AAA Financing In Real Estate

A modern logistics center is comprised of two sections – a warehouse and offices. For the majority of companies, a warehouse is a remote object; therefore, the high-speed transmission of data between the head office and the warehouse is important. However, the high cost of installing telecommunications on the warehouse premises and, correspondingly, the high tariffs for telecommunications for the tenants remains a concern.

Connection with the base

A modern warehouse is a mechanism which is virtually fully managed online, with data processed and operations controlled. Indeed, the complexity and multifunctional nature of these systems requires the logistic center’s telecommunication infrastructure to function highly productively. One of the specific features of a warehouse complex’ telecoms infrastructure is the object’s remoteness from the telecom network.

Furthermore, market experts note that the lack of telecommunications network operators within close proximity to the object is the largest problem the majority of developers face when constructing warehouse complexes in the Moscow Region.

The majority of developers of warehouse real estate must begin searching for telecommunications operators already at the design stage of the project, when it is especially necessary to resolve the matter of installing and laying the required cable network. Usually the cost of installation is paid for by the telecommunications company which is a co-investor in the project, thus receiving the sole right to operate in the complex. Accordingly, this results in additional expenses for the operator.

“It is one thing to hook up an office situated within a large telecommunications network in the center of Moscow,” comments Evgeny Sandomirsky, commercial director at Mastertel. “However, it is another matter when the logistics center is frequently based outside the Moscow Ring Road. In this case the operator must lay the cable in the ground and construct casing for this. Given that there is a tendency to enlarge logistics centers, this step is justified.”

Nevertheless, market experts believe an operator building and becoming the owner of the telecommunications is likely to create problems for a tenant in the future.

“The operators effectively prevent tenants at the complex from being able to choose other network operators,” confirms Viktor Afanasenko, deputy director of the warehouse and industrial real estate and land department at Knight Frank. “In this situation the tariffs for connection are more often than not higher than the market rates, causing a definite inconvenience for the tenants. It is considerably less common when a developer is willing to lay the network cable at its own expense.” However, Afanasenko is sure that such an arrangement is more beneficial to the tenants, as they receive the required high-quality services at an acceptable price. Moreover, tenants believe that exclusive rights to provide telecommunications also lead to a low level of service.

“As a consumer it is important that there are several providers of telecommunications services and an absence of exclusive contracts,” says Evgeny Grikhanov, IT director at Relogix. “The reservation of communication lines must be available from various providers rather than from one. Otherwise, the risks are not diminished that there will be a denial of providing lines of communication.”

Selecting a Connection

“We try not to divide services based on basic (standard) and additional,” reports Lyubov Yulis, director for operations with commercial real estate at Comstar UTS. “It has happened that, for example, business centers always require such services as Internet access, telephony and VPN. The situation is the very similar with logistics centers.”

Here the volume of telecommunications services provided can vary, but, among them absolutely is the standard selection of digital or traditional telephony, Internet access and data transmission, sales, leasing or equipment service. Operators note that the transmission of data in warehouse logistics plays a more noticeable role than the other components, as the movement of goods at a warehouse is accompanied by the exchange of data with the head office. Accordingly, broadband Internet and high-speed data transmission are services required at logistics centers. Logistics operators confirm that logistics centers require only three types of services: voice, VPN data transmission and Internet.

“Other telecommunications services will be required only if a logistic center client’s basic IT services are not concentrated at the leased premises. I can suppose this would be a rare occurrence, but I cannot deny it could happen,” says Grikhanov.

Traditionally it is thought that telephony is in less demand in a logistic center than, for example, in a business center. If front-office service is not concentrated in a logistic center, communication voice lines will not be in heavy demand, perhaps 12-15 interconnected lines, and those data- transmission channels available in either Internet and/or VPN services should not operate at less than 2048 Kb/s. However, these rules are not in effect when the company is leasing offices together with warehouse premises. Many firms, especially those for whom logistics is the basis of business, prefer to have their offices located in large logistic centers to keep problems associated with office and warehouse geographic spacing to a minimum.

Furthermore, lease rates in logistic centers are less than in a business center and there are virtually the same offering of services for the tenants, such as parking, office premises, cleaning, reliable electricity supply, fire signals and automatic fire extinguishers, security alarms and 24-hour security. Accordingly, office-warehouse complexes require full-scale telecommunications infrastructure intended for the efficient operation of a modern company.

“Sometimes a tenant may require additional telecom services based on its specific activities,” says Afanasenko. “For example, if a company has affiliates in various countries, an allocated channel may be required for international connections between offices located abroad.”

“If we are talking about Class A commercial real estate, more often than not tenants in such logistic centers are large and even multinational companies with representative offices in Moscow and other cities. In this case, it is pointless to talk about economic-class services or simply about a minimum selection of telecommunication services,” believes Yulis. “These companies lease or buy premises in a logistic center where the warehouse and office must be in contact with a field office or the central office, and this requires reliable, high-speed lines for transmitting data, including on the VPN database.”

Uninterrupted Communications

The specific activities of warehouse tenants presupposes high quality and reliability of the communication services provided. “Logistics require uninterrupted communications, and, should there be a break in connections, the company could lose serious money,” confirms Sandomirsky. “In this light, the matter of reliability, speed and confidentiality in transmitting data between and office and a logistics center takes on a high priority.”

A high-end and modern infrastructure provides for efficient management of various processes within an organization, and it can decrease losses and keep risks associated with an interruption in the system to a minimum – which is especially important for a sector as dynamic as logistics.

“We offer solutions which in many ways simplify and improve the operations of logistic centers,” says Yulis. “For example Wi-Fi on the warehouse territory allows for updating databases via Blackberry on the location and logistics of goods from an organization’s warehouses.”

Operators indicate that the volume and variety of warehouse telecommunications services changes based on the class of logistics center. It is natural that large logistics centers would require larger and dynamic (with the possibility of scaling) selection of services than small- and medium-sized ones, where often even standard services are lacking.

Network operators specializing in commercial real estate objects are the ones providing telecom services, as there are not any providers specializing in warehouses. “Usually network operators provide the services,” says Sandomirsky. “However, I am not directly familiar with operators specializing in offering telecom services for the warehouse sector.”

“As far as we know, there are not any providers offering telecom services exclusively in the logistics sector,” confirms Yulis. “It is simply not profitable.”

“Working with warehouse complexes is a part of our business with corporate clients,” explains Mikhael Ioannesyants, head of partnership development with owners of non-residential real estate at Golden Telecom. “Accordingly, large companies using our communications services in their head office lease high-end and modern warehouse premises. They request that we equip their warehouse affiliates with network services of the required volume and quality, including data-transmission channels between the head office and the warehouse.”

It is worth noting that when working with warehouse operators, telecommunications companies do not earn a profit based on traffic, but rather on the data-transmission channels and the subscriber fees they collect from tenants. Moreover, experts believe that installation fees received from tenants for the initial hook-ups to the networks are high enough.

Astronomical remoteness

As previously mentioned, the main problem in laying telecoms for logistic centers is the distance from the capital. As a rule, logistic centers are located beyond the Moscow Ring Road; therefore they must seek approval for projects from the administrative structures of the Moscow Region. Indeed, on occasion the equipped premises are surrounded by a territory whose owners are outside organizations, which complicates not only the process for approving where the cable will be laid, but also increases the length of the cable itself. This, in turn, affects the project cost.

“It is always preferred to hook-up large warehouse complexes using fiber-optics cable,” explains Ioannesyants. “But there are times when expenditures for such a connection can be astronomical because of the remote location from the city, necessitating the use of a radio-relay. In turn, this requires a measured approach to connecting the warehouse, so the tenants will be satisfied and expenditures can be recouped in a more-or-less reasonable period.”

Moreover, as the warehouses are located on the periphery in industrial zones, operators must typically figure out a way to lay the connection over the last mile or use wireless radio access.

“If you invest in the connection, but then decide the warehouse is not suitable, you will end up having to leave,” says Sandomirsky. “It then turns out that you buried money in the ground, which is an obvious minus.”

The distance of a modern warehouse platform can stretch up to one kilometer, rendering it impossible for the organization to make a mobile data transmission within the warehouse territory without a fiber-optics system and a wireless-communications system.

“Unfortunately, the lack of operators specializing in offering telecoms services for the warehouse sector and the lowering of minimum requirements (in relation to communications) regarding warehouse owners forces logistics operators to provide a solution by combining the services of various operators in the telecoms sphere,” laments Oleg Loktev, IT manager at Lodgikon.

Indeed, the large distances on the territory of one warehouse (as access to the local network is desired on the whole warehouse territory) and the lack of reliable operators providing the afore-said equipment and Internet services are the main difficulties encountered when completing this type of work.

Talent for Gaining Passage

Although Russian companies still tend to undervalue the role of IT in their business, telecoms market experts are confident the necessity for communication lines will continue to increase with each passing year. Indeed, until recently, logistics complexes were not popular with network operators.

“The latter preferred to equip office and shopping centers,” explains Afanasenko. “However, in connection with the increased supply and competition in this segment, operators have turned their attention to warehouse complexes as well.” In his opinion, this niche is very prospective, especially given that warehouse logistics is developing dynamically. Accordingly, more high-end projects are entering the market, and they require the services of telecommunications companies.

Operators believe that in the near future the trend characteristic of the past two-three years will continue. The relatively low competition on the market for international-class warehouse premises and the increase in investment in warehouse real estate means that the demand for quality logistics centers will continue. Consequently, operators also believe the demand for high-end, personal corporate networks based on unswitched data channels will grow.

Furthermore, as warehouse premises increase and online warehouse operation strengthens, the use of wireless communication systems for the exchange of data between warehouse personnel and system automation will grow, believes Loktev. At this time, similar solutions exist, but they do not justify the high cost and low efficiency.

Moreover, telecommunications with high bandwidth and accessibility will be required for the online operation of a warehouse or when a large volume of information is being exchanged with logistics-center clients (for example, with a retail chain), believes Grikhanov. Nevertheless, unlike business centers, the logistics sector still has not reached saturation and the peak in construction is still expected. Consequently, as the market is gradually saturated, the requirements will rise on the standards of warehouse premises, such as the telecommunications level.

“Interest will definitely grow in various solutions by which any logistics center can effectively set up a system of interaction, such as between its representative offices and employees as well as its clients,” believes Yulis. “We are already seeing a trend by large logistic companies to install telecommunications services based on the very latest and reliable technology.”

Construction on good warehouse complexes began several years ago; however, it is still in shortage and is in demand in all of Russia’s regions. “We are trying to present our subscribers with the possibility of setting up a communication network across the whole country,” says Ioannesyants. “Accordingly, one of our goals is to present corporations establishing affiliates or leasing warehouse premises, for example, in Podolsk or Rostov-upon-Don, with the possibility of receiving standardized service packages to hook up to a single data-transmission network in any region of Russia.”