Commercial Real Estate Market Overview Kyiv, 4th Quarter 2007
U Ukraine, Q4 2007
OFFICE MARKET
The second half of 2007 was marked by the swift growth of rental rates in Kyiv’s A and B+ class office centres. Rates rose 30% due to the limited supply on the market and the continued growth of demand. The high demand has been proven by record low vacancy levels of 0.3%, in comparison with regularly demonstrated international practice level of 10-14%. The growth in rates can be attributed to a wide-spread postponement of delivery dates. Initially, developers expected the commissioning of more than 200,000 sq. m of office space in the 2nd part of 2007, but in reality this figure will not exceed 35,000 sq. m. $ The Renome business centre, slated for opening at the end of 2007
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One of specific example is the investment project of office and retail centre on Bazhana Av., near the Poznyaki subway station. Since it is not in the CBD, lower development expenses allow for rental rates in the area to be 30% lower than in the city center. According to forecasts, the demand for office premises outside of the central district will grow. Transport infrastructure development, in particular, the construction of the bridges across the Dnipro River, will strengthen this tendency. In December 2007 the Renome business centre will open in Kyiv’s Central Business District. It will be a sixlevel B-class business complex with parking and a total area of 6,700 sq. m. The business centre is situated in the heart of the capital business life – on 5 Dimitrova St., not far from the largest transport highways and road junctions in Kyiv. The offices include amenities such as modern HVAC systems, automatic fire-control systems, and modern IT and telecom infrastructure including unlimited amount of telephone lines and high speed Internet access.
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Dymamics of the rental rates of class A office centers in Kyiv, excluding VAT
One of the significant office market tendencies has been the increase of Lease Agreement terms of up to five years by tenants. Premises with an area of 100-200 sq. m and 6001,000 sq. m are in the highest demand in A and B class business centres. The current market trend is the increase of average office size. Many lessees are raising the staff levels and premises of greater area are required. High rental rates, inconvenient transport connection, and lack of vacant premises in the central business district’s centres have caused many firms to move to outlying districts.
U Ukraine, Q4 2007
RETAIL MARKET
Both domestic and foreign market operators are taking part on Ukrainian real estate market. The British fund London & Regional Properties, which specializes in real estate investment, purchased the Globus retail and entertainment center located on Maidan Nezalezhnosti in Kyiv. The company acquired the complex for $200 million. The preceding owners were businessmen Alexander Melamud and Alexander Loyfenfeld. The purchase is L&R Properties’ second transaction on the Ukrainian commercial real estate market. The company already owns the Podil Plaza business centre. Dniprovska Pristan shopping centre Also, the opening of the first phase of the Dniprovska Pristan shopping centre took place in Kyiv. The multi-function complex with a total area of 160,000 sq. m is located on General Vatutin Blvd. The Prizma Beta Company is developing the project. Total planned investment into the project amounts to $150 million. Among the anchor tenants are the O’KEY hypermarket (18,000 sq. m), Megamax electronics and home appliance supermarket, an entertainment complex for children called Crazy Park, and Vitamin entertainment center. According to estimates from A. T. Kearney consultancy in 2007, Ukraine ranks 5th in investment attractiveness worldwide in the retail real estate segment. Rental rates reach $200/sq. m per month in the most successful shopping centres, which is 2-2.5 times higher than in other Eastern Europe countries. The payback period for shopping centres in Ukraine is 5-7 years. Per capita retail space in Kyiv is still quite low at 165 sq. m per one thousand inhabitants as opposed to 650 sq. m in Prague and 750 sq. m in Warsaw.
Globus retail and entertainment center
The Materik shopping and entertainment centre opened on the 6th of October, 2007. The total area of the center is 17,000 sq. m, and its 2-level parking area is designed for 300 cars. The centre is anchored by a Rainford supermarket, which provides a sorely needed grocery in the area. The store has no competitors in its microdistrict.
U Ukraine, Q4 2007
INDUSTRIAL MARKET
The upwards price trend on industrial space is on average 1.3 – 1.4 times higher than in other real estate segments. Warehouse construction is less expensive than retail or office real estate buildings of the same area. For these purposes it uses fast-scaffold technology. Therefore, many developers and investors consider the industrial market to be particularly attractive and are working specifically at filling this vacant niche. The supply of warehouses with developed infrastructure and modern equipment satisfies only 15– 20% of demand. The present and future market players will invest more than $3.8 billion in the construction at least 3.5 million sq. m of storage facilities. Among the key market trends it should be noted the readiness of foreign investors not only to purchase pre-leased contract projects for 7 – 10 years, but also to participate in a project’s initial stage if a plot is available.
FIM Group intends to invest nearly UAH 2 billion in its projects up to 2010. Recently the company has finished the construction of the MLP-Chayka logistics complex, which has an area of 28,000 sq. m, a hotel and restaurant complex “Trypillya” and office centre “FIM Center”. The company is now completing an А class logistics complex totalling 150,000 sq. m located on the Brovary - Borispil highway.
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A B C The Austrian developer GLD Invest Group, in partnership with the Akron Group international investment fund intends to invest more than EUR175 million in the logistics centre’s construction. In the future, the expansion of chains of logistics complexes into regional centres will give companies competitive advantages. Providing related services such as freight handling, transporting loads, customs clearance, brokerage services etc, can increase profits at least three times.
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The availability of logistic centres by classes The Ukrainian industrial market remains attractive for foreign developers first of all because of its comparatively rapid payback period. In Western Europe this period averages 17 years, and the project’s profitability does not exceed 5-6%; in Ukraine the payback period reaches 7-9 years and profitability can reach 14-16%.
U Ukraine, Q4 2007
HOTEL MARKET
International hotel chains are expanding their presence across Ukraine, and especially in Kyiv.
In September 2007 the long-awaited official opening of Global Hyatt Corporation’s first hotel in Ukraine took place in Kyiv. The hotel is situated at 5 Tarasova St. and contains 237 rooms. The company will develop its presence in Ukraine under both the Grand Hyatt and Park Hyatt brands. Currently, 5-star hotels are slated for construction in cities with populations of over 1 million inhabitants. Hotel “Hyatt”
Brussels Rezidor Hotel Group, owner of the Radisson SAS, plans to build 4 hotels in Ukraine by 2010-2011 in addition to the Yaroslaviv Val location already operating in Kyiv. The hotels will contain 300 rooms, conference halls that can accommodate up to 400 people, beauty shops, and fitness centers. Construction is expected to start in spring of 2008. The main investor and future owner will be the V.I.Center LLC The estimated investment is $400 million. The projects’ payback period exceeds 10 years and the main selection criteria for locations are cities with populations over 500,000 people as well as large investment potential. Eastern Ukraine is the most attractive region as the hotels’ supply is especially limited. The Austrian company Sparkassen Immobilien AG, a subsidiary of Erste Bank, is going to build five hotels in Ukraine by 2010. The 4-star hotels will be situated in Kyiv, L’viv, Kharkiv, Dnipropetrovsk and Donetsk and will be managed by Marriott. The total project investment will be more than €500 million.
In spite of Kyiv’s lack of hotel, with 0.4 hotel rooms per 1,000 inhabitants, compared to Moscow with 0.8 rooms, Berlin with 6, and Rome with more than 16 rooms per 1.000 inhabitants, the hotel market only ranks 4th by investment attractiveness. The high land price in Kyiv drives developers to build elite hotels in expectation of substantially higher profits, while the budget hotels are even scarcer. This tendency is followed by 3-star hotel chain Clubhouse Group Holdings. Its brand “7 days” is targeting the Ukrainian middle class. Nowadays the company is managing one hotel in Kyiv with 36 rooms and one in Kamyanets-Podilsky with 220 rooms. Clubhhouse Group Holdings expects to complete up to 9 more hotels by 2009 with a total stock of 1,853 rooms. The price per room will range from $40 to $100 per night depending on the city. Investments are expected to total $95 million. With these locations Clubhouse Group will be able to compete with hostels and occupancy will reach 60-70%.