Property Times Retail property market in Ukraine 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 (Kyiv, Kharkiv, Dnipropetrovsk, Donetsk and Odessa), Executive summary 1 as well as 2 cities with populations over 700,000 inhabitants Economic overview 2 (Zaporizhzhya and Lviv). 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 Makiivka **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 2009 was the deepest since 1996, when the national -5% 0% 5% 10% 15% 20% 25% 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.