Property Times Ukraine Q1 2010 Green Shoots
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Property Times Ukraine Q1 2010 Green shoots 31 May 2010 While the economy of Ukraine was hard hit by the global financial turmoil, combined with political instability in the run-up to the presidential elections, early signs of stabilisation were Contents witnessed in the first quarter of 2010 (Fig. 1). Despite the first signs of increase in occupier demand, the Executive Summary 1 office property market in Kyiv was still determined as a Economic Overview 2 Offices 5 tenant’s market as opposed to the landlord’s market that Retail 10 prevailed during 2004-Q3 2008. Industrial 13 Investment 16 In the first quarter of 2010, DTZ witnessed a noticeable Definitions 19 improvement in general dynamics on the demand side of the Contacts 20 retail market across Ukraine, with retailers increasingly seeking opportunities to expand, whilst the lack of critical mass of high quality retail properties in the country remains a major Authors obstacle. Though the first quarter of 2010 did not bring any significant Marta Kostiuk changes on the logistics property market in the Greater Kyiv Associate Director, area, activity of ‘would-be’ occupiers in the sector increased Head of Research and Consulting +38 (0)44 220 30 60 compared to 2009. [email protected] Since early 2010, DTZ has seen significant improvement in Andriy Tymoshenko investor sentiment. As a result, in the first quarter of 2010, the Research Analyst volume of investments into the commercial property market in +38 (0)44 220 30 60 Ukraine exceeded the volume of investments recorded during [email protected] the whole of 2009. Contacts Figure 1 Macroeconomic indicators in Ukraine Magali Marton % Head of CEME Research 40 +33 149 64 49 54 30 [email protected] 20 Hans Vrensen Global Head of Research 10 +44 (0)20 3296 2159 [email protected] 0 -10 -20 -30 GDP growth Unemployment Inflation Industrial production Source: Oxford Economics www.dtz.com 1 Economic overview While the economy of Ukraine was hit hard by the global Figure 2 financial turmoil, combined with political instability caused in the run-up to the presidential elections, early signs of Industrial production in Ukraine, EA16 and EU27 stabilisation were witnessed in the first quarter of 2010. % 20 In January-March 2010, several major macroeconomic indicators, including real GDP, industrial output, FDI inflow, 10 nominal and real salaries, as well as stability of the 2008 2009 national currency, demonstrated positive dynamics. 0 Furthermore, the political tension in the country eased due to completion of the presidential elections, formation of the -10 2010 parliamentary coalition and appointment of the new government. As a result, the international ratings of -20 Ukraine were improved by the leading rating agencies. -30 Economic growth -40 Industrial production, Ukraine In accordance with the preliminary estimates produced by Industrial production, EA16 the State Statistics Committee of Ukraine, in the first Industrial production, EU27 quarter of 2010, real GDP increased by 4.8% year-on-year. Source: State Statistics Committee of Ukraine, Eurostat In early 2010, the State Statistics Committee of Ukraine published refined data on economic growth in 2009, when Figure 3 real GDP decreased by 15.1% year-on-year. Real monthly salary, retail sales and consumer In accordance with the official statistics data, in the fourth spending in Ukraine quarter of 2009, economic decline amounted to 6.8% year- on-year and was the lowest during the year due to the low % comparative benchmark of 2008. 40 30 Industrial production and agriculture Despite general negative dynamics witnessed during 2009, 20 since early 2010 the industrial sector has demonstrated the 10 first signs of recovery. 0 In the first quarter of 2010, industrial production increased -10 by 10.8% year-on-year. Among the industrial sectors such industries as mining, chemical industry, metallurgy and -20 machine-building demonstrated the highest growth. -30 The Ukrainian and international think tanks presently Real monthly salary growth Retail sales growth project an increase in industrial production in the range Consumer spending growth from 1.7% to 9.5% year-on-year for 2010, depending on the expected growth in the export-oriented metallurgical, Source: Oxford Economics, State Statistics Committee of Ukraine, IMF machine-building and chemical sectors, as well as general dynamics on the global commodity markets. Unemployment and salaries Despite the crisis, agricultural production was among those In accordance with the ILO methodology, in 2009 the few sectors, which in 2009 demonstrated positive unemployment rate amounted to 8.8% compared to 6.4% dynamics. In the first quarter of 2010, agriculture at the end of 2008. production increased by 5.3% year-on-year. According to the preliminary data, in January-March 2010 Inflation the average nominal monthly salary in Ukraine increased In March 2010, consumer prices increased by 4.7% by 17.2% year-on-year and amounted to UAH 1,993 compared to December 2009. (USD 249). At the same time, real salaries increased by 5.7% year-on-year. According to the projections produced by the Cabinet of Ministers of Ukraine, in 2010, the consumer prices are expected to increase by 13.1% year-on-year, compared to 12.3% in 2009 and 22.3% in 2008. www.dtz.com 2 Economic overview Retail sales In March 2010, based on the similar considerations, Fitch In 2009, as a result of economic crisis, retail sales Ratings revised Ukraine's outlook from negative to stable decreased by 20.6% year-on-year compared to 17.9% and affirmed the country’s ratings. annual growth in 2008. In May 2010, Standard & Poor’s ratings agency improved In January-March 2010, retail sales decreased by 3.1% the foreign and local currencies sovereign credit ratings on year-on-year compared to the 18.2% decline during the Ukraine from B-/C to B/B and from B/B to B+/B with stable similar period in 2009. outlook respectively, as well as the country’s rating on the national scale from uaA to uaA+. Such upgrade of the Nevertheless, in 2010, retail sales are expected to show ratings was driven by the positive views of Standard and growth in the range from 1.5% to 6% year-on-year. Poor’s on the improved policy coordination, which resulted in improvement in external relations with key trading National currency partners and expected renewal of the IMF programme in Ukraine, stabilization in the country’s external liquidity In accordance with the official USD exchange rate position, as well as acceptable level of expected determined by the National Bank of Ukraine, the Ukrainian government debt at the end of 2010. hryvnya revalued insignificantly from 7.985 UAH/USD in early January 2010 to 7.925 UAH/USD in late March 2010. Figure 4 At the same time, the Ukrainian currency strengthened Dynamics of industrial production, exports and against the Euro from 11.532 UAH/EUR in January 2010 to imports of goods, as well as exchange rate in Ukraine 10.684 at the end of March 2010, mainly due to the % UAH per 1 USD unstable economic situation in the European Union. 100 10 80 8 State budget 60 6 The State budget of Ukraine for 2010 was approved in late April 2010. It allows for the state budget expenditures and 40 4 20 2 revenues in the amount of UAH 324 billion and UAH 267 2008 2009 billion respectively, with the deficit at around 5.2% of GDP 0 0 Jul or UAH 56.5 billion. Jul Jan Jan Jan Mar Mar Mar Nov Nov Sep Sep May -20 May -2 2010 At the same time, the parameters of the State budget of -40 -4 Ukraine can be amended during the year, and the -60 -6 possibility that such option will be used by the country -80 Industrial production Exports of goods-8 authorities remains high. Imports of goods UAH/USD official International ratings exchange rate In March 2010, Standard & Poor’s ratings agency revised Source: State Statistics Committee of Ukraine Ukraine’s foreign-currency sovereign credit rating and local-currency rating, having improved them from CCC+/C Foreign trade and foreign direct investment to B-/C and from B-/C to B/B with positive outlook In January-February 2010, exports and imports of goods in respectively. Ukraine increased by 24.7% and 20.7% year-on-year respectively. The volume of exports of goods rose mainly Among the main factors taken into consideration when due to the improvement in prices and demand for the improving the country ratings were appointment of the new Ukrainian goods on the international markets, while the government headed by the Prime Minister Mykola Azarov, positive dynamics in imports was caused by the as well as formation of the parliamentary coalition. These strengthening of the domestic demand. events are expected by the agency to lead to the renewal of relations with the International Monetary Fund (IMF) and In 2009, total volume of exports of goods and services improvement of efficient cooperation between the Cabinet reached USD 49.22 billion, or by around 37.5% less of Ministers of Ukraine and the Presidential Administration. compared to 2008. The volume of imports of goods and services decreased by around 45% year-on-year, having Based on the improvement of Ukraine’s ratings on the amounted to USD 50.6 billion. international scale, Standard & Poor’s upgraded the country’s ratings on the national scale from uaBBB to uaA. www.dtz.com 3 Economic overview In 2009, foreign trade balance of Ukraine was negative, as Figure 5 in the previous years, and amounted to USD 1.38 billion compared to the trade deficit of USD 13.31 billion recorded Net FDI and FDI growth in Ukraine in 2008.