22. Februar 2010 
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Real estate market outcome in 2009 and company results
“2009 has been an extremely challenging year for all businesses directly engaged in Real Estate. The market has witnessed contraction of demand from all sectors which, coupled with the currency devaluation has placed increased downward pressure on effective rentals. Bank finance has become extremely difficult to source or draw down and many development projects became frozen. As a consultancy business, we are directly affected by the difficulties that our clients feel in the market and, have had to adjust our business approach to accommodate these changes.”, says Nick Cotton, Managing Director DTZ in Ukraine.
“To maintain our market position we have also had to deploy new initiatives and, open new business lines or enter new markets. DTZ has in 2009 launched its retail centre management department taking on the full centre management of the 83,500 sq m Riviera Shopping City in Odessa. Further afield, DTZ Ukraine has been engaged in consultancy assignments in Tbilisi on behalf of the Tbilisi City Authorities and, are leveraging from this experience to seek to undertake further work in the city in 2010.”
“The year ahead will remain extremely challenging as the full effects of what was very clearly an unsustainably overheated sector of 2006-2008 faces the reality of a very abrupt correction that will in the short term see a degree of ‘overcompensation’. The Kiev real estate market remains some way from the stabilization point that is required before systematic reinvestment and growth can recommence. Of positive signs though are indicators that some banks are now considering providing debt finance on both new development projects as well as refinancing existing assets. This in turn has driven the more pragmatic developers to revise earlier ‘mega’ development concepts so as to provide more ‘deliverable’ viable concepts DTZ’s approach will be to continue to develop and invest in business lines and regions where we see opportunities to improve our diversification, market coverage and, ensure full deployment of our resource base.”
Offices
In 2009, new office supply in Kyiv amounted to around 123,860 sq m, representing a decrease of over 29% compared to 2008.
In 2009, around 106,000 sq m of offices were transacted in the market in Kyiv, which is approximately 34% less than in 2008. During the year, these transactions were largely driven by renegotiations, as well as relocation of the companies seeking to minimize their occupational costs, improve the quality of occupied space and/or optimize business processes by means of staff redundancies and/or consolidation within one building or smaller suites.
As a reflection of the general economic downturn in Ukraine, since the fourth quarter of 2008 the market-wide vacancy increased significantly on the office property market in Kyiv. At the end of 2009, the primary market-wide vacancy reached 17.6% compared to 4.2% in 2008 and 1.3% in 2007.
The office property market in Kyiv can now be characterized as a tenant’s market. From the third quarter of 2008 until late 2009, office rents in Kyiv fell by over 50% in the US dollar equivalent. Prevailing monthly office rents are now at around US$ 25-35 per sq m per month for prime space, reducing down to US$20-25 per sq m for B class space, and US$ 12-17 per sq m per month for C class property.
Looking ahead to 2010, whilst overall demand remains suppressed, there is evidence that a number of larger occupiers are now taking the opportunities presented by the depressed rental market and, forthcoming lease breaks to seek relocation to more efficient better grade space than they presently occupy. This strategic relocations of corporate occupiers is likely to be a major driving force in the further maturity of the market.
During 2009 DTZ office team leased 10,857 sq m, securing office premises for such clients as HSBC, Seven Hills, Mitsubishi Heavy Industries, Ewopharma A.G., WND, Velltop Ltd. and, CIKLUM, occupying space in BC “Leonardo BC” (phase1, 2), BC “Prime”, Forum Business City, “ Panorama” BC, HPBC II and others.
Retail
The retail property market throughout Ukraine, including Kyiv, remains underdeveloped in terms of its saturation and quality of existing stock compared to other countries and capital cities in Central and Eastern Europe.
As of December 2009, the total modern retail stock in Kyiv was estimated at over 841,100 sq m (GLA), or approximately 300 sq m (GLA) of modern retail stock per 1,000 inhabitants (based on the official demographics statistics). This figure counts for all major retail developments in the city of or, over 5,000 sq m gross lettable area (including multi-tenant retail centres and ‘big box’ single-occupied developments), and reflects a significant undersupply of retail space in the Ukrainian capital, particularly when considering the official versus unofficial population imbalance.
Over 193,200 sq m (GLA) of new retail space was delivered in Kyiv in 2009. This included delivery of the furniture and home appliances multi-tenant retail centres Domosphera (phase 1), Arax and 4Room all located along the Kyiv Ring Road, the retail and leisure centre Dream Town (phase 1), as well as the stores of Metro Cash & Carry, Epicentre and Auchan. Delivery of the second phase of the retail and leisure centres Sky Mall and the centrally located retail and leisure centre Continental (Esplanada) were delayed and, are still awaiting delivery.
Due to the escalation of the financial crisis and delivery delays of several sizeable projects across Ukraine, some retailers have suspended their expansion in the country. At the same time, all brand retailers became significantly more selective in terms of quality of retail space and occupational terms.
Looking forward to 2010, DTZ are witnessing a noticeable increase in interest from ‘big box’ retail developers and operators driven due to the relative inelasticity of demand for food and, DIY products compared to fashion but, more so to the availability of development land at affordable prices enabling viable delivery of such schemes. DTZ project that retail generally will be one of the first commercial real estate sectors to emerge from the market stagnation due to the structural under supply in this sector and, the propensity of the Ukrainian population to spend.
DTZ retail team leased over 29 000 sq m of retail spaces in 2009 a majority of this being through their position as exclusive leasing agent of the largest retail scheme in Ukraine, which was opened in October 2009, Riviera shopping City, GBA 83 500 sq m. The list of tenants brought to the project by DTZ includes a wide range of leading European and national retail operators, including the first Ukrainian stores of a number of leading brands including the brands Bershka, Pull & Bear, Stradivarius, owned by Inditex Group as well as their second Zara store in the country. Riviera also saw the opening of Ukraine’s first real-, German Hypermarket as well as other leading brands including OBI DIY Hypermarket, Comfy electronics and home appliances supermarket, “Eurasia” Furniture store, and, Odessa’s first Marks & Spencer, Planet Cinema multiplex with IMAX Screen and many others.
Logistics
As of the end of 2009, the total stock of modern warehousing space in the Greater Kyiv area amounted to approximately 1,016,600 sq m. In 2009, the new logistics supply in the Greater Kyiv area amounted to around 194,820 sq m, which is similar to 2007, but over 56% than supplied in 2008.
In 2009, annual transactions amounted to approximately 145,760 sq m of speculative modern logistics space in the Greater Kyiv region, representing a decrease of around 53% compared to 2008. Nevertheless, the fourth quarter of 2009 witnessed the first positive signs in the demand dynamics for logistics space in the Greater Kyiv area, with indications of increased occupier activity and record level of take-up for 2009, as well as importantly a number of expansions of tenants within the occupied schemes.
At the end of 2009, the primary vacancy rate in the Greater Kyiv area reached approximately 20.6% compared to 14.5% in late 2008. During the year headline rents for prime warehousing space varied in a range from US$5.5 to US$7 per sq m per month depending on the quality of space, location and general lease terms being significantly down from the highs of US$9.75 sq m and above prevailing in 2008.
In 2009 DTZ Industrial and Logistics team leased around 40,000 sq m of logistics space including schemes: Warehouse Complex «Unilogic Park», Mixed-use complex “Nivki-City”, Logistics Complex “MLP-Chaika”, Logistics Park “West Gate Logistic” and others. Among tenants which agreed for leasing in mentioned above projects are: «Hendricks Ukraine», «Eldorado», «Sportmaster», «West Gate Group», «Vesta Ukraine», «Orimi Trade» and others.
“To maintain our market position we have also had to deploy new initiatives and, open new business lines or enter new markets. DTZ has in 2009 launched its retail centre management department taking on the full centre management of the 83,500 sq m Riviera Shopping City in Odessa. Further afield, DTZ Ukraine has been engaged in consultancy assignments in Tbilisi on behalf of the Tbilisi City Authorities and, are leveraging from this experience to seek to undertake further work in the city in 2010.”
“The year ahead will remain extremely challenging as the full effects of what was very clearly an unsustainably overheated sector of 2006-2008 faces the reality of a very abrupt correction that will in the short term see a degree of ‘overcompensation’. The Kiev real estate market remains some way from the stabilization point that is required before systematic reinvestment and growth can recommence. Of positive signs though are indicators that some banks are now considering providing debt finance on both new development projects as well as refinancing existing assets. This in turn has driven the more pragmatic developers to revise earlier ‘mega’ development concepts so as to provide more ‘deliverable’ viable concepts DTZ’s approach will be to continue to develop and invest in business lines and regions where we see opportunities to improve our diversification, market coverage and, ensure full deployment of our resource base.”
Offices
In 2009, new office supply in Kyiv amounted to around 123,860 sq m, representing a decrease of over 29% compared to 2008.
In 2009, around 106,000 sq m of offices were transacted in the market in Kyiv, which is approximately 34% less than in 2008. During the year, these transactions were largely driven by renegotiations, as well as relocation of the companies seeking to minimize their occupational costs, improve the quality of occupied space and/or optimize business processes by means of staff redundancies and/or consolidation within one building or smaller suites.
As a reflection of the general economic downturn in Ukraine, since the fourth quarter of 2008 the market-wide vacancy increased significantly on the office property market in Kyiv. At the end of 2009, the primary market-wide vacancy reached 17.6% compared to 4.2% in 2008 and 1.3% in 2007.
The office property market in Kyiv can now be characterized as a tenant’s market. From the third quarter of 2008 until late 2009, office rents in Kyiv fell by over 50% in the US dollar equivalent. Prevailing monthly office rents are now at around US$ 25-35 per sq m per month for prime space, reducing down to US$20-25 per sq m for B class space, and US$ 12-17 per sq m per month for C class property.
Looking ahead to 2010, whilst overall demand remains suppressed, there is evidence that a number of larger occupiers are now taking the opportunities presented by the depressed rental market and, forthcoming lease breaks to seek relocation to more efficient better grade space than they presently occupy. This strategic relocations of corporate occupiers is likely to be a major driving force in the further maturity of the market.
During 2009 DTZ office team leased 10,857 sq m, securing office premises for such clients as HSBC, Seven Hills, Mitsubishi Heavy Industries, Ewopharma A.G., WND, Velltop Ltd. and, CIKLUM, occupying space in BC “Leonardo BC” (phase1, 2), BC “Prime”, Forum Business City, “ Panorama” BC, HPBC II and others.
Retail
The retail property market throughout Ukraine, including Kyiv, remains underdeveloped in terms of its saturation and quality of existing stock compared to other countries and capital cities in Central and Eastern Europe.
As of December 2009, the total modern retail stock in Kyiv was estimated at over 841,100 sq m (GLA), or approximately 300 sq m (GLA) of modern retail stock per 1,000 inhabitants (based on the official demographics statistics). This figure counts for all major retail developments in the city of or, over 5,000 sq m gross lettable area (including multi-tenant retail centres and ‘big box’ single-occupied developments), and reflects a significant undersupply of retail space in the Ukrainian capital, particularly when considering the official versus unofficial population imbalance.
Over 193,200 sq m (GLA) of new retail space was delivered in Kyiv in 2009. This included delivery of the furniture and home appliances multi-tenant retail centres Domosphera (phase 1), Arax and 4Room all located along the Kyiv Ring Road, the retail and leisure centre Dream Town (phase 1), as well as the stores of Metro Cash & Carry, Epicentre and Auchan. Delivery of the second phase of the retail and leisure centres Sky Mall and the centrally located retail and leisure centre Continental (Esplanada) were delayed and, are still awaiting delivery.
Due to the escalation of the financial crisis and delivery delays of several sizeable projects across Ukraine, some retailers have suspended their expansion in the country. At the same time, all brand retailers became significantly more selective in terms of quality of retail space and occupational terms.
Looking forward to 2010, DTZ are witnessing a noticeable increase in interest from ‘big box’ retail developers and operators driven due to the relative inelasticity of demand for food and, DIY products compared to fashion but, more so to the availability of development land at affordable prices enabling viable delivery of such schemes. DTZ project that retail generally will be one of the first commercial real estate sectors to emerge from the market stagnation due to the structural under supply in this sector and, the propensity of the Ukrainian population to spend.
DTZ retail team leased over 29 000 sq m of retail spaces in 2009 a majority of this being through their position as exclusive leasing agent of the largest retail scheme in Ukraine, which was opened in October 2009, Riviera shopping City, GBA 83 500 sq m. The list of tenants brought to the project by DTZ includes a wide range of leading European and national retail operators, including the first Ukrainian stores of a number of leading brands including the brands Bershka, Pull & Bear, Stradivarius, owned by Inditex Group as well as their second Zara store in the country. Riviera also saw the opening of Ukraine’s first real-, German Hypermarket as well as other leading brands including OBI DIY Hypermarket, Comfy electronics and home appliances supermarket, “Eurasia” Furniture store, and, Odessa’s first Marks & Spencer, Planet Cinema multiplex with IMAX Screen and many others.
Logistics
As of the end of 2009, the total stock of modern warehousing space in the Greater Kyiv area amounted to approximately 1,016,600 sq m. In 2009, the new logistics supply in the Greater Kyiv area amounted to around 194,820 sq m, which is similar to 2007, but over 56% than supplied in 2008.
In 2009, annual transactions amounted to approximately 145,760 sq m of speculative modern logistics space in the Greater Kyiv region, representing a decrease of around 53% compared to 2008. Nevertheless, the fourth quarter of 2009 witnessed the first positive signs in the demand dynamics for logistics space in the Greater Kyiv area, with indications of increased occupier activity and record level of take-up for 2009, as well as importantly a number of expansions of tenants within the occupied schemes.
At the end of 2009, the primary vacancy rate in the Greater Kyiv area reached approximately 20.6% compared to 14.5% in late 2008. During the year headline rents for prime warehousing space varied in a range from US$5.5 to US$7 per sq m per month depending on the quality of space, location and general lease terms being significantly down from the highs of US$9.75 sq m and above prevailing in 2008.
In 2009 DTZ Industrial and Logistics team leased around 40,000 sq m of logistics space including schemes: Warehouse Complex «Unilogic Park», Mixed-use complex “Nivki-City”, Logistics Complex “MLP-Chaika”, Logistics Park “West Gate Logistic” and others. Among tenants which agreed for leasing in mentioned above projects are: «Hendricks Ukraine», «Eldorado», «Sportmaster», «West Gate Group», «Vesta Ukraine», «Orimi Trade» and others.
