Market analysts are still cautiously optimistic about Ukraine's emergence from a dark recession, which has affected the country more than most, News of a few new pipeline projects may not attract investors in quite the same numbers as before the crash, but with presidential elections behind them and a newly elected president who says he wants to continue working with European investors, Ukraine may be looking up in 2010
Because 2009 was a year many investors and market players want to forget, even an upsurge in investment on a small scale may induce optimists and well-wishers to pronounce the end of a crisis which has taken a con¬siderable toll on so many CRE investors.
On the other hand some brokers are already reporting an upswing in traffic in Q4 2009 and hope that transactions completed in the very beginning of 2010 are a further sign of improvements on the horizon. Much of the traffic involves consolidation of current supply and stra-tegic relocations.
Analysts point out that the next few years will see less speculative projects being started- Due to lack of financing and economic hardship, the development of many new projects has been put on hold.
"New supply will most likely remain re¬stricted through to 201 1 -2012, this being the earliest that any material form of development finance is likely to be available," DTZ analysts wrote in a recent report.
Between November 2009 and the end of January 201 0, DTZ acted on around 9,900 sqm of leased space, in Q4 2009, DTZ secured the first major letting of the second tower at Horizon Park Business Centre (Phase 2), acting on behalf of ISA Prime Developments. The deal enabled Ciklum, a major IT outsourcing company, to consolidate their office space while providing for future mid-term expansion requirements.
"The Ciklum deal particularly is further evidence of the recent trend amongst large-scale occupiers seeking to consoli¬date their current offices and provide future mid to long-term expansion options," commented DTZ Managing Director, Nick Cotton. "As a result, we are now begin¬ning to see a diminishing supply of quality options for larger occupiers, particularly around the Grade B/B+ range."
DTZ's strong start on the Ukrainian market in 2010 is also attributed to a major lease renewal deal between KPMG, a major accounting and tax advisory firm, and the Baroque Business Centre in central Kyiv.
In 2009 as a whole, the new supply in Kyiv decreased by 29 percent year-on-year, with the total 2009 supply increasing by just 123,860 sqm. Take-up in 2009 amounted to 106,000 sqm, a 34 percent decrease from 2008 totals. At the end of 2009, market-wide vacancy reached 17.6 percent.
By the end of 2009 there was approximately 1,040,000 sqm of GLA of speculative office stock in Kyiv. According to DTZ analysts, most of the capital's current office stock consists of B or C Class office space. Most of this amount is represented by old post-Soviet space which has been refurbished and converted into more mod-ern office space. As of 2009 there are still almost no A Class office schemes in Kyiv.
The largest office project commissioned in 2009 was the Protasov scheme developed by "Roza" Factory. Located in Kyiv, Protasov Business Center features 20,300 sqm of GLA.
Another notable project commissioned in 2009 includes Phase 1 of HPBC II BC on Amosova Street in Kyiv, which fea¬tures 16,000 sqm of GLA. The project was developed by ISA Prime Developments. IRVA BC (Phase 2), developed by IRVA and featuring 11,300 sqm of GLA was another noteworthy scheme.
FIM Group, NEST, SNS, and a number of Ukrainian developers also commissioned buildings in 2009, adding to Kyiv's stock, this year will see a number of new project commissions as well.
Esplanada Business Centre in Kyiv's C8D will be the largest of the new commissions with 43,850 sqm of GLA. The business centre is being developed by the Ukrainian group Manadarin Plaza/Tri-O.
Premium Centre BC (36,000 sqm of GLA) developed by Premium Centre, Topaz BC (22,000 sqm of GLA) developed by Artem, and Horizon Park BC (Building 2, Phase 2) developed by ISA Prime Developments will be further additions to Kyiv's office scene in 2010.
The list of developers of the soon-to-be completed projects almost exclusively features local firms, indicating that local developers have taken the lead in what has proven to be an exceptionally chal¬lenging market.
Although overall demand is expected to remain suppressed in 2010, analysts expect a number of larger occupiers to seek relocation to more efficient and better grade space than they presently occupy.
"These strategic relocations of corporate occupiers are likely to be a major driving force in the further maturity of the market," DTZ analysts wrote in a recent report.
The financial crisis has hit the logistics sector with landlords being forced to accept decreased rents, and the financial standing of many players has taken a further hit due to pressure from foreign currency loans.
At the end of 2009, total stock in the Kyiv area stood at 1,016,000 sqm, a figure which includes specialized facilities such as chilled holding and chemical storage. In Q4 2009, 85,000 sqm of storage space was delivered, a record for the year. Yet the logistics market did not fare well with a new supply of 194,800 sqm in 2009, repre¬senting a decrease of 56 percent from 2008 levels. The overall number of transactions in Q4 2009 did increase, however, with a take up of around 145,760 sqm.
Major logistics projects delivered in 2009 included the BF Sklad complex, MMK, and Technopolis. The area that these three schemes represent accounts for 80 percent of the total area delivered during 2009.
Notable logistics schemes planned for 2010 include Brovary Logistic Centre, a 49,180 sqm facility along the Brovary-Boryspii Ring Road, Logistic Centre, a 33,000 sqm facility also to be located along the same road, and Top Trans Logistics Centre (phase 1), to be located along the E95 motorway. These projects are being developed by Aisi Realty, ISTIL, and Top Trans, respectively.
Another notable project in the logistics sector includes the 50-hectare Euroterminal facility to be built in Odessa, Ukraine's chief Black Sea port. The million project will use funds obtained from the European Bank for Reconstruction and Development. The centre will provide integrated logistics functions and build upon the existing infrastructure.
According to a recent DTZ report, Q4 2009 witnessed the first positive signs that Ukraine's logistics sector is ready for an increase in demand.
If any group demonstrated resilience in the face of the crisis it was the retailers. New stock levels reached 202,730 in 2009, the highest level recorded since 2001. While many retail¬ers were crushed by failing demand, others survived and even prospered. Retail developers in search of large lots in particular stood to gain as falling land values allowed them to pick up choice properties at a discount. As predicted, 2009 was an advantageous year for equity-rich investors wishing to purchase distressed assets cheaply.
Although it may be a little too early for true optimism, Ukrainian and international think tanks and analysts project improvements in the near future. Industrial production is again increasing, and GDP growth is expected again in 2010. If these predictions bear fruit, Ukraine's CRE market will only stand to gain, although caution on this volatile market is always encouraged.
Igor Winiarczyk
Real Estate Guide 2010 (pp.92-93)