OVERVEW UKRAINE REAL ESTATE MARKET
In January-May 2008 real GDP in Ukraine grew by 6.4 % yoy. Consumer demand is becoming an increasingly important factor of economic growth. Real wages and incomes are growing rapidly, in turn stimulating consumption, and consumer credit is increasingly available. According to the State Statistics Committee of Ukraine, nominal disposable incomes of the Ukrainian households grew up by 10,4 % over 4 months of 2008. The real wage index in Kyiv for a period of January-April 2008 comprised 17.7 %. Thus, steady incomes growth followed up by expenditures growth as well as consumer’ culture evolution establish positive assumptions for modern retail development.
Kiev’s office market is characterized by significant undersupply of quality office space. During the first half of 2008, approximately 80,000 sqm was delivered onto the market and it is forecasted that by the end of 2008, the total stock of office space within Kyiv’s Business Centres will reach 920,000 sqm. Prime rents are $75-$90 per square meter per month (excluding VAT and operational expenses). Rental rates will remain high during 2008 with more upward pressure in the medium term. Prime yields are about 9% with the trend to drop. On average, vacancy rates in Kiev’s business centers are less than 2%. In the CBD, the vacancy rates are virtually zero.
In 2007 rental rates for retail space in the shopping centres of Kiev grew up by 50%; and by 25% in the first 6 months of 2008.
This is due to the deficit of quality retail space on the market - rapidly increasing demand overgrows supply by 5-7 times while commissioning of the new premises is being delayed. As a common practice, lease agreements with tenants are being concluded when construction is still in process, thus by the time of commissioning retail complexes are normally fully tenanted. Vacancy rate is the majority of Kiev’s shopping centres is virtually zero.
In the most successful malls net rental rates range from USD 180-250 per sqm per month. Shortage of available retail space in the professional shopping centres, not favorable commercial terms and high rents force the retailers to look for street retail that caused rental rates growth by 20% in the 1H 2008.
Rental rates for street retail in the main central trade corridors lie in the range of USD $150 – 300 per sqm per month and up to USD $600 per sqm per month in Khreshatik Street. Retail trade is rapidly taking off in the residential districts of Kiev, in the main streets on the Left Bank of Kiev, rental rates range from USD $50 to 100 per sqm; and USD $120-250 in the professional retail complexes.
Retail space supply, 1H 2008: sqm GBA 734,000 GLA 496,000 Commissioned in 1H 2008: GLA 60,000 GBA 96,496 Current vacancy rate 2% Yield 9.5%
There are 41 shopping centres currently operating in Kiev. 3 new projects (including “Auchan”. ) of total GLA 60,000 sqm were commissioned in 2008. Additional 61,000 sqm of professional retail is expected to come on line by the en d of 2008.
Ukraine’s retail growth has led to a considerable increase in demand for modern warehousing. The unmet demand is estimated at about 600,000 square meters up to 1 million square meters in the Kiev region, which is the most preferred location for both local and foreign developers. Prime rents 1$10-12 per sqm per month excluding VAT and service charges reached the highest level in comparison with CEE countries and more likely will remain stable with possibility to be increase on 5-10% in 2009. Major warehousing developments in 2008 are: MLP Chaika with 100,000 square meters, West Gate with 78,000 square meters, Komodor with 61,000 square meters and Kopilov Logistics Park with 50,000 square meters.
All sections of the Ukrainian commercial property continue to expand especially as more and more investors, developers and retailers move into the Ukrainian market.
Metro have 20 stores and plan 40 more. Auchan opened their first Hypermarket in 2008 in Kyiv and plan to spread across the country. OBI, Real, Bauhaus, Praktika, Media all plan to expand their operations in Ukraine. Investors/developers from all over the globe are now seriously looking at Ukraine. And the same applies to logistics.
6:The major investments of foreign capital in real estate
• Meyer Bergman bought the Alladin Shopping Mall in Kyiv – over $60m, yield estimated at 9.5%. (Agent DTZ).
• Uniqua Real Estate AG bought the City Centre Shopping Mall in Nikolayev for $25m on a yield of 11%. (Agent NAI Pickard).
• Bayer leased 5000m2 of new office space on Verhniy Val Kyiv for $55 per m2 for 5 years. (Agent NAI Pickard).
• Akron Immobilien Development GmbH acquired East Gate Logistics (40,000 sqm) at Borispil town, Kyiv region at 35 mln Euros.
• Davento (VK Development) acquired Alta Centre (Kiev) for $50 m on a yield of 8%.
7 :The remaining legal problems as regards development
A great deal of non-specified and occasionally dated standards and regulations somehow establish the procedure for constructing real estate, particularly the Ukrainian Laws on Principles of City Planning No. 2780-XII, dated 16 November 1992, on Territory Planning and Building No. 1699-III, dated 20 April 2000, on Architectural Activity No. 687-XIV, dated 20 May 1999, etc. The legislative acts very often contradict each other, while the requirements and procedures they contain do not meet present-day demands. They are artificially complicated and rather inexpedient and inefficient.
Currently, legislation does not foresee the mechanisms establishing liability for all aspects of the construction design by architects and liability for all aspects of the construction itself by construction engineers. Architects and construction engineers, who are usually members of selfregulating organisations, have the right but not the obligation to get approval from government authorities (fire, sanitation etc). The admission requirements to such self-regulating organizations are usually much more demanding than the license conditions in Ukraine.
According to applicable law, opinions, approvals and permits required for the construction or redesign of premises (including the construction permits) are issued to the individual client or contractor but not for the specific premises. Moreover, these documents cannot be freely transferred to a new owner or contractor. This situation slows down, significantly complicates, and sometimes prevents the disposal of uncompleted premises because the new owner is practically unable to continue construction based on the documents described above. Therefore, there is a pressing need to harmonise Ukrainian law with the laws of the leading European countries, which provide for issuing permits, approvals and other construction documentation for specific facilities or premises and transferring them freely to any new owner, contractor, etc.
The development of the Ukrainian economy stimulates the growth of the non-residential (office) property sector through both construction of new office centres and refurbishment of existing premises and their re-designation for non-residential use. Even the most perfectly designed office space cannot satisfy all leaseholders since each of them has its own requirements as to the interior design or layout of workspace due to a number of objective and subjective factors. Therefore, each new leaseholder normally refurbishes and redesigns its future office space. Because the formal approval of redesign takes much time and is quite costly, redesigning is often carried out without obtaining the appropriate permits and approvals from competent authorities. It is expedient to foresee that the approval of government authorities for redesign and re-planning of buildings and premises (including office premises) is required only for the buildings and premises that constitute hazards according to the risk management system.