Older Brother Syndrome

The Warehouse business has always been unjustly considered the bleakest segment of commercial real estate and was deprived of attention.

Goods have to be distributed and stored somewhere, and of course it's preferable if that is a reliable location with convenient access and loading equipment. And what more do you really need? So, we haven't heard of any special warehouse promotions, and only people who actually work in the industry are interested in it. And then the economy crashed and there was a massive economic crisis. And it turned out that this industry underwent not just serious, but tectonic shifts.

Logistics on a nationwide scale changed its nature. Different production points appeared. There were more operations between regions. But most importantly, consumer demands changed. All these aspects were addressed at the Development of Small Warehouses Conference: Divide and Conquer, which was organized by the Association of Moscow Investors.

As Alexander Khomich, the Director General of Skladman USG Company, rightly noted,

residential real estate is developing co-living, office real estate is expanding thanks to co-working, and in warehouse real estate, we are seeing something that is being termed LightIndustrial.

Light Industrial is a well-known format in Europe and America, and is just beginning to develop here in Russia. Actually, no one questioned the existence of a similar format in the Russian market. But a heated argument arose around the question of whether the Russian format has any potential. Or, as Gleb Belavin, the Deputy Director General of the Management Company MLP, noted, if the crisis ends, will interest end as well? That is, will large-scale projects with hundreds of thousands of square meters of space become popular again, making the "small slice" approach disappear?

According to several speakers, the most active of whom was Oleg Mamayev, the Executive Director of the PNK Group,

 there is no future in the idea of developing warehouse space with less than two thousand square meters.

That is, in principle, it's possible to build a facility, but only if someone donated the land and set up communications systems.

"The demand is there," said Oleg Mamayev, "but there is no demand from those capable of paying.
A project of five thousand square meters can be effective, any less than that and it's not." Vyacheslav Kholopov, the Director of Warehouse and Industrial Sites for the JLL Company, has a similar opinion. In his cautious estimation, Light Industrial is a specific structure, which is now being attempted in industrial parks, and which would, he believes, be for the better.

The discussion was curious in nature. Alexander Khomich along with Evgeniy Numerov, the Managing Director and Partner of Skladman USG, and representatives of cooperating companies tried to explain that their calculations are not the fruit of scientific work, but are, firstly, an analysis of Western markets and, secondly, the result of their own practical experience. Objections basically boiled down to the fact that

 the volume of implemented projects has not yet reached a critical size to make it possible to talk about market trends rather than individual, albeit successful, experiments.

Most interesting was that the united group against Khomich and Numerov's basic idea—that Light Industrial has a promising future—was made up of representatives from large companies, those who operate on the basis of hundreds of thousands of square meters. Developers, managers, consultants and brokers, retailers. All in all, a respectable audience.

Seemingly recognizing Light Industrial's right to exist (in the end, you can't forbid someone from legally building warehouses with areas less than a thousand "squares"), they mentioned, with varying degrees of openness, that these small players bring a lot of hassle. As Gleb Belavin noted, we work with these types of clients not because it's interesting, but because we have to, because they're there. This phrase "have to," accompanied by a sad sigh, was uttered more than once over the course of the conference.

The flashy and even passionate speeches by opponents of Light Industrial in general didn't convince the audience. The journalist Valery Mozganova (whose brilliant moderation is worth mentioning separately) called for a vote among the participants several times, and each time found that Numerov and Khomich had more supporters.

We've accepted the fact that officials are on the side of big business, it's a more or less common position: the state likes to deal with big players.

But we forget that "big" businesses themselves see small and medium businesses as an annoying impediment, which, of course, is impossible to get rid of completely, but can be pushed into some kind of framework.

During the debate on the future of warehouse development, this position was reflected especially clearly.

Meanwhile, if we step back from the diverse interests of market participants, it is clear that Light Industrial is not a forced necessity, but an equivalent format, with a bright future ahead. According to Alexander Khomich, in the Moscow region alone there are 15,000 potential customers of this format who do not have quality listings and will snatch up any suitable variant. Of course, this is a mobile market, and we agree with those discussion participants who pointed out that someone is always leaving, someone else coming. But this is a normal situation for small business, which has always had a different flow, unlike big business, where every change is fraught with enormous consequences.

In Russia, Light Industrial sites are 400 (four hundred!) times smaller than, for example, in Germany. For us to achieve any notable size, we will need to rent out 600,000 square meters of apartments in this format annually for the next five to seven years. Which is completely realistic (if there's interest among developers), and, moreover, is needed.

It is estimated that one thousand square meters in BigBox format creates work space for 20 workers, while the same amount in LightIndustrial format creates space for 60 workers.

Considering that Moscow region authorities have already announced that they will no longer approve building housing that does not include creating working spaces, it is clear that the prospects for "small forms" are more positive than representatives of large companies would like to think.

Light Industrial, of course, will be most in demand in our capitals and big cities. But if discussions about encouraging small businesses are no longer just talk, then this format will have practically no limits. Our country is, as we all know, huge. But that doesn't mean that small format has no place in it.

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