Property Times Ukraine Q1 2013 Office tenants, time to go to market!
13 May 2013 Despite generally positive dynamics in 2011, Ukraine’s economic growth slowed down and deteriorated in 2012, however a relatively stable national currency Contents and low inflation enhanced domestic consumption in the country. During the first quarter of 2013, general business dynamics in Ukraine remained suppressed. Economic overview 2 Office 5 Around 27,200 sq m (GLA) of offices were delivered in Kyiv in the first quarter of 2013. However, during the remainder of the year new office supply in the city Retail 10 may amount to around 250,000 sq m (GLA), representing an increase of over 17% Industrial & logistics 15 on the existing stock and putting further downward pressure on effective rents Investment 15 in the sector. Increased availability of office space and lack of unified pricing Definitions 22 strategy, undertaken by landlords operating on the market in Kyiv, provides opportunities for office occupiers to optimise their rental position.
Since the onset of the financial crisis in Ukraine in late 2008, total modern retail Authors stock in Kyiv increased by over 82%. More projects are in delivery pipeline both in Kyiv and across Ukraine, which, if delivered to current schedules, will lead to a Marta Kostiuk considerable increase in retail stock in the country by the end of 2015. As a result, Director, Research and the Ukrainian market will offer more opportunities for retail chain expansion, but Development Consulting localised retail rents will be subject to downward pressure, particularly in poorly conceived first generation retail schemes in light of the strengthening competition + 38 (0)44 220 30 60 within the sector. [email protected]
Robust demand combined with low volumes of pipeline speculative stock in the Dmytro Sokolskyi warehousing and logistics property market in the Greater Kyiv area form preconditions for further increase in occupancy and rents in the short to medium Senior Research Analyst term. Nevertheless, the price elasticity of warehouse supply is higher compared to +38 (0)44 220 30 60 other sectors of the commercial property market in Ukraine, and new logistics [email protected] delivery could recommence relatively quickly. Whilst the amount of M&A volume within real estate sector in the first quarter of Contacts 2013 was significant, DTZ estimates total direct investment volume in Ukraine Magali Marton during the period at only around USD 4 million. Prime property yields in Ukraine Head of CEMEA Research remain at high levels compared to other European capitals, showing increases during the last six months of 2012 and stabilising in January-March 2013 (Fig. 1). +33 (0)1 4964 4954
[email protected] Figure 1 Prime office yields in Kyiv versus other CEE capitals (%) Hans Vrensen 20 Global Head of Research 15 +44 (0)20 3296 2159 10 [email protected] 5
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2010 2003 2004 2005 2006 2007 2008 2009 2011 2012 Q1 2013 Q1 Budapest Warsaw Prague Bucharest Moscow Kyiv Source: DTZ Research Note: All figures are period-end DTZ Research
Ukraine Q1 2013
Economic overview Figure 2 Macroeconomic indicators in Ukraine (%) Despite generally positive dynamics in 2011, Ukraine’s economic growth slowed down and deteriorated in 2012, as 40 the country faced new challenges. Nevertheless, a relatively 30 stable national currency and low inflation enhanced 20 domestic consumption. 10
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In January-March 2013, general business dynamics in -10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014* Ukraine remained suppressed. -20 2013* -30 Economic growth GDP growth Unemployment According to data published by the State Statistics Inflation Industrial production Committee of Ukraine, real GDP increased by 0.2% in 2012. Source: State Statistics Committee of Ukraine, Oxford Economics * Projections Whilst during the first two quarters of 2012 the Ukrainian economy demonstrated some positive dynamics with the economy growing by 2-3% year-on-year, in the third and the fourth quarters of the year real GDP decreased respectively by (-1.3%) and (-2.3 %). Industrial production The experts project that in the first quarter of 2013 Ukraine In January-December 2012, industrial production decreased by witnessed zero economic growth. The official figures on real (-0.5%) year-on-year. During the year industrial production grew GDP growth during the period are to be released by the in such sectors as mining industry by 1.9%, as well as production State Statistics Committee of Ukraine in June 2013. and distribution of electricity, gas and water by 2%, while the processing industry witnessed a (-2%) annual decrease. In April 2013, Oxford Economics projected that harsh winter weather has raised the risk of recession continuing through In the first quarter of 2013, industrial production decreased by the first quarter of 2013, limiting full-year GDP growth to (-5%) compared to the respective period of 2012. During the about 1% even if there is sufficient funding to cover the large period negative growth dynamics was witnessed across all major current account deficit. The think tank also forecasted that industrial sectors in Ukraine, apart from food processing, wood economic growth in 2014 will be at 4.4% year-on-year. processing, pharmaceutical industry, as well as production of home appliances, computers and optics equipment. The IMF projected that Ukraine will show zero economic growth in 2013, whilst in 2014 the GDP growth is expected Major international and Ukrainian experts concur that in 2013 by the organisation at 2.8% year-on-year. the annual growth in industrial production will be in the range of 0.7-1.5%, depending however on general dynamics on the The Ministry of Economic Development and Trade of global commodity markets and in the export-oriented Ukraine issued the Consensus Forecast on the basis of the industries in Ukraine. working seminar with the experts held on 5 April 2013. According to the Consensus Forecast, real GDP growth is Agriculture expected in the range from (-5.4%) to 3% year-on-year (1.2% Despite positive growth dynamics in the first half of 2012, as on average) in 2013 and 1.3-4.6% (3.3% on average) in 2014. a result of the whole year agricultural output decreased by (-4.5%) year-on-year, mainly due to high comparable base The 2013 State Budget of Ukraine is based on the projected formed by the 19.9% annual growth in 2011. real GDP growth figure at 3.4% in 2013. In January-March 2013, agricultural output in Ukraine A recovery to annual economic growth of about 4% is increased by 5.8% year-on-year compared to the 0.5% growth forecast by Oxford Economic for 2014-2016. However, this during the respective period in 2012. will be substantially below the rates achieved in 2006-2008 before the external deficit and banks’ debts became The agricultural sector, followed by IT sector, has been problematic in Ukraine. regarded by the experts to be one of the most attractive and fastest growing sectors for investments in Ukraine.
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Inflation Household income and spending In January-December 2012 consumer prices increased by 0.6% According to the data published by the State Statistics year-on-year, compared to the 8% average inflation registered Committee of Ukraine, the average nominal monthly salary in in January-December 2011. The 2012 State budget of Ukraine Ukraine in January-December 2012 was UAH 3,025 (equivalent was based on the 7.9% CPI growth projection. to USD 379) compared to UAH 2,633 (equivalent to USD 330) in 2011. In 2012, real salaries in Ukraine increased by 14.4% The basic consumer price index, which reflects demand compared to the 8.7% annual growth during 2011. pressure, increased in December 2012 by 0.8% to December 2011, also slowing down considerably compared to the In January-March 2013, the average nominal monthly salary previous year (6.9% in 2011). amounted to UAH 3,080 (equivalent to USD 385), increasing by 9.5% compared to the respective period in 2012. Experts believe that key reasons for low inflation in Ukraine in 2012 included lack of consumer growth, high harvest, According to the preliminary official statistics data, in 2012 stable administrative prices and absence of significant real disposable income in Ukraine grew by 9.7% year-on-year. currency fluctuations. Real salaries in Ukraine increased by 9.9% in January-March In the first quarter of 2013, consumer prices in Ukraine 2013 compared to the 14.7% growth during the first quarter decreased by (-0.5%) year-on-year. In January-March 2013, of 2012. the basic consumer price index increased by 0.5% compared to the respective period of 2012. When analysing household income in Ukraine, it is worth also noting that a considerable unregistered ‘grey’ salary segment According to Oxford Economics, slack demand helped keep exists. GfK Ukraine estimates that approximately 28% of salary prices stable in the first quarter of 2013. The experts project, is paid unofficially, and this figure may increase during 2013 however, that removal of subsidies necessitated by the due to unfavourable economic conditions and suppressed budget deficit, could push the rate to over 5% by end of business dynamics. 2013, with earlier hopes of a sharp drop in imported energy costs now receding. According to the Consensus Forecast as of April 2013, real disposable income growth is expected at around 5.1% as at The 2013 State Budget of Ukraine, which was approved in the end of 2013 and 4.6% in 2014. early December 2012, is based on consumer price inflation at 4.8%, whilst Oxford Economics projects CPI to increase by The 2013 State Budget of Ukraine defines the subsistence 3.7% during the year. monthly wage per capita at UAH 1,108 as of 1 January 2013 and UAH 1,176 as of 1 December 2013. According to the Consensus Forecast, issued by the Ministry of Economic Development and Trade of Ukraine on the basis Consumer confidence of the working seminar held on 5 April 2013, annual inflation GfK Ukraine reported that generally in 2012 consumer is expected in the range from 3.3% to 8.7% year-on-year (6% confidence index in the country improved compared to 2011, on average) in 2013 and 3.5-9.3% (6.1% on average) in 2014. as consumers adjusted to the new economic conditions. In late 2012, GfK however witnessed increased concerns of Unemployment the Ukrainians in relation to the expected worsening in In accordance with the ILO methodology (that defines unemployment and inflation dynamics, whilst pessimism of unemployment based on the population 15-70 years of age), the country’s population regarding hryvnya’s devaluation the unemployment rate in Ukraine amounted to 7.5% at the continued, slightly improving in December 2012 compared to end of 2012 compared to 10.6% in European Union (27). the previous month.
Oxford Economics projected that unemployment rate in Though in January 2013 overall consumer confidence remained Ukraine would further decrease amounting to 6.7% by the generally stable at the level of November-December 2012, end of 2013 and 6.4% in 2014. The 2013 State Budget of during the following two months of the year GfK reported Ukraine assumes that unemployment in Ukraine will be deterioration of consumer confidence index in Ukraine. The around 7% in 2013. experts witnessed increased pessimism amongst the Ukrainian population aged under 45 years and with the income above average, which reside in major cities of the country.
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Retail sales Figure 3 Low inflation combined with increased household income Net FDI (billion USD) and FDI growth (%) in Ukraine formed grounds for some growth in retail sales in Ukraine, 12 though consumers tend to be more rational and cautious 340 10 290 in terms of their shopping habits and preferences. 240 8 High growth dynamics of retail sector in the country is also 190 6 often explained by ‘unshadowing’ of the sector and its 140 4 90 development with new retail formats. 40 2 -10
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In 2012, retail sales in Ukraine grew by 13.7% year-on-year, a
similar growth rate to 2011.
2004 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012
In January-March 2013, retail sales in Ukraine grew by 10.8% Net FDI (RHS) Net FDI growth (LHS) year-on-year, compared to the 15.3% annual growth rate registered during the respective period in 2012. Source: National Bank of Ukraine
National currency Exchange rate of the Ukrainian hryvnya remained generally The State Statistics Committee of Ukraine reported that net stable against the hard currencies during 2012 with upward inflow of foreign direct investment (FDI) into Ukraine pressure during the second half of the year. amounted to around USD 6,013.1 million in 2012, approximately 14% lower the figure registered in 2011 (Fig. 3). In March 2013, the official exchange rate of the hryvnya against the US dollar was at 7.9930 UAH/USD, remaining As of 31 December 2012, gross FDI into Ukraine amounted to unchanged since late 2012. The experts concur however that USD 54,462.4 million or USD 1,199.3 per capita. the devaluation risk for the Ukrainian currency during 2013 remains high. Among the most attractive sectors for foreign investment into Ukraine have been financial sector (29.6% of gross FDI into In accordance with the official exchange rate defined by the Ukraine as of late 2012), processing industry (25.9%), as well National Bank of Ukraine, the Ukrainian hryvnia slightly as real estate, trade, transportation and communication. strengthened against the Euro during the first quarter of 2013, - from 10.3189 UAH/EUR in late December 2012 to The figures on FDI inflow in the first quarter of 2013 are to 10.3901 UAH/EUR in late March 2013. be released by the State Statistics Committee of Ukraine in May 2013. According to the Consensus Forecast as of April 2013, the exchange rate of the hryvnya against the US dollar is Outlook expected at around 8.68 UAH/USD at the end of 2013 and As forecast by leading Ukrainian and international experts, 8.84 UAH/USD in late 2014. The 2013 State Budget of Ukraine will witness economic growth in a range from (-5.4%) Ukraine is based on average exchange rate of 8.4 UAH/USD. to 3% in 2013 and 1.3-4.6% in 2014, with a significant uncertainty remaining around these projections. Foreign trade and foreign direct investment According to the State Statistics Committee of Ukraine, A recovery to annual economic growth of about 4% is exports and imports of goods in Ukraine increased in 2012 forecast by Oxford Economic for 2014-2016. However, this by 0.6% and 2.5% year-on-year respectively. will be substantially below the rates achieved in 2006-2008 before the external deficit and banks’ debts became In January-February 2013, exports of goods in Ukraine problematic in Ukraine. increased by 1.9% compared to the respective period in 2012. At the same time, imports of goods in the country Ukraine is recognised to have a significant potential and contracted by (-6.3%) year-on-year. competitive strengths resulting from the large market size and a solid educational system providing easy access to all levels of education and setting grounds for further development of the innovation capacity of the country.
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Office Figure 4 The market offers opportunities for office occupiers to Major indicators of office property market in Kyiv optimise their rental position in Kyiv during 2013. 300 000 100
Supply 200 000 There was approximately 1,461,540 sq m (GLA) of 50 speculatively delivered office stock in Kyiv at the end of the 100 000 first quarter of 2013, excluding government buildings and
0 0
offices constructed by owner-occupiers (Fig. 4).
2002 2005 2008 2011 2003 2004 2006 2007 2009 2010 2012 New office property supply in Kyiv amounted to around New supply (sq m, LHS) 2013 Q1 27,200 sq m (GLA) in the first quarter of 2013. During the Take-up (sq m, LHS) period, two business centres were delivered in the city, Vacancy rate (%, RHS) Prime rent ($ / sq m / month, RHS) both located in non-central districts on the eastern bank of the Dnipro River. Source: DTZ Research Note: All figures are year-end Figure 5 Looking back, there were no office schemes delivered in Kyiv in the first quarter of 2012, whilst new annual office Total office stock in Kyiv versus other CEE Capitals (sq m) supply during the year amounted to around 157,715 sq m 5 000s 000 (GLA), keeping pace with the annual delivery during 2011 4 000 000 and exceeding the figure for 2010 by over 51%. 3 000 000 2 000 000 As of late March 2013, around 250,000 sq m (GLA) of new 1 000 000
office space was scheduled for delivery in Kyiv during the 0
remainder of 2013, representing an increase of over 17%
2008 2009 2002 2003 2004 2005 2006 2007 2010 2011 2012 on the existing stock in the city. 2001 2013 Q1 However, the actual new office supply in the Ukrainian Budapest Warsaw Prague capital at the year-end is highly sensitive to the full Bucharest Kyiv commissioning of several comparatively sizable properties. Source: DTZ Research
In view of present high vacancy levels and expected Though new office supply is annually increasing, the office further softening of rents in the office property market in property market in Kyiv remains structurally undersupplied Kyiv, developers of some of these pipeline schemes may compared to other CEE capitals in terms of total office stock, well decide to defer speculative commissioning to later stock per capita, as well as the variety of formats and quality periods beyond 2013. of properties available for occupation (Fig. 5).
Table 1 Key office property market indicators in Kyiv 2010 2011 2012 Q1 2013 Outlook Stock (sq m) 1,119,000 1,277,000 1,434,350 1,461,540 New supply (sq m) 78,300 158,000 158,000 27,190 Take up (sq m) 165,000 153,000 84,300 18,600 Vacancy rate (%) 12.7 16.1 18.1 18.7 Prime rents(USD/sq m/month) 30-38 38-44 35-41 25-38 /
Source: DTZ Research Notes: All figures are period-end and due to non-transparency of the market are subject to continued revision. Take-up and vacancy figures do not include sub-lease opportunities.
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Table 2 Major office schemes delivered in Kyiv in 2012 - Q1 2013 Period Project Location* Size Developer Major occupiers** Occupancy** (sq m) (%) Q4, 2012 Gulliver BC CBD 49,850 Mandarin Plaza /Tri O confidential 56 Q2, 2012 Toronto-Kyiv BC C 33,480 Toronto-Kyiv Shell 8 Q2, 2012 Europe BC NC-WB 26,087 DeVision Nova Poshta, Challenger Aero, 82 Dr. Reddy's Laboratories Q3, 2012 Crystal BC NC-EB 9,800 Pervaya Dnepropetrovskaya Ranbaxy Laboratories, 44 Investicionnaya Kompaniya Financial Times Q2, 2012 Forum Victoria Park BC NC-WB 7,100 Forum Group Watsons, Panasonic 38 (phase 1) Q3,2012 BC at 19 Druzhby Narodiv Blvd. Pechersk 6,700 local developer Zepter, Allseeds, Delta Wilmar 39
Q3, 2012 Canyon BC Podil 6,100 Astarta confidential 30 Q3, 2012 Vozdvyzhenskyi BC Podil 5,000 local developer - 0
Q2, 2012 BC at 33 Sahaidachnoho Str. Podil 3,700 local developer - 0 Q3, 2012 Eleven BC (phase 2) NC-WB 3,020 local developer confidential 100 Q2, 2012 Forum B7 BC NC-WB 2,200 Forum Group - 0 Q1, 2013 BC at 28a Moskovskyi Ave. NC-WB 23,140 local developer - 0 Q1, 2013 BC at 30a, 40-Richchya NC-WB 4,045 local developer confidential 100 Zhovtnya Str.
Source: DTZ Research * CBD – Central Business District; C – central outside CBD; NC-WB-non-central area on the western bank of Dnipro River, NC-EB-non-central area on the eastern bank of Dnipro River. **As of late March 2013.
Table 3 Major office projects scheduled for completion in Kyiv in Q2-Q4 2013 Project Location* Size (sq m) Developer Developer’s nationality Senator BC Pechersk 47,300 KAN Development UA IQ BC Pechersk 33,950 KAN Development UA BC at 36 Schorsa Str. Pechersk 27,280 Zhytlobud UA BC at 15 Leiptsihska Str. Pechersk 21,800 Merx UA Sigma BC NC-WB 20,800 Midland Development Ukraine UA City Gate BC (phase 1) NC-EB 16,000 City Capital Group UA BC at Vasylkivska Str. / Akademika Hlushkova Str. NC-WB 13,000 Rele Invest UA BC at 26/14 Spaska Str. Podil 9,350 Perspektyva Resydencia UA BC at 7a Shamryla Str. NC-WB 6,700 Georgiy UA BC at 98 Velyka Vasylkivska Str. C 6,300 VS Energy International UA / RUS BC at 28 Smirnova-Lastochkina Str. Podil 5,500 local developer UA Patriarch Hall BC CBD 5,000 local developer UA
Source: DTZ Research * CBD – Central Business District; C – central outside CBD; NC-WB – non-central area on the western bank of Dnipro River, NC-EB – non-central area on the eastern bank of Dnipro River.
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Table 4 Selected new major office lease transactions in Kyiv Period Tenant Area (sq m) Occupier sector Building Location* Q1, 2013 Shell 2,900 Industrial Toronto BC C Q1, 2013 Ukrrichflot 2,394 Transportation Rialto BC NC-WB Q1, 2013 Allseeds 1,000 Agriculture BC at 19 Druzhby Narodiv Bould. Pechersk Q1, 2013 Finansovyi Partner 962 Financial services Office building at 23/27 Sofiyivska Str. CBD Q1, 2013 Dr. Reddy’s Laboratories 833 Pharmaceuticals Europa BC NC-WB Q1, 2013 Delta Wilmar 500 Manufacturing BC at 19 Druzhby Narodiv Bould. Pechersk Q1, 2013 MasterCard 424 Financial services Leonardo BC (phase 1) CBD Q1, 2013 Lacoste 245 Retail Leonardo BC (phase 1) CBD
Source: DTZ Research *CBD – Central Business District, C – central outside the CBD, NC-WB – non-central area on the western bank of Dnipro River, NC-EB – non-central area on the eastern bank of Dnipro River.
Demand At the same time, in January-March 2013 a number of The market fundamentals in the office property sector in Kyiv occupiers decided to renegotiate their lease contracts and continued to improve in 2011 and the first quarter of 2012, the volume of these transactions accounted for around 23% stabilising during the remaining three quarters of 2012. of total take-up in the office property sector in Kyiv.
In total, approximately 84,300 sq m (GLA) of offices were Corporate occupiers still remain rather conservative in their transacted in the Kyiv market in 2012, which was almost 45%, growth projections for the forthcoming 5 years in view of 49% and 20% lower than the figures registered respectively in the tense macroeconomic outlook for Ukraine. However, 2011, 2010 and 2009. DTZ believes that rather moderate many of them plan moderate business growth in the country demand dynamics in the office property market in the and resultant office expansion in Kyiv, whilst being Ukrainian capital in 2012 mainly reflected cautiousness and a extremely demanding in terms of quality, efficiency and cost ‘wait and see’ attitude of many occupiers due to economic of office space. and political uncertainty in Ukraine, combined with increasing vacancy and a significant pipeline of office stock scheduled for Also, many leases signed or renewed in 2008/10 on terms delivery in the short to medium term in the city. favourable to tenants will expire, and this factor on its own is likely to lead to a significant upsurge of take-up during the Since the commencement of 2013 DTZ has witnessed an remainder of 2013 and in 2014. increased activity of office occupiers in Kyiv. In the first quarter of 2013, take-up in the office property sector in Kyiv Figure 6 amounted to around 18,600 sq m (GLA), which exceeded Vacancy on the office property market in Kyiv by locations (%) the figure registered in the respective period of 2012 by 77%. 40 However, office take-up in the January-March 2013 was by 26% lower than the figure recorded in the first quarter of 30 2009 when the crisis came to a peak. 20
10 Similar to 2011-2012, office property demand in Kyiv in the
0
first quarter of 2013 was driven by companies operating in
manufacturing and distribution, ICT, energy, financial and
2009 2010 2011 2012
agriculture sectors. Q1 2013 Q1 CBD C (outside CBD) In the first quarter of 2013, similar to 2009-2012, pre-lets on Podil Pechersk (outside CBD) the office property market in Kyiv were almost absent due to NC-WB NC-EB Overall market vacancy the availability of opportunities to occupy space in already operating schemes and lack of confidence in pipeline schemes. Source: DTZ Research Note: All figures are year-end
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Vacancy Figure 7 As of late March 2013 primary market-wide vacancy on the Prime office rents in Kyiv versus other CEE Capitals office property sector in the city reached 18.7%, further (€ /sq m /month) increasing from 18.1% at the end of 2012 and setting a new 120 historic record high. This mainly results from very low 100 occupancy in a number of office schemes delivered in Kyiv 80 in 2012 and in the first quarter of 2013. 60 40 In January-March 2013, the availability ratio increased 20
or remained almost unchanged in all office sub-locations -
in Kyiv (Fig. 6).
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2001 During the period from the fourth quarter of 2011 to 2013 Q1 the first quarter of 2013 inclusive, the highest vacancy Prague Budapest Warsaw Bucharest Moscow Kyiv was registered in the central area of Kyiv and Pechersk, both outside the CBD, due to significant new supply in these parts Source: DTZ Research of the city.
Rents Outlook Due to an increase in new supply in the office property Significant new office supply was delivered in 2011-2012 and is sector in Kyiv combined with stable moderate immediate scheduled for delivery in Kyiv during 2013. Therefore, all other occupier demand in 2012, landlords in several centrally things being equal, DTZ expects market-wide rents to be subject located office buildings, suffering from high vacancy, to further downward pressure in the short term. decided to set lower asking rents for their space. As a result, by the year-end prime achievable office rents in the city At the same time, the dynamics of prime office rents and stabilised at USD 35-41 per sq m per month. vacancy in Kyiv in the medium term remains highly sensitive to the general macroeconomic conditions, as well as new delivery In the first quarter of 2013, prime achievable office rents in dynamics and the pricing strategies applied in relation to Kyiv were subject to further downward pressure. In late sizeable business centres competing for occupiers. March 2013, prime asking rents in the Ukrainian capital varied in the range of USD 25-38 per sq m per month, while In view of the high level of competition, developers can enhance B-class and C-class space commanded monthly rents of letting prospects in their office properties not only by employing USD 14-28 per sq m and USD 8-17 per sq m respectively. a competitive pricing strategy, but also by delivering space in more advanced condition or being open to alternative Despite ongoing downward correction, prime office rents in incentives addressing the main barrier to relocation, i.e. capital Kyiv remain higher than those in Bucharest, Budapest, Prague expenditure. and Warsaw, but lower than in Moscow (Fig. 7). On the positive side, increased availability of office space and a Typical incentive packages offered by landlords in the office lack of unified pricing strategy, undertaken by landlords property sector in Kyiv include rent-free periods and operating on the market in Kyiv, provide opportunities for occasional fit-out contributions. occupiers to optimise their rental position in Kyiv.
DTZ is of the opinion that the effective rents for office space in Kyiv may lower further in 2013, as a result of suppressed business dynamics in Ukraine and expected strong competition between landlords in the sector. This is particularly the case for prime office space.
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Map 1 Major office and retail schemes in central Kyiv
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Retail Figure 8 The retail property sector in Ukraine remains the most Major indicators of retail property market in Kyiv (sq m) dynamic and resilient to the economic slowdown. 500 000 2 000 000 400 000 Supply 1 500 000 300 000 Total modern retail stock in Kyiv was estimated at around 1 000 000 1,183,700 sq m (GLA) in late March 2013, or 419 sq m (GLA) 200 000 500 000 per 1,000 inhabitants (Fig. 8). This figure counts for major 100 000
retail developments of or over 5,000 sq m gross lettable area 0 0
(including multi-tenant retail centres and ‘big box’
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2015*
single-occupied developments). 2013*
- Q1 2013 Q1 Annual supply (LHS) Since the onset of the financial crisis in Ukraine in late 2008, Cumulative supply (RHS) 2014 total modern retail stock in Kyiv increased by over 82%. Such Source: DTZ Research formats as retail parks and fashion outlets are yet to be delivered in Kyiv and Ukraine on the whole (Fig. 9). Figure 9
New annual delivery by formats in Kyiv (by volume sq m) In early March 2013, there was the retail and leisure centre ‘Marmalade’ opened in Industrialna Street in Kyiv. At the 100 delivery date, however, only the ground floor was open, i.e. approximately 13% of the scheme’s GLA, with the food 50 supermarket ‘Amstor’ and several small shops operating.
DTZ projects that during the whole 2013 new annual retail 0
supply in the Ukrainian capital will exceed 200,000 sq m (GLA).
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2015*
Major retail schemes scheduled for delivery in Kyiv during the 2013* - remainder of 2013 include ‘Gulliver’ in the central area of Stand-alone retail warehouses 2013 Q1
Shopping malls 2014 the city, ‘Art Mall’ and ‘Atmosphere’ in its southern periphery, Retail parks and ‘Silver Breeze’ in the densely populated neighbourhood Fashion outlets on the eastern bank of the Dnipro River. The year 2013 may Source: DTZ Research also see opening of ‘Manufaktura outlet village’ in the Greater Kyiv area, which is presently under construction on the land The retail and leisure centre ‘French Boulevard’ (phase 2) was plot adjacent to the operating retail and leisure centre opened in Kharkiv in late March 2013, and it became the ‘MegaMarket Khodosivka’. In the course of the year, more major new multi-tenant retail project delivered in the first shops are also planned to open in ‘Poliarnyi’ and ‘Marmalade’, quarter of the year in the regional cities of Ukraine. which were already delivered in Kyiv. Other major retail schemes planned for delivery in the An additional 441,800 sq m (GLA) of new retail space is regional cities of Ukraine during the remainder of 2013 include scheduled for commissioning in Kyiv in 2014-2015. As a ‘Rose Park’ in Donetsk, ‘Magellan’ (phase 2) in Kharkiv, result, by the end of 2015 an increase on current retail stock ‘Lubava’ in Cherkasy, as well as the extensions to ‘Meganom’ in the city may potentially reach approximately 53%. and ‘Yuzhnaya Galereya’ in Simferopol.
Table 5 Key retail property market indicators in Kyiv 2011 2012 Q1 2013 Outlook Stock (sq m) 1,001,400 1,143,700 1,183,700 New supply (sq m) 75,080 142,300 40,000 Prime shopping centre rents (USD / sq m / month) 160-200 160-200 160-200 / Prime high street rents (USD / sq m / month) 110-230 110-230 110-230
Source: DTZ Research Notes: All figures are period-end, while rents quoted for retail units of area of 100-300 sq m.
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Table 6 Major multi-tenant retail schemes delivered in Ukraine in 2012 and Q1 2013 Period Project City Size (sq m) Developer Major brands November, 2012 Ocean Plaza Kyiv 72,200 KAN Development / Auchan, Eldorado, Smyk, Sportmaster, GAP, Marks&Spencer, (phase 1) UDP TOPSHOP, Reserved, Mango, Benetton, KFC, McDonald’s, Happylon, LC Waikiki, Collezione, Cinema Citi, others March, 2012 / Fabrika Kherson 43,500 BUD HOUSE GROUP Silpo, Comfy, Sportmaster, Sport Life, Multiplex, Bershka, October, 2012 (phases 1, 2) Pull&Bear, Stradivarius, LPP brands, Oodji, others March, 2012 City Centre Odesa 33,000 Venford / GMG Silpo, Comfy, Foxtrot, Dytyachyi Svit, Igroland, Piazza Italia, Development Guess, Master Zoo, others March, 2012 Suvorovskyi Kherson 32,000 Oskar Oskar, Baby Boom, L’etoile, Allo, others August, 2012 RayON Kyiv 23,000 Arricano Development Silpo, Comfy, Sportmaster, LPP brands, Colins, others April, 2012 Meganom Simferopol 14,600 Krymska developerska Fozzy, Tair, Bomond, Master Zoo, Arber, others (phase 1) kompaniya LLC / UDP December, 2012 Poliarnyi Kyiv 8,634 Intergal-Bud Amstor, L’KAFA, Milavitsa, Gipfel, others March, 2013 Marmalade Kyiv 38,700 VKF ‘Mava’ Amstor, Sport Life, Technopolis, New Yorker, others March, 2013 French Boulevard Kharkiv 35,500 Aksioma Silpo, Comfy, Bomond, McDonald’s , Planeta Kino, others (phase 1) Source: DTZ Research
Table 7 Major multi-tenant retail schemes scheduled for delivery in Ukraine in Q2 2013-2015 Period Project City Size (sq m) Developer Nationality 2014 Respublika Kyiv 139,000 KAN Development / Megapoliszhytlobud UA 2015 Kvadrat Vyrlytsya Kyiv 75,000 XXI Century UA 2015 Levada Mall Kharkiv 60,000 East Gate Development UA Q4 2014-Q1 2015 River Mall (formerly Aquapark) Kyiv 49,070 Vilna Ukrayina UA Q2, 2014 Happy Mall Kyiv 42,500 Liko-Holding UA 2014-2015 Nikolskyi Kharkiv 42,000 BUD HOUSE GROUP UA Q2 2014 Prospekt Kyiv 40,390 Arricano Development UA Q3, 2013 Gulliver (formerly Continental) Kyiv 38,000 Mandarin Plaza /Tri O UA 2014-2015 Zebra (formerly HUB) Odessa 38,000 BUD HOUSE GROUP UA Q3-Q4, 2014 Forum Lviv Lviv 36,000 Multi Development NTL Q2, 2013 Art Mall (formerly Alacor) Kyiv 36,735 Alacor UA Q4 2013 Rose Park (formerly City Park (phase 2)) Donetsk 32,500 Immochan Ukraine FRA Q3 2013-2014 Atmosphere (formerly Domosfera life) Kyiv 30,000 DeVision / B&S Holding UA / AUT Q4, 2013 PortCity Lutsk 26,090 Remmebli UA 2013 Magellan (phase 2) Kharkiv 26,000 Kray Property UA Q3, 2013 Meganom (phase 2) Simferopol 25,400 Krymskaya developerskaya kompaniya UA 2015 TSUM Kyiv 22,500 Esta Holding UA Q3-Q4, 2013 Yuzhnaya Galereya (phase 2) Simferopol 19,700 Arricano Development UA Q4, 2013 Manufaktura outlet village Kyiv region 18,200 ADS UA Q2, 2013 Lubava Cherkasy 18,000 BUD HOUSE GROUP UA Q3, 2013 Silver Breeze Kyiv 15,770 Svitland Ukraine / Fishman Group UA/ ISL 2014-2015 Kiev E95 First Fashion Outlet Center Kyiv Region 15,250 EVO Land Development UA Source: DTZ Research
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Demand The first shops by several luxury brands also opened in During 2012 and in the first quarter of 2013 general retailers’ ‘Ocean Plaza’, including Max Mara Weekend and Marina perceptions of the short-term retail potential of Ukraine Rinaldi (Max Mara Fashion Group), and Furla (represented in deteriorated, triggered by general dynamics on global markets Ukraine by Rich Inter Group). The pioneer shops by Pepe and the country’s risks. Jeans London, Michael Kors, Rebeca Sanver, bebe, Suvari, Reiss, BCBGMAXAZRIA, Cinque, Armani Jeans, Stefanel, Kyiv, followed by Odessa and Donetsk, remains the most Denis and Why Denis were also opened in the property. attractive destination for all retailers operating and considering In the first quarter of 2013, the Turkish fashion brands entry into Ukraine in all pricing categories. Demand remains LC Waikiki and Colezzione opened their first Ukrainian stores very strong for quality retail space both in high street locations in ‘Ocean Plaza’. The opening of the kid’s play ‘Happylon’ is and multi-tenant retail centres in these cities. scheduled for late April 2013.
In 2012, several fashion brands ceased operations on the After the Danish homeware goods chain ‘JYSK’ was taken Ukrainian retail market. These included co&beauty (represented over in Ukraine by the parent company ‘JYSK Holding’ in late by Melon Fashion Group), Peacocks (represented by Maratex), 2012, it started its active expansion in the country with a Nine West and Vero Moda (represented by Argo), as well as target to open at least 10 new stores during 2013 and Seppälä and Sela. The UK fashion brand NEXT also closed operate in total 200 stores within the next 10 years. operations in the country in the first quarter of 2013. In the first quarter of 2013, the first Ukrainian store of the European lingerie brand YAMAMAY opened in the retail and On the positive side, several new market entries were registered leisure centre ‘Dream Town’ in Kyiv. in Ukraine in 2012 and during January-March 2013: In the luxury retail segment, in 2012 the single-brand stores In the first quarter of 2012, the Russian department store Dolce&Gabbana, Valentino, Prada, Agent Provocateur and retailer lady&gentleman CITY entered the Ukrainian fashion Rene Lezard opened within the central areas of Kyiv. market with the flagship store opened in the retail and leisure centre ‘Karavan’ in Kyiv. A number of international chains of fast food restaurants The company Maratex brought to the market the fashion and cafés demonstrated high interest to the Ukrainian brands OVS (part of Gruppo Coin), the stores of which operate market. The international operator KFC established its across the country, as well as SIX and I AM. operations in Ukraine represented by separate franchisees, and the first restaurant of the chain was opened in ‘Ocean In June 2012, the first Ukrainian store of the Portuguese retail Plaza’ in late 2012. The Finnish chain of fast food restaurants brand W52 Jeans opened in the retail and leisure centre Hesburger also entered the market with the first eatery ‘Dream Town’ in Kyiv. opened in the downtown retail centre ‘Globus’ in Kyiv in late In June 2012, the franchise holder Argo opened the first store 2012. The international operator Texas Chicken (Church’s of the fashion brand Piazza Italia in the retail and leisure Chicken) is also known to establish its operations in Ukraine, centre ‘City Centre’ in Odessa. Also, in early 2013 Argo opened and its first branded eateries will open in ‘Dream Town’ and in this scheme the new multi-brand store ‘Argo Bestseller’. ‘Ocean Plaza’ in Kyiv in the second quarter of 2013. The Polish footwear retailer Wojas opened its first stores in DTZ has also witnessed a reasonably high expansion activity Ivano-Frankivsk and Lviv in 2012 and early 2013. of several Ukrainian chains of fast food restaurants, In late 2012, the Polish footwear retailer CCC entered Ukraine including Kredens Cafe, Syta Lozhka, Soup&Co and Hot Café. with opening its first store in ‘King Cross Leopolis’ in Lviv, and later in ‘Podolyany’ in Ternopil. Similar to 2012 and earlier periods, during the first quarter of 2013 big box retail operators with reliable sourcing of finance The opening of ‘Ocean Plaza’ in Kyiv in late 2012 triggered a continued to demonstrate high activity across Ukraine. Thus, number of new market entries in Kyiv and Ukraine on the Metro Cash&Carry, Epicentre and Nova Liniya further expanded whole. The first hypermarket real,- opened in the Ukrainian in Ukraine, alike major food hypermarket operators such as capital, which however was rebranded into Auchan in early Fozzy Group, Novus and Amstor, as well as Auchan that in 2013 following the acquisition of the chain. In line with December 2012 purchased the chain –real’. already presented brands, the franchise holder MTI opened the shops Napapijri, Atelier de Courcelles and Lee Wrangler Electronics and home appliance chains Comfy and in the scheme, while the company Argo located there the Technolopolis, which at the start of 2013 acquired the chain of first store of the Spanish fashion brand SUITEBLANCO. the Ukrainian stores of Eldorado, continued to open new stores across the country.
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A majority of active supermarket and hypermarket chains DTZ believes that the opening of stores by such international have been considering occupation in retail developments fashion brands as H&M, C&A, Debenhams, Peek&Cloppenburg not only in major cities of Ukraine with populations over and Decathlon remains unlikely in the short term. 750,000 inhabitants, but also in smaller cities.
Table 8 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, Forum Lviv, King Cross Leopolis, Happy Mall, and others). Service charge USD 2-8 per sq m per month in addition to utility costs, depending on quality of a retail development. Marketing charge USD 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 Research
Map 2 Major cities in Ukraine
Source: DTZ Research
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Rents Figure 10 During the period from October 2011 to March 2013 inclusive, Retail rents in Kyiv ($/sq m/month) average monthly rents in Kyiv retail schemes remained 400 generally stable at USD 70-90 per sq m for premises of 300 100-300 sq m, reaching highs of USD 160-200 per sq m per month in the most sought-after prime properties (Fig. 10). 200 100 Similar dynamics were also observed in relation to high street
0
retail rents in Kyiv and other major cities of Ukraine with total
population over 750,000 inhabitants.
2012 2006 2007 2008 2009 2010 2011
Q1 2013 Q1 Taking into account present dynamics of retailers on the Prime high street rent Prime shopping centre rent Ukrainian market combined with significant pipeline supply of quality retail stock, DTZ does not anticipate any major upswing Source: DTZ Research in base rental rates during 2013-2105. This is due to the lack of critical mass of actual new market entries combined with Outlook significant retail stock in pipeline, as well as economic The retail segment proved to be the most dynamic compared uncertainty both globally and in Ukraine. to other property sectors in Ukraine.
The longer term sustainability of current rental rates will Despite the remaining signs of the economic crisis, country’s depend on the actual commissioning and quality of new perceived risks and comparatively low incomes of the sizeable pipeline retail schemes scheduled for completion population, the potential of the retail property market in in 2013-2015 and beyond, as well as general macroeconomic Ukraine undoubtedly remains high because of its immaturity in conditions in Ukraine and globally. terms of quality and formats of existing retail schemes, large country size, high population density, perceived high brand Quality retail operators in Ukraine remain increasingly selective awareness and propensity to spend. in terms of retail space quality and occupational terms. However, the competition in the retail property sector has been In view of recurring tendency of delivery delays, many retail strengthening with more ‘modern’ retail projects delivered and occupiers increasingly refuse to provide any financial planned. Therefore, quality and professional management guarantees of their lease commitments before commencement remain crucial factors for the success of all existing and new of actual construction works on site. retail developments in Ukraine.
Owing to the deep economic downturn in Ukraine since late The opportunities within the retail property sector, over other 2008, the majority of developers in the country now accept sectors, are of priority interest for most developers and the fact that only a well-considered approach to selecting an investors active in Ukraine, particularly within cities with total appropriate location, efficient concept and thoughtful phasing population over 750,000 inhabitants. of a retail development with due regard to the number and mix of quality retailers and their planned expansion into the Active works on a number of sizeable retail projects in Kyiv and country, will secure long-term financial viability and the regional cities of Ukraine were commenced in 2010-2012 investment exit. and more projects are in delivery pipeline, which, if delivered to current schedules, will lead to a considerable increase in retail stock in the country by the end of 2015.
As a result, the Ukrainian market will offer more opportunities for retail chain expansion, but localised retail rents will be subject to downward pressure, particularly in poorly conceived first generation retail schemes in light of the strengthening competition within the sector.
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Industrial & logistics Figure 11 Suppressed new supply dynamics resulted in a market wide Key indicators of logistics property market in the Greater Kyiv vacancy remaining low. 500 000 25
Supply 400 000 20 At the end of the first quarter of 2013, total stock of modern 300 000 15 warehousing and logistics space in the Greater Kyiv area 200 000 10 amounted to around 1,460,000 sq m (GLA) (Fig. 11). This figure 100 000 5
includes approximately 188,000 sq m of modern specialised 0 0
chilled&frozen and chemical warehousing facilities.
2007 2003 2004 2005 2006 2008 2009 2010 2011 2012 2002 The new supply on the logistics property market in New supply (sq m, LHS) 2013 Q1 the Greater Kyiv area reached approximately 20,500 sq m (GLA) Prime rent ($ / sq m / month, RHS) in January-March 2013. During the period the warehousing Vacancy rate (%, RHS) complexes ‘Terminal Kyivshchyna’ and ‘Avtek Logistic’ (phase 1) Source: DTZ Research Note: All figures are year-end. were delivered. * Projections
Development activity in the Greater Kyiv area remains Figure 12 suppressed with almost no speculative commercial warehouse Existing logistics stock split by major locations in the Greater space currently under construction. This situation is unlikely Kyiv area in Q1 2013 to change during the remainder of 2013, but majority of M-06 (Kyiv-Zhytomyr) developers in the sector remain firm about their intentions to commence construction of new projects as soon as relatively 7% M-01 (Kyiv-Moscow), Brovary-Boryspil RR large tenants for their space are secured or within built-to-suit 27% M-03 (Kyiv-Kharkiv) contracts. 7% M-07 (Kyiv-Warsaw) 8% DTZ projects that new logistics supply in April-December 2013 Kyiv City in the Greater Kyiv area may reach around 140,000 sq m (GLA). M-05 (Kyiv-Odessa) Out of this figure however, speculative space will account for 19% only around 28%, with significant part of it already secured 26% M-04 (Kyiv-Dnipropetrovsk) under pre-lease agreements. Other
Major speculative logistics schemes planned for delivery Source: DTZ Research in April-December 2013 include ‘Terminal Bucha’ and ‘Avtek Logistic’ (phase 2), as well as the built-to-suit warehouse complex leased by Fozzy Group.
Table 9 Key industrial and logistics property market indicators for the Greater Kyiv area
2011 2012 Q1 2013 Outlook Stock (sq m) 1,322,000 1,440,000 1,460,500 New supply (sq m) 156,000 108,000 20,500 Take up (sq m) 222,000 236,000 124,400 Vacancy rate (%) 15.7 6.8 7.5 Prime rents (USD/sq m/month) 5-7 5-7 5-7 /
Source: DTZ Research * Including ancillary office and mezzanine space Note: All figures are period-end
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Table 10 Major logistics schemes delivered in the Greater Kyiv area in 2012 and Q1 2013
Period Scheme Location Total area Developer Nationality Occupancy* (sq m) (%) Q2, 2012 Logistics complex ‘Shchaslyve’ M-03, E40 30,600 Alfa Development Group UA 100 Q4, 2012 Warehouse Technopolis M-01, E95 22,000 Technopolis UA 100 (phase 2) Q2, 2012 Krasylivka Industrial Park M-01, E95 15,900 AIC BEL 36 Q4, 2012 Terminal Vorzel M-07, E373 12,400 local developer UA 100 Q4, 2012 TransVest M-06, E40 9,500 Trans Vest UA 100 Q3, 2012 Logistics Invest Centre P-02 9,300 Logistics Invest Centre UA 100 Q2, 2012 Warehouse Interpharm M-07, E373 8,000 Interpharm UA 100 Q1 2013 Avtek Logistic (phase 1) Kyiv City 10,500 SKYLINE Development UA 100 Q1 2013 Terminal Kyivschyna Kyiv Ring Road 10,000 local developer UA 0
Source: DTZ Research *As of late March 2013
Table 11 Major logistics schemes planned for delivery in the Greater Kyiv area in Q2-Q4 2013
Period Scheme Location Total area Developer Nationality (sq m) Q2, 2013 Warehouse complex M-01, E95 100,000 Technopolis UA Q4, 2013 Terminal Bucha M-07, E373 31,600 Technoyarmarok UA Q3-4, 2013 Avtek Logistic (phase 2) Kyiv City 7,500 SKYLINE Development UA
Source: DTZ Research
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Demand Figure 13 Despite challenging economic climate in Ukraine, the demand Take-up of logistics space in the Greater Kyiv area (sq m) for warehousing and logistics space in the Greater Kyiv area remained robust in 2011-2012. 140 000 120 000 In January-March 2013, the logistics property take-up in the 100 000 Greater Kyiv area amounted to around 124,400 sq m (GLA), 80 000 accounting for over 53% of cumulative annual supply in 2012 60 000 and being over twice as much as in its first quarter (Fig. 13). 40 000 20 000
0
DTZ is of the opinion however that the positive take-up dynamics during the period reflected the intentions of many
existing tenants to improve their space occupied and/or
Q1 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 secure opportunities to expand under the present conditions of diminishing availability and expected upward pressure on Source: DTZ Research the rents in the sector. At the same time, it was not yet indicative of the strong logistics property market recovery in Figure 14 the Greater Kyiv area. Take-up of speculative logistics space by type of occupiers in
the Greater Kyiv area (share in total 100%) Nevertheless, in the short term we expect relatively robust occupier demand in the warehousing and logistics property 13% 16% 14% sector in the Greater Kyiv area, as many leases were signed in 33% 22% 2008 based on 5-year contracts and will expire in 2013. 52% 92% 22% 12% Similar to 2012, the demand for quality industrial and logistics 9% 34%
space in the first quarter of 2013 was driven by the companies 28% 19%
operating in FMCG and food retail, which cumulatively
accounted for approximately 92% of total take-up registered
2010 2011 2012
during the period (Fig. 14). Logistics & transportation Retail - Fashion 2013 Q1 Retail - Cosmetics, pharma White goods ICT FMCG/Food retail Automotive Other Source: DTZ Research
Table 12 Major logistics transactions in the Greater Kyiv area
Period Scheme Occupier Occupier sector* Total area (sq m) Location Type of deal Q1, 2013 Warehouse complex Fozzy Group Retail 100,000 M-01, E95 new lease Q1,2013 Avtek Logistics modnaKasta Retail 5,400 Kyiv City new lease Q1,2013 Avtek Logistics confidential Retail 5,100 Kyiv City new lease Q1,2013 Warehouse complex confidential Manufacturing & 3,800 Kyiv Ring Road new lease distribution Q1,2013 Terminal Bucha confidential L&T 2,700 M-07, E373 new lease Q1,2013 Top Trans confidential Retail 2,000 M-01, E95 extension Q1,2013 Terminal Brovary Fiege L&T 2,000 M-01, E95 new lease
Source: DTZ Research *FMCG – fast moving consumer goods, L&T – logistics and transportation
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Vacancy Figure 15 Prime logistics rents in the Greater Kyiv area As of late March 2013, primary vacancy in the logistics (EUR/sq m/month) property sector in the Greater Kyiv area reached approximately 7.5%, increasing by 0.7% compared to the 10 figure registered in the fourth quarter of 2012. 8 Primary vacancy in late March 2013 was 6.3% and 7.2% lower 6 compared to the figures registered in the first quarters of 4 2012 and 2011 respectively, mainly due to low volumes of new delivery in the warehousing and logistics property sector. 2
0
DTZ projects that primary vacancy in the logistics property
2008 2009 2010 2011 2012 sector in the Greater Kyiv area will remain low during 2013. 2007
However, from the second quarter of the year there might be 2013 Q1 some upward correction of the figure due to relocation of Prague Budapest Warsaw major occupiers to built-to-suit premises. Bucharest Moscow Kyiv
Source: DTZ Research Note: All figures are period-end
Rents Outlook In the first quarter of 2013, prime asking rents for warehousing Given the low volumes of delivery pipeline, vacancy in the and logistics space in the Greater Kyiv area remained logistics property sector in the Greater Kyiv area is forecast to unchanged compared to late 2012. remain low during the remainder of 2013. This figure, however, may be subject to temporary upward correction in As of late March 2013, prime monthly asking rents in the sector the second quarter of the year, due to relocation of some varied from USD 5.5 to USD 7 per sq m in the properties major occupiers to built-to-suit premises. located on the western bank of the Dnipro River, while on the eastern bank they were in the range of USD 5-6 per sq m. Rents Correspondingly, even under the presently challenging generally depend on the quality of space, location and general economic conditions in Ukraine, there is a high probability of lease terms. upward correction of rents for quality warehousing and logistics space in the Greater Kyiv area by the end of 2013. Prime logistics rents in the Greater Kyiv area are generally comparable to those registered in the suburbs of Bucharest In the longer term, an increase in commercial activity in (Romania), Prague (Czech Republic) and Krakow (Poland), but Ukraine and strengthening of occupier demand may further lower than in Moscow (Russia) and Warsaw (Poland) (Fig. 15). lead to fall in vacancy and an upward correction in logistics rents in the Greater Kyiv area. DTZ is of the opinion, however, DTZ projects that, other things being equal, during 2013 rents that the price elasticity of warehouse supply is higher for prime warehouse space in the Greater Kyiv area may be compared to other sectors of commercial property market in subject to some upward pressure due to comparatively low Ukraine, and new logistics delivery could recommence volumes of pipeline speculative stock immediately available relatively quickly. in the sector.
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Investment The completion of several sizeable deals was postponed from 2012 through to 2013. Thus, DTZ estimates that that total The first quarter of 2013 has not brought significant changes volume of secondary investment transactions in 2013 in to the commercial property investment market in Ukraine. Ukraine is likely to be in the range from USD 300 million to
USD 450 million. Despite some indicators of yield compression during the first six months of 2012, largely reversed by the year end, prime Quality retail and office properties located in Kyiv and some yields in Ukraine remained at high levels compared to other other major cities of Ukraine remain the most sought-after European countries in January-March 2013. investment assets in the country.
Transactions High risk perception of Ukraine remains one of the major Total volume of secondary investment transactions in Ukraine in issues, which escalated in the second half of 2012 stabilising 2012 amounted to around USD 410 million, exceeding the in early 2013. DTZ anticipates that Ukraine will see a annual figures registered during 2008-2011 (Fig. 16). continued squeeze on the availability of credit in the commercial property sector with some opportunities for Whilst the amount of M&A volume within real estate sector in improvement in the lending market towards the end of 2013 the first quarter of 2013 was significant, DTZ estimates total and 2014, subject to general economic and institutional direct investment volume in Ukraine during the period at only environment in Ukraine and globally. around USD 4 million. This was formed by the sale of the 1,000 sq m office building in prime location in downtown Kyiv by During 2012 and in January-March 2013 DTZ witnessed a foreign owner to local Ukrainian company for owner stable appetite of local high net worth individuals with strong occupation. cash positions to purchase existing efficient income generating assets, particularly in the value range of up to USD 50 million Other major investment transactions reported in Ukraine in in Kyiv and other major cities of Ukraine. At the same time, January-March 2013 included the following: there remains an adverse sensitivity to larger deal volumes.
In February 2013, shares in Karavan Real Estate Limited, which In the first quarter of 2013, there was an increase in interest owns the retail and leisure centres ‘KARAVAN Megastore’ in from Russian investors to acquire property assets in Ukraine. Kyiv, Kharkiv and Dnipropetrovsk and several development At the same time, European investors showed generally weak sites across Ukraine, were sold to the Ukrainian company activity in acquiring Ukrainian property assets due to DCH Group, Citi Venture Capital International and Apollo. perceived institutional risks in Ukraine, as well as because of Earlier, in February 2012, DCH Group, which is indirectly financial difficulties on their home markets. beneficially owned by the Ukrainian businessman Aleksander Yaroslavskyi, purchased 30.5% of the stake of XXI Century for Similar to 2012, in January-March 2013, on the Ukrainian around USD 10.3 million. property market both local companies and individuals and The sale of a minority share in the prominent development international companies acted as active vendors. project in Western Ukraine. Due to DTZ’s involvement in the deal, details are confidential, but will be available shortly. Since 2011 DTZ registered a notable increase in the number of high-quality income-generating office and retail properties Figure 16 proposed for sale in Kyiv. This trend has been attributable to Investment volume in Ukraine* (million USD) intentions of many landlords to minimise their risks, related to 1000 property ownership, in view of the present economic and political risks in Ukraine. A number of international investors, 800 who own high-quality properties in downtown Kyiv, put their 600 assets for sale as the holding periods are coming to a close. 400 200 Due to the unique nature of these prime real estate assets and
0 general immaturity of the property market in Ukraine, they
have been generating high interest among potential
2010 2008 2009 2011 2012
2007 purchasers. Q1 2013 Q1 Office Retail Industrial Hotel Source: DTZ Research Note: All figures are period-end *The figure includes secondary investment transactions (the sale of land plots was excluded).
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Yields Outlook Office and retail prime net initial yields in Kyiv are perceived to DTZ believes that pre-crisis yields in Ukraine were irrationally have decreased in early 2012. However, during the second low in view of the clearly unsustainably high rents. half of the year, due to a number of factors believed to include the run up to the parliamentary elections, a worsening of Still relatively low capital values in Ukraine that have prevailed Ukraine’s risk rating, negative domestic growth and, since late 2008, combined with medium to long term rental continuing European and wider global economic fears by the growth prospects, present attractive opportunities for end of the last quarter 2012 earlier yield compression had investors in view of the recognised high potential of the been very largely reversed (Fig. 17). commercial property market that remains structurally undersupplied across all sectors in the country. At the same time, investor sentiment for prime net initial yields for logistics properties remained generally stable at DTZ expects that during 2013 prime net initial yields in Kyiv 14.5% during the period from early 2011 to late June 2012, will remain generally stable across all property sectors with increasing to 15% during the third quarter of 2012 (Fig. 17). some upward pressure during the first half of the year.
During the first quarter of 2013 prime net initial yields across In the longer term, as the Ukrainian property market matures, all commercial property sectors in Kyiv remained stable there is further scope for yield compression, coming off compared to late 2012. comparatively high present levels.
All above-mentioned yields assume investments leased at prevailing market level rents. It should be appreciated that net initial yields remain highly sensitive to asset value due to constraints over the availability of debt financing.
Nevertheless, it should be remembered that due to the global credit squeeze, prime yields in the core markets of Central Europe including Prague, Budapest and Warsaw typically increased by around 3% in late 2008-2009 from the lows of late 2007. Meanwhile prime yields in Kyiv increased by around 7% despite a far more profound downwards rental correction in the Ukrainian capital (Fig. 1).
Figure 17 Prime yields in Kyiv (%) 25 20 15 10 5
0
2007 2012
2008* 2009* 2010* 2011* Q1 2013* Q1 Office Retail Industrial
Source: DTZ Research Note: All figures are period-end *No true open-market secondary investment transactions, yield perceived by market players
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Map 3 Greater Kyiv map
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Definitions
Office Office stock: Gross lettable area of speculative office schemes (including new buildings and refurbishments) positioned in A, B and C classes and delivered since 1991.
Office take-up: Total floor space known to have been let (pre-let) to tenants or sold (pre-sold) to owner-occupiers during the survey period with respective contracts signed. Office take-up includes renegotiations and lease extensions, but excludes sub-leases.
Prime office rent: The attainable average prime rent that could be expected for an office unit of a minimum size of 100 sq m in a modern prime quality business centre located in the CBD. The rent is given as a base rent, i.e. no service charge and tax is included.
Retail Retail stock: Individual stand-alone retail developments or multi-tenant retail centres and shopping malls with a gross lettable area of or exceeding 5,000 sq m.
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.
Logistics Logistics stock: Gross lettable area of modern logistics schemes of area exceeding 1,000 sq m, delivered since 2001. Logistics stock includes area of warehousing, office and mezzanine space.
Prime warehousing rent: The attainable average base prime rent that could be expected for a modern warehousing unit offering a minimum size of 1,000 sq m in a modern logistics scheme, which is located in a prime location away from the city centre and close to communication links. The rent is given as a base rent, i.e. no service charge and tax is included. It is quoted for warehousing space within the scheme, i.e. it is not a ‘blended rent’, rents for office and mezzanine parts of the property not included.
Investment Prime yield: The initial yield estimated to be achievable for a notional property of highest quality and specification in the best location fully let and immediately income producing on present market terms at the survey date.
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Other DTZ Research Reports
Other research reports can be downloaded from www.dtz.com/research. These include:
Occupier Perspective Insight Updates on occupational markets from an occupier Thematic, ad hoc, topical and thought leading reports on perspective, with commentary, analysis, charts and data. areas and issues of specific interest and relevance to real estate markets. Global Occupancy Costs Offices Obligations of Occupation Americas European Sustainability Guide – April 2013 Obligations of Occupation Asia Pacific Great Wall of Money – March 2013 Obligations of Occupation EMEA European Retail Guide - Shopping Centres – March 2013 Office Occupier Review Asia Pacific China Property Market Sentiment Survey – January 2013 Office Occupier Review Europe India Special Economic Zones – December 2012 The TMT Sector – October 2012 Singapore Executive Condominiums – December 2012 UK Secondary market pricing – December 2012 The European Insurance Sector – June 2012 Singapore office demand – December 2012 Property Times China Ecommerce & Logistics – November 2012 Regular updates on occupational markets from a landlord Net Debt Funding Gap – November 2012 perspective, with commentary, charts, data and forecasts. German Open Ended Funds – October 2012 Coverage includes Asia Pacific, Bangkok, Beijing, Berlin, London office to residential conversions – October 2012 Brisbane, Bristol, Brussels, Budapest, Central London, Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt, Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, Hong Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, DTZ Research Data Services Madrid, Manchester, Melbourne, Milan, Nanjing, Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, For more detailed data and information, the Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, following are available for subscription. Please Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian. contact [email protected] for more information.
Investment Market Update Property Market Indicators Regular updates on investment market activity, with Time series of commercial and industrial commentary, significant deals, charts, data and forecasts. market data in Asia Pacific and Europe. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland Real Estate Forecasts, including the DTZ China, South East Asia, Spain, Sweden, UK. Fair Value IndexTM Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Money into Property Europe and the USA. For more than 35 years, this has been DTZ's flagship research report, analysing invested stock and capital flows Investment Transaction Database into real estate markets across the world. It measures the Aggregated overview of investment activity development and structure of the global investment in Asia Pacific and Europe. market. Available for Global, Asia Pacific, Europe and UK. Money into Property DTZ’s flagship research product for over 35 Foresight years providing capital markets data Quarterly commentary, analysis and insight into our in- covering capital flows, size, structure, house data forecasts, including the DTZ Fair Value Index™. ownership, developments and trends, and Available for Global, Asia Pacific, Europe and UK. In findings of annual investor and lender addition we publish an annual outlook report. intention surveys.
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Contacts
General Valuation DTZ Ukraine Yana Lytvynchuk Phone: + 38(0)44 220 30 60 Email: [email protected] Email: [email protected] Research and Development Consulting Managing Director Marta Kostiuk Nick Cotton Email: [email protected] Email: [email protected] Property Management Office Agency Ben Hunt Geoff Hargreave Email: [email protected] Email: [email protected]
Victoria Goroullko Email: [email protected]
Retail Agency Nataliya Mykolaychuk Email: [email protected]
Industrial and Logistics Agency Fedor Arbuzov Email: [email protected]
Investment and Land Agency Nataliya Stelmakh Email: [email protected]
Volodymyr Mysak Email: [email protected]
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 May 2013
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