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Ukrainian Real Estate Trends in 2017

Nick Cotton, Managing Director of Cushman & Wakefield in Ukraine (formerly operating as DTZ).

What are the main Ukrainian real estate market trends?

Cushman & Wakefield are witnessing strengthening occupational activity in all sectors (office, retail and logistics) in the Kyiv region and, in both offices and retail in the major regional cities. This has led to a sharp reduction in  office vacancy in central Kyiv which, is now manifesting itself in  some upward pressure on rents and, reduction of landlord concessions (i.e. rent free periods, fit out contributions) for those buildings with low levels of vacancy. The retail market has stabilized and whilst vacancy has always been managed at low levels by effective mall management and tenant retention initiatives, as the market now improves there has been an upward movement in base rents and a reduction in landlord concessions. The logistics sector was arguably hit hardest by the economic downturn between 2014-2016 and, whilst rents remain at historically low levels, vacancy is now down to around 5% with a shortage of space particularly for occupiers seeking large areas in excess of 10,000 sq. m.

Capital market transactions have shown a marked increase in activity during 2017 with a number of properties acquired typically from the portfolios of banks including Renaissance BC, Prime BC and, Eurasia BC. Cushman & Wakefield also closed the acquisition of an office property by a foreign mission which for the time being remains confidential. During the year Cushman && Wakefield also sold the 31,000 sq. m Kopylov Logistics complex on behalf of Polish/Belgium developer Ghelamco to ATB supermarkets. The capital transaction market can be characterized by typically domestic investors seeking to deploy excess liquidity either into income producing investments or properties for owner occupation. Bank debt remains largely absent from capital transactions and, due to the rationale of typically local companies seeking to deploy domestically accrued liquidity, transactions are now tending to be asset based rather than through the transfer of corporate vehicles which was formerly the more common practice in Ukraine.

Cushman & Wakefield project that office rents will see upward movement in 2017 as vacancy is further squeezed however, pipeline delivery with the exception of Astarta BC and UNIT city will remain very low. Accordingly, we anticipate that developers will begin to formulate plans for further office development in response to improving market conditions.  Retail activity is also set to increase however, with the ongoing pipeline delivery in Kyiv of a number of large scale projects including Retroville, Rivermall, Blockbuster, Rive Gauche, Ocean Mall and possibly the recommencement in due course of Respublika additional pipeline in Kyiv will need to be carefully planned and positioned with only the best strategic sites offering viable development opportunity. Cushman & Wakefield are witnessing increased development interest however in the larger regional cities where often the markets remain structurally under supplied.  Pipeline logistics development remains elusive at present however there are signs that some bespoke turn-key development may commence in 2018.

A major consideration in relation to both the development and investment market in future years will be the availability of affordable long-term debt finance which remains presently in very low supply. If and when such debt becomes available then this will have material positive impact on overall activity in the sector.

How Ukrainian companies follow new trends of real estate market and how they respond to new challenges?

Ongoing office developments such as UNIT city and Astarta are leveraging the growth in the IT industry by offering premises very much meeting the needs of this burgeoning industry sector. Similarly, in the regions office developments in cities such as Lviv have seen the delivery of some extremely well designed and well positioned properties one example being Optima Plaza in Lviv which, was the first BREAM certificated office building delivered in the country. Cushman & Wakefield project that as developers begin to plan further office development, a similar focus will be followed towards efficient offices offering added on-site amenities so as to ensure attractiveness to the increasing demands of occupiers.

Retail properties similarly are increasingly positioning themselves as  social destinations / centres of community life with increased leisure and social amenities key to ensuring continued footfall and trade activity particularly in light of increasing competition and the effects of e-commerce and m-commerce. 

What are your expectations of participation in the EE Awards 2017? How do you assess the role of such an event in the development of real estate market within the region?

The EE Awards is an important platform for developers and consultants alike to demonstrate to the market the increasing importance of the provision of high quality properties and levels of service. No longer can it be the accepted approach to meet the best levels of competition in the market but, to now seek to exceed the best in class, continually raising the bar.  Cushman & Wakefield believe that the quality of projects and, levels of professional service in the market quite simply demonstrate the maturing of the market.