Property Times property market in

Citius altius fortius

 Total population of Ukraine amounts to over 45.5 million inhabitants, 7 November 2011 making it the world’s 28th most populous country. Out of 25 major

regional centres, there are 5 cities with official population of around or Contents over 1 million (, , Dnipropetrovsk, and ), Executive summary 1 as well as 2 cities with populations over 700,000 inhabitants Economic overview 2 (Zaporizhzhya and ). Retail property market in  The first three quarters of 2011 were marked by Ukraine’s preparation Ukraine – general trends 6 Kyiv 10 for the EURO 2012 Football Championship and generally positive Dnipropetrovsk 11 economic dynamics in the country, including increasing household Odessa 12 incomes and retail sales. Kharkiv 13 Donetsk 14  Kyiv, Dnipropetrovsk, Odessa, Kharkiv, Donetsk and Lviv are considered Lviv 15 major cities of Ukraine and have been attracting particular interest from Simferopol 16 major retailers, developers and investors. In November 2011, total Definitions 16 existing modern retail stock in these six cities exceeded 2.6 million sq m, Contacts 17 on average amounting to 325 sq m per 1,000 inhabitants.

 The retail segment proved to be the most resilient to the effects of economic crisis in 2008/9 compared to other property sectors in Authors Ukraine, and demonstrated growth dynamics in 2010-2011.  Though new retail supply during 2011 has remained generally low Marta Kostiuk both in Kyiv and the regional cities of Ukraine, the years 2012 and Associate Director, Head of 2013 are likely to see significant augmentation in new delivery in the Research and Consulting sector, reflecting the strengthening confidence of the market players. +38 (0)44 220 30 60 [email protected]  Despite the remaining signs of the economic crisis and comparatively low incomes of the population, the potential of the retail property Contacts market in Ukraine undoubtedly remains high because of its immaturity in terms of quality and formats of existing retail schemes, large Magali Marton country size, high population density, perceived high brand Head of CEMEA Research awareness and propensity to spend. +33 1 49 64 49 54 [email protected] Figure 1 Modern retail stock in major cities of Ukraine Hans Vrensen Global Head of Research sq m +44 (0)20 3296 2159 1 500 000 [email protected] 1 250 000 1 000 000 750 000 500 000 250 000 0

Present stock Potential total stock in late 2013**

Source: DTZ Research Note: All figures are year-end, covering both multi-tenant retail centres and big boxes *The figure for Donetsk includes total stock in the satellite city **Based on existing and pipeline stock as of November 2011

www.dtz.com 1 Economic overview

The retail property market in Ukraine is tightly linked to Figure 2 general economic dynamics in the country and worldwide. Major macroeconomic indicators in Ukraine

Looking back % 40 Ukraine’s economy has grown rapidly since 2000. From 2005 economic growth in the country was driven by 30 strengthening domestic demand supported by credit 20 boom and significant capital inflows. 10 Though by mid-2008 the economy in Ukraine was 0 overheating with consumer price inflation at around 30% (to corresponding month in the previous year) and high -10 exposure of banks to foreign funding, in the first three -20 quarters of 2008 it showed remarkable resilience to the -30 global credit squeeze, mainly as a result of strong domestic demand. GDP growth Unemployment Inflation Industrial production

Since early October 2008, deteriorating conditions on the Source: Oxford Economics international financial markets with resultant slowdown in capital inflows in Ukraine combined with political Figure 3 instability in the country, surging inflation, weakening of the hryvnya against the US dollar on the background of Annual growth dynamics of the selected economic the dollarised economy and high imports, increasing sectors in Ukraine in January-September 2011 interest rates, falling export prices for steel and poorly % year-on-year diversified Ukrainian economy with overreliance on Retail exports of raw materials and metallurgical sector, resulted 15,2% in a reduction in private consumption in the country. Agriculture 13,7% Industrial production 8,6% In late 2008, the Ukrainian economy was plunged into a Mining 6,7% deep downturn with the first signs of stabilisation only Machine building 20,4% witnessed in autumn 2009, caused by seasonal Metallurgy 11,7% dynamics. Light industry 9,3% Food processing -2,2% The economy of Ukraine was hit hard by the global Processing industry 9,6% financial turmoil. The decrease in real GDP at 14.8% in -5% 0% 5% 10% 15% 20% 25% 2009 was the deepest since 1996, when the national currency hryvnya was launched. Source: State Statistics Committee of Ukraine

The Ukrainian economy demonstrated clear signs of Economic growth recovery in 2010 with economic growth in the country According to the State Statistics Committee of Ukraine, registered at 4.2%. In 2010, international and domestic real GDP increased by 6.6% year-on-year in the third confidence in the country gradually improved. Among the quarter of 2011 compared to the economic growth of main reasons for this were the obtaining of a new ‘Stand- 5.3% and 3.8% in the first and the second quarters of the By Arrangement’ from the International Monetary Fund year respectively, and 4.2% in 2010. Economic growth (IMF) and completion of the Presidential elections. was mainly driven by growth in industrial production,

particularly its export-oriented industries, as well as retail The first three quarters of 2011 were marked by Ukraine’s sector and agriculture. preparation for the EURO 2012 Football Championship and generally positive economic dynamics in the country. As stipulated in the 2011 State Budget of Ukraine, an

increase in real GDP is forecast for 2011 at 4.5%. Oxford Nevertheless, the international ratings of Ukraine Economics projects economic growth in Ukraine at 4.8% worsened owing to the country’s failure to comply with the year-on-year in 2011. requirements of the International Monetary Fund (IMF), as well as political risks accentuated by legal proceedings According to the draft 2012 State Budget of Ukraine, an against former Prime Minister Yulia Tymoshenko. increase in real GDP is forecast at 5%, while Oxford

Economics project the 5.9% economic growth for 2012. www.dtz.com 2 Economic overview

Inflation Figure 4 In September 2011 consumer price inflation reached Consumer price index in Ukraine by categories* 4.2% compared to December 2010. Consumer price index 109 In January-September 2011 consumer prices grew by 9% Restaurants and hotels 107,9 year-on-year with the significant price escalation Education 110,1 registered for food products and soft drinks, as well as Leisure and culture 103,7 housing and utility services, which together account for Communications 99,7 over 60% of total household expenditures in Ukraine. Transport and ancillary goods 116 The 2011 State Budget of Ukraine was based on the Health care 106,8 projection that consumer price inflation will reach 8.9% at Furniture and home appliances 102,6 the end of the year. Major Ukrainian and international Housing and utility services 119,2 experts forecast year-end inflation in the range of 8.4-13% Apparel and footwear 101,7 compared to the actual 9.1% in 2010 and 12.3% in 2009. Alcoholic drinks 118,5 Food and non-alcoholic drinks 107,8 According to Oxford Economics, inflation in Ukraine will amount to 8.8% in 2012 and 6.7% in 2013, and is Source: State Statistics Committee of Ukraine projected to be around 5.5% every year during the period *The figure provided for January-September 2011 compared to the same period in 2010 from 2014 to 2020. International cooperation National currency In 2008, Ukraine joined World Trade Organisation. In accordance with the official US Dollar exchange rate determined by the National Bank of Ukraine, the Since May 2008 Ukraine has been in negotiations with the EU for a free trade agreement as part of a future Ukrainian Hryvnia depreciated insignificantly, th from 7.959 UAH/US$ in early January 2011 to Association Agreement. The 18 round of negotiations 7.9727 UAH/US$ in late September 2011. between the parties started in September 2011.

The Ukrainian currency also weakened against the Euro EURO 2012 from 10.573 UAH/EUR in January 2011 In late 2009, the UEFA Executive Committee confirmed to 11.216 UAH/EUR in March 2011, but strengthened by Donetsk, Lviv and Kharkiv as host cities for group late September 2011 to 10.8548 UAH/EUR. matches of UEFA EURO 2012, while Kyiv was appointed the venue of the final match of the tournament. According to the decree issued by the National Bank of Ukraine, from 23 September 2011 the new rules of Despite existing obstacles such as the after-effects of the foreign currency exchange by individuals in Ukraine were financial crisis, high borrowing costs and imperfect introduced to accommodate the requirement to present legislation, Ukraine has been undertaking a wide identity documents prior to each currency exchange spectrum of preparation works for the event. transaction, while the limitation to exchange maximum UAH 150,000 per day (instead of UAH 80,000) was set. These include construction of new stadiums, and upgrade and extension of the airports in the host cities, Foreign trade and foreign direct investment improvement of the motorways of international According to the State Statistics Committee of Ukraine, importance across Ukraine, as well as enhancement of exports and imports of goods in Ukraine increased during hospitality sector development in the country. the period January-July 2011 by 40% and 46.7% year-on- year respectively. The exports to imports ratio during the Unemployment period was around 0.85. In accordance with the ILO methodology (that defines unemployment based on the population 15-70 years of The National Bank of Ukraine reported that net inflow of age), unemployment rate in Ukraine amounted to 8.2% foreign direct investment (FDI) into Ukraine amounted to in January-June 2011 compared to 8.1% in 2010, around $4,520 million in January-August 2011, almost 8.8% in 2009 and 6.4% in 2008. Oxford Economics 49% higher the figure registered during the same period projects unemployment in Ukraine to decrease gradually in 2010. The most attractive sectors for foreign from 7.8% at the end of 2011 to 6.4% in 2020. investment into Ukraine are the financial sector, industrial production, real estate, retail sector, construction, The unemployment rate varied significantly throughout transportation and communication. Ukraine: from 11.5% in Rivne oblast to 5.9% in Kyiv City. www.dtz.com 3 Economic overview

Demographic situation Figure 5 Ukraine comprises 24 administrative regions (oblasts) Official total population in major cities of Ukraine and the Autonomous Republic of Crimea. vs. other major cities in CEE

Total population of Ukraine amounts to over 45.5 million thousand inhabitants inhabitants, making it the 28th largest country worldwide. Kyiv 2 800 Kharkiv 1 445 Over 68% of total Ukrainian population reside in cities Dnipropetrovsk 1 014 and towns, while remaining 32% - in rural settlements. Odessa 1 009 Females account for around 54% in total population in the Donetsk 977 country. Lviv 760 Warsaw 1 841 Out of 25 major regional centres, there are 5 cities with Kraków 868 Łódź 775 official population of around or over 1 million (Kyiv, Wrocław 637 Kharkiv, Dnipropetrovsk, Donetsk and Odessa), as well Poznań 572 as 2 cities with populations over 700,000 inhabitants Prague 1 219 (Zaporizhzhya and Lviv). Brno 367 Bratislava 452 In addition, there are 4 cities with population of around or Budapest 1 695 over 500,000 inhabitants (Kryvyi Rih, , Mykolayiv Source: State Statistics Committee of Ukraine, Eurostat and ), while the population in 22 cities exceeds 200,000 inhabitants.

www.dtz.com 4 Economic overview

Household income and spending Figure 6 According to the State Statistics Committee of Ukraine, Real monthly salary, retail sales and consumer the average nominal monthly salary in Ukraine in spending in Ukraine January-September 2011 was UAH 2,571 (equivalent to % US$322) increasing by 18.2% year-on-year. During the 40 period, real salaries grew by 8% year-on-year. 30

It is worth noting however, that the analysis of household 20 income in Ukraine solely on the basis of the official salary 10 statistics may be misleading because of a considerable unregistered ‘grey’ salary segment across the country. 0

-10 The customised research of the Ukrainian cities with population over 100 thousand inhabitants conducted by -20 the international sociological company GfK in 2004-2008 -30 revealed that the estimated average income per capita Real monthly salary growth Retail sales growth was the highest in the cities with total population around Consumer spending growth* 1 million inhabitants (i.e. Odessa, Kyiv, Kharkiv, Donetsk and Dnipropetrovsk), which are classified as ‘big and Source: State Statistics Committee of Ukraine, Oxford Economics, wealthy’. *For January-September 2011, consumer spending growth provided as a year-end projection of Oxford Economics Consumer sentiment GfK Ukraine reported that in 2011 consumer sentiment Figure 7 index in the country is generally lower compared to 2010. Consumer sentiment index in Ukraine Due to uncertain future economic conditions in Ukraine and worldwide, consumers tend to be more rational and 140 cautious in terms of their shopping habits and 120 preferences. 100 80 Retail sales 60 Retail sales in Ukraine grew by 15.2% year-on-year in 40 January-September 2011 compared to the 5.1% annual 20 increase in 2010 and the 16.2% annual decrease in 2009. 0

Earlier, retail sales in Ukraine were steadily increasing,

Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 reaching 24.4% in 2006 and 28.2% in 2007. 2003 2004 2005 2006 2007 2008 2009 2010 2011

In January-September 2011, the growth dynamics of retail sales was registered across all the regions in Consumer sentiment index Ukraine. Present condition index Economic expectations index

Propensity to major purchases Outlook Source: GfK Ukraine In the first three quarters of 2011, the Ukraine economy demonstrated generally positive dynamics. The areas of The free trade agreement between the EU and Ukraine is concern include public debt augmentation, high expected to be signed in 2011 and implemented in 2013. unemployment and inflation combined with high risks of However, the position of Ukraine in negotiations with the external shocks and political instability in Ukraine. EU has been threatened by legal proceedings against former Prime Minister Yulia Tymoshenko and adjudication According to the 2010-2011 Global Competitiveness announced in October 2011. Report, competitive strengths of the country include a well-educated population, flexible and efficient labour Institutional reforms and the improvement of inefficient markets and a large market size, which set a strong base markets for goods and services are recognised as being for the country’s future growth. the priority tasks for Ukraine to secure long-term economic development in the country.

www.dtz.com 5 Retail Property Market in Ukraine – General Trends

Supply Figure 8 Despite the recognized high retail potential of the country Modern retail stock per 1,000 inhabitants in major and strengthening demand for retail space, the retail cities of Ukraine vs. other major cities in CEE property market throughout Ukraine remains largely sq m per 1,000 inhabitants underdeveloped in terms of its saturation (Fig.8) and 900 variety of formats in the existing properties (Fig.9). 750

Kyiv, Dnipropetrovsk, Odessa, Kharkiv, Donetsk and Lviv 600 are considered to be major cities of Ukraine and have been 450 attracting a particular interest from major retailers, 300 developers and investors. As of early November 2011, 150 total existing modern retail stock in these six cities 0 exceeded 2.6 million sq m, on average amounting to 325 sq m per 1,000 inhabitants (based on official demographics statistics). This figure accounts for all major retail developments in the cities of or over 5,000 sq m gross lettable area (including multi-tenant retail centres Present stock per 1,000 inhabitants and ‘big box’ single-occupied developments). Potential total stock per 1,000 inhabitants in late 2013**

Source: DTZ Research Kyiv benefited from the largest stock of modern retail Note: All figures are year-end, covering both multi-tenant retail centres and big boxes space, presently amounting to 1,001,400 sq m (GLA), *The figure for Donetsk includes total stock in the satellite city Makiivka while the smallest retail stock was registered in Lviv at **Based on existing and pipeline stock as of November 2011 206,540 sq m (GLA). Taking into account official statistics on total population in each of major Ukrainian cities, the Figure 9 highest saturation was in Odessa at 379 sq m (GLA), while Modern retail space type in major cities of Ukraine* the lowest figure registered in Kharkiv – at 215 sq m GLA). 100% In terms of quality in Kyiv and other major cities of Ukraine, 80% the existing retail stock is mostly formed by first generation retail developments with true end-destination properties 60% remaining in shortage. Formats such as retail parks and 40% fashion (factory) outlets are yet to appear in the country. 20% The opportunities within the retail property sector, over 0% other sectors, remain of priority interest for most developers and investors active in Ukraine, particularly in the cities with total population over 750,000 inhabitants.

Around 75,080 sq m (GLA) of new retail supply was Fashion outlets Retail parks delivered in Kyiv in the first three quarters of 2011, Shopping malls Stand-alone retail warehouses comprised of the second phase of ‘Dream Town’ in Obolon anchored by an aqua park, the hypermarket Novus on Source: DTZ Research * Based on existing stock as of November 2011 Brovarskyi Avenue, as well as four relatively small **The figure for Donetsk includes total stock in the satellite city Makiivka neighbourhood retail centres (‘inSilver’, ‘Victorio’, ‘Livoberezhnyi’ and ‘Kvadrat’ on Onore de Balzaka Street). The fourth quarter of 2011 may see delivery of ‘Ave Plaza’ and ‘Magellan’ (phase 1) in Kharkiv, as well as the first Major retail schemes delivered in regional cities of Ukraine phase of ‘Fabrika’ in Kherson. in January-November 2011 included the retail centre ‘Passage’ located in the core city centre of Dnipropetrovsk, The opening of the retail and leisure centre ‘Gulliver’, the second phases of the retail and leisure centres ‘City presently under construction in the central part of Kyiv and Mall’ in Zaporizhzhya and ‘Donetsk City’ in Donetsk, the earlier known as ‘Esplanada’ and ‘Continental’, will be retail and leisure centre ‘Ukraine’ in Mariupol and the retail postponed until 2012 at the earliest. Delivery of the retail centre ‘Galaktyka’ in Kremenchuh. centre ‘Mega-City’ (phase 1), which has been scheduled for completion in Ukraine’s capital in the fourth quarter of During the analysis period, the DIY-stores within the 2011, will also most likely be delayed. national chain ‘Epicentre’ were opened in Kirovohrad, Chernihiv, Mukachevo (Zakarpattya Oblast) and Kamyanets-Podilskyi (Khmelnytska Oblast). In addition, the wholesale centres in the format ‘METRO Baza’ were delivered by Metro Cash&Carry in Ternopil and Lutsk. www.dtz.com 6 Retail Property Market in Ukraine – General Trends

In 2010, investors and developers both local and Though new retail supply during 2011 has been rather low international undertook numerous market analyses both in Kyiv and the regional cities of Ukraine, the years concerning the demand, competitiveness and financial 2012 and 2013 are likely to see significant augmentation in efficiency of their projects. Such activity continued during new delivery in the sector. the first three quarters of 2011 and indicated positive retail property market prospects in Ukraine.

Table 1 Major multi-tenant retail schemes scheduled for delivery in Ukraine in November 2011-2013 Period Project City Size (sq m) Developer Developer’s nationality Q3, 2012 Ocean Plaza (phase 1) Kyiv 72,200 KAN Development / UDP UA Q4, 2011- 2012 Fabrika (in phases) Kherson 65,500 BUD HOUSE GROUP UA Q4, 2011- 2012 Magellan (in phases) Kharkiv 62,500 Kray Property UA Q1, 2013 Retail and leisure centre Odessa 55,000 Amstor UA Q1-Q3, 2013 Aquapark Kyiv 49,070 Vilna Ukrayina UA Q3-Q4, 2012 Marmalade Kyiv 38,700 VKF ‘Mava’ UA Q4, 2012 Domosfera (phase 3) Kyiv 38,000 DeVision UA 2012 French Boulevard Kharkiv 35,000 Aksioma UA Q3-Q4, 2013 Forum Lviv Lviv 36,000 Multi Development NTL Q1, 2012 City Centre Odessa 33,000 Venford / GMG Development UA Q2, 2012 Gulliver (Continental) Kyiv 32,000 Tri O UA 2012 Auchan City Park (phase 2) Donetsk 26,000 Immochan Ukraine UA / FRA Q4, 2012 RayON (M26) Kyiv 23,000 Arricano Development UA Q3-Q4, 2012 Yuzhnaya Galereya (phase 2) Simferopol 19,700 Arricano Development UA Q3-Q4, 2012 Silver Breeze Kyiv 16,000 Svitland Limited UA / ISL Q4, 2012 Kiev E95 Outlet Centre Kyiv 15, 250 EVO Land Development UA Q4, 2011-2012 Cascade Plaza Dnipropetrovsk 12,000 Alef Estate UA 2012 Fashion Factory Kyiv 7,700 Aladdin Group UA Q4, 2011 Ave Plaza Kharkiv 7,100 UNIQA Real Estate AUT Source: DTZ Research

Table 2 Lease terms and conditions in the quality multi-tenant retail centres in Ukraine Lease duration 3-5 years – for standard retail units of 50-250 sq m; 7-10 years – for semi-anchors (500-1,000 sq m) and 10-15 years – for anchor tenants plus a priority right to renew the lease. Rent payment Usually pegged to the US dollar or Euro, but paid in the Ukrainian hryvnya. Indexation Annually, by change in CPI in the United States published by the US Department of Labour, by change of Euro CPI published by Eurostat or by change in CPI in Ukraine published by the State Statistics Committee. Rent Fixed, an additional turnover rent has now become a common practice applied in the new high-quality retail developments (e.g. Riviera Shopping City, Sky Mall, Yuzhnaya Galereya, King Cross Leopolis and others). Service charge $2-8 per sq m per month in addition to utility costs, depending on quality of a retail development. Marketing charge $2-5 per sq m per month, depending on quality of a retail development. Fit-out of retail units Shell & core. Cost contribution for partial fit-out or turn-key condition in sometimes provided to anchor tenants. Guarantee The form of cash deposit or bank guarantee in the amount from 2 to 6 months of lease period has been common. Parent company guarantee is rarely applied. Source: DTZ www.dtz.com 7 Retail Property Market in Ukraine – General Trends

Demand In Ukraine the first store L’Etoile opened in the second During 2009, due to adverse economic conditions, local phase of ‘Dream Town’ in Kyiv, followed by the store in and international retailers in Ukraine revised their ‘Passage’ in Dnipropetrovsk. strategies. Some of them left the Ukrainian retail market or stopped operations, while others seized the moment and The international A.S. Watson Group, which in 2006 acquired continued expansion in the country. 65% of shares in the retail chain ‘DЦ’ from the Ukrainian company Asnova Holding, gained 100% ownership in 2010. As a result, in the Ukrainian cities with total population in In March 2011, the stores of the retail chain previously known the range of 200,000-700,000 inhabitants demand for retail as ‘DЦ’ were rebranded into ‘Watsons’. space almost evaporated, while the cities such as Zaporizhzhya, Kryvyi Rih and Mariupol with poorly In August 2011, the Central and Eastern European diversified economic bases and overreliance on a single company PPF Group completed the acquisition of 100% industrial sector suffered a higher degree of slowdown in shares in the Russian retail chain ‘Eldorado’, which also retail demand. Conversely, the retail sectors in Kyiv and operates the stores in Ukraine. The deal was initiated in Odessa have shown relative resilience to the deterioration 2009, when PPF Group purchased 50%+1 shares of the in general economic conditions. chain ‘Eldorado’.

Despite the most negative expectations, however the year It was also reported in early November 2011, that the 2009 turned out to be positive for many retailers operating Dnipropetrovsk-based retail chain ‘ATB-market’ has been in Ukraine, particularly those in food retail, as well as low offered for sale 51% or 100% of its shares. and middle price categories of fashion retail. Following the trend established in 2010, several retail During the period from early 2010 until September 2011, chains launched new formats in Ukraine in 2011. DTZ has witnessed a noticeable improvement in general dynamics on the demand side of the retail market across The second phase of ‘Dream Town’ in Kyiv accommodated Ukraine with many retailers increasingly seeking for the first in the city supermarket ‘Kosmos’ of the Odessa- opportunities to expand. The deficit of quality retail based retail chain ‘Tavria-V’. properties has remained one of major obstacles for these plans being realised. In late October 2011, the retail chain ‘Budynok Ihrashok’ specialised in goods for children opened the first store Despite slightly deteriorating retailers’ perceptions of the ‘Dytyachyi Svit’ in ‘Riviera Shopping City in Odessa. Ukraine’s short-term retail potential, triggered by general dynamics on global markets and political uncertainty in In the high-fashion segment, the single-brand store Ukraine, major retailers continued seeking opportunities to Christian Dior was opened in the downtown Kyiv in late expand in the country during the third quarter of the year. October 2011.

Regardless improved performance of the retail market in The lack of critical mass of quality retail space throughout Ukraine, the country was not even listed in A. T. Kearney’s Ukraine prevents a number of major international retailers Global Retail Development Index in 2010 and 2011, after from entering the market. DTZ believes that the opening of being ranked the fifth most attractive retail market in 2007 stores by such brands as H&M, C&A, , and the seventeenth in 2008-2009. Global Retail Deichmann and Peek&Cloppenburg remains unlikely Development Index (GRDI), produced by A.T. Kearney, before late 2012 – early 2013. defines the top 30 emerging countries for retail expansion, based on 25 macroeconomic and retail-specific variables. ‘Big box’ retail operators with reliable sourcing of financing continued to demonstrate high activity in the first three Several new market entries were registered in January- quarters of 2011, driven by their development strategies November 2011. GAP, through the franchise-holder Fiba combined with the widely recognised, largely unexploited Retail, opened its flagship store on the central potential of the Ukrainian market and the availability of Khreshchatyk Street in Kyiv. New Yorker and Oysho stores development land at comparatively affordable prices. were opened in both ‘Sky Mall’ in Kyiv and ‘Rivera Shopping City’ in Odessa. The first stores FiNN FLARE Thus, Metro Cash&Carry, Epicentre and Nova Liniya and Centro opened in Kyiv. further expanded across Ukraine. A number of food hypermarket operators including Fozzy Group, Auchan, The crisis triggered an increase in M&A activities on the Novus and Amstor, as well as electronics and home retail market in Ukraine. appliance chains Comfy and Technopolis actively considered occupation in retail developments not only in In early 2011, the Russian retail group L’Etoile reported the major cities of the country with populations over 750,000 acquisition of 100% of shares in the chain Brocard, well- inhabitants, but also in smaller cities. established on the Ukrainian retail market, as well as purchased the chain Bonjour, already owned by Brocard. Quality retail operators in Ukraine remain very selective in terms of retail space quality and occupational terms. www.dtz.com 8 Retail Property Market in Ukraine – General Trends

Rents Figure 10 With increasing retailer activity in the country and their Prime retail rents in major cities of Ukraine* improved perception of market potential, 2010 and the first $ /sq m /month three quarters of 2011 witnessed an increase in prime base rents in quality multi-tenant retail developments in 250 Kyiv, as well as in the few western-standard retail schemes 200 already well-established in other major cities of Ukraine. 150 Similar dynamics was also observed in relation to high 100 street retail rents in Kyiv and other major cities of Ukraine with total population over 750,000 inhabitants. 50 0 Despite the positive dynamics of an increasing number of new retailers entering the market and the improvement in activity of companies already operating in Ukraine, combined with nominal new supply of quality retail stock, DTZ does not anticipate any major upswing in base rental Prime shopping centre rent Prime high street rent rates in the fourth quarter of 2011 and during 2012. This is due to the lack of critical mass of new market entries, as Source: DTZ Research * The figures are provided as of November 2011, quoted for retail units of area of 100-300 sq m well as uncertain further economic dynamics both globally and in Ukraine. Prime net initial yield for high-quality retail properties in

Kyiv is estimated by DTZ at around 13.5%, while in major Nevertheless, DTZ anticipates that in the short term, due to regional cities prime retail yields amount to 14.5-16%. the gradually strengthening demand of retail operators and the present lack of quality retail space, base prime rents in Outlook well-conceived multi-tenant retail schemes and high street locations in Kyiv and other major cities of Ukraine will be The retail segment proved to be the most resilient to the subject to further upward pressure. effects of economic crisis in 2008/9 compared to other property sectors in Ukraine. DTZ believes that the retail At the same time, the longer term sustainability of current property market will show further growth in the medium retail rents will depend on the actual commissioning and term after global and domestic economic conditions further quality of new sizeable pipeline retail schemes scheduled improve. for completion in 2012/13, particularly in Kyiv. Despite the remaining signs of the economic crisis and Quality remains a crucial factor for the success of all comparatively low incomes of the population, the potential existing and new retail developments in Ukraine. Today the of the retail property market in Ukraine undoubtedly majority of developers in Ukraine accept that a well- remains high because of its immaturity in terms of quality considered approach to selecting an appropriate location, and formats of existing retail schemes, large country size, efficient concept and thoughtful phasing of retail schemes high population density, perceived high brand awareness with due regard to the number and mix of quality retailers and propensity to spend. and their planned expansion into the country, will secure long-term financial viability and investment exit. The opportunities within the retail property sector, over other sectors, are of priority interest for most developers Secondary investment market and investors active in Ukraine, particularly in the cities with total population over 750,000 inhabitants. DTZ witnessed a stabilisation of property investor sentiment in Ukraine during the first three quarters of 2011, Works on several sizeable retail projects in Kyiv and the reflected by a slight decrease in yields still considered to regional cities of Ukraine were recently recommenced, be at high levels compared to other European countries. which, if delivered to current schedules, will lead to a

considerable increase in retail stock in the country by the Quality retail properties together with office schemes end of 2013. remain the most sought-after investment assets in Ukraine.

Out of ten investment deals reported to be concluded on As a result, the Ukrainian market will offer more the commercial property market in Ukraine during the first opportunities for expansion of retail chains, but localised three quarters of 2011, five transactions involved purchase retail rents will be subject to downward pressure, of retail schemes or projects. particularly in some poorly conceived first generation retail

schemes in light of the strengthening competition within The acquisition of a city centre mixed-use development the sector. project with a significant retail component in central Kyiv by a private European developer was the largest deal in the Ukraine commercial property market since 2008. www.dtz.com 9 Kyiv

Supply & Demand Figure 11 Total modern retail stock in Kyiv was estimated at around Modern retail stock in Kyiv 1,001,400 sq m in November 2011, or 359 sq m of modern sq m sq m retail stock per 1,000 inhabitants (based on official 300 000 1 800 000 demographics statistics). This figure reflects a significant undersupply of retail space in the Ukrainian capital, 250 000 1 500 000 particularly when considering the official versus unofficial population imbalance and grey incomes. 200 000 1 200 000 150 000 900 000 Approximately 71% of the total modern retail stock in Kyiv, or around 720,800 sq m (GLA), has been formed by 100 000 600 000 multi-tenant retail centres and shopping malls. Big box retail developments account for the remaining 29% of 50 000 300 000 total retail stock in the city. Such formats as retail parks 0 0 and fashion outlets are yet to be delivered in the city.

Around 75,080 sq m (GLA) of new retail supply was delivered in Kyiv in the first three quarters of 2011, Annual supply Cumulative supply comprised of the second phase of ‘Dream Town’ in Obolon, Source: DTZ Research the hypermarket Novus on Brovarskyi Avenue, as well as * Projection Note: All figures are year-end four neighbourhood retail centres: ‘inSilver’ on Sribnokilska

Street, ‘Kvadrat’ on Onore de Balzaka Street, Figure 12 ‘Livoberezhnyi’ on Maryny Raskovoyi Street and ‘Victorio’ on Lvivska Square. New annul retail delivery by formats in Kyiv

The 25,000 sq m ‘Mega-City’ (phase 1) is the only sizeable 100% retail development scheduled for completion in the fourth 80% quarter of 2011 in Kyiv. Quality of the scheme is generally sub-standard, with individual retail units offered for sale. 60% DTZ projects that delivery of the scheme is likely to be delayed until 2012. 40%

Though new retail supply during 2011 has been rather low 20% in Kyiv, the years 2012 and 2013 are likely to see 0% significant augmentation in new delivery in the sector.

As of November 2011, there were over 345,000 sq m (GLA) under construction in Kyiv with delivery scheduled in Fashion outlets Retail parks between 2012 and 2013. These include the first phase of Shopping malls Stand-alone retail warehouses ‘Ocean Plaza’ developed by UDP and KAN Development, ‘Gulliver’ by Tri O, the extension ‘Domosfera’ by DeVision, Source: DTZ Research * Projection Note: All figures are year-end ‘RayON’ by Arricano Development, ‘Marmalade’ by VKF ‘Mava’, ‘Silver Breeze’ by Svitland Limited, ‘Fashion Factory’ by Aladdin Group, and the retail and leisure centre Rents known as ‘Aquapark’ by Vilna Ukrayina. In the first three quarters of 2011 average monthly rents in Kyiv retail schemes remained generally stable at around The first fashion outlet development in Ukraine, ‘Kiev E95 $70-90 per sq m for premises of 100-300 sq m, reaching Outlet Centre’ (phase 1), is also scheduled for completion highs of $160-200 per sq m per month in the most sought- in late 2012. after retail properties in the city.

In 2012-2013 new retail supply in the Ukrainian capital may Since the second quarter of 2010, strengthened demand amount to around 316,900 sq m (GLA), an increase on for high street premises in Kyiv led to an upward correction current retail stock of almost 32%. of base rental rates for this category of real estate. The first half of 2011 witnessed further upward pressure on prime Being the capital city of Ukraine, Kyiv remains the most high street rents in Kyiv. As of November 2011, average attractive destination for all retailers operating and high street retail rents in Kyiv were registered amounting to considering entry into the country. Due to increased $180-230 per sq m per month, with asking rents randomly demand, the availability of premises in high street locations reaching the highs of $350-400 per sq m per month. and successful retail centres in Kyiv has been very scarce.

www.dtz.com 10 Dnipropetrovsk

Supply & Demand Figure 13 Total modern retail stock in Dnipropetrovsk, the third largest Modern retail stock in Dnipropetrovsk city in Ukraine, was estimated at over 370,560 sq m in sq m sq m November 2011, or 366 sq m of modern retail stock per 90 000 450 000 1,000 inhabitants. 75 000 375 000 The modern retail stock in Dnipropetrovsk has been 60 000 300 000 dominated by multi-tenant retail centres and shopping malls, which account for approximately 79% of total stock in the 45 000 225 000 sector. Big box retail developments account for the 30 000 150 000 remaining 21% of total retail stock in the city. There are no retail parks or fashion outlets in the city. 15 000 75 000 0 0 Around 49,350 sq m (GLA) of new retail supply was delivered in Dnipropetrovsk in January-October 2011.

The most notable was opening of the retail centre ‘Passage’, Annual supply Cumulative supply

The property is located in the prime central area of Source: DTZ Research Dnipropetrovsk, and it became the trigger for some new * Projection Note: All figures are year-end market entries in the city: along with its delivery, such brands as Marks&Spencer, GAP and L’Etoile opened their first Table 3 stores in Dnipropetrovsk. Major existing multi-tenant retail centres in Dnipropetrovsk In addition, three sub-quality neighbourhood retail centres Project GLA (sq m) Delivery Developer were delivered in the city, including ‘Pryozernyi’ on the Karavan 76,200 2008/9 Karavan Group crossroads of Shmidta and Bobrova Streets, ‘Nautilus’ on Kalynova Street and ‘Slavyanka’ on Kurchatova Street. Most City Centre 25,290 2006 Alef Estate Apollo 20,000 2009 UMK Additional 31,950 sq m (GLA) of retail stock are scheduled Babylon 17,670 2007 Logos-Invest for delivery in Dnipropetrovsk in 2011. These include the Dafi 13,500 2005 Dafi DIY-store by Epicentre, as well as the retail centre ‘Library’ in downtown Dnipropetrovsk. Materyk 13,500 2006 Rainford Passage 12,950 2011 Akselrod Estate In November 2011, there were around 278,000 sq m (GLA) Source: DTZ Research in delivery pipeline in Dnipropetrovsk, with even more retail projects being announced in the city. Rents In Dnipropetrovsk high street retail rents currently tend to DTZ projects however, that the new retail supply in the city exceed average rents in multi-tenant retail centres, mostly in 2012-2013 will be very small with minor influence on the due to the developed nature of street retailing along Karl local retail property market. Marx Avenue within the boundaries of the administrative centre, shopping habits of local inhabitants and lack of Dnipropetrovsk is considered a first-tier city to enter for a quality retail schemes in the non-central areas of the city. majority of retailers, which are either present or considering expansion to Ukraine. Demand remains strong for quality Prime high street monthly rents in Dnipropetrovsk presently retail space both in high street locations and multi-tenant vary in the range of $70-95 per sq m, with the highest rents retail centres of the city. achieved for properties along Karl Marx Avenue and Lenin Square. In DTZ’s opinion, the high attractiveness of Dnipropetrovsk is related to a combination of such factors as large In the retail centres in the city, prime net monthly retail rents population, relatively stable and diversified economic base, vary in the range of $60-80 per sq m for standard units of availability of critical mass of the retail schemes of decent area 100-300 sq m. quality in the city and developed high street retailing.

DTZ believes that the highest potential for retailers in Dnipropetrovsk exists in low, lower middle and premium price segments. www.dtz.com 11 Odessa

Supply & Demand Figure 14 With total population over 1 million inhabitants, Odessa is Modern retail stock in Odessa one of the largest cities of Ukraine located in its southern sq m sq m part. The city is an important trade sea port on the Black Sea 120 000 700 000 and a popular tourist destination. 600 000 100 000 500 000 Total modern retail stock in Odessa was estimated at around 80 000 382,250 sq m in November 2011, or 379 sq m of modern 400 000 60 000 retail stock per 1,000 inhabitants. 300 000 40 000 Only around 5,000 sq m (GLA) of new retail stock was 200 000 delivered in Odessa in 2011, comprised of the neighborhood 20 000 100 000 retail centre ‘5 Element’. 0 0

The modern retail stock in Odessa has been dominated by multi-tenant retail centres and shopping malls, which account for approximately 62% of total stock in the sector. Annual supply Cumulative supply Big box retail developments account for the remaining 38% of total retail stock in the city. There are no retail parks or Source: DTZ Research fashion outlets in the city. * Projection Note: All figures are year-end

The 65,000 sq m (GLA) retail and leisure centre Riviera Table 4 Shopping City is the largest and most notable retail Major existing multi-tenant retail centres in Odessa scheme in Odessa, which was developed by the LSE-listed company Argo Real Estate Opportunities Fund during Project GLA Delivery Developer/Owner (sq m) 2009. The scheme is anchored by real,- and OBI, while its gallery benefits from the presence of majority of quality Riviera Shopping City 65,000 2009 Argo Real Estate retail brands operating in the city. Furthermore, despite Opportunities Fund after-effects of economic crisis, the opening of Riviera 6 Element 23,600 2009/10 local developer Shopping City triggered many new market entries in Novyi Privoz 23,000 2006 local developer Odessa, including (but not limited to) real,- , OBI, IMAX, Platan Plaza 19,530 2005 local developer Inditex Group, Marks&Spencer, New Yorker, LPP (House, Cropp Town, Reserved). Athena Gallery 19,000 2004 Michaniki Ukraine Panorama 17,000 2006 local / Redstone As of November 2011, there was over 199,200 sq m (GLA) Sady Pobedy 16,000 2007 Tavria-V retail space planned for delivery in 2012-2014. Europe 8,600 2005 Forent

DTZ projects that in 2012 new supply in the retail property 5 Element 5,000 2011 local developer sector in Odessa will amount to around 33,000 sq m (GLA) Source: DTZ Research formed by the retail and leisure centre ‘City Centre’ (phase 1). Rents Major schemes planned for delivery in 2013-2014 in Odessa In Odessa high street retail rents are higher than average include the retail and leisure centre on Generala Petrova rents in multi-tenant retail centres, mostly due to the urban Street developed by Amstor, Europort Retail Park by the structure of the city with many tourist attractions in its central Israeli company Europort, as well as the retail centre part, developed nature of street retailing, shopping habits of planned by the Russian Group of companies BFG. local inhabitants and high tourist flows, as well as lack of quality retail schemes in the non-central areas of the city. High street retailing is well-developed in Odessa due to the urban structure of the city and its high popularity among the Prime high street retail rents in Odessa amount to $70-95 tourists. per sq m per month, with the highest rents typically achieved for quality retail premises with the frontage to Derybasivska, Odessa, together with Donetsk, is considered to be the Rishelyevska and Yekaterynynska Streets. second after Kyiv most attractive destination to enter for majority of retailers in all pricing categories. Demand In the prime multi-tenant retail centres in Odessa, net remains very strong for quality retail space both in high monthly retail rents vary in the range of $65-85 per sq m street locations and multi-tenant retail centres in the city. for standard units of area 100-300 sq m. www.dtz.com 12 Kharkiv

Supply & Demand Figure 15 Kharkiv is the second largest city in Ukraine with over Modern retail stock in Kharkiv 1.4 million total population plus thousands more commuting sq m sq m to the city due to many higher educational establishments 120 000 450 000 located here. In terms of economic base, Kharkiv used to rely heavily on industrial sector, particularly machine building, 100 000 375 000 and is presently in transition. The city will host matches of 80 000 300 000 EURO 2012 Football Championship. 60 000 225 000 Total modern retail stock in Kharkiv was estimated at around 310,650 sq m in November 2011, or 215 sq m of modern 40 000 150 000 retail stock per 1,000 inhabitants, which reflects the lowest 20 000 75 000 retail saturation compared to other major cities of Ukraine. 0 0 The modern retail stock in Kharkiv has been dominated by multi-tenant retail centres and shopping malls, which account for approximately 61% of total stock in the sector. Annual supply Cumulative supply Big box retail developments account for the remaining 39% of total retail stock in the city. There are no true retail parks Source: DTZ Research or fashion outlets in the city. * Projection Note: All figures are year-end

Only around 5,000 sq m (GLA) of new retail stock was Table 5 delivered in Kharkiv in 2011, comprised of the neighborhood Major existing multi-tenant retail centres in Kharkiv retail centre ‘Joker’. The fourth quarter of 2011 may also see delivery of ‘Ave Plaza’ and ‘Magellan’ (phase 1) with Project GLA Delivery Developer/Owner (sq m) cumulative area amounting to around 23,130 sq m (GLA). Karavan 57,050 2006/7/8 Karavan Group As of November 2011, there was over 104,500 sq m (GLA) Dafi Retail Park 56,070 2008 Dafi retail space planned for delivery during the period from Ukrayina 17,000 2005 local developer December 2011 to late 2012. This new supply will increase Source: DTZ Research current retail stock by almost 34%, and will bring some dynamics to the local market, remaining generally static Rents since 2008 (despite the significant number of large-scale development projects in pipeline). In Kharkiv high street retail rents currently tend to exceed average rents in multi-tenant retail centres in the city, mostly Major schemes planned for delivery in 2012 in Kharkiv due to the developed nature of street retailing in Sumska include the extensions of ‘Magellan’ and ‘Francuzskyi Street within the boundaries of the administrative centre, and Boulevard’. lack of quality retail supply in the densely-populated peripheral neighbourhoods of the city. Though not being a priority destination for expansion, Kharkiv is considered a first-tier city to enter for majority of Prime high street monthly rents in Kharkiv presently vary in retailers in Ukraine. the range of $60-75 per sq m, with the highest rents achieved for properties located on Rozy Luxembourg and Occupier demand remains significant for quality retail space Konstytutsiyi Squares, and those having frontage to both in high street locations and quality multi-tenant retail Sumska Street. developments in Kharkiv. In the prime multi-tenant retail centres in the city, net DTZ believes that, due to the city’s economic base, the monthly retail rents vary in the range of $45-65 per sq m highest potential for retailers in Kharkiv exists in low, lower for standard units of area 100-300 sq m. middle and middle price segments.

The retail market in Kharkiv is strongly influenced by the large-scale covered market ‘Barabashovo’, which extends to around 75 hectare and is a popular retail destination not only among local population, but also visitors from Kharkiv region and other regions of Ukraine. www.dtz.com 13 Donetsk

Supply & Demand Figure 16 Donetsk with an official population around 1 million Modern retail stock in Donetsk inhabitants is one of the major coal-mining and industrial sq m sq m centres of Ukraine, as well as the regional and 150 000 420 000 administrative centre of the Donbas river basin, forming the heavy industrial heartland of the country. 125 000 350 000 100 000 280 000 Donetsk was selected as one of four Ukrainian cities to host matches of EURO 2012 Football Championship, and 75 000 210 000 this already led to significant improvements in the city 50 000 140 000 infrastructure and general attractiveness. 25 000 70 000 Cumulative modern retail stock in Donetsk and its satellite 0 0 city Makiivka was estimated at around 340,040 sq m in November 2011, or 340 sq m of modern retail stock per 1,000 inhabitants. This includes the new supply delivered Annual supply Cumulative supply in 2011 and comprised of the 9,460 sq m extension of the retail and leisure centre ‘Donetsk City’. Source: DTZ Research * Projection The modern retail stock in Donetsk has been evenly split Note: All figures are year-end, and include total stock in the satellite city Makiivka between multi-tenant retail centres and shopping malls, which account for over 49% of total stock, and big box Table 6 retail developments. Alike elsewhere in Ukraine, retail Major existing multi-tenant retail centres in Donetsk parks and fashion outlets are absent in Donetsk. Project GLA Delivery Developer/Owner (sq m) As of November 2011, there was only around 39,000 sq m (GLA) retail space planned for delivery in 2012-2013, an Donetsk City 34,460 2006/11 Domus increase on current stock of approximately 11%. Amstor in Makiivka 27,290 2006/7 Amstor Ltd. Decor Donbas 23,500 2008 Decor-Service Major schemes planned for delivery in 2012-2013 in Auchan City Park 22,500 2008 Immochan Donetsk include the extension of ‘Auchan City Park’ in (phase 1) Makiivka developed by Immochan, as well as the neighbourhood retail centre ‘Yuzhnye Sklony’ by local Belyi Lebed 20,000 2004 local developer Depot Development Group affiliated with Foxtrot Group. Green Plaza 7,100 2010 Domus Source: DTZ Research High street retailing is developed in Donetsk, primarily because of the lack of quality multi-tenant retail centres in Rents the city. Out of 6 major cities covered by this research, Donetsk is the only city with average rents in prime multi-tenant retail Donetsk, as one of the most affluent cities in Ukraine, is centres exceeding high street retail rents. regarded to share with Odessa the position of the second after Kyiv most attractive destination to enter for majority of Prime high street retail rents in Donetsk amount to $55-70 retailers, operating in all pricing categories. per sq m per month, with the highest rents typically achieved for quality retail premises located around Lenina However, the severe deficit of quality retail properties in Square and along Artema Street. Donetsk remains one of major obstacles for retailers’ penetration of the market. Many quality retailers entered In the multi-tenant retail centres in Donetsk, prime net the local market together with the delivery of the retail and monthly retail rents vary in the range of $65-85 per sq m leisure centre ‘Donetsk City’. for standard units of area 100-300 sq m.

Notably, all major big box retailers, including Praktiker, Metro Cash&Carry, Auchan and Epicentre, opened their stores in the satellite city Makiivka.

Demand remains very strong for quality retail space both in high street locations and retail centres in the city. www.dtz.com 14 Lviv

Supply & Demand Figure 17 Lviv is an important economic, cultural, academic and Modern retail stock in Lviv transportation centre of Ukraine with total official sq m sq m population of over 760 thousand inhabitants. It is the 60 000 300 000 largest city in western Ukraine and, its historic and architectural heritage makes it a popular tourist destination. 50 000 250 000 40 000 200 000 Lviv was also selected to host matches of EURO 2012 Football Championship together with Kyiv, Donetsk and 30 000 150 000 Kharkiv, as well as four Polish cities. 20 000 100 000

The retail market in Lviv remains very immature and is still 10 000 50 000 strongly influenced by the existing covered market 0 0 ‘Pivdennyi’.

Total modern retail stock in Lviv was estimated at over 206,500 sq m in November 2011, or 272 sq m of modern Annual supply Cumulative supply retail stock per 1,000 inhabitants. Source: DTZ Research The year 2011 will not see delivery of any new retail * Projection Note: All figures are year-end scheme in Lviv. DTZ projects that total retail stock in the city will remain stable until mid-late 2013, when the retail Table 7 and leisure centre ‘Forum Lviv’ is scheduled for delivery by Major existing multi-tenant retail centres in Lviv Multi Development. Project GLA Delivery Developer/Owner (sq m) The modern retail stock in Lviv has been dominated by multi-tenant retail centres and shopping malls, which King Cross Leopolis 52,700 2008/10 King Cross Group / account for almost 73% of total stock in the sector. Big box Comfort Invest retail developments, comprised of the DIY-stores Epicentre Sriblyastyi 10,000 2007 Intermarket / Eurotek and Nova Liniya, and two outlets Metro Cash&Carry, VAM-2 6,950 2004/6 local developer account for the remaining 27% of total retail stock. There Skrynya (phase 1) 6,500 2006 local developer are no retail parks or fashion outlets in Lviv. Magnus 4,500 2003 local developer The 52,700 sq m (GLA) retail and leisure centre King Opera Passage 1,830 2009 HT Property Cross Leopolis is the largest and most notable retail Development scheme in Lviv, which was developed by King Cross Source: DTZ Research Leopolis in partnership with the local firm Comfort Invest in phases in 2008 and 2010. The scheme is anchored by Rents Auchan and Praktiker, and its opening triggered numerous In Lviv high street retail rents are higher than average rents new market entries in Lviv, including IMAX, Inditex Group, in multi-tenant retail centres, mostly due to the urban Marks&Spencer, Mothercare and many others. structure of the city with many tourist attractions in its central part, developed nature of street retailing, shopping High street retailing is well-developed in Lviv due to the habits of local inhabitants and high tourist flows, as well as urban structure of the city and high tourist flows in its lack of quality retail schemes in the non-central areas of central part. the city.

DTZ believes that the highest potential for retailers in Lviv Prime high street retail rents in Lviv amount to $85-100 per exists in low, lower middle and middle price segments. sq m per month, with the highest rents typically achieved for quality retail premises located along Tarasa Demand remains considerable for quality retail space both Shevchenka and Svobody Avenues, and on Rynok Square. in high street locations and retail centres in the city, the latter remaining in particularly scarce supply. In the multi-tenant retail centres in Lviv, prime net monthly retail rents vary in the range of $60-80 per sq m for standard units of area 100-300 sq m.

www.dtz.com 15 Simferopol

Simferopol with total population around 340 thousand Figure 18 inhabitants is the capital of the Autonomous Republic of Modern retail stock in Simferopol Crimea. The city is located in the central part of the Crimean sq m sq m peninsula in the south of Ukraine. 60 000 150 000 The retail property market in Simferopol has been very 50 000 125 000 fragmented and immature compared to other major cities of Ukraine, and it started developing only in 2007. 40 000 100 000 30 000 75 000 Total modern retail stock in Simferopol was estimated at around 80,970 sq m in November 2011, which translates 20 000 50 000 into 238 sq m of modern retail stock per 1,000 inhabitants. 10 000 25 000

DTZ projects that at the end of 2011, upon the planned 0 0 delivery of the DIY-store Epicentre, big box retail developments will account for 52% of total retail stock in Simferopol, also comprising Metro Cash&Carry and Annual supply Cumulative supply the DIY-store Nova Liniya. Source: DTZ Research We expect that total retail stock in Simferopol will remain * Projection Note: All figures are year-end stable until mid-late 2012, when the second phase of the retail and leisure centre ‘Yuzhnaya Galereya’ is scheduled Table 8 for delivery by Arricano Development. Major existing multi-tenant retail centres in Simferopol Many quality retail chains in Ukraine, primarily in low and Project GLA Delivery Developer/Owner lower middle price segments, are interested in moderate (sq m) penetration of the retail market in Simferopol. FM 15,000 2007 local developer Yuzhnaya Galereya 14,470 2009 Arricano Development High street retailing is not developed in Simferopol, as a (phase 1) result of the urban structure of the city and the lack of Sneha City 10,000 2008 local developer suitable premises. In the prime multi-tenant retail centres in Simferopol, net monthly retail rents vary in the range of Centrum 9,000 2007 local developer $30-50 per sq m for standard units of area 100-300 sq m. Source: DTZ Research

Definitions

Retail stock - Individual developments or stand-alone retail units with a gross lettable area exceeding 5,000 sq m.

Hypermarket - Store selling food or food plus non-food items having a gross lettable area (GLA) of at least 5,000 sq m. Stand-alone hypermarkets may include some kiosk or in-line units in front of the check-out areas.

Fashion (factory) outlet - Shop or group of shops, usually in an out-of-centre location, specialised in selling end-of-line and, occasionally, damaged goods at permanently discounted prices.

Retail park - An out of town retail development with multiple retailers operating typically from individual units in large area format.

High street - The most important shopping streets in town and city centres having the highest concentration of retailers.

Prime retail rent - The attainable average prime rent that could be expected for a retail unit of size in the range of 100-200 sq m located along the high street (i.e. prime high street rent) or in the prime retail scheme (i.e. prime shopping centre rent). The rent is given as a base rent, i.e. no service charge and tax is included. Frontage zoning is not adopted in Ukraine. www.dtz.com 16 Contacts

Managing Director Nick Cotton +38 (0)44 220 30 80 [email protected]

Office Agency

Tenant representation Victoria Goroulko +38 (0)44 220 30 75 [email protected] Landlord representation Geoff Hargreave +38 (0)44 220 30 64 [email protected]

Retail Agency

Nataliya Mykolaychuk +38 (0)44 220 30 94 [email protected]

Industrial & Logistics Agency

Fedor Arbuzov +38 (0)44 220 30 60 [email protected]

Investment & Land Agency

Nataliya Stelmakh +38 (0)44 220 31 09 [email protected]

Valuation

Yana Lytvynchuk +38 (0)44 220 31 09 [email protected] Tatyana Kazakova +38 (0)44 220 30 87 [email protected]

Research & Consulting

Marta Kostiuk +38 (0)44 220 30 84 [email protected]

Property Management

Ben Hunt +38 (0)44 220 30 79 [email protected]

Main switchboard +38 (0)44 220 30 60

www.dtz.com 17

Disclaimer This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ.

© DTZ November 2011

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