Booming e-commerce spurring warehouse development in Russia

In Russia, e-commerce is growing much faster than the rest of the country’s economy, but companies are facing logistical challenges. Thus, warehousing development is becoming more and more attractive, as the market segment is still largely undersupplied.

Russia’s leading real estate investors have agreed to form a venture aimed to develop urban warehousing that targets the country’s booming e-commerce sector, reports bneIntelliNews. E-commerce is already accounting for 4% of Russia’s total retail turnover, and the figure is expected to double in the next few years, as the sector is growing much faster than the real economy. In the first half of 2019, e-commerce turnover reached 725bn rubles ($11bn), which was by 26% higher than during the same period of 2018, says Data Insight research agency. By comparison, the real economy added only 1,3% in 2019, according to preliminary estimates.

In the first six months of 2019, the number of orders increased by 44% year on year showing the strongest growth rate ever recorded by Data Insight. During this period, Russian websites processed 191 million orders, which was as much as for the full year in 2016. At the same time, the average order value fell by 13% indicating more frequent but less sizeable orders. In its latest industry report, East-West Digital News assumed that stagnation of the population’s purchasing power in recent years might be the reason for lower average purchase prices.

Wildberries, and are among the leaders of the Russian e-commerce market. Last year, Wildberries became the biggest e-commerce site in Russia after its revenues topped $1bn. Moreover, the company became the largest retailer in the fashion and clothes segment overtaking traditional vendors for the first time.

Meanwhile, logistics remains a challenge for all of Russia’s large e-retailers. State-owned Russian Post is investing heavily into its system, but it is still unable to provide the quality of service required by e-commerce companies, so they have to maintain own logistics systems to develop their businesses. “The logistical challenge e-commerce companies are facing is the opportunity in the warehouse category. These companies need quality warehousing as close to urban centres as possible to effect their last-mile delivery and be able to get their products to their customers quickly — on the same day as they are ordered, if possible,” says Michael Lange, the founder of JLL Russia real estate investment company. Lange teamed up with two other real estate players, Jean-Francois Ott (Orco Property Group) and Michel Pascalis (Multinational Logistic Partnership), to create a real estate investment trust that is going to build a portfolio of warehouses focused on servicing Russia's booming e-commerce and last-mile industry.

According to Lange, the new venture intends to rapidly become the premier partner of the Russian e-commerce industry with an initial focus on Moscow. “While it is one of the most dynamic logistical real estate markets, it is still largely undersupplied, and we see aligned improvements for real estate yields, lowering interest rates and rising rents at a time when the ruble has stabilised,” he says.

By Anna Litvina

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