Commercial Real Estate Market Overview Q1-2008

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					Commercial Real Estate Market Overview Kyiv, the 1st Quarter 2008

Ukraine, Q1 2008
OFFICE MARKET
Numerous investors are being attracted to the quality office premises segment, driven by the deficit of properties in this segment and the high potential yields. DeVision has started building a Class B business centre on Stolychne Ave. The office centre is 23 storeys high and has 900 parking spaces and a total area of 44,500 m2. The infrastructure will include a restaurant, a café, conference rooms, a copy centre and a stationery shop. The business centre will be located in the Domosphera furniture and home furnishings shopping centre. The Domosphera centre has a gross building area of 182,000 m2. It is being built in 4 phases according to the new Neighborhood Shopping Centre format. Deloitte has announced the relocation of their head office in Ukraine. The company will move to the NTBC II business centre, a Class A facility situated at 48-50-A Zhilyanska St. in Kyiv. It will be renamed the Deloitte Centre. In the first half of 2007 IPG Eurasia Ukraine became the building’s new owner.

The Ukrainian developer HCM Group plans to start construction of a new mixed-use complex with a “city within the city” format in 2009. It will be located on a former industrial plot between Frunze and Novokonstantynivska Sts. and will include office and financial space, shopping and leisure space, a hotel, an exhibition centre, and residential premises. There will be 7,000 spaces’ worth of both ground and underground parking. The shopping and leisure space will occupy the 2-7th floors, while the offices and hotels will occupy the 25-35th floors. The financial centre, which will comprise the complex’s main building, will be 60 storeys high. Public gardens and parks, a stadium, and a skating rink will grace the common and public areas.

The development company Ucapital Partners (Kyiv) has started construction of the new 23-storey Technocity business centre at 7 Livarska St. It has a total area of about 100,000 m2. The centre will consist of three towers, the first of which is 40,000 m2 in size and the building of which should take 2.5-3 years. Investment in the project totals $200m. Office premises in Technocity will be offered for sale, not rent.

Leonardo Business Centre 7th floor 17/52 Bohdana Khmelnytskoho St., Kyiv 01030, Ukraine Tel.: +380 44 200 7700 Fax: +380 44 200 7701 www.deol-partners.com

Ukraine, Q1 2008
RETAIL MARKET
Retail market activity has showed dynamism in comparison with the office segment. A number of market players have announced both development plans and new projects. investment volume totals about $41m and the estimated construction cost is $1000 per m2. The payback period will take about 5-6 years.

CJS Furshet in partnership with worldwide retailer Auchan Group has opened Ukraine’s first branch of France’s Auchan discount hypermarket chain. It is located on the former site of the Ukrcable plant, occupies a leasable area of about 15,000 m2, and has more than 90 checkout counters. The facility will offer retail and outlet premises and sell furniture, home appliances and electronics, automotive goods, sportswear, and more. Some 35 boutiques are expected to open in the Auchan store.

JSC NEST-Hanner has unveiled plans to build a mixed-use complex at 11 Zlatustivska St. in Kyiv’s Shevchenkivskiy district. Investments will total $340m and plans call for the complex to have a total area of 280,000 m2. The project will include a five-level shopping and leisure centre, offices, and residential space, plus a hotel and kindergarten. Underground parking for 2,500 cars will also be provided. Plans call for the first stage of the project to begin operating in 2011, and the project will take seven years to realize, tentatively. Amstor Group intends to open 15 hypermarkets and shopping centres in 2008 and increase its sales in Ukraine at least two-fold. Planned investments total about $200m. By 2009 the chain intends to increase to 28 hypermarkets in different regions of Ukraine, bringing its total retail space to 850,000 m2. PAKKO-Holding, one of the leading retail groups in Ukraine, has announced its plans. Some 40 Vopak and PAKKO shops will open in 2008. Plans are to pay attention to Ukraine’s western regions, where PAKKO has the highest number of stores, as well to the central and eastern regions, where the retailer plans to increase its presence. Turnover is expected to reach $300m. Karavan Group hopes to conclude a deal to sell its Karavan grocery store by the end of 2008 or the beginning of 2009. The company wants to exit the project and redirect financing towards land plot purchases. The estimated sale price of the supermarket is $200m.

XXI Century has opened a new Kvadrat Aurora store featuring a “hypermarket-gallery” format and including a food store, a multiplex cinema, a retail gallery and a food court. The shopping centre is allocated on 3 levels and totals 41,000 m2. It has parking for 600 cars. The centre’s general anchors are the Perekrestok supermarket and the Odessa-kino cinema. The project’s

Leonardo Business Centre 7th floor 17/52 Bohdana Khmelnytskoho St., Kyiv 01030, Ukraine Tel.: +380 44 200 7700 Fax: +380 44 200 7701 www.deol-partners.com

Ukraine, Q1 2008
INDUSTRIAL MARKET
Recent trends have seen enlargements of scale and improvements in quality in logistics premises located in Kyiv and its region. Previous facilities had building areas of 20,000 – 40,000 m2 whereas today the number of warehouses with areas of more than 100,000 m2 is rapidly increasing. GLD INVEST GROUP has sold a fully-leased logistics park to AKRON GROUP (Austria) for about $51m. The 50,000-m2 Class A logistics park includes warehouse facilities and offices and is situated 5 km from Boryspil International Airport in Kyiv region.

Immo Industry Group (IIG), one of Europe’s leaders in warehouse and industrial real estate development, continues to develop projects on the Ukrainian market. Plans are for the company to realize its first industrial park along the Kyiv - Zhytomyr highway, 22 km from the future ring road. The plot’s size is 12.6 ha, with a building area of 80,000 m2. The next facility will be located on the Odesa highway 10 km from the ring road on a plot of 4.1 ha with a building area of 15,000 m2. The third project will be realized on the Kyiv-Brovary highway 20 km from the Kyiv border and will have about 50,000 m2 of building area. Immo Industry Group’s current portfolio contains more than 50 projects in Ukraine, Slovakia, Poland, Belgium, the Czech Republic, Italy and France. MLP company announces the conclusion of a lease contract with MTI Ukraine for about 21,000 m2 of office and warehouse space in the second building of the MLP Chaika Complex. The complex’s total area is 116,000 m2. As planned, the first phase will be put into operation in IQ 2008 and the second in IIQ 2008.

GLD Invest Group of Austria and the cosmetics company Mary Kay Ukraine have concluded a leasing contract for the first stage of the West Gate Logistic warehouse complex. The lease will cover a period of 7.5 years. The total area of the complex includes approximately 6,000 m2 of industrial space and 1,400 m2 of office space. GLD Invest has also started construction of the Class A Odesa Logistics Park warehouse complex, located 5 km from Odesa. It will have a total area of 60,660 m2. Construction of the complex was estimated to take 18 months, with the launch planned for IQ 2008. The Roshen Confectionery Corporation (Kyiv, Ukraine) – the largest confectioner in Ukraine – has opened a warehouse in Yagotyn with a total area 60,000 m2 and a capacity of 45,000 tons. Investment in the project totals $45m.

Leonardo Business Centre 7th floor 17/52 Bohdana Khmelnytskoho St., Kyiv 01030, Ukraine Tel.: +380 44 200 7700 Fax: +380 44 200 7701 www.deol-partners.com

Ukraine, Q1 2008
HOTEL MARKET
Ukraine’s winning the honor to host the EURO 2012 football championship, in conjunction with Poland, has enlivened the Ukrainian hotel industry.

Hotel operator Wyndham Hotel Group (USA) has entered into an exclusive contract with the Ukrainian Hotels Company (affiliated with Astron Ukraine) to develop three-star hotels for Ramada Encore over the next 10 years. According to the project specifications, 15 Ramada Encore hotels will be opened in Kyiv and in other cities with populations of more than 200,000 people. Wyndham Hotel Group expects to become a leader in the 3-star hotel segment in Ukraine over the next 5-7 years. The Scandinavian company Rezidor SAS, which owns the famous hotel brands Radisson SAS, Missoni, Park Inn, Country Inn and Regent plans to build a new hotel in Kyiv. The 23-storey Regent hotel, located at 35–37 Chervonoarmiyska St., will total about 45,000 m2 and have 440 rooms. One of the underground floors will have a planned 49 parking spaces and a panoramic restaurant on its top storey.

The Rezidor Hotel Group has concluded a contract to fulfill hotel management and consulting services for the second project phase of the Krymska Riviera (Alushta). Radisson Resort, Alushta will start operations as the hotel complex’s first phase in summer 2008. The investment volume will reach $100m. KDD Group N.V intends to realize the Kureni hotel and restaurant complex by reconstructing the existing Kureni restaurant. The facility will be 400m from the Dnipro river near the Kyiv Pechersk-Lavra. The 7-storey building, with an area of 7,600 m2, will include a boutique hotel and an elite residential centre. Construction work will start in IQ 2008 and finish in IQ 2009.

Now that Hilton, Radisson, and Hyatt are already on the Ukrainian market, Fairmont Raffles Hotels will continue expansion into the country. Fairmont Raffles Hotels owns more than 120 hotels in 25 countries under the brands Raffles, Fairmont, Swissotel, and Delta. The most famous of these properties are the Chateau Laurier in Ottawa and the Savoy in London. The first Fairmont-brand hotel, with 251 rooms, will open in Kyiv on 1-A Naberezhno-Khreschatytska St. in 2009. Fairmont Raffles Hotels International have entered into partnership with the Ukrainian company Yaroslaviv Val and signed a hotel management contract. Yaroslaviv Val intends to invest about $120m in hotel development. Clubhouse Group Holdings have continued to expand their presence in Ukraine. According to plans, they will build 3-star hotels in Truskavets and Lviv during 20082009. After that they will turn to projects in Kyiv and Crimea. Total investments for each project will reach $15-20m. At present the company manages two 3-star hotels, both of them 7 Days facilities, in Kyiv and Kamyanets-Podilsky.

Leonardo Business Centre 7th floor 17/52 Bohdana Khmelnytskoho St., Kyiv 01030, Ukraine Tel.: +380 44 200 7700 Fax: +380 44 200 7701 www.deol-partners.com

Ukraine, Q1 2008
INVESTMENTS
Renaissance Capital and ING Bank (London office) exercised over-allotment options in connection with the offering of KDD Group N.V. (KDD Group) shares on London’s Alternative Investment Market (AIM). The offering was worth $143m. The placement was done among European and U.S. institutional investors. KDD Group N.V. (The Netherlands), a leading real estate development and investment firm in Ukraine, is one of the largest companies in the Kyiv Donbass Holding Company. KDD will invest $600m in its projects in 2008. Irish company Quinn Group has announced its intention to invest $1bn in Ukrainian real estate by 2013. Total planned investments into the country will reach $5bn. The company is currently interested in purchasing finished objects. Real estate development company XXI Century has announced plans to invest approximately $600m into real estate project development in different segments of Ukraine. The company also intends to enter into contracts with foreign companies to create joint ventures for retail and industrial real estate development.

Investment bank Dragon Capital has successfully completed a private placement for Davento PLC (Cyprus), raising $77.8m for a 12.3% stake in the parent company of the Ukrainian property developer VK Development. As a result of this second placement, the company’s market capitalization reached $627.8m. Dragon-Ukrainian Properties & Dev. Plc announced that its wholly-owned subsidiary Startide Ltd has acquired 96.6% of shares of JSC Budynok Pobutu Obolon, a consumer services company located in Obolon district, Kyiv. The property consists of a 9,600 m2 9-storey administrative building located on a 1.07 ha land plot. The location of the property makes it highly attractive for development of a new mixed-use complex consisting of residential and retail units. Dragon-Ukrainian Properties & Dev. Plc’s total commitment to acquire the property and to facilitate further development of the land plot is $16.2 million. Fozzy Group (Kyiv) intends to invest $230m in company development. As expected, gross turnover will exceed $2.8b. The company plans to continue geographic enlargement as well as quality improvements in their chain and open 25 new Silpo grocery stores, 15 new Fora grocery stores, and two Fozzy C&C hypermarkets by the end of 2008. Along with retail, the Fozzy Group will continue to develop restaurant chains and set up at least three new restaurants in different formats in Kyiv. System Capital Management (SCM) has launched its new real estate business ESTA Holding, through which the company will invest in the real estate sector. At present ESTA Holding is represented in the following real estate market segments: commercial real estate, the hotel business, and residential real estate. ESTA Holding initially expects to improve its position in the Ukrainian market and in the long-term to enter international real estate markets.

Newcity Investments, a British company, has decided to finance real estate projects in Ukraine. For this purpose the representative company Newcity Development has opened in Kyiv. In January 2008 Newcity Development established a cooperation agreement with Ukrainian company Renaissance Development (Кyiv).

Leonardo Business Centre 7th floor 17/52 Bohdana Khmelnytskoho St., Kyiv 01030, Ukraine Tel.: +380 44 200 7700 Fax: +380 44 200 7701 www.deol-partners.com