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Alstom Transport and Transmashholding Sign Strategic Partnership Agreement
Under the agreement signed on 31 March in Paris in the presence of Russian Railways President Vladimir Yakunin, the French company has acquired 25% plus 1 share in Transmashholding’s parent company.
Alstom Transport has committed to provide Transmashholding with technological and methodological support in modernising production processes at its plants and in developing a new generation of railway equipment for the Russian market.
Modernisation plans have already been drawn up for three Transmashholding plants – the Bryansk machine factory, the Demikhov machine factory and Centrosvarmash in the city of Tver. Similar programs will be implemented at nine other plants owned by the company.
Transmashholding will manufacture new products designed for the RF and CIS markets in Russia with a local content of 75-80%. The first joint development will be an electric locomotive built on a base platform, which is being created at the Novocherkassk electric locomotive plant. The first unit is to be supplied in mid-2010. The partners also intend to continue working together on the manufacture of double-deck carriages with seats and sleeping berths, providing a high level of passenger service (including a bar, restaurant and shower cabins); these could be put into production in Tver region in the coming years.
“By working with Alstom we are improving the quality of rail transportation in the Russian Federation, both for passengers and freight. This is in line with the strategic objectives of the Russian Government’s railway reform program now being implemented by RZD management. We regard the signing of this contact as evidence that Russia, France and Europe as a whole aim to continue a policy of integration and of building close and mutually beneficial economic ties,” commented RZD President Vladimir Yakunin. 
ZAO Transmashholding was incorporated in 2002. In December 2007, RZD acquired a blocking stake in Transmashholding’s parent company (25% plus one share).

Russian Railways Borrows USD500 Million from Barclays Bank
On March 18, 2009, Russian Railways took out an unsecured loan of USD500 million from the investment unit of Barclays Bank PLC to finance investment projects.
The loan will reduce the average interest rate on the company’s foreign currency loans. 
The granting of the loan in the difficult conditions currently prevailing on the global financial market confirms Russian Railways’ status as a reliable borrower and indicates a high degree of confidence on the part of the company’s creditors and investors, both abroad and in Russia itself.

 Russia’s Inner Waterways to Be Reformed	
The RF Transport Ministry has published a draft concept on reforming the management system of Russia’s inland waterways. The document sets goals, tasks and mechanisms to implement national policy on the development of Russia’s inland waterways’ management system. 
“Strategic goal of the concept is to reform the inland waterways’ management system in order to ensure the most efficient use of budget resources. It should achieve this through public-private partnership and private investment, meeting the demands of the population, businesses and the state in efficient and safe transportation of people, cargo and goods via inland waterways with optimal use of the federal budget. It should lead to improvement in water transport stability, forming of a unified transport system and realisation of the transit potential of the RF inland waterways, having preserved an efficient state system that ensures navigation safety,” the document states.
The concept envisages implementation of the first (preparatory) and the second stage of the reform.

Transport Ministry to Create a Special Leasing Company	
During the meeting on anti-crisis measures in Novosibirsk at the end of March, Vice-Prime Minister Sergey Ivanov announced the creation of a special leasing company within the RF Transport Ministry, which would be engaged in purchasing and leasing Russian-made road and transport equipment to the regions. 
Thus, the Government is planning to support national industry and reduce expenditure in the road-building sector. 
The budget would also be reduced by the cancellation of those projects that have not yet been started. Simultaneously Mr Ivanov emphasised that those projects which are in the final stages, or have been started, will be completed – for example, the construction of the Chita - Khabarovsk road, Irkutsk Airport and the third motor bridge in Novosibirsk. 
Transport Minister Igor Levitin informed journalists that a RUR 3 billion budget has been assigned to the new Transport Ministry’s leasing company. It will work to revive those transport equipment industries which were lost following the collapse of the Soviet Union. The work will be done in cooperation with the Ministry of Industry and Commerce and potentially the involvement of foreign companies, too.

Azerbaijan, Iran and Russia to Set up Railway Company
Azerbaijan, Iran and Russia have decided on construction of a 375-kilometre railroad connecting the Azerbaijani border city of Astara with the Iranian city of Kazvin, Russian Railway representatives announced March 26.
A joint enterprise uniting the Azerbaijani, Iranian and Russian railway administrations will be set up shortly to build the railway link. All three sides will have an equal stake in the company. Sergei Stolyarov, Deputy Head of Economic Forecasts and Strategic Development of OAO RZD, put the project cost at more than USD200 million. 
The project ties in with the Azerbaijani government’s ongoing initiative to promote Azerbaijan as a transportation hub. The link will serve as part of the North-South Transport Corridor, a project aimed at creating a railway connection from Europe and Russia to India and Central Asia via Azerbaijan and Iran. 


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Alstom Transport and Transmashholding Sign Strategic Partnership Agreement
Under the agreement signed on 31 March in Paris in the presence of Russian Railways President Vladimir Yakunin, the French company has acquired 25% plus 1 share in Transmashholding’s parent company.
Alstom Transport has committed to provide Transmashholding with technological and methodological support in modernising production processes at its plants and in developing a new generation of railway equipment for the Russian market.
Modernisation plans have already been drawn up for three Transmashholding plants – the Bryansk machine factory, the Demikhov machine factory and Centrosvarmash in the city of Tver. Similar programs will be implemented at nine other plants owned by the company.
Transmashholding will manufacture new products designed for the RF and CIS markets in Russia with a local content of 75-80%. The first joint development will be an electric locomotive built on a base platform, which is being created at the Novocherkassk electric locomotive plant. The first unit is to be supplied in mid-2010. The partners also intend to continue working together on the manufacture of double-deck carriages with seats and sleeping berths, providing a high level of passenger service (including a bar, restaurant and shower cabins); these could be put into production in Tver region in the coming years.
“By working with Alstom we are improving the quality of rail transportation in the Russian Federation, both for passengers and freight. This is in line with the strategic objectives of the Russian Government’s railway reform program now being implemented by RZD management. We regard the signing of this contact as evidence that Russia, France and Europe as a whole aim to continue a policy of integration and of building close and mutually beneficial economic ties,” commented RZD President Vladimir Yakunin. 
ZAO Transmashholding was incorporated in 2002. In December 2007, RZD acquired a blocking stake in Transmashholding’s parent company (25% plus one share).

Russian Railways Borrows USD500 Million from Barclays Bank
On March 18, 2009, Russian Railways took out an unsecured loan of USD500 million from the investment unit of Barclays Bank PLC to finance investment projects.
The loan will reduce the average interest rate on the company’s foreign currency loans. 
The granting of the loan in the difficult conditions currently prevailing on the global financial market confirms Russian Railways’ status as a reliable borrower and indicates a high degree of confidence on the part of the company’s creditors and investors, both abroad and in Russia itself.

 Russia’s Inner Waterways to Be Reformed	
The RF Transport Ministry has published a draft concept on reforming the management system of Russia’s inland waterways. The document sets goals, tasks and mechanisms to implement national policy on the development of Russia’s inland waterways’ management system. 
“Strategic goal of the concept is to reform the inland waterways’ management system in order to ensure the most efficient use of budget resources. It should achieve this through public-private partnership and private investment, meeting the demands of the population, businesses and the state in efficient and safe transportation of people, cargo and goods via inland waterways with optimal use of the federal budget. It should lead to improvement in water transport stability, forming of a unified transport system and realisation of the transit potential of the RF inland waterways, having preserved an efficient state system that ensures navigation safety,” the document states.
The concept envisages implementation of the first (preparatory) and the second stage of the reform.

Transport Ministry to Create a Special Leasing Company	
During the meeting on anti-crisis measures in Novosibirsk at the end of March, Vice-Prime Minister Sergey Ivanov announced the creation of a special leasing company within the RF Transport Ministry, which would be engaged in purchasing and leasing Russian-made road and transport equipment to the regions. 
Thus, the Government is planning to support national industry and reduce expenditure in the road-building sector. 
The budget would also be reduced by the cancellation of those projects that have not yet been started. Simultaneously Mr Ivanov emphasised that those projects which are in the final stages, or have been started, will be completed – for example, the construction of the Chita - Khabarovsk road, Irkutsk Airport and the third motor bridge in Novosibirsk. 
Transport Minister Igor Levitin informed journalists that a RUR 3 billion budget has been assigned to the new Transport Ministry’s leasing company. It will work to revive those transport equipment industries which were lost following the collapse of the Soviet Union. The work will be done in cooperation with the Ministry of Industry and Commerce and potentially the involvement of foreign companies, too.

Azerbaijan, Iran and Russia to Set up Railway Company
Azerbaijan, Iran and Russia have decided on construction of a 375-kilometre railroad connecting the Azerbaijani border city of Astara with the Iranian city of Kazvin, Russian Railway representatives announced March 26.
A joint enterprise uniting the Azerbaijani, Iranian and Russian railway administrations will be set up shortly to build the railway link. All three sides will have an equal stake in the company. Sergei Stolyarov, Deputy Head of Economic Forecasts and Strategic Development of OAO RZD, put the project cost at more than USD200 million. 
The project ties in with the Azerbaijani government’s ongoing initiative to promote Azerbaijan as a transportation hub. The link will serve as part of the North-South Transport Corridor, a project aimed at creating a railway connection from Europe and Russia to India and Central Asia via Azerbaijan and Iran. 


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Alstom Transport and Transmashholding Sign Strategic Partnership Agreement
Under the agreement signed on 31 March in Paris in the presence of Russian Railways President Vladimir Yakunin, the French company has acquired 25% plus 1 share in Transmashholding’s parent company.
Alstom Transport has committed to provide Transmashholding with technological and methodological support in modernising production processes at its plants and in developing a new generation of railway equipment for the Russian market.
Modernisation plans have already been drawn up for three Transmashholding plants – the Bryansk machine factory, the Demikhov machine factory and Centrosvarmash in the city of Tver. Similar programs will be implemented at nine other plants owned by the company.
Transmashholding will manufacture new products designed for the RF and CIS markets in Russia with a local content of 75-80%. The first joint development will be an electric locomotive built on a base platform, which is being created at the Novocherkassk electric locomotive plant. The first unit is to be supplied in mid-2010. The partners also intend to continue working together on the manufacture of double-deck carriages with seats and sleeping berths, providing a high level of passenger service (including a bar, restaurant and shower cabins); these could be put into production in Tver region in the coming years.
“By working with Alstom we are improving the quality of rail transportation in the Russian Federation, both for passengers and freight. This is in line with the strategic objectives of the Russian Government’s railway reform program now being implemented by RZD management. We regard the signing of this contact as evidence that Russia, France and Europe as a whole aim to continue a policy of integration and of building close and mutually beneficial economic ties,” commented RZD President Vladimir Yakunin. 
ZAO Transmashholding was incorporated in 2002. In December 2007, RZD acquired a blocking stake in Transmashholding’s parent company (25% plus one share).

Russian Railways Borrows USD500 Million from Barclays Bank
On March 18, 2009, Russian Railways took out an unsecured loan of USD500 million from the investment unit of Barclays Bank PLC to finance investment projects.
The loan will reduce the average interest rate on the company’s foreign currency loans. 
The granting of the loan in the difficult conditions currently prevailing on the global financial market confirms Russian Railways’ status as a reliable borrower and indicates a high degree of confidence on the part of the company’s creditors and investors, both abroad and in Russia itself.

 Russia’s Inner Waterways to Be Reformed	
The RF Transport Ministry has published a draft concept on reforming the management system of Russia’s inland waterways. The document sets goals, tasks and mechanisms to implement national policy on the development of Russia’s inland waterways’ management system. 
“Strategic goal of the concept is to reform the inland waterways’ management system in order to ensure the most efficient use of budget resources. It should achieve this through public-private partnership and private investment, meeting the demands of the population, businesses and the state in efficient and safe transportation of people, cargo and goods via inland waterways with optimal use of the federal budget. It should lead to improvement in water transport stability, forming of a unified transport system and realisation of the transit potential of the RF inland waterways, having preserved an efficient state system that ensures navigation safety,” the document states.
The concept envisages implementation of the first (preparatory) and the second stage of the reform.

Transport Ministry to Create a Special Leasing Company	
During the meeting on anti-crisis measures in Novosibirsk at the end of March, Vice-Prime Minister Sergey Ivanov announced the creation of a special leasing company within the RF Transport Ministry, which would be engaged in purchasing and leasing Russian-made road and transport equipment to the regions. 
Thus, the Government is planning to support national industry and reduce expenditure in the road-building sector. 
The budget would also be reduced by the cancellation of those projects that have not yet been started. Simultaneously Mr Ivanov emphasised that those projects which are in the final stages, or have been started, will be completed – for example, the construction of the Chita - Khabarovsk road, Irkutsk Airport and the third motor bridge in Novosibirsk. 
Transport Minister Igor Levitin informed journalists that a RUR 3 billion budget has been assigned to the new Transport Ministry’s leasing company. It will work to revive those transport equipment industries which were lost following the collapse of the Soviet Union. The work will be done in cooperation with the Ministry of Industry and Commerce and potentially the involvement of foreign companies, too.

Azerbaijan, Iran and Russia to Set up Railway Company
Azerbaijan, Iran and Russia have decided on construction of a 375-kilometre railroad connecting the Azerbaijani border city of Astara with the Iranian city of Kazvin, Russian Railway representatives announced March 26.
A joint enterprise uniting the Azerbaijani, Iranian and Russian railway administrations will be set up shortly to build the railway link. All three sides will have an equal stake in the company. Sergei Stolyarov, Deputy Head of Economic Forecasts and Strategic Development of OAO RZD, put the project cost at more than USD200 million. 
The project ties in with the Azerbaijani government’s ongoing initiative to promote Azerbaijan as a transportation hub. The link will serve as part of the North-South Transport Corridor, a project aimed at creating a railway connection from Europe and Russia to India and Central Asia via Azerbaijan and Iran. 


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Alstom Transport and Transmashholding Sign Strategic Partnership Agreement
Under the agreement signed on 31 March in Paris in the presence of Russian Railways President Vladimir Yakunin, the French company has acquired 25% plus 1 share in Transmashholding’s parent company.
Alstom Transport has committed to provide Transmashholding with technological and methodological support in modernising production processes at its plants and in developing a new generation of railway equipment for the Russian market.
Modernisation plans have already been drawn up for three Transmashholding plants – the Bryansk machine factory, the Demikhov machine factory and Centrosvarmash in the city of Tver. Similar programs will be implemented at nine other plants owned by the company.
Transmashholding will manufacture new products designed for the RF and CIS markets in Russia with a local content of 75-80%. The first joint development will be an electric locomotive built on a base platform, which is being created at the Novocherkassk electric locomotive plant. The first unit is to be supplied in mid-2010. The partners also intend to continue working together on the manufacture of double-deck carriages with seats and sleeping berths, providing a high level of passenger service (including a bar, restaurant and shower cabins); these could be put into production in Tver region in the coming years.
“By working with Alstom we are improving the quality of rail transportation in the Russian Federation, both for passengers and freight. This is in line with the strategic objectives of the Russian Government’s railway reform program now being implemented by RZD management. We regard the signing of this contact as evidence that Russia, France and Europe as a whole aim to continue a policy of integration and of building close and mutually beneficial economic ties,” commented RZD President Vladimir Yakunin. 
ZAO Transmashholding was incorporated in 2002. In December 2007, RZD acquired a blocking stake in Transmashholding’s parent company (25% plus one share).

Russian Railways Borrows USD500 Million from Barclays Bank
On March 18, 2009, Russian Railways took out an unsecured loan of USD500 million from the investment unit of Barclays Bank PLC to finance investment projects.
The loan will reduce the average interest rate on the company’s foreign currency loans. 
The granting of the loan in the difficult conditions currently prevailing on the global financial market confirms Russian Railways’ status as a reliable borrower and indicates a high degree of confidence on the part of the company’s creditors and investors, both abroad and in Russia itself.

 Russia’s Inner Waterways to Be Reformed	
The RF Transport Ministry has published a draft concept on reforming the management system of Russia’s inland waterways. The document sets goals, tasks and mechanisms to implement national policy on the development of Russia’s inland waterways’ management system. 
“Strategic goal of the concept is to reform the inland waterways’ management system in order to ensure the most efficient use of budget resources. It should achieve this through public-private partnership and private investment, meeting the demands of the population, businesses and the state in efficient and safe transportation of people, cargo and goods via inland waterways with optimal use of the federal budget. It should lead to improvement in water transport stability, forming of a unified transport system and realisation of the transit potential of the RF inland waterways, having preserved an efficient state system that ensures navigation safety,” the document states.
The concept envisages implementation of the first (preparatory) and the second stage of the reform.

Transport Ministry to Create a Special Leasing Company	
During the meeting on anti-crisis measures in Novosibirsk at the end of March, Vice-Prime Minister Sergey Ivanov announced the creation of a special leasing company within the RF Transport Ministry, which would be engaged in purchasing and leasing Russian-made road and transport equipment to the regions. 
Thus, the Government is planning to support national industry and reduce expenditure in the road-building sector. 
The budget would also be reduced by the cancellation of those projects that have not yet been started. Simultaneously Mr Ivanov emphasised that those projects which are in the final stages, or have been started, will be completed – for example, the construction of the Chita - Khabarovsk road, Irkutsk Airport and the third motor bridge in Novosibirsk. 
Transport Minister Igor Levitin informed journalists that a RUR 3 billion budget has been assigned to the new Transport Ministry’s leasing company. It will work to revive those transport equipment industries which were lost following the collapse of the Soviet Union. The work will be done in cooperation with the Ministry of Industry and Commerce and potentially the involvement of foreign companies, too.

Azerbaijan, Iran and Russia to Set up Railway Company
Azerbaijan, Iran and Russia have decided on construction of a 375-kilometre railroad connecting the Azerbaijani border city of Astara with the Iranian city of Kazvin, Russian Railway representatives announced March 26.
A joint enterprise uniting the Azerbaijani, Iranian and Russian railway administrations will be set up shortly to build the railway link. All three sides will have an equal stake in the company. Sergei Stolyarov, Deputy Head of Economic Forecasts and Strategic Development of OAO RZD, put the project cost at more than USD200 million. 
The project ties in with the Azerbaijani government’s ongoing initiative to promote Azerbaijan as a transportation hub. The link will serve as part of the North-South Transport Corridor, a project aimed at creating a railway connection from Europe and Russia to India and Central Asia via Azerbaijan and Iran. 


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Struggling for Clients
The Russian logistics market is showing a sudden halt in growth rates. Experts emphasise a serious fall in the consumption of 3PL operator services, practically in all areas – transport, warehouse logistics and customs services. It all is connected with falling sales in the supermarket network and also with the universal seizing up of housing construction programs and the freezing of some regional state programs. With escalating competition in the background, the concept of the importance of each client has dawned on logistics companies. One can win client loyalty only as the result of an attitude of stable partnership, based on correct schedules and precisely verified delivery terms. Regardless of how big the client is and how far away he is located – be it the next street, the next town, or at the opposite end of the continent – the customer should be equally assured that his order will be executed in time and in full. “The parts of each supply chain are connected by information, financial and material flows. The chain begins with the purchase of raw material at the suppliers and comes to an end with the sale of the ready goods and services to the client. Some parts of this chain can belong entirely to one organisation, others to counterparts (to clients, suppliers and distributors). Thus, each supply chain usually includes a few companies,” say experts at information portal ‘KIA Center’. 
The world financial crisis has also made Western and Russian companies reconsider the questions of how to use supply chain resources rationally; and how to keep a stable share of the market. Simultaneously, it is very important to satisfy final buyer demand and maximise profit. For the past few years, Russian and Western companies have actively invested in specialised IT solutions, which do both: give guidance on the matter of how to use supply chain resources rationally for better demand satisfaction, and also show which investment projects (merger and/or absorption, a new venture or a new warehouse) are profitable to invest capital in, and which are not so profitable.  
 
First step 
With these processes in the background, market participants do not exclude the beginning of an active process of mergers and the absorption of companies, i.e. the integration of logistics providers. It is facilitated by the fact that client companies are expecting better integrated services, wider application of information technologies, individualisation of logistical decisions and improvements in the whole logistics chain of their enterprise, which would lead to an increased competitive advantage for their company. The loud merger of RLS and STS Logistics, the two largest organisations in this sector, was among the first steps in this direction. Both these companies have a single general shareholder, the Great Circle Fund, whose assets in Russia are operated by Alfa Capital Partners. One of this merged company’s leaders, Rustam Yuldashev, has declared that the consolidated income of the merged company will be $300 million. A member of the Board of Directors of the merged company, Kirill Vlasov, has declared that the main purpose of this association is to achieve a synergy through the increased range of services, combination of both companies’ client databases and optimisation of administrative processes. “This merged company will have warehouses at its disposal with a total area of 150,000 -160,000 sq. m, and 85,000 sq. m of them will be A-Class,” he emphasised. All this will allow the company to become one of the top three leaders in the logistics operators market within next few years.

Alliance or Merger?
Experts consider that such an alliance is a ‘friendly merger’ of two companies. The management of ‘Stanley Sommersby Consulting Company Russia’ thinkmany operators that have developed regional networks –  which are suffering from falling demand and consequently a decrease in liquidity – will make a decision to merge. “During a crisis the friendly merger of companies is common, although it is usually shrouded in secrecy. Through unity, the companies will receive more assets and the opportunity to quickly develop when the market stabilises again. It happens so because they get more ability to start again fast, or to move their trading areas to other locations; and simultaneously the financial side is better as it is easier to save investment funds when trading and office space are not in demand, which allows the receipt of ‘expensive things cheaply’. Also, the opportunity to receive more credit grows in this case too, as each company has its own credit history, and a larger set of bank guarantees can allow the united company to receive more credit than each of them would receive separately,” said Sergey Glukhota, Consulting Director and Vice President of  ‘Stanley Sommersby Consulting Company Russia’. ‘Finam’s analyst, Maxim Klyagin, believes that increased risks could force companies to merge. “A united company noticeably increases its chances of survival in the situation of a sharp deficiency of liquidity and a decrease in consumer activity,” Mr Klyagin noted.

Going to a New Level
The new company, in its turn, note that these events are not connected with the crisis, and that this merger is taking place for other reasons. Rustam Yuldashev has emphasised that this deal was not prompted by the economic crisis. “This merger has only a friendly character. Our actions are not connected with the crisis in any way; the decision to merge had been prepared over a long period, prior to this crisis,” said Mr Yuldashev. 
However, market participants are keeping to the opinion that this is only the first step in a whole chain of similar events. The Chief Marketing Manager of railway operator ‘Transgarnt’, Alexander Metelkin, believes that the integration of players will be beneficial for the market but that during the crisis it is more likely that alliances, rather than high-grade associations, will appear, because it is hard to estimate real asset costs. Unlike mergers, the creation of alliances is a much freer form of association.
“On the one hand, an alliance allows important resources to be used together; whilst on the other it demands less investment and allows the opportunity to separate rather painlessly. It can become the perfect way to reach many goals, which are usually considered achievable only by merger,” an expert from consulting firm “ALT” emphasises. We should note that European researchers in this area predict a positive effect from such alliances, the result of which will be a new way of logistical outsourcing and a new type of logistical provider - 4PL. Such a company is a combination of the strategic management of logistics chains and the operational management for questions of realisation and implementation of strategic decisions; i.e. it combines the functions of both consulting company and 3PL provider. Moreover, a high level of service for the final client is achieved due to the increase in the technological level of advisers, providers of information technologies and 3PL providers. 

The Year of Revival
“It is most likely, that events will develop as follows: to begin with, the Russian banking system will start to finance the real economy sector, transport, commodity and building material production; and then commercial enterprises, once the consumption abilities of the population grow. After this has happened, logistics and all its cycles will rise. And only after the normal functioning of all complex business processes in industry, trade and transport are restored, will there be the new conditions for developers of warehouses and industrial premises to activate,” notes the chairman of the logistics group SLG’s Board of Directors, Vladimir Yelin. Most likely, it is to be expected in 2011, when tendencies for a revival in the sector of the warehouse real estate will probably start to develop again, first of all in the largest cities of Russia, such as Moscow and St. Petersburg, and then, gradually, in the regions, two to three years later.
As a whole, so far the prospects are not clear. “A progressive development of the situation, in my opinion, is possible in the middle of 2009, if prices for natural resources in the world market increase, which in turn will have a direct impact on the profitability of nationwide and regional budgets. All this will have its effect on the availability of money for the population, too. Simultaneously, such a development is possible only with the direct involvement of the state. It develops the legislative base, which creates long-term guarantees and the rules for investment in infrastructure development, where weeds are flourishing, in conditions of gradual de-monopolisation in the market for rendering municipal services to the public and industry,” predicts Andrey Novokhatny, ‘Savant’ Civil-Engineering Project Manager. 
Maria Shevchenko 
    [~DETAIL_TEXT] => 
Struggling for Clients
The Russian logistics market is showing a sudden halt in growth rates. Experts emphasise a serious fall in the consumption of 3PL operator services, practically in all areas – transport, warehouse logistics and customs services. It all is connected with falling sales in the supermarket network and also with the universal seizing up of housing construction programs and the freezing of some regional state programs. With escalating competition in the background, the concept of the importance of each client has dawned on logistics companies. One can win client loyalty only as the result of an attitude of stable partnership, based on correct schedules and precisely verified delivery terms. Regardless of how big the client is and how far away he is located – be it the next street, the next town, or at the opposite end of the continent – the customer should be equally assured that his order will be executed in time and in full. “The parts of each supply chain are connected by information, financial and material flows. The chain begins with the purchase of raw material at the suppliers and comes to an end with the sale of the ready goods and services to the client. Some parts of this chain can belong entirely to one organisation, others to counterparts (to clients, suppliers and distributors). Thus, each supply chain usually includes a few companies,” say experts at information portal ‘KIA Center’. 
The world financial crisis has also made Western and Russian companies reconsider the questions of how to use supply chain resources rationally; and how to keep a stable share of the market. Simultaneously, it is very important to satisfy final buyer demand and maximise profit. For the past few years, Russian and Western companies have actively invested in specialised IT solutions, which do both: give guidance on the matter of how to use supply chain resources rationally for better demand satisfaction, and also show which investment projects (merger and/or absorption, a new venture or a new warehouse) are profitable to invest capital in, and which are not so profitable.  
 
First step 
With these processes in the background, market participants do not exclude the beginning of an active process of mergers and the absorption of companies, i.e. the integration of logistics providers. It is facilitated by the fact that client companies are expecting better integrated services, wider application of information technologies, individualisation of logistical decisions and improvements in the whole logistics chain of their enterprise, which would lead to an increased competitive advantage for their company. The loud merger of RLS and STS Logistics, the two largest organisations in this sector, was among the first steps in this direction. Both these companies have a single general shareholder, the Great Circle Fund, whose assets in Russia are operated by Alfa Capital Partners. One of this merged company’s leaders, Rustam Yuldashev, has declared that the consolidated income of the merged company will be $300 million. A member of the Board of Directors of the merged company, Kirill Vlasov, has declared that the main purpose of this association is to achieve a synergy through the increased range of services, combination of both companies’ client databases and optimisation of administrative processes. “This merged company will have warehouses at its disposal with a total area of 150,000 -160,000 sq. m, and 85,000 sq. m of them will be A-Class,” he emphasised. All this will allow the company to become one of the top three leaders in the logistics operators market within next few years.

Alliance or Merger?
Experts consider that such an alliance is a ‘friendly merger’ of two companies. The management of ‘Stanley Sommersby Consulting Company Russia’ thinkmany operators that have developed regional networks –  which are suffering from falling demand and consequently a decrease in liquidity – will make a decision to merge. “During a crisis the friendly merger of companies is common, although it is usually shrouded in secrecy. Through unity, the companies will receive more assets and the opportunity to quickly develop when the market stabilises again. It happens so because they get more ability to start again fast, or to move their trading areas to other locations; and simultaneously the financial side is better as it is easier to save investment funds when trading and office space are not in demand, which allows the receipt of ‘expensive things cheaply’. Also, the opportunity to receive more credit grows in this case too, as each company has its own credit history, and a larger set of bank guarantees can allow the united company to receive more credit than each of them would receive separately,” said Sergey Glukhota, Consulting Director and Vice President of  ‘Stanley Sommersby Consulting Company Russia’. ‘Finam’s analyst, Maxim Klyagin, believes that increased risks could force companies to merge. “A united company noticeably increases its chances of survival in the situation of a sharp deficiency of liquidity and a decrease in consumer activity,” Mr Klyagin noted.

Going to a New Level
The new company, in its turn, note that these events are not connected with the crisis, and that this merger is taking place for other reasons. Rustam Yuldashev has emphasised that this deal was not prompted by the economic crisis. “This merger has only a friendly character. Our actions are not connected with the crisis in any way; the decision to merge had been prepared over a long period, prior to this crisis,” said Mr Yuldashev. 
However, market participants are keeping to the opinion that this is only the first step in a whole chain of similar events. The Chief Marketing Manager of railway operator ‘Transgarnt’, Alexander Metelkin, believes that the integration of players will be beneficial for the market but that during the crisis it is more likely that alliances, rather than high-grade associations, will appear, because it is hard to estimate real asset costs. Unlike mergers, the creation of alliances is a much freer form of association.
“On the one hand, an alliance allows important resources to be used together; whilst on the other it demands less investment and allows the opportunity to separate rather painlessly. It can become the perfect way to reach many goals, which are usually considered achievable only by merger,” an expert from consulting firm “ALT” emphasises. We should note that European researchers in this area predict a positive effect from such alliances, the result of which will be a new way of logistical outsourcing and a new type of logistical provider - 4PL. Such a company is a combination of the strategic management of logistics chains and the operational management for questions of realisation and implementation of strategic decisions; i.e. it combines the functions of both consulting company and 3PL provider. Moreover, a high level of service for the final client is achieved due to the increase in the technological level of advisers, providers of information technologies and 3PL providers. 

The Year of Revival
“It is most likely, that events will develop as follows: to begin with, the Russian banking system will start to finance the real economy sector, transport, commodity and building material production; and then commercial enterprises, once the consumption abilities of the population grow. After this has happened, logistics and all its cycles will rise. And only after the normal functioning of all complex business processes in industry, trade and transport are restored, will there be the new conditions for developers of warehouses and industrial premises to activate,” notes the chairman of the logistics group SLG’s Board of Directors, Vladimir Yelin. Most likely, it is to be expected in 2011, when tendencies for a revival in the sector of the warehouse real estate will probably start to develop again, first of all in the largest cities of Russia, such as Moscow and St. Petersburg, and then, gradually, in the regions, two to three years later.
As a whole, so far the prospects are not clear. “A progressive development of the situation, in my opinion, is possible in the middle of 2009, if prices for natural resources in the world market increase, which in turn will have a direct impact on the profitability of nationwide and regional budgets. All this will have its effect on the availability of money for the population, too. Simultaneously, such a development is possible only with the direct involvement of the state. It develops the legislative base, which creates long-term guarantees and the rules for investment in infrastructure development, where weeds are flourishing, in conditions of gradual de-monopolisation in the market for rendering municipal services to the public and industry,” predicts Andrey Novokhatny, ‘Savant’ Civil-Engineering Project Manager. 
Maria Shevchenko 
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            [ELEMENT_META_DESCRIPTION] => <img src="/ufiles/image/rus/partner/2009/2/4.jpg" border="1" alt=" " hspace="5" width="160" height="120" align="left" />The large Russian logistic companies have suspended plans for further development and are reconsidering their forecasts. The logistics sector is on the threshold of large-scale changes. The latest tendency – the merger and absorption of companies – has already begun, with the association of “Russian Logistic Service” and “STS Logistics”.
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Struggling for Clients
The Russian logistics market is showing a sudden halt in growth rates. Experts emphasise a serious fall in the consumption of 3PL operator services, practically in all areas – transport, warehouse logistics and customs services. It all is connected with falling sales in the supermarket network and also with the universal seizing up of housing construction programs and the freezing of some regional state programs. With escalating competition in the background, the concept of the importance of each client has dawned on logistics companies. One can win client loyalty only as the result of an attitude of stable partnership, based on correct schedules and precisely verified delivery terms. Regardless of how big the client is and how far away he is located – be it the next street, the next town, or at the opposite end of the continent – the customer should be equally assured that his order will be executed in time and in full. “The parts of each supply chain are connected by information, financial and material flows. The chain begins with the purchase of raw material at the suppliers and comes to an end with the sale of the ready goods and services to the client. Some parts of this chain can belong entirely to one organisation, others to counterparts (to clients, suppliers and distributors). Thus, each supply chain usually includes a few companies,” say experts at information portal ‘KIA Center’. 
The world financial crisis has also made Western and Russian companies reconsider the questions of how to use supply chain resources rationally; and how to keep a stable share of the market. Simultaneously, it is very important to satisfy final buyer demand and maximise profit. For the past few years, Russian and Western companies have actively invested in specialised IT solutions, which do both: give guidance on the matter of how to use supply chain resources rationally for better demand satisfaction, and also show which investment projects (merger and/or absorption, a new venture or a new warehouse) are profitable to invest capital in, and which are not so profitable.  
 
First step 
With these processes in the background, market participants do not exclude the beginning of an active process of mergers and the absorption of companies, i.e. the integration of logistics providers. It is facilitated by the fact that client companies are expecting better integrated services, wider application of information technologies, individualisation of logistical decisions and improvements in the whole logistics chain of their enterprise, which would lead to an increased competitive advantage for their company. The loud merger of RLS and STS Logistics, the two largest organisations in this sector, was among the first steps in this direction. Both these companies have a single general shareholder, the Great Circle Fund, whose assets in Russia are operated by Alfa Capital Partners. One of this merged company’s leaders, Rustam Yuldashev, has declared that the consolidated income of the merged company will be $300 million. A member of the Board of Directors of the merged company, Kirill Vlasov, has declared that the main purpose of this association is to achieve a synergy through the increased range of services, combination of both companies’ client databases and optimisation of administrative processes. “This merged company will have warehouses at its disposal with a total area of 150,000 -160,000 sq. m, and 85,000 sq. m of them will be A-Class,” he emphasised. All this will allow the company to become one of the top three leaders in the logistics operators market within next few years.

Alliance or Merger?
Experts consider that such an alliance is a ‘friendly merger’ of two companies. The management of ‘Stanley Sommersby Consulting Company Russia’ thinkmany operators that have developed regional networks –  which are suffering from falling demand and consequently a decrease in liquidity – will make a decision to merge. “During a crisis the friendly merger of companies is common, although it is usually shrouded in secrecy. Through unity, the companies will receive more assets and the opportunity to quickly develop when the market stabilises again. It happens so because they get more ability to start again fast, or to move their trading areas to other locations; and simultaneously the financial side is better as it is easier to save investment funds when trading and office space are not in demand, which allows the receipt of ‘expensive things cheaply’. Also, the opportunity to receive more credit grows in this case too, as each company has its own credit history, and a larger set of bank guarantees can allow the united company to receive more credit than each of them would receive separately,” said Sergey Glukhota, Consulting Director and Vice President of  ‘Stanley Sommersby Consulting Company Russia’. ‘Finam’s analyst, Maxim Klyagin, believes that increased risks could force companies to merge. “A united company noticeably increases its chances of survival in the situation of a sharp deficiency of liquidity and a decrease in consumer activity,” Mr Klyagin noted.

Going to a New Level
The new company, in its turn, note that these events are not connected with the crisis, and that this merger is taking place for other reasons. Rustam Yuldashev has emphasised that this deal was not prompted by the economic crisis. “This merger has only a friendly character. Our actions are not connected with the crisis in any way; the decision to merge had been prepared over a long period, prior to this crisis,” said Mr Yuldashev. 
However, market participants are keeping to the opinion that this is only the first step in a whole chain of similar events. The Chief Marketing Manager of railway operator ‘Transgarnt’, Alexander Metelkin, believes that the integration of players will be beneficial for the market but that during the crisis it is more likely that alliances, rather than high-grade associations, will appear, because it is hard to estimate real asset costs. Unlike mergers, the creation of alliances is a much freer form of association.
“On the one hand, an alliance allows important resources to be used together; whilst on the other it demands less investment and allows the opportunity to separate rather painlessly. It can become the perfect way to reach many goals, which are usually considered achievable only by merger,” an expert from consulting firm “ALT” emphasises. We should note that European researchers in this area predict a positive effect from such alliances, the result of which will be a new way of logistical outsourcing and a new type of logistical provider - 4PL. Such a company is a combination of the strategic management of logistics chains and the operational management for questions of realisation and implementation of strategic decisions; i.e. it combines the functions of both consulting company and 3PL provider. Moreover, a high level of service for the final client is achieved due to the increase in the technological level of advisers, providers of information technologies and 3PL providers. 

The Year of Revival
“It is most likely, that events will develop as follows: to begin with, the Russian banking system will start to finance the real economy sector, transport, commodity and building material production; and then commercial enterprises, once the consumption abilities of the population grow. After this has happened, logistics and all its cycles will rise. And only after the normal functioning of all complex business processes in industry, trade and transport are restored, will there be the new conditions for developers of warehouses and industrial premises to activate,” notes the chairman of the logistics group SLG’s Board of Directors, Vladimir Yelin. Most likely, it is to be expected in 2011, when tendencies for a revival in the sector of the warehouse real estate will probably start to develop again, first of all in the largest cities of Russia, such as Moscow and St. Petersburg, and then, gradually, in the regions, two to three years later.
As a whole, so far the prospects are not clear. “A progressive development of the situation, in my opinion, is possible in the middle of 2009, if prices for natural resources in the world market increase, which in turn will have a direct impact on the profitability of nationwide and regional budgets. All this will have its effect on the availability of money for the population, too. Simultaneously, such a development is possible only with the direct involvement of the state. It develops the legislative base, which creates long-term guarantees and the rules for investment in infrastructure development, where weeds are flourishing, in conditions of gradual de-monopolisation in the market for rendering municipal services to the public and industry,” predicts Andrey Novokhatny, ‘Savant’ Civil-Engineering Project Manager. 
Maria Shevchenko 
    [~DETAIL_TEXT] => 
Struggling for Clients
The Russian logistics market is showing a sudden halt in growth rates. Experts emphasise a serious fall in the consumption of 3PL operator services, practically in all areas – transport, warehouse logistics and customs services. It all is connected with falling sales in the supermarket network and also with the universal seizing up of housing construction programs and the freezing of some regional state programs. With escalating competition in the background, the concept of the importance of each client has dawned on logistics companies. One can win client loyalty only as the result of an attitude of stable partnership, based on correct schedules and precisely verified delivery terms. Regardless of how big the client is and how far away he is located – be it the next street, the next town, or at the opposite end of the continent – the customer should be equally assured that his order will be executed in time and in full. “The parts of each supply chain are connected by information, financial and material flows. The chain begins with the purchase of raw material at the suppliers and comes to an end with the sale of the ready goods and services to the client. Some parts of this chain can belong entirely to one organisation, others to counterparts (to clients, suppliers and distributors). Thus, each supply chain usually includes a few companies,” say experts at information portal ‘KIA Center’. 
The world financial crisis has also made Western and Russian companies reconsider the questions of how to use supply chain resources rationally; and how to keep a stable share of the market. Simultaneously, it is very important to satisfy final buyer demand and maximise profit. For the past few years, Russian and Western companies have actively invested in specialised IT solutions, which do both: give guidance on the matter of how to use supply chain resources rationally for better demand satisfaction, and also show which investment projects (merger and/or absorption, a new venture or a new warehouse) are profitable to invest capital in, and which are not so profitable.  
 
First step 
With these processes in the background, market participants do not exclude the beginning of an active process of mergers and the absorption of companies, i.e. the integration of logistics providers. It is facilitated by the fact that client companies are expecting better integrated services, wider application of information technologies, individualisation of logistical decisions and improvements in the whole logistics chain of their enterprise, which would lead to an increased competitive advantage for their company. The loud merger of RLS and STS Logistics, the two largest organisations in this sector, was among the first steps in this direction. Both these companies have a single general shareholder, the Great Circle Fund, whose assets in Russia are operated by Alfa Capital Partners. One of this merged company’s leaders, Rustam Yuldashev, has declared that the consolidated income of the merged company will be $300 million. A member of the Board of Directors of the merged company, Kirill Vlasov, has declared that the main purpose of this association is to achieve a synergy through the increased range of services, combination of both companies’ client databases and optimisation of administrative processes. “This merged company will have warehouses at its disposal with a total area of 150,000 -160,000 sq. m, and 85,000 sq. m of them will be A-Class,” he emphasised. All this will allow the company to become one of the top three leaders in the logistics operators market within next few years.

Alliance or Merger?
Experts consider that such an alliance is a ‘friendly merger’ of two companies. The management of ‘Stanley Sommersby Consulting Company Russia’ thinkmany operators that have developed regional networks –  which are suffering from falling demand and consequently a decrease in liquidity – will make a decision to merge. “During a crisis the friendly merger of companies is common, although it is usually shrouded in secrecy. Through unity, the companies will receive more assets and the opportunity to quickly develop when the market stabilises again. It happens so because they get more ability to start again fast, or to move their trading areas to other locations; and simultaneously the financial side is better as it is easier to save investment funds when trading and office space are not in demand, which allows the receipt of ‘expensive things cheaply’. Also, the opportunity to receive more credit grows in this case too, as each company has its own credit history, and a larger set of bank guarantees can allow the united company to receive more credit than each of them would receive separately,” said Sergey Glukhota, Consulting Director and Vice President of  ‘Stanley Sommersby Consulting Company Russia’. ‘Finam’s analyst, Maxim Klyagin, believes that increased risks could force companies to merge. “A united company noticeably increases its chances of survival in the situation of a sharp deficiency of liquidity and a decrease in consumer activity,” Mr Klyagin noted.

Going to a New Level
The new company, in its turn, note that these events are not connected with the crisis, and that this merger is taking place for other reasons. Rustam Yuldashev has emphasised that this deal was not prompted by the economic crisis. “This merger has only a friendly character. Our actions are not connected with the crisis in any way; the decision to merge had been prepared over a long period, prior to this crisis,” said Mr Yuldashev. 
However, market participants are keeping to the opinion that this is only the first step in a whole chain of similar events. The Chief Marketing Manager of railway operator ‘Transgarnt’, Alexander Metelkin, believes that the integration of players will be beneficial for the market but that during the crisis it is more likely that alliances, rather than high-grade associations, will appear, because it is hard to estimate real asset costs. Unlike mergers, the creation of alliances is a much freer form of association.
“On the one hand, an alliance allows important resources to be used together; whilst on the other it demands less investment and allows the opportunity to separate rather painlessly. It can become the perfect way to reach many goals, which are usually considered achievable only by merger,” an expert from consulting firm “ALT” emphasises. We should note that European researchers in this area predict a positive effect from such alliances, the result of which will be a new way of logistical outsourcing and a new type of logistical provider - 4PL. Such a company is a combination of the strategic management of logistics chains and the operational management for questions of realisation and implementation of strategic decisions; i.e. it combines the functions of both consulting company and 3PL provider. Moreover, a high level of service for the final client is achieved due to the increase in the technological level of advisers, providers of information technologies and 3PL providers. 

The Year of Revival
“It is most likely, that events will develop as follows: to begin with, the Russian banking system will start to finance the real economy sector, transport, commodity and building material production; and then commercial enterprises, once the consumption abilities of the population grow. After this has happened, logistics and all its cycles will rise. And only after the normal functioning of all complex business processes in industry, trade and transport are restored, will there be the new conditions for developers of warehouses and industrial premises to activate,” notes the chairman of the logistics group SLG’s Board of Directors, Vladimir Yelin. Most likely, it is to be expected in 2011, when tendencies for a revival in the sector of the warehouse real estate will probably start to develop again, first of all in the largest cities of Russia, such as Moscow and St. Petersburg, and then, gradually, in the regions, two to three years later.
As a whole, so far the prospects are not clear. “A progressive development of the situation, in my opinion, is possible in the middle of 2009, if prices for natural resources in the world market increase, which in turn will have a direct impact on the profitability of nationwide and regional budgets. All this will have its effect on the availability of money for the population, too. Simultaneously, such a development is possible only with the direct involvement of the state. It develops the legislative base, which creates long-term guarantees and the rules for investment in infrastructure development, where weeds are flourishing, in conditions of gradual de-monopolisation in the market for rendering municipal services to the public and industry,” predicts Andrey Novokhatny, ‘Savant’ Civil-Engineering Project Manager. 
Maria Shevchenko 
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“INVESTORS ARE DEMANDING VERY HIGH RETURN”
– Mr Jones, could you give your brief view of the Russian logistics market? What does it look like nowadays? 
– It can hardly be a brief answer, there is so much happening! Right now what we see is that the financial crisis of course is having a huge impact on this market. 
Logistics development is typically not a highly profitable segment. It is usually less risky than other property sectors when the market is functioning well and it is not as profitable as other sectors such as offices or residential.
Today what we are seeing is that developers are looking for investors who have liquid cash positions but, there aren’t many such investors. And, again, such investors are able to demand very high returns on their investment. And, unfortunately, the logistics market does not provide the return they demand. That is the first problem. In reality, the investors are not putting any new money into the logistics development sector. A few private investors are continuing the projects which they had started before the crisis but this activity represents a small percentage of the total market. 
In general, we see that investors are not interested in investing in new developments because they want projects that are already finished and that are providing attractive, current cash-flows. In the past, before the crisis, the return people were getting from logistics was 20-30% IRRs. Today investors are demanding over 50% IRRs and less risk.
The other point is that not so many new developments are available in the RF regions because it is very difficult to get credit from the banks for regional construction. 
– At the same time, there are companies which get credit from the banks, e.g. EBRD. 
– We (our company) did obtain a loan from the EBRD but that was in 2008 and we were one of the few companies that did so. I don’t know anybody who has obtained credit in 2009. Obviously, this is a very serious problem for both developers and the banks.
– Has the construction of warehouses become cheaper because of the financial shutdown? 
– We have seen a decrease in the construction cost. Unfortunately, sometimes the weakened ruble minimises the benefits that we gain because a portion of our construction materials is produced outside of Russia. Unfortunately, the cost of approvals of the “Tekhnicheskiye usloviya” (technical standards) and the cost of energy infrastructure installations are not decreasing. 
But yes, we do see decreases in the construction cost and we also see that the construction companies are now much more willing to be aggressive with their pricing – they are fighting to get business. That is good. 

“THERE WILL NOT BE A LOT OF NEW SPACE IN THE FUTURE”
– Has demand in the warehouse logistics market changed somehow in Russia? 
– We have seen in the last few months that warehouse tenants have been aggressively renegotiating their leases, i.e. they are trying to lower their rent or to find new space for much lower rents. But I think that they are not finding as much space for lower prices as they expected. There is not a huge amount of space in, e.g. Moscow; I estimate that 10-11% of space is vacant. And that is not a high number in a time of crisis! We can see much higher level of vacancy at the offices sector.
I believe that vacancies in the logistics sector ares much higher in St. Petersburg. But in general in Russia I believe that average vacancy levels are  not as high as you can see  in parts of the offices development sector (30% - 40%). What I am saying is that there is not a huge supply and this vacancy will be absorbed fairly quickly since developers aren’t starting new projects. There will be some new space but not much. 
– Does this mean that we can forecast a slight deficit in vacant warehousing space in the long term? 
– There are big logistics development companies that are having big financial problems now. Some of them have completely stopped their activities. That means they had already started development, bought permissions but will not construct new warehouses. That is why I think there will not be a huge supply of new space until new companies start with new investment capital. 
– In that case isn’t it the right time to invest in construction of new logistics parks?
–  I am not sure about that because the problem is that the rent is too low to give the investors the type of returns they demand today. Let us remember that, today, if someone has a lot of money, he has got a lot of possibilities to invest and receive very high returns. That is why investors are not going to come into the logistics space until they see the rents increase to a normal level. Even before the crisis Russian rents were much lower than European ones (about $140 per square metre in Moscow). Here in Russia, the tenants were complaining about these rents because many of them were not making big profits. But still, that level of rent is too low to give the type of return the investors demand. 
Nevertheless, we still believe that Russia remains a very good field for the logistics business long-term. Warehousing development will be a good business for a long time. The problem is a short term one. For the next 18 to 24 months there will be a serious problem for the reasons I am talking about. 
– Meanwhile, there are some big retail companies that have announced they will start operating in Russia e.g. Wal-Mart companies. Won’t they increase the level of demand for logistics space?
– We have also heard about these announcements. As far as I understand, they are going to buy Russian trading companies; they say that they don’t want to start from zero. The process will have an impact but the impact will not be immediate. It will take them a while to structure the operations and to grow. The companies will have to build stores or buy, and that will take much more than a few months. 
– Is it true that class A warehouses have become less popular? 
– Actually, when people say that a lot of the companies do not need class A warehouses, I don’t agree. They do need high-class warehouses. 
On the other hand, when you say that companies are trying to rent class B or class C – that is true for the short-term because many companies are suffering huge economic shocks to their business and they must find any possible way to save money. You will see them again in Class A when the economic situation improves. 

“BY THE BEGINNING OF THE CRISIS RUSSIAN MARKET HAD BECOME OVERHEATED”
– Could you compare the impact of the crisis in Russia with other countries? 
– The logistics market in Europe was more mature before the crisis and therefore the rents were more stable – they provided a more stable return. More than that, we had more banks that provided credit for construction needs in the European markets. 
There are not so many banks in Russia that lend for construction, especially in the regions. The problem is that logistics is not well developed in the regions. 
The other point is that, by the beginning of the crisis, the Russian market had become overheated. We started building spaces before we had tenants, I don’t think that we will see the same situation in the future. Nowadays, as I have already said, there is not so much investment and the investors want to be sure that there are tenants there and that they would be able to pay a good rent. In Europe, they do build a little logistics space before they find tenants but they don’t build a large volume like we have seen in Russia in the past couple of years. I think that situation will change in Russia as well. Actually, what is happening is good. It will create an equilibrium between supply and demand and rent rates. 
– Which of the Russian regions are the most promising for the development companies, apart from Moscow and St. Petersburg?
– Frankly speaking, most of the investors are not interested in development in the regions. I think they will suffer for a while. 
At the same time, our company is working at Nizhny Novgorod and I am pleased to see some of the clients coming back to us. It is a very interesting region actually but in general I think that projects in the regions will not be so active. 
– In terms of business culture, are there any peculiarities of working here in Russia? 
– Of course there are differences but I wouldn’t say that one is better than the other. I think Russians are sometimes willing to take more risks because they understand the local situation better. It will take more time before the international investors come back to Russia. Russian investors are willing to take some risks now if they are confident that they’ll receive high returns.  
Interviewed by anna nezhinskaya 

biography
Miles Jones, 
Partner Griffin Partners 
Miles has over 17 years of real estate investment and development experience. Prior to founding Griffin Partners Miles was Managing Partner of AIG/Lincoln Italy/ 
Before this Miles founded and was Managing Partner of Noble Gibbons/CB Richard Ellis, Russian real estate advisory company. The firm was eventually sold to CBRE International. Miles then took on the role of Director of Leasing for an American-Russian joint venture in real estate development.
Miles was educated in the USA at Auburn University (BA) and at Emory University (MBA).

our reference
Griffin Partners Company focuses on Real Estate Development and Asset management in Moscow and selected major regional cities within the Russian Federation.  The firm develops and manages investments across four major real estate segments: offices, mixed use, warehouse/ industrial and elite residential.
    [~DETAIL_TEXT] => 
“INVESTORS ARE DEMANDING VERY HIGH RETURN”
– Mr Jones, could you give your brief view of the Russian logistics market? What does it look like nowadays? 
– It can hardly be a brief answer, there is so much happening! Right now what we see is that the financial crisis of course is having a huge impact on this market. 
Logistics development is typically not a highly profitable segment. It is usually less risky than other property sectors when the market is functioning well and it is not as profitable as other sectors such as offices or residential.
Today what we are seeing is that developers are looking for investors who have liquid cash positions but, there aren’t many such investors. And, again, such investors are able to demand very high returns on their investment. And, unfortunately, the logistics market does not provide the return they demand. That is the first problem. In reality, the investors are not putting any new money into the logistics development sector. A few private investors are continuing the projects which they had started before the crisis but this activity represents a small percentage of the total market. 
In general, we see that investors are not interested in investing in new developments because they want projects that are already finished and that are providing attractive, current cash-flows. In the past, before the crisis, the return people were getting from logistics was 20-30% IRRs. Today investors are demanding over 50% IRRs and less risk.
The other point is that not so many new developments are available in the RF regions because it is very difficult to get credit from the banks for regional construction. 
– At the same time, there are companies which get credit from the banks, e.g. EBRD. 
– We (our company) did obtain a loan from the EBRD but that was in 2008 and we were one of the few companies that did so. I don’t know anybody who has obtained credit in 2009. Obviously, this is a very serious problem for both developers and the banks.
– Has the construction of warehouses become cheaper because of the financial shutdown? 
– We have seen a decrease in the construction cost. Unfortunately, sometimes the weakened ruble minimises the benefits that we gain because a portion of our construction materials is produced outside of Russia. Unfortunately, the cost of approvals of the “Tekhnicheskiye usloviya” (technical standards) and the cost of energy infrastructure installations are not decreasing. 
But yes, we do see decreases in the construction cost and we also see that the construction companies are now much more willing to be aggressive with their pricing – they are fighting to get business. That is good. 

“THERE WILL NOT BE A LOT OF NEW SPACE IN THE FUTURE”
– Has demand in the warehouse logistics market changed somehow in Russia? 
– We have seen in the last few months that warehouse tenants have been aggressively renegotiating their leases, i.e. they are trying to lower their rent or to find new space for much lower rents. But I think that they are not finding as much space for lower prices as they expected. There is not a huge amount of space in, e.g. Moscow; I estimate that 10-11% of space is vacant. And that is not a high number in a time of crisis! We can see much higher level of vacancy at the offices sector.
I believe that vacancies in the logistics sector ares much higher in St. Petersburg. But in general in Russia I believe that average vacancy levels are  not as high as you can see  in parts of the offices development sector (30% - 40%). What I am saying is that there is not a huge supply and this vacancy will be absorbed fairly quickly since developers aren’t starting new projects. There will be some new space but not much. 
– Does this mean that we can forecast a slight deficit in vacant warehousing space in the long term? 
– There are big logistics development companies that are having big financial problems now. Some of them have completely stopped their activities. That means they had already started development, bought permissions but will not construct new warehouses. That is why I think there will not be a huge supply of new space until new companies start with new investment capital. 
– In that case isn’t it the right time to invest in construction of new logistics parks?
–  I am not sure about that because the problem is that the rent is too low to give the investors the type of returns they demand today. Let us remember that, today, if someone has a lot of money, he has got a lot of possibilities to invest and receive very high returns. That is why investors are not going to come into the logistics space until they see the rents increase to a normal level. Even before the crisis Russian rents were much lower than European ones (about $140 per square metre in Moscow). Here in Russia, the tenants were complaining about these rents because many of them were not making big profits. But still, that level of rent is too low to give the type of return the investors demand. 
Nevertheless, we still believe that Russia remains a very good field for the logistics business long-term. Warehousing development will be a good business for a long time. The problem is a short term one. For the next 18 to 24 months there will be a serious problem for the reasons I am talking about. 
– Meanwhile, there are some big retail companies that have announced they will start operating in Russia e.g. Wal-Mart companies. Won’t they increase the level of demand for logistics space?
– We have also heard about these announcements. As far as I understand, they are going to buy Russian trading companies; they say that they don’t want to start from zero. The process will have an impact but the impact will not be immediate. It will take them a while to structure the operations and to grow. The companies will have to build stores or buy, and that will take much more than a few months. 
– Is it true that class A warehouses have become less popular? 
– Actually, when people say that a lot of the companies do not need class A warehouses, I don’t agree. They do need high-class warehouses. 
On the other hand, when you say that companies are trying to rent class B or class C – that is true for the short-term because many companies are suffering huge economic shocks to their business and they must find any possible way to save money. You will see them again in Class A when the economic situation improves. 

“BY THE BEGINNING OF THE CRISIS RUSSIAN MARKET HAD BECOME OVERHEATED”
– Could you compare the impact of the crisis in Russia with other countries? 
– The logistics market in Europe was more mature before the crisis and therefore the rents were more stable – they provided a more stable return. More than that, we had more banks that provided credit for construction needs in the European markets. 
There are not so many banks in Russia that lend for construction, especially in the regions. The problem is that logistics is not well developed in the regions. 
The other point is that, by the beginning of the crisis, the Russian market had become overheated. We started building spaces before we had tenants, I don’t think that we will see the same situation in the future. Nowadays, as I have already said, there is not so much investment and the investors want to be sure that there are tenants there and that they would be able to pay a good rent. In Europe, they do build a little logistics space before they find tenants but they don’t build a large volume like we have seen in Russia in the past couple of years. I think that situation will change in Russia as well. Actually, what is happening is good. It will create an equilibrium between supply and demand and rent rates. 
– Which of the Russian regions are the most promising for the development companies, apart from Moscow and St. Petersburg?
– Frankly speaking, most of the investors are not interested in development in the regions. I think they will suffer for a while. 
At the same time, our company is working at Nizhny Novgorod and I am pleased to see some of the clients coming back to us. It is a very interesting region actually but in general I think that projects in the regions will not be so active. 
– In terms of business culture, are there any peculiarities of working here in Russia? 
– Of course there are differences but I wouldn’t say that one is better than the other. I think Russians are sometimes willing to take more risks because they understand the local situation better. It will take more time before the international investors come back to Russia. Russian investors are willing to take some risks now if they are confident that they’ll receive high returns.  
Interviewed by anna nezhinskaya 

biography
Miles Jones, 
Partner Griffin Partners 
Miles has over 17 years of real estate investment and development experience. Prior to founding Griffin Partners Miles was Managing Partner of AIG/Lincoln Italy/ 
Before this Miles founded and was Managing Partner of Noble Gibbons/CB Richard Ellis, Russian real estate advisory company. The firm was eventually sold to CBRE International. Miles then took on the role of Director of Leasing for an American-Russian joint venture in real estate development.
Miles was educated in the USA at Auburn University (BA) and at Emory University (MBA).

our reference
Griffin Partners Company focuses on Real Estate Development and Asset management in Moscow and selected major regional cities within the Russian Federation.  The firm develops and manages investments across four major real estate segments: offices, mixed use, warehouse/ industrial and elite residential.
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“INVESTORS ARE DEMANDING VERY HIGH RETURN”
– Mr Jones, could you give your brief view of the Russian logistics market? What does it look like nowadays? 
– It can hardly be a brief answer, there is so much happening! Right now what we see is that the financial crisis of course is having a huge impact on this market. 
Logistics development is typically not a highly profitable segment. It is usually less risky than other property sectors when the market is functioning well and it is not as profitable as other sectors such as offices or residential.
Today what we are seeing is that developers are looking for investors who have liquid cash positions but, there aren’t many such investors. And, again, such investors are able to demand very high returns on their investment. And, unfortunately, the logistics market does not provide the return they demand. That is the first problem. In reality, the investors are not putting any new money into the logistics development sector. A few private investors are continuing the projects which they had started before the crisis but this activity represents a small percentage of the total market. 
In general, we see that investors are not interested in investing in new developments because they want projects that are already finished and that are providing attractive, current cash-flows. In the past, before the crisis, the return people were getting from logistics was 20-30% IRRs. Today investors are demanding over 50% IRRs and less risk.
The other point is that not so many new developments are available in the RF regions because it is very difficult to get credit from the banks for regional construction. 
– At the same time, there are companies which get credit from the banks, e.g. EBRD. 
– We (our company) did obtain a loan from the EBRD but that was in 2008 and we were one of the few companies that did so. I don’t know anybody who has obtained credit in 2009. Obviously, this is a very serious problem for both developers and the banks.
– Has the construction of warehouses become cheaper because of the financial shutdown? 
– We have seen a decrease in the construction cost. Unfortunately, sometimes the weakened ruble minimises the benefits that we gain because a portion of our construction materials is produced outside of Russia. Unfortunately, the cost of approvals of the “Tekhnicheskiye usloviya” (technical standards) and the cost of energy infrastructure installations are not decreasing. 
But yes, we do see decreases in the construction cost and we also see that the construction companies are now much more willing to be aggressive with their pricing – they are fighting to get business. That is good. 

“THERE WILL NOT BE A LOT OF NEW SPACE IN THE FUTURE”
– Has demand in the warehouse logistics market changed somehow in Russia? 
– We have seen in the last few months that warehouse tenants have been aggressively renegotiating their leases, i.e. they are trying to lower their rent or to find new space for much lower rents. But I think that they are not finding as much space for lower prices as they expected. There is not a huge amount of space in, e.g. Moscow; I estimate that 10-11% of space is vacant. And that is not a high number in a time of crisis! We can see much higher level of vacancy at the offices sector.
I believe that vacancies in the logistics sector ares much higher in St. Petersburg. But in general in Russia I believe that average vacancy levels are  not as high as you can see  in parts of the offices development sector (30% - 40%). What I am saying is that there is not a huge supply and this vacancy will be absorbed fairly quickly since developers aren’t starting new projects. There will be some new space but not much. 
– Does this mean that we can forecast a slight deficit in vacant warehousing space in the long term? 
– There are big logistics development companies that are having big financial problems now. Some of them have completely stopped their activities. That means they had already started development, bought permissions but will not construct new warehouses. That is why I think there will not be a huge supply of new space until new companies start with new investment capital. 
– In that case isn’t it the right time to invest in construction of new logistics parks?
–  I am not sure about that because the problem is that the rent is too low to give the investors the type of returns they demand today. Let us remember that, today, if someone has a lot of money, he has got a lot of possibilities to invest and receive very high returns. That is why investors are not going to come into the logistics space until they see the rents increase to a normal level. Even before the crisis Russian rents were much lower than European ones (about $140 per square metre in Moscow). Here in Russia, the tenants were complaining about these rents because many of them were not making big profits. But still, that level of rent is too low to give the type of return the investors demand. 
Nevertheless, we still believe that Russia remains a very good field for the logistics business long-term. Warehousing development will be a good business for a long time. The problem is a short term one. For the next 18 to 24 months there will be a serious problem for the reasons I am talking about. 
– Meanwhile, there are some big retail companies that have announced they will start operating in Russia e.g. Wal-Mart companies. Won’t they increase the level of demand for logistics space?
– We have also heard about these announcements. As far as I understand, they are going to buy Russian trading companies; they say that they don’t want to start from zero. The process will have an impact but the impact will not be immediate. It will take them a while to structure the operations and to grow. The companies will have to build stores or buy, and that will take much more than a few months. 
– Is it true that class A warehouses have become less popular? 
– Actually, when people say that a lot of the companies do not need class A warehouses, I don’t agree. They do need high-class warehouses. 
On the other hand, when you say that companies are trying to rent class B or class C – that is true for the short-term because many companies are suffering huge economic shocks to their business and they must find any possible way to save money. You will see them again in Class A when the economic situation improves. 

“BY THE BEGINNING OF THE CRISIS RUSSIAN MARKET HAD BECOME OVERHEATED”
– Could you compare the impact of the crisis in Russia with other countries? 
– The logistics market in Europe was more mature before the crisis and therefore the rents were more stable – they provided a more stable return. More than that, we had more banks that provided credit for construction needs in the European markets. 
There are not so many banks in Russia that lend for construction, especially in the regions. The problem is that logistics is not well developed in the regions. 
The other point is that, by the beginning of the crisis, the Russian market had become overheated. We started building spaces before we had tenants, I don’t think that we will see the same situation in the future. Nowadays, as I have already said, there is not so much investment and the investors want to be sure that there are tenants there and that they would be able to pay a good rent. In Europe, they do build a little logistics space before they find tenants but they don’t build a large volume like we have seen in Russia in the past couple of years. I think that situation will change in Russia as well. Actually, what is happening is good. It will create an equilibrium between supply and demand and rent rates. 
– Which of the Russian regions are the most promising for the development companies, apart from Moscow and St. Petersburg?
– Frankly speaking, most of the investors are not interested in development in the regions. I think they will suffer for a while. 
At the same time, our company is working at Nizhny Novgorod and I am pleased to see some of the clients coming back to us. It is a very interesting region actually but in general I think that projects in the regions will not be so active. 
– In terms of business culture, are there any peculiarities of working here in Russia? 
– Of course there are differences but I wouldn’t say that one is better than the other. I think Russians are sometimes willing to take more risks because they understand the local situation better. It will take more time before the international investors come back to Russia. Russian investors are willing to take some risks now if they are confident that they’ll receive high returns.  
Interviewed by anna nezhinskaya 

biography
Miles Jones, 
Partner Griffin Partners 
Miles has over 17 years of real estate investment and development experience. Prior to founding Griffin Partners Miles was Managing Partner of AIG/Lincoln Italy/ 
Before this Miles founded and was Managing Partner of Noble Gibbons/CB Richard Ellis, Russian real estate advisory company. The firm was eventually sold to CBRE International. Miles then took on the role of Director of Leasing for an American-Russian joint venture in real estate development.
Miles was educated in the USA at Auburn University (BA) and at Emory University (MBA).

our reference
Griffin Partners Company focuses on Real Estate Development and Asset management in Moscow and selected major regional cities within the Russian Federation.  The firm develops and manages investments across four major real estate segments: offices, mixed use, warehouse/ industrial and elite residential.
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“INVESTORS ARE DEMANDING VERY HIGH RETURN”
– Mr Jones, could you give your brief view of the Russian logistics market? What does it look like nowadays? 
– It can hardly be a brief answer, there is so much happening! Right now what we see is that the financial crisis of course is having a huge impact on this market. 
Logistics development is typically not a highly profitable segment. It is usually less risky than other property sectors when the market is functioning well and it is not as profitable as other sectors such as offices or residential.
Today what we are seeing is that developers are looking for investors who have liquid cash positions but, there aren’t many such investors. And, again, such investors are able to demand very high returns on their investment. And, unfortunately, the logistics market does not provide the return they demand. That is the first problem. In reality, the investors are not putting any new money into the logistics development sector. A few private investors are continuing the projects which they had started before the crisis but this activity represents a small percentage of the total market. 
In general, we see that investors are not interested in investing in new developments because they want projects that are already finished and that are providing attractive, current cash-flows. In the past, before the crisis, the return people were getting from logistics was 20-30% IRRs. Today investors are demanding over 50% IRRs and less risk.
The other point is that not so many new developments are available in the RF regions because it is very difficult to get credit from the banks for regional construction. 
– At the same time, there are companies which get credit from the banks, e.g. EBRD. 
– We (our company) did obtain a loan from the EBRD but that was in 2008 and we were one of the few companies that did so. I don’t know anybody who has obtained credit in 2009. Obviously, this is a very serious problem for both developers and the banks.
– Has the construction of warehouses become cheaper because of the financial shutdown? 
– We have seen a decrease in the construction cost. Unfortunately, sometimes the weakened ruble minimises the benefits that we gain because a portion of our construction materials is produced outside of Russia. Unfortunately, the cost of approvals of the “Tekhnicheskiye usloviya” (technical standards) and the cost of energy infrastructure installations are not decreasing. 
But yes, we do see decreases in the construction cost and we also see that the construction companies are now much more willing to be aggressive with their pricing – they are fighting to get business. That is good. 

“THERE WILL NOT BE A LOT OF NEW SPACE IN THE FUTURE”
– Has demand in the warehouse logistics market changed somehow in Russia? 
– We have seen in the last few months that warehouse tenants have been aggressively renegotiating their leases, i.e. they are trying to lower their rent or to find new space for much lower rents. But I think that they are not finding as much space for lower prices as they expected. There is not a huge amount of space in, e.g. Moscow; I estimate that 10-11% of space is vacant. And that is not a high number in a time of crisis! We can see much higher level of vacancy at the offices sector.
I believe that vacancies in the logistics sector ares much higher in St. Petersburg. But in general in Russia I believe that average vacancy levels are  not as high as you can see  in parts of the offices development sector (30% - 40%). What I am saying is that there is not a huge supply and this vacancy will be absorbed fairly quickly since developers aren’t starting new projects. There will be some new space but not much. 
– Does this mean that we can forecast a slight deficit in vacant warehousing space in the long term? 
– There are big logistics development companies that are having big financial problems now. Some of them have completely stopped their activities. That means they had already started development, bought permissions but will not construct new warehouses. That is why I think there will not be a huge supply of new space until new companies start with new investment capital. 
– In that case isn’t it the right time to invest in construction of new logistics parks?
–  I am not sure about that because the problem is that the rent is too low to give the investors the type of returns they demand today. Let us remember that, today, if someone has a lot of money, he has got a lot of possibilities to invest and receive very high returns. That is why investors are not going to come into the logistics space until they see the rents increase to a normal level. Even before the crisis Russian rents were much lower than European ones (about $140 per square metre in Moscow). Here in Russia, the tenants were complaining about these rents because many of them were not making big profits. But still, that level of rent is too low to give the type of return the investors demand. 
Nevertheless, we still believe that Russia remains a very good field for the logistics business long-term. Warehousing development will be a good business for a long time. The problem is a short term one. For the next 18 to 24 months there will be a serious problem for the reasons I am talking about. 
– Meanwhile, there are some big retail companies that have announced they will start operating in Russia e.g. Wal-Mart companies. Won’t they increase the level of demand for logistics space?
– We have also heard about these announcements. As far as I understand, they are going to buy Russian trading companies; they say that they don’t want to start from zero. The process will have an impact but the impact will not be immediate. It will take them a while to structure the operations and to grow. The companies will have to build stores or buy, and that will take much more than a few months. 
– Is it true that class A warehouses have become less popular? 
– Actually, when people say that a lot of the companies do not need class A warehouses, I don’t agree. They do need high-class warehouses. 
On the other hand, when you say that companies are trying to rent class B or class C – that is true for the short-term because many companies are suffering huge economic shocks to their business and they must find any possible way to save money. You will see them again in Class A when the economic situation improves. 

“BY THE BEGINNING OF THE CRISIS RUSSIAN MARKET HAD BECOME OVERHEATED”
– Could you compare the impact of the crisis in Russia with other countries? 
– The logistics market in Europe was more mature before the crisis and therefore the rents were more stable – they provided a more stable return. More than that, we had more banks that provided credit for construction needs in the European markets. 
There are not so many banks in Russia that lend for construction, especially in the regions. The problem is that logistics is not well developed in the regions. 
The other point is that, by the beginning of the crisis, the Russian market had become overheated. We started building spaces before we had tenants, I don’t think that we will see the same situation in the future. Nowadays, as I have already said, there is not so much investment and the investors want to be sure that there are tenants there and that they would be able to pay a good rent. In Europe, they do build a little logistics space before they find tenants but they don’t build a large volume like we have seen in Russia in the past couple of years. I think that situation will change in Russia as well. Actually, what is happening is good. It will create an equilibrium between supply and demand and rent rates. 
– Which of the Russian regions are the most promising for the development companies, apart from Moscow and St. Petersburg?
– Frankly speaking, most of the investors are not interested in development in the regions. I think they will suffer for a while. 
At the same time, our company is working at Nizhny Novgorod and I am pleased to see some of the clients coming back to us. It is a very interesting region actually but in general I think that projects in the regions will not be so active. 
– In terms of business culture, are there any peculiarities of working here in Russia? 
– Of course there are differences but I wouldn’t say that one is better than the other. I think Russians are sometimes willing to take more risks because they understand the local situation better. It will take more time before the international investors come back to Russia. Russian investors are willing to take some risks now if they are confident that they’ll receive high returns.  
Interviewed by anna nezhinskaya 

biography
Miles Jones, 
Partner Griffin Partners 
Miles has over 17 years of real estate investment and development experience. Prior to founding Griffin Partners Miles was Managing Partner of AIG/Lincoln Italy/ 
Before this Miles founded and was Managing Partner of Noble Gibbons/CB Richard Ellis, Russian real estate advisory company. The firm was eventually sold to CBRE International. Miles then took on the role of Director of Leasing for an American-Russian joint venture in real estate development.
Miles was educated in the USA at Auburn University (BA) and at Emory University (MBA).

our reference
Griffin Partners Company focuses on Real Estate Development and Asset management in Moscow and selected major regional cities within the Russian Federation.  The firm develops and manages investments across four major real estate segments: offices, mixed use, warehouse/ industrial and elite residential.
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IMPACT OF THE CRISIS: DEVELOPERS FREEZE PROJECTS 
Parkridge Holdings company froze construction of a warehouse in Ekaterinburg in early 2009. The representatives of the company explained that they were looking for cheaper plots – and Parkridge Holdings is not the only company freezing investments. “At the moment, owing to the economic situation, we are not building or investing into new warehouses in Russia but are following the situation and making plans for development as soon as the economy again starts to boom,” says Vesa Vertanen, Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group (Finland). 
 Developers are being pressured to sell some of their previously purchased land plots (including liquid ones) in order to finish the development of nearly completed projects. Coalco is offering land plots of 20,000 hectares for sale. Promsvyaznedvizhimost offers for sale about 1,000 hectares of land for countryside and warehousing real estate developments in the Moscow region and practically its entire commercial projects portfolio in Moscow and St. Petersburg. 
The financial shutdown has strongly influenced Russian warehouse development.  By the estimates of the RF Ministry of Economic Development and Trade, GDP has fallen by 2.4% in January 2009 comparing with December 2008. According to the research of company Knight Frank, distributors of household appliances expect a 10–30% sales downturn during 2009. Vacancy rates for high-quality warehousing complexes have risen from 1% in late 2008 to 5% in February, 2009, in the Moscow region and between 30 and 50% in other Russian regions. The investment situation in the real estate market did not change significantly during February 2009. Investment activity remains very low. A number of projects being put up for sale is still increasing, Knight Frank specialists say. Landlords are considering selling off their plots in small parcels because it is difficult to sell large plots in the current market situation. “The challenge is to find plots for the construction of warehouses in Russia,” Vesa Vartanen says.

WHICH ARE THE MOST ACTIVE COMPANIES? 
At the same time, several market players consider the current situation a cost-effective opportunity to target business segments. Interest is being shown in both the Moscow / St. Petersburg and regional markets. Potential investors consider attractive investment opportunities but still there are no active purchases. 
“The Chinese ‘crisis’ hieroglyph consists of two parts. The first means ‘danger’, the second means ‘opportunity’. Nowadays, those developers whose business does remain stable have the additional opportunity to improve their positions,” says Dmitry Volkov, deputy head of consulting department at Praedium ONCOR company. He explains that developers may purchase unfinished projects with a 50%-70% discount (such a discount is possible if owners cannot pay for the service of the frozen construction project and if they cannot pay the credit interest rates). 
Successful developers can also purchase shares of the companies which work in the related business areas. Thus trade developers are purchasing shares of retail companies; warehouse developers are buying logistics companies.  Mr Volkov adds that the new structure of the capital flows in the Russian property market will appear by the end of 2009. 
Knight Frank specialists point out that several major deals have already been closed in 2009. Knight Frank assisted in an 18,000 sq m lease transaction for premises in the South Logistics Terminal and in a 7,000 sq m lease deal for premises in the Pokrov Logistics Park. Several new warehouse complexes have been announced to be developed. Liter Management Company is going to invest $72 million in the development of a 46,000 sq m logistics complex in the Rostov region. Sterkh Corporation is going to add a container terminal near the port to its logistics park in Osinovaya Roscha in St Petersburg. Investment volume is estimated to be $4 million.
Raven Russia, a British-based investment fund, announced that the company would concentrate on the Russian logistics market. Avalon and Raven Russia are going to invest approximately $500 million in development of class A logistics complexes in Siberia and the Far East until 2015. Megalogix company, a joint venture of Raven Russia Limited and Avalon Equity Limited, presupposes the construction of about 20 warehouses all over Russia, the total area of which will reach 2.5 million sq m. The company opened a logistics park in Novosibirsk, (total area 121,000 sq m) at the end of February. 
A new logistics park in Rostov-on-Don was opened at the end of March and  another logistics terminal was opened recently in St. Petersburg. The company announced that the total volume of investments would reach about $2 billion. Construction of logistics warehouses is approved by official bodies in a few cities. The company also plans to construct logistics parks in Minsk. “Class A logistics parks can be implemented in any city of any country and they will be absolutely competitive and welcomed by the municipal administration,” said Adrian Baker, managing director of Raven Russia Holdings.  
Will the company find tenants for the new warehouses? As already mentioned, the company opened a 100,000 sq m logistics park in Rostov-on-Don at the end of March 2009.  Avalon logistic Company has occupied 27,000 sq m. Retail companies (Auchan and X5 group) rented the others and still some spaces are left. 
According to existing forecasts, retail companies will demand the majority of the warehouse space. Even before the beginning of the financial shutdown, most of the Class A warehouses in Russia’s regions were constructed especially for retail companies and it was normal for the developers to start construction before they found tenants. 
Analysts are sure that mass market retail companies have turned out to be the most resistant to the impacts of the crisis. Moreover, several international retail companies have announced that they are going to conquer the Russian market. Wal-mart is considering plans of expansion. Carrefour group has announced it would focus most of its development resources on Russia.  X5 retail group, one of the main players in the Russian retail market, also proclaimed that the company would invest into the logistics field. 

IS THE CONSTRUCTION BECOMING CHEAPER? 
Coming back to the announcements of Parkridge Holdings company, is that true that construction may become cheaper? Experts forecast a decline in construction costs. “The cost of the land will decrease as demand is decreasing,” said Ruslan Suvorov, Development Director at Praedium company. Vladislav Myagkov, head of real estate consultingat Ernst and Young, highlighted that the specialised lands prepared for construction (registered at the Federal agencies, equipped with water supply and gas supply pipelines, electricity, etc.) are still expensive. Mr Myagkov is sure that such lands will not become cheaper during 2009.
At the same time, the cost of electricity is increasing continuously. That increases the total cost of construction. Ernst and Young specialists are expecting the cost of construction to increase by 3-5% in 2009. 
By Anna Nezhinskaya 

viewpoint
Vesa Vertanen, 
Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group:
– We at ItellaNLC already have warehouses in 7 cities in Russia, altogether almost 600.000 m2 A-class warehouses having the biggest warehouses in Russia. We cover the whole Russia and also offer transportation for our logistics customers. For the logistics business, Moscow is, of course, the main centre and it will keep its role also in the future. We also see that all the big cities are important as also smaller warehouses are needed for warehousing purposes before delivering products for end users or directly to stores. 
According to market research, due current economic slowdown, companies are looking for more B-class warehouses. However, we believe that A-class warehouses demand still remains high as e.g. global companies have very high standards for logistics services they use (security and quality).
The warehouse security is in a crucial role for our customers in Russia. All our warehouses are built according to the highest security and quality standards. We also offer very effective transport and warehouse solutions all around the Russia. 


    [~DETAIL_TEXT] => 
IMPACT OF THE CRISIS: DEVELOPERS FREEZE PROJECTS 
Parkridge Holdings company froze construction of a warehouse in Ekaterinburg in early 2009. The representatives of the company explained that they were looking for cheaper plots – and Parkridge Holdings is not the only company freezing investments. “At the moment, owing to the economic situation, we are not building or investing into new warehouses in Russia but are following the situation and making plans for development as soon as the economy again starts to boom,” says Vesa Vertanen, Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group (Finland). 
 Developers are being pressured to sell some of their previously purchased land plots (including liquid ones) in order to finish the development of nearly completed projects. Coalco is offering land plots of 20,000 hectares for sale. Promsvyaznedvizhimost offers for sale about 1,000 hectares of land for countryside and warehousing real estate developments in the Moscow region and practically its entire commercial projects portfolio in Moscow and St. Petersburg. 
The financial shutdown has strongly influenced Russian warehouse development.  By the estimates of the RF Ministry of Economic Development and Trade, GDP has fallen by 2.4% in January 2009 comparing with December 2008. According to the research of company Knight Frank, distributors of household appliances expect a 10–30% sales downturn during 2009. Vacancy rates for high-quality warehousing complexes have risen from 1% in late 2008 to 5% in February, 2009, in the Moscow region and between 30 and 50% in other Russian regions. The investment situation in the real estate market did not change significantly during February 2009. Investment activity remains very low. A number of projects being put up for sale is still increasing, Knight Frank specialists say. Landlords are considering selling off their plots in small parcels because it is difficult to sell large plots in the current market situation. “The challenge is to find plots for the construction of warehouses in Russia,” Vesa Vartanen says.

WHICH ARE THE MOST ACTIVE COMPANIES? 
At the same time, several market players consider the current situation a cost-effective opportunity to target business segments. Interest is being shown in both the Moscow / St. Petersburg and regional markets. Potential investors consider attractive investment opportunities but still there are no active purchases. 
“The Chinese ‘crisis’ hieroglyph consists of two parts. The first means ‘danger’, the second means ‘opportunity’. Nowadays, those developers whose business does remain stable have the additional opportunity to improve their positions,” says Dmitry Volkov, deputy head of consulting department at Praedium ONCOR company. He explains that developers may purchase unfinished projects with a 50%-70% discount (such a discount is possible if owners cannot pay for the service of the frozen construction project and if they cannot pay the credit interest rates). 
Successful developers can also purchase shares of the companies which work in the related business areas. Thus trade developers are purchasing shares of retail companies; warehouse developers are buying logistics companies.  Mr Volkov adds that the new structure of the capital flows in the Russian property market will appear by the end of 2009. 
Knight Frank specialists point out that several major deals have already been closed in 2009. Knight Frank assisted in an 18,000 sq m lease transaction for premises in the South Logistics Terminal and in a 7,000 sq m lease deal for premises in the Pokrov Logistics Park. Several new warehouse complexes have been announced to be developed. Liter Management Company is going to invest $72 million in the development of a 46,000 sq m logistics complex in the Rostov region. Sterkh Corporation is going to add a container terminal near the port to its logistics park in Osinovaya Roscha in St Petersburg. Investment volume is estimated to be $4 million.
Raven Russia, a British-based investment fund, announced that the company would concentrate on the Russian logistics market. Avalon and Raven Russia are going to invest approximately $500 million in development of class A logistics complexes in Siberia and the Far East until 2015. Megalogix company, a joint venture of Raven Russia Limited and Avalon Equity Limited, presupposes the construction of about 20 warehouses all over Russia, the total area of which will reach 2.5 million sq m. The company opened a logistics park in Novosibirsk, (total area 121,000 sq m) at the end of February. 
A new logistics park in Rostov-on-Don was opened at the end of March and  another logistics terminal was opened recently in St. Petersburg. The company announced that the total volume of investments would reach about $2 billion. Construction of logistics warehouses is approved by official bodies in a few cities. The company also plans to construct logistics parks in Minsk. “Class A logistics parks can be implemented in any city of any country and they will be absolutely competitive and welcomed by the municipal administration,” said Adrian Baker, managing director of Raven Russia Holdings.  
Will the company find tenants for the new warehouses? As already mentioned, the company opened a 100,000 sq m logistics park in Rostov-on-Don at the end of March 2009.  Avalon logistic Company has occupied 27,000 sq m. Retail companies (Auchan and X5 group) rented the others and still some spaces are left. 
According to existing forecasts, retail companies will demand the majority of the warehouse space. Even before the beginning of the financial shutdown, most of the Class A warehouses in Russia’s regions were constructed especially for retail companies and it was normal for the developers to start construction before they found tenants. 
Analysts are sure that mass market retail companies have turned out to be the most resistant to the impacts of the crisis. Moreover, several international retail companies have announced that they are going to conquer the Russian market. Wal-mart is considering plans of expansion. Carrefour group has announced it would focus most of its development resources on Russia.  X5 retail group, one of the main players in the Russian retail market, also proclaimed that the company would invest into the logistics field. 

IS THE CONSTRUCTION BECOMING CHEAPER? 
Coming back to the announcements of Parkridge Holdings company, is that true that construction may become cheaper? Experts forecast a decline in construction costs. “The cost of the land will decrease as demand is decreasing,” said Ruslan Suvorov, Development Director at Praedium company. Vladislav Myagkov, head of real estate consultingat Ernst and Young, highlighted that the specialised lands prepared for construction (registered at the Federal agencies, equipped with water supply and gas supply pipelines, electricity, etc.) are still expensive. Mr Myagkov is sure that such lands will not become cheaper during 2009.
At the same time, the cost of electricity is increasing continuously. That increases the total cost of construction. Ernst and Young specialists are expecting the cost of construction to increase by 3-5% in 2009. 
By Anna Nezhinskaya 

viewpoint
Vesa Vertanen, 
Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group:
– We at ItellaNLC already have warehouses in 7 cities in Russia, altogether almost 600.000 m2 A-class warehouses having the biggest warehouses in Russia. We cover the whole Russia and also offer transportation for our logistics customers. For the logistics business, Moscow is, of course, the main centre and it will keep its role also in the future. We also see that all the big cities are important as also smaller warehouses are needed for warehousing purposes before delivering products for end users or directly to stores. 
According to market research, due current economic slowdown, companies are looking for more B-class warehouses. However, we believe that A-class warehouses demand still remains high as e.g. global companies have very high standards for logistics services they use (security and quality).
The warehouse security is in a crucial role for our customers in Russia. All our warehouses are built according to the highest security and quality standards. We also offer very effective transport and warehouse solutions all around the Russia. 


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    [DETAIL_TEXT] => 
IMPACT OF THE CRISIS: DEVELOPERS FREEZE PROJECTS 
Parkridge Holdings company froze construction of a warehouse in Ekaterinburg in early 2009. The representatives of the company explained that they were looking for cheaper plots – and Parkridge Holdings is not the only company freezing investments. “At the moment, owing to the economic situation, we are not building or investing into new warehouses in Russia but are following the situation and making plans for development as soon as the economy again starts to boom,” says Vesa Vertanen, Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group (Finland). 
 Developers are being pressured to sell some of their previously purchased land plots (including liquid ones) in order to finish the development of nearly completed projects. Coalco is offering land plots of 20,000 hectares for sale. Promsvyaznedvizhimost offers for sale about 1,000 hectares of land for countryside and warehousing real estate developments in the Moscow region and practically its entire commercial projects portfolio in Moscow and St. Petersburg. 
The financial shutdown has strongly influenced Russian warehouse development.  By the estimates of the RF Ministry of Economic Development and Trade, GDP has fallen by 2.4% in January 2009 comparing with December 2008. According to the research of company Knight Frank, distributors of household appliances expect a 10–30% sales downturn during 2009. Vacancy rates for high-quality warehousing complexes have risen from 1% in late 2008 to 5% in February, 2009, in the Moscow region and between 30 and 50% in other Russian regions. The investment situation in the real estate market did not change significantly during February 2009. Investment activity remains very low. A number of projects being put up for sale is still increasing, Knight Frank specialists say. Landlords are considering selling off their plots in small parcels because it is difficult to sell large plots in the current market situation. “The challenge is to find plots for the construction of warehouses in Russia,” Vesa Vartanen says.

WHICH ARE THE MOST ACTIVE COMPANIES? 
At the same time, several market players consider the current situation a cost-effective opportunity to target business segments. Interest is being shown in both the Moscow / St. Petersburg and regional markets. Potential investors consider attractive investment opportunities but still there are no active purchases. 
“The Chinese ‘crisis’ hieroglyph consists of two parts. The first means ‘danger’, the second means ‘opportunity’. Nowadays, those developers whose business does remain stable have the additional opportunity to improve their positions,” says Dmitry Volkov, deputy head of consulting department at Praedium ONCOR company. He explains that developers may purchase unfinished projects with a 50%-70% discount (such a discount is possible if owners cannot pay for the service of the frozen construction project and if they cannot pay the credit interest rates). 
Successful developers can also purchase shares of the companies which work in the related business areas. Thus trade developers are purchasing shares of retail companies; warehouse developers are buying logistics companies.  Mr Volkov adds that the new structure of the capital flows in the Russian property market will appear by the end of 2009. 
Knight Frank specialists point out that several major deals have already been closed in 2009. Knight Frank assisted in an 18,000 sq m lease transaction for premises in the South Logistics Terminal and in a 7,000 sq m lease deal for premises in the Pokrov Logistics Park. Several new warehouse complexes have been announced to be developed. Liter Management Company is going to invest $72 million in the development of a 46,000 sq m logistics complex in the Rostov region. Sterkh Corporation is going to add a container terminal near the port to its logistics park in Osinovaya Roscha in St Petersburg. Investment volume is estimated to be $4 million.
Raven Russia, a British-based investment fund, announced that the company would concentrate on the Russian logistics market. Avalon and Raven Russia are going to invest approximately $500 million in development of class A logistics complexes in Siberia and the Far East until 2015. Megalogix company, a joint venture of Raven Russia Limited and Avalon Equity Limited, presupposes the construction of about 20 warehouses all over Russia, the total area of which will reach 2.5 million sq m. The company opened a logistics park in Novosibirsk, (total area 121,000 sq m) at the end of February. 
A new logistics park in Rostov-on-Don was opened at the end of March and  another logistics terminal was opened recently in St. Petersburg. The company announced that the total volume of investments would reach about $2 billion. Construction of logistics warehouses is approved by official bodies in a few cities. The company also plans to construct logistics parks in Minsk. “Class A logistics parks can be implemented in any city of any country and they will be absolutely competitive and welcomed by the municipal administration,” said Adrian Baker, managing director of Raven Russia Holdings.  
Will the company find tenants for the new warehouses? As already mentioned, the company opened a 100,000 sq m logistics park in Rostov-on-Don at the end of March 2009.  Avalon logistic Company has occupied 27,000 sq m. Retail companies (Auchan and X5 group) rented the others and still some spaces are left. 
According to existing forecasts, retail companies will demand the majority of the warehouse space. Even before the beginning of the financial shutdown, most of the Class A warehouses in Russia’s regions were constructed especially for retail companies and it was normal for the developers to start construction before they found tenants. 
Analysts are sure that mass market retail companies have turned out to be the most resistant to the impacts of the crisis. Moreover, several international retail companies have announced that they are going to conquer the Russian market. Wal-mart is considering plans of expansion. Carrefour group has announced it would focus most of its development resources on Russia.  X5 retail group, one of the main players in the Russian retail market, also proclaimed that the company would invest into the logistics field. 

IS THE CONSTRUCTION BECOMING CHEAPER? 
Coming back to the announcements of Parkridge Holdings company, is that true that construction may become cheaper? Experts forecast a decline in construction costs. “The cost of the land will decrease as demand is decreasing,” said Ruslan Suvorov, Development Director at Praedium company. Vladislav Myagkov, head of real estate consultingat Ernst and Young, highlighted that the specialised lands prepared for construction (registered at the Federal agencies, equipped with water supply and gas supply pipelines, electricity, etc.) are still expensive. Mr Myagkov is sure that such lands will not become cheaper during 2009.
At the same time, the cost of electricity is increasing continuously. That increases the total cost of construction. Ernst and Young specialists are expecting the cost of construction to increase by 3-5% in 2009. 
By Anna Nezhinskaya 

viewpoint
Vesa Vertanen, 
Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group:
– We at ItellaNLC already have warehouses in 7 cities in Russia, altogether almost 600.000 m2 A-class warehouses having the biggest warehouses in Russia. We cover the whole Russia and also offer transportation for our logistics customers. For the logistics business, Moscow is, of course, the main centre and it will keep its role also in the future. We also see that all the big cities are important as also smaller warehouses are needed for warehousing purposes before delivering products for end users or directly to stores. 
According to market research, due current economic slowdown, companies are looking for more B-class warehouses. However, we believe that A-class warehouses demand still remains high as e.g. global companies have very high standards for logistics services they use (security and quality).
The warehouse security is in a crucial role for our customers in Russia. All our warehouses are built according to the highest security and quality standards. We also offer very effective transport and warehouse solutions all around the Russia. 


    [~DETAIL_TEXT] => 
IMPACT OF THE CRISIS: DEVELOPERS FREEZE PROJECTS 
Parkridge Holdings company froze construction of a warehouse in Ekaterinburg in early 2009. The representatives of the company explained that they were looking for cheaper plots – and Parkridge Holdings is not the only company freezing investments. “At the moment, owing to the economic situation, we are not building or investing into new warehouses in Russia but are following the situation and making plans for development as soon as the economy again starts to boom,” says Vesa Vertanen, Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group (Finland). 
 Developers are being pressured to sell some of their previously purchased land plots (including liquid ones) in order to finish the development of nearly completed projects. Coalco is offering land plots of 20,000 hectares for sale. Promsvyaznedvizhimost offers for sale about 1,000 hectares of land for countryside and warehousing real estate developments in the Moscow region and practically its entire commercial projects portfolio in Moscow and St. Petersburg. 
The financial shutdown has strongly influenced Russian warehouse development.  By the estimates of the RF Ministry of Economic Development and Trade, GDP has fallen by 2.4% in January 2009 comparing with December 2008. According to the research of company Knight Frank, distributors of household appliances expect a 10–30% sales downturn during 2009. Vacancy rates for high-quality warehousing complexes have risen from 1% in late 2008 to 5% in February, 2009, in the Moscow region and between 30 and 50% in other Russian regions. The investment situation in the real estate market did not change significantly during February 2009. Investment activity remains very low. A number of projects being put up for sale is still increasing, Knight Frank specialists say. Landlords are considering selling off their plots in small parcels because it is difficult to sell large plots in the current market situation. “The challenge is to find plots for the construction of warehouses in Russia,” Vesa Vartanen says.

WHICH ARE THE MOST ACTIVE COMPANIES? 
At the same time, several market players consider the current situation a cost-effective opportunity to target business segments. Interest is being shown in both the Moscow / St. Petersburg and regional markets. Potential investors consider attractive investment opportunities but still there are no active purchases. 
“The Chinese ‘crisis’ hieroglyph consists of two parts. The first means ‘danger’, the second means ‘opportunity’. Nowadays, those developers whose business does remain stable have the additional opportunity to improve their positions,” says Dmitry Volkov, deputy head of consulting department at Praedium ONCOR company. He explains that developers may purchase unfinished projects with a 50%-70% discount (such a discount is possible if owners cannot pay for the service of the frozen construction project and if they cannot pay the credit interest rates). 
Successful developers can also purchase shares of the companies which work in the related business areas. Thus trade developers are purchasing shares of retail companies; warehouse developers are buying logistics companies.  Mr Volkov adds that the new structure of the capital flows in the Russian property market will appear by the end of 2009. 
Knight Frank specialists point out that several major deals have already been closed in 2009. Knight Frank assisted in an 18,000 sq m lease transaction for premises in the South Logistics Terminal and in a 7,000 sq m lease deal for premises in the Pokrov Logistics Park. Several new warehouse complexes have been announced to be developed. Liter Management Company is going to invest $72 million in the development of a 46,000 sq m logistics complex in the Rostov region. Sterkh Corporation is going to add a container terminal near the port to its logistics park in Osinovaya Roscha in St Petersburg. Investment volume is estimated to be $4 million.
Raven Russia, a British-based investment fund, announced that the company would concentrate on the Russian logistics market. Avalon and Raven Russia are going to invest approximately $500 million in development of class A logistics complexes in Siberia and the Far East until 2015. Megalogix company, a joint venture of Raven Russia Limited and Avalon Equity Limited, presupposes the construction of about 20 warehouses all over Russia, the total area of which will reach 2.5 million sq m. The company opened a logistics park in Novosibirsk, (total area 121,000 sq m) at the end of February. 
A new logistics park in Rostov-on-Don was opened at the end of March and  another logistics terminal was opened recently in St. Petersburg. The company announced that the total volume of investments would reach about $2 billion. Construction of logistics warehouses is approved by official bodies in a few cities. The company also plans to construct logistics parks in Minsk. “Class A logistics parks can be implemented in any city of any country and they will be absolutely competitive and welcomed by the municipal administration,” said Adrian Baker, managing director of Raven Russia Holdings.  
Will the company find tenants for the new warehouses? As already mentioned, the company opened a 100,000 sq m logistics park in Rostov-on-Don at the end of March 2009.  Avalon logistic Company has occupied 27,000 sq m. Retail companies (Auchan and X5 group) rented the others and still some spaces are left. 
According to existing forecasts, retail companies will demand the majority of the warehouse space. Even before the beginning of the financial shutdown, most of the Class A warehouses in Russia’s regions were constructed especially for retail companies and it was normal for the developers to start construction before they found tenants. 
Analysts are sure that mass market retail companies have turned out to be the most resistant to the impacts of the crisis. Moreover, several international retail companies have announced that they are going to conquer the Russian market. Wal-mart is considering plans of expansion. Carrefour group has announced it would focus most of its development resources on Russia.  X5 retail group, one of the main players in the Russian retail market, also proclaimed that the company would invest into the logistics field. 

IS THE CONSTRUCTION BECOMING CHEAPER? 
Coming back to the announcements of Parkridge Holdings company, is that true that construction may become cheaper? Experts forecast a decline in construction costs. “The cost of the land will decrease as demand is decreasing,” said Ruslan Suvorov, Development Director at Praedium company. Vladislav Myagkov, head of real estate consultingat Ernst and Young, highlighted that the specialised lands prepared for construction (registered at the Federal agencies, equipped with water supply and gas supply pipelines, electricity, etc.) are still expensive. Mr Myagkov is sure that such lands will not become cheaper during 2009.
At the same time, the cost of electricity is increasing continuously. That increases the total cost of construction. Ernst and Young specialists are expecting the cost of construction to increase by 3-5% in 2009. 
By Anna Nezhinskaya 

viewpoint
Vesa Vertanen, 
Senior Vice President of Itella Corporation, Head of Itella Logistics Business Group:
– We at ItellaNLC already have warehouses in 7 cities in Russia, altogether almost 600.000 m2 A-class warehouses having the biggest warehouses in Russia. We cover the whole Russia and also offer transportation for our logistics customers. For the logistics business, Moscow is, of course, the main centre and it will keep its role also in the future. We also see that all the big cities are important as also smaller warehouses are needed for warehousing purposes before delivering products for end users or directly to stores. 
According to market research, due current economic slowdown, companies are looking for more B-class warehouses. However, we believe that A-class warehouses demand still remains high as e.g. global companies have very high standards for logistics services they use (security and quality).
The warehouse security is in a crucial role for our customers in Russia. All our warehouses are built according to the highest security and quality standards. We also offer very effective transport and warehouse solutions all around the Russia. 


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At the same time, European companies are announcing they are going to expand into the RF market.
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