By Christopher Bond
The nascent self-storage industry in Russia remains highly fragmented, with operators of various quality and sizes, all primarily based in Moscow. The first operators began to appear in 2009 on the back of the world financial crisis, which was felt acutely in the region because all bank lending comes from the West. Financing was nearly impossible to receive (and remains so), but the predicament provided opportunities for investors with equity cash to purchase or rent properties. In 2010 and 2011, several self-storage operators emerged including my company, Samosklad, as well as Citi-Box, Redbox and Skladovka.
Russia is an extremely challenging operating environment with stifling bureaucracy, corruption, and poor regulations and control. However, with a population of approximately 15 million, Moscow has potential for self-storage growth and consolidation. The major problem lies in the inability to source and build good properties. Again, a lack of financing also inhibits industry growth.
Lack of Real Estate
Due to a hangover from Soviet days, real estate (the warehouse sector in particular) is loosely governed, and legislation remains vague and uncertain. Basic tasks such as establishing title ownership, getting permission to build, and receiving electricity and water is a tremendously fraught and time-consuming process. As a result, the market is hindered and cannot grow.
Over the last 15 years, there has only been a market for large, class-A warehouse/distribution centers of at least 100,000 square meters, but these are all on the outskirts of Moscow, away from living accommodations. The market for smaller warehouses—1,000 to 5,000 square meters—that can be renovated or redeveloped by self-storage operators doesn’t exist. Any such properties are primarily in industrial zones, with limited access and visibility and a lack of documentation.
There are only about 100 self-storage facilities in Moscow, compared to 500 to 600 in London, a city of similar size. Existing operators have to make a difficult decision between redeveloping existing buildings or building from the ground up. Obviously the key is timing, how quickly they can see their money invested and the building opened.
At Samosklad, we made the decision to open four to five facilities by renovating old warehouses. Once a cash flow was established, we planned to build light-construction buildings. However, the latter can be problematic due to the above mentioned bucreuacracy and lack of good land plots.
One of the key principles of our business strategy is the acquisition or long-term lease of buildings. Many operators lease buildings for a mere 11 months. If you sign a contract for longer than a year, it has to be registered with the tax authorities. In Russia, 95 percent of office, residential and warehouse space is rented on short-term leases to avoid paying taxes.