Unrequited demand

Modern industrial parks and production areas on state lands are actively competing for enterprises. However, there are hardly any offers that would satisfy the requirements of the investors.
After the city almost completely stopped selling land plots for residential development, it still remained an active player on the market of territories for locating factories and storage complexes. 
 

An offer without formalities
In 2011, Smolny approved the development plans and the parcel plans (DP and PP) of nine production areas and two special technology development economic areas (in 2012 not a single one was approved). According to the data of the Industrial Policy and Innovations Committee, their total area amounts to 3613 hectares. At the moment DPs and PPs are being prepared for another 22 areas (about 9170 hectares altogether).

The Committee’s plan for 2013 includes the development plans and the parcel plans for the production areas “Konnaya Lakhta” and “Shushary-1”. Similar work is being done by the State Public Institution “City Agency for Industrial Investments” (CAII). 1.304 billion rubles are provided for this work in the 2013 budget.

For 2013 CAII prepared for the Property Fund 19 land plots for industrial and storage purposes with the total area of 19.7 hectares (the majority of them up to 1 hectares).

Over a half of them are concentrated in the industrial area Rybatskoe. In the II-IV quarters of 2013, land plots in Pushkinsky and Frunzensky districts  (about 13 hectares) not realized in 2012 and the first quarter of 2013 will be put up for auction again. Thus, the potential of the primary market of spots for industrial and storage purpose for this year is estimated by experts at the Auction House of the Russian Federation at 33 hectares.

The documentation on the industrial area on Salova street with a total area of 221.5 hectares is in the process of agreement with the Committee for City Planning and Architecture. However, only 4.5 hectares, divided into 12 plots, are available for development. For the future CAII is preparing another 30 allotments for auction (29.59 hectares).

The agency states that they prepare the documentation package, receive the technical specifications and conduct the agreements on their own, and manage to do all of this in six months. Then the land is realized at the Property Fund auctions to become either property or investment lease objects for three years.

The lost buyer
Despite the seemingly “precise” work, legal immaculacy and relative cheapness of the plots when compared to the secondary market the results are not very impressive.   

Out of six plots that CAII put up for auction in the second half of 2012, only one was sold. The CAII believe that this can be accounted for by the size and quality of the plots: small, with bad transport access and so on.  

However, the allotment in Shushary (Sofiyskaya ul. 1) with an area of 6.8 hectares, prepared with due regard for acquired experience and put up for auction on 3 April 2013 for 72 million rubles, also remained unwanted. Slightly earlier, in March, the auction for the tenant right of the plots again in Shushary (1.3 hectares, 2.6 hectares and 0.5 hectares) failed. The plots are designed for storage objects, supplied with gas and electricity. The initial price is from 37 to 41 Euros for 1 sq.m. – twice as low as on the secondary market.   Nevertheless, two of them did not interest anybody.

Investors often prefer private industrial parks to city offers. Firstly, the configuration of the plots laid out by the city does not take into consideration the requirements of particular enterprises. Secondly, investors often do not understand how the price of the offer is formed.

 “It is unclear what utilities are present on the plot, what economy it will amount to in the end,” says Larisa Eremina, the general director of Agentstvo Territorialnogo Razvitiya Company. “Technical specifications given by the Central Electricity Generating Board are only theory. No one knows on what conditions it will actually be connected”.

 “In Petersburg there are 19 industrial areas, of which Parnas is the most rapidly developing,” says Ekaterina Markovets, the investment and consulting director of the London Real Invest Company. “This industrial area is provided with utilities better than the others. I believe the plots there that are prepared for auction will be in demand”.

So far, manufacturers have not been too happy with the prospect of taking part in auctions. They reasonably argue that this scheme does not guarantee anything, is accompanied by additional risks and does not allow planning the development of the production with any degree of clarity.   

Incidentally, the Leningrad Oblast is ahead of Petersburg in terms of pricing policy. “About 60% of land for industrial objects in the Leningrad Oblast are plots with an area of up to 5 hectares,” Ekaterina Markovets says. “As a rule, there is a possibility of joining them up into bigger blocks”.

The bottom of the price line in the Vsevolozhsk region, according to Markovets’ estimate, is 100 rubles per sq.m. (for agricultural lands that have not been transferred into another category as yet). In more remote places, plots on the primary market may cost from 50 rubles per sq.m. Obviously, this kind of price implies an absence of communications and urban planning documentation: municipalities do not take this sort of work upon themselves.
 

Costly affair
The secondary market of plots for industrial and storage development is formed by industrial parks. It is a relatively new segment that began to arise in 2010-2011.

At the moment, according to various estimates, in Petersburg and the Leningrad Oblast from 15 to 19 industrial parks are actively developing. The exact volume of the available land fully prepared by its private owners for locating enterprises is hard to calculate, but obviously we are talking about hundreds of hectares. Thus, in the “Maryino” park 80 hectares are available, about 60 hectares in the IE “Utkina Zavod’”, over 185 hectares in “Doni-Verevo”.

The offer prices depend on the closeness to St Petersburg. According to Ekaterina Markovets, in the Vsevolozhsk region, the cost of plots located near the Ring Motorway provided with utilities and good access routes amounts to 5500 rubles per sq.m. In Lomonosovsky district the most highly priced are the allotments in the industrial park “Gorelovo” from the UIT Company – up to 9500 rubles per sq.m.

In remote places of the Oblast the cost of land on the secondary market can go up to 2500 rubles per sq.m.

The information on the price of the closed deals hardly ever gets into open sources. A rare example: in spring 2012 the UIT St Petersburg Company sold two plots for industrial development with the total area of about 1 hectare in Bugry (next to the shopping center “Mega-Parnas”). The plots without utilities were priced at 66 Euros per sq.m. They were bought by trade enterprises for warehouses.  

 “We cannot compete with the state in prices”, says  Maxim Sobolev, commercial real estate director of the UIT St Petersburg Company  “The administration can afford to put up a plot in Rzhevka, say, for 27 Euros per sq.m. It is not clear, though, if this cost includes only land or the utilities as well. But in any case, our prices are a few times higher. We only win because we are more attentive to the investors”.

For example, the area of allotments, which the industrial parks offer to residents, varies from 0.5 to 50 hectares and more. It is easier in this case to find the necessary configuration and “link” an already developed project to the plot.

 “We decided not to package the plots in Marino industrial park,” says Olga Murphy, deputy director of the “VTB Development” Department says. – We only package the part bought by a resident. This procedure causes a little bit of delay. But we adopted a very flexible approach, and the residents value it highly”.

Nevertheless, AHR experts believe that in the next few years the development of some industrial parks projects may be suspended. The reason is the lack of transport utility infrastructures, deficit of work force and intense competition.
 

Delusions of grandeur
Still, there is some interest on the market in industrial objects. “The main conditions for residents are the presence of rights on land, utilities available “here and now”,” Olga Murphy says. “The absence of urban planning documentation delays the starting of the production by 1.5-2 years, which is unacceptable taking into account the budget plans of companies and the necessity to make contracts. Price is an important factor. As for location, logistical convenience and the reputation of the developer are additional factors. There are very few plots in St Petersburg that satisfy all the criteria and are sold at competitive prices”.

“In “Gorelovo” they have 250 potential buyers per year, but only 5-10 actual transactions,” Maxim Sobolev comments. “Over 50% of enterprises ask for plots with an area of less than 1 hectare. Another 30% need plots of 1-3 hectares and only 10-15% of enterprises are interested in plots of over 3 hectares. Plots in the Leningrad Oblast interest wood manufacturers and owners of food productions. But they prefer to rent. Their business is based on turnover and they are not ready for big investments”.

 “Demand has been growing since last year,” Olga Murphy states. “Big investors create an interest in “Marino”, they ask for plots with an area from 1.5 hectares and up. Even middle-sized enterprises with limited budgets cannot afford to be accommodated here”.

 “The expenses at phase 1 for IEs usually reach 70 % of the total cost of the park’s power system,” Larisa Eremina says. “To be able to afford such investments, IEs have to close big transactions at the first stage. And there is nowhere we can accommodate small enterprises that need plots of up to 1 hectare at the moment. There is a considerable demand for such plots, but it is not solvent for the secondary market”.

Natalia Andropova
Daily newspaper "Nedvizhimost i stroitelstvo Peterburga", № 16(753) 2013-04-22, p.34