions tailored to specific customer needs. Maximizing efficiency throughout the supply chain strategy is key for them. Moreover, this facility will allow them to regroup their different Moscow activities, thus improving product availability and customer satisfaction.
Leroy Merlin’s facility is being completed in South Gate Industrial Park, our warehousing area close to the Domodedovo international airport in the south of Moscow. The total area of the industrial park is 144 hectares and is master-planned for 650,000 sq. m. The facility has a valid and reliable infrastructure package and necessary permits to minimize cost and time risks associated with the implementation of green field projects.
We are also providing NEXT with a pure-play e-fulfillment center, including automated fulfillment platform, call center, and engaged distribution.
You are holding a dialogue with several US retailers about potentially entering the Russian market. What is their attitude towards this market?
From a commercial standpoint the US retailers understand the long-term attractiveness of the Russian marketplace. However, political risk perceptions substantially dampen their enthusiasm and as such they remain hesitant about Russian market entry. Our expectation is that once the political climate improves that US retailers – particularly e-eommerce retailers – will enter the Russian marketplace.
In the meantime, European and Asian players are expanding aggressively in Russia and with each passing year it will take an increasingly large amount of effort and investment for new entrants to acquire sustainable market share.
