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Dtz Property Times Q4 2011


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DTZ Ukraine has published new quarterly public report about Ukrainian commercial property market. Your feedback is always welcome!

DTZ Ukraine has published new quarterly public report about Ukrainian commercial property market. Your feedback is always welcome!

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  • 1. Property Times Ukraine Q4 2011 Spes ultima moritur 10 February 2012  The Ukrainian economy was subject to generally positive dynamics in 2011. Nevertheless, risks for further sustainable growth of the national economy increased, mainly due to deteriorating conditions on the global markets combined with the poorly diversified economic base of Ukraine, as well as Contents high political risks and worsening perception of the country internationally. Executive summary 1 Economic overview 2  In 2011, new office supply in Kyiv amounted to around 158,000 sq m (GLA) with over 65% of annual figure delivered in the fourth quarter of the year. Offices 6 Due to the significant new delivery at the year-end combined with generally Retail 11 stable demand, overall vacancy in the sector increased by 4.6% quarter-on- quarter, though office availability in the central business district further Industrial 14 contracted. A stabilisation of office rents was evident in Kyiv during the Investment 18 period October-December 2011. Definitions 22  Though new retail supply during 2011 was generally low both in Kyiv and the Contacts 23 regional cities of Ukraine, the years 2012 and 2013 are likely to see significant augmentation in new delivery in the sector, reflecting the strengthening confidence of developers and investors, and bringing more Authors development opportunities for retailers. Marta Kostiuk  In 2011, new supply on the logistics property market in the Greater Kyiv area Director, Research and amounted to around 156,380 sq m, while take-up in the sector exceeded Development Consulting 214,000 sq m. At the end of 2011, primary vacancy reached 15.7%, +38 (0)44 220 30 60 decreasing by around 2% year-on-year. Headline rents for prime warehouse space in the Greater Kyiv area varied from USD 4.5 to USD 7 per sq m per month depending on the quality of space, location and general lease terms. Andriy Tymoshenko Associate Director,  Due to deterioration of economic prospects worldwide, prime yields on the Strategy Research property market in Kyiv remained generally stable in the fourth quarter of 2011, remaining high compared to other European capitals (Figure 1), but reaching +38 (0)44 220 30 60 11-12.5% for trophy buildings recently placed for sale. Figure 1 Dmytro Sokolskyy Prime office yields in Kyiv versus other CEE capitals Senior Research Analyst % +38 (0)44 220 30 60 18 15 12 9 6 Contacts 3 Magali Marton 0 Q1 2011 Q2 2011 Q3 2011 Q4 2011 2003 2004 2005 2006 2007 2008 2009 2010 Head of CEMEA Research +33 (0)1 4964 4954 Budapest Warsaw Prague Hans Vrensen Bucharest Moscow Kyiv Global Head of Research Source: DTZ Research Note: All figures are end-of-period +44 (0)20 3296 2159 1
  • 2. Property TimesUkraine Q4 2011 Figure 2Economic overview Macroeconomic indicators in UkraineDespite generally positive dynamics in 2011, Ukraine’s %economic growth is expected to slow down in 2012. 40The year 2011 was marked by active Ukraine’s 30preparation for the EURO 2012 Football Championship 20and generally positive economic dynamics in the 10country (Figure 2). Nevertheless, the international 0perception of Ukraine worsened owing to legal 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*proceedings against former Prime Minister Yulia -10Tymoshenko and other former officials. -20 -30The present risks for Ukraine’s further economicdevelopment include external shocks combined with GDP growth Unemploymentthe country’s poorly diversified economic base, Inflation Industrial productionweakening of domestic and global demand, political Source: Oxford Economics * projectionsrisks related to parliamentary elections in October2012, augmentation of public debt, increases inborrowing costs and difficulties in attracting finance, According to data of World Steel Association, duringpossible defaults of private companies, as well as lack the period from 2006 to 2011 Ukraine was the eighthof efficient structural reforms in the country. country in the world in terms of annual steel production.Economic growth In 2011, agricultural output increased by 17.5% year- on-year compared to the 1.5% decrease in 2010, thisAccording to data published by the State Statistics being attributable to the record high harvest in 2011.Committee of Ukraine, real GDP increased by 4.6%year-on-year in the fourth quarter of 2011 compared to Inflationthe economic growth of 6.6%, 3.8% and 5.3% in thethird, second and first quarters of the year respectively. As a result of the record high harvest and utility tariffs regulation, consumer price inflation reached 4.6% inThe preliminary figure of real GDP growth in 2011 is 2011 compared to 9.1% in 2010, 12.3% in 2009 andestimated at around 5.2% year-on-year compared to 22.3% in 2008. This was the lowest increase since 2002.the 4.2% economic growth in 2010. The 2012 State Budget of Ukraine was based on theAccording to the 2012 State Budget of Ukraine, an projection that consumer price inflation will reach 7.9%increase in real GDP is forecast at 3.9%, while Oxford at the end of the year.Economics projects the 3.4% economic growth for2012. All other major Ukrainian and international think Major Ukrainian and international experts forecasttanks expect that real GDP growth in Ukraine in 2012 inflation for 2012 in the range from 6.6% to 11%.will be in the range from 1% to 3.5% year-on-year. Unemployment and salariesIndustrial production and agriculture In accordance with the ILO methodology (that definesDespite the encouraging start to the year with 11.2% unemployment based on the population 15-70 years ofannual growth in industrial production in January- age), unemployment rate in Ukraine amounted to 7.8%February 2011, since March it slowed due to the in January-September 2011 compared to 8.1% in 2010,decline in export-oriented metallurgical and machine 8.8% in 2009 and 6.4% in 2008. Oxford Economicsbuilding industries. projects that unemployment rate in Ukraine will further decrease amounting to 7.3% by the end of 2012.The annual increase in industrial production in 2011amounted to 7.6% year-on-year compared to the 11.2% According to the preliminary data of the State Statisticsgrowth in 2010 and the 21.9% decline in 2009. During Committee of Ukraine, the average nominal monthlythe year the highest growth rates were registered in salary in Ukraine in 2011 was UAH 2,633 (equivalent tochemical, machine-building and metallurgical industries. $330) increasing by 17.6% year-on-year. During the period, real salaries grew by 8.7% 2
  • 3. Property TimesUkraine Q4 2011Retail sales Figure 3In 2011, retail sales in Ukraine grew by 13.7% year-on- Real monthly salary, retail sales and consumeryear compared to the 7.8% annual increase in 2010 spending in Ukraineand the 20.6% annual decrease in 2009 (Figure 3). % 40Major Ukrainian and international experts expect that 30retail sales will be subject to less positive dynamics in2012, with the highest monthly retail sales projected in 20summer, during the EURO 2012 Football Championship. 10 0National currency 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -10In accordance with the official US Dollar exchange rate -20determined by the National Bank of Ukraine, theUkrainian hryvnia depreciated insignificantly, from -30 Real monthly salary growth7.95 UAH/USD in January 2011 to 7.99 UAH/USD in Retail sales growthDecember 2011. Consumer spending growth Source: State Statistics Committee of Ukraine, Oxford EconomicsThe Ukrainian currency also weakened against the Eurofrom 10.61 UAH/EUR in January 2011to 11.1 UAH/EUR in March 2011, but strengthened by Figure 4late December 2011 to 10.3 UAH/EUR. Business sentiment in UkraineAccording to the decree issued by the National Bank of 200Ukraine, from 23 September 2011 the new rules of 150foreign currency exchange by individuals in Ukrainewere introduced to accommodate the requirement to 100present identity documents prior to each currency 50exchange transaction, while the limitation to exchangemaximum UAH 150,000 per day was set (instead of 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4UAH 80,000). -50 2007 2008 2009 2010 2011Business sentiment -100According to the survey of business sentiment in Ukraine Businesss sentiment on staff increaseconducted by the National Bank since 2006, business General business sentiment indexsentiment index remained generally stable in 2010/2011,though worsened compared to 2007/Q3 2008 (Figure 4). Source: National Bank of UkraineIn 2011, general business sentiment in relation toforthcoming 12 months remained generally stable witha minor improvement in the fourth quarter of the year.At the same time, the fourth quarter of 2011 witnesseddeterioration of expectations of the surveyedenterprises in relation to their industrial output, as wellas inflation and the Ukrainian hryvnia depreciation.Business sentiment on staff increase during the next12 months improved in the fourth quarter of 2011, as allsurveyed enterprises expressed their intentions toincrease number of staff, except for those operating inutility 3
  • 4. Property TimesUkraine Q4 2011International support, cooperation, ratings Figure 5Since May 2008 Ukraine has been in negotiations with Net FDI and FDI growth in Ukrainethe European Union (EU) for a free trade agreement as billion USD %, y-o-ypart of a future Association Agreement. Duringthe EU-Ukraine Summit held in December 2011, the 12 390Association Agreement, including the deep and 10 325comprehensive free trade area agreement, was not 8 260 6 195signed, and the perspective for Ukraine to gain EU 4 130membership remains very vague. According to 2 65European officials, the main reasons for this were 0 0deterioration of democracy and the rule of law in Jan-Nov 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -2 -65Ukraine. As stated in the joint declaration adopted atthe summit, the EU and Ukraine intend to initial theAssociation Agreement as soon as possible.From December 2011 through until January 2012 Net FDI Net FDI growthUkraine was engaged in negotiations with Russia on Source: National Bank of Ukraineprices for energy resources, but failed to secure anyprice reduction. The Ukrainian authorities declared theirintentions to significantly decrease consumption of Foreign trade and foreign direct investmentRussian natural gas, as allowed by terms and According to the State Statistics Committee of Ukraine,conditions of the present contract. exports and imports of goods in Ukraine increased during the period January-November 2011 by 34.3%Ukraine failed to receive tranches from the IMF and 38.1% year-on-year respectively. The exports toscheduled in 2011 within the existing Stand-By imports ratio during the period was around 0.83.Arrangement, due to non-compliance with the IMFrequirements (complex reforms in the pension system, The National Bank of Ukraine reported that net inflow ofincrease in gas tariffs for the population). Renewal of foreign direct investment (FDI) into Ukraine amountedfinancing within the Stand-By Arrangement remains to around USD 5,773 million in January-Novemberuncertain, involving particular actions from the 2011, approximately 19% higher the figure registeredUkrainian authorities required by the IMF. during the same period in 2010 (Figure 5).According to the report ‘Doing Business 2012: Doing The most attractive sectors for foreign investment intoBusiness in a More Transparent World’ (published by Ukraine have been the financial sector, industrialIFC and World Bank in October 2011), Ukraine was production, real estate, retail sector, construction,ranked 152nd out of 183 countries in terms of the transportation and communication.perceived ease of doing business in the country. Tocompare, in the 2011 report the country was ranked State budget149th. Nevertheless, Ukraine is believed to haveimproved in four fields, i.e. ‘Starting a business’, The 2012 State Budget of Ukraine was approved in‘Paying taxes’, ‘Enforcing contracts’ and ‘Resolving December 2011.insolvency’, but worsened in ‘Trading across borders’. According to the Act of the 2012 State Budget, theIn October 2011, Fitch Ratings revised Ukraines budget deficit has been set at around UAH 25.1 billion,ratings outlook from positive to stable, mainly due to while expenditures and revenues were approved atincrease in public and private external borrowing costs, around UAH 358,010 million and UAH 332,821 millionpossible future challenges to obtain external financing, respectively. The budget is based on the averageas well as projected negative impact of further global annual exchange rate for 2012 at 8 UAH/USD.economic slowdown.On the basis of similar considerations exaggerated byperceived political risks and projected weak economicgrowth, Moodys Investors Service revised Ukrainesoutlook from stable to negative in December 4
  • 5. Property TimesUkraine Q4 2011EURO 2012 Much attention has been also paid by the countryIn late 2009, the UEFA Executive Committee confirmed authorities to the improvement and repair of theDonetsk, Lviv and Kharkiv as host cities for group motorways of international importance in Ukraine.matches of UEFA EURO 2012, while Kyiv wasappointed the venue of the final match of the Another major benefit for Ukraine hosting EURO 2012tournament. is the impetus given to tourism in the country. This is very important, taking into account the distinct tourist-Despite existing obstacles such as the after-effects of driven economic base of many major cities of Ukrainethe financial crisis, high borrowing costs and imperfect combined with the poorly developed touristlegislation, Ukraine has undertaken a wide spectrum of infrastructure in the country.preparation works for the event. OutlookThe hospitality sector, as well as the transportation and The Ukraine economy demonstrated generally positiveroad system, were initially defined as the priority dynamics in 2011, but 2012 is expected to bring newsectors most in need of significant improvement prior to challenges to the country.UEFA EURO 2012. The areas of particular concern for Ukraine’s futureUkraine adopted a law encouraging hotel development sustainable development presently include expectedin July 2010. In accordance with the law, starting from weakening of domestic and global demand, politicalJanuary 2011, 3*, 4* and 5* hotels that are opened risks related to outstanding parliamentary elections andprior to 1 September 2012 are exempt from income tax political instability, debts repayment by public andfor ten years. private sectors, increases in borrowing costs and difficulties in attracting finance, possibility ofAll stadiums in Ukraine, which will host football matches devaluation of the Ukrainian hryvnia against the hardof EURO 2012, were put into operation by the end of currencies, as well as lack of profound structural2011. The National Stadium ‘Olimpiyskiy’ in Kyiv reforms in the country and its poorly diversifiedopened in early October 2011, while grand opening of economic base.the Lviv Stadium took place at the end of the month.The two other stadiums to host group matches of UEFA As forecast by leading Ukrainian and internationalEURO 2012, i.e. ‘Donbas Arena’ in Donetsk and experts, Ukraine will witness economic growth in a‘Metallist’ in Kharkiv, have been operational since range from 1% to 3.5% in 2012, depending on the levelAugust 2009 and September 2010 respectively. of domestic consumption and external market conditions, as well as prices for natural gas for Ukraine.Terminal ‘D’ at Boryspil International Airport servicingKyiv is scheduled for opening in April 2012, while the Institutional reforms combined with the improvement ofpassenger terminal ‘F’ and renovated passenger inefficient markets for goods and services areterminal ‘B’ have been in operation since October 2010 recognised as being the priority tasks for Ukraine toand September 2011 correspondingly. secure long-term economic development in the country.The trial run of a new passenger terminal at LvivInternational Airport commenced in January 2012, andthe facility is planned to be put into full-fledgedoperation in late March 2012.New passenger terminal, VIP terminal and temporaryairways terminal for the EURO 2012, as well as newlanding strip at Kharkiv International Airport werecommissioned in 2010-2011.The first phase of reconstruction of the passengerterminal at Donetsk International Airport was delivered,and the trial test of the facility is planned to start inFebruary 5
  • 6. Property TimesUkraine Q4 2011 Figure 6Office Major indicators of office property market in KyivHigh levels of new supply in 2011, but stable demand. sq m % / $ per sq m 1 400 000 80 1 200 000 70Supply 1 000 000 60There was approximately 1,276,635 sq m (GLA) of 50 800 000 40speculatively delivered office stock in Kyiv as of the end 600 000 30of 2011, excluding government buildings and offices 400 000 20constructed by owner-occupiers (Figure 6). 200 000 10 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011New office supply in Kyiv amounted to approximately55,060 sq m in the first three quarters of 2011,representing an increase in delivery of over 43% Total stock New supply Take-upcompared to the same period in 2010. During the period Vacancy rate Prime rentOctober-December 2011, new office supply in the city Source: DTZ Research Note: All figures are year-endamounted to around 102,880 sq m (GLA), including the46,405 sq m (GLA) 101 Tower and the 36,000 sq m Figure 7(GLA) Premium Centre. Total office stock in Kyiv versus other CEE capitalsIn 2011, new office supply in Kyiv amounted to around sq m158,000 sq m (GLA), which is around twice the amount 14 000 000 12 000 000delivered in 2010. Some of the properties delivered in 10 000 0002011 were not ready for effective occupation on the 8 000 000commissioning date. Annual new office supply in 2011 6 000 000falls in line with DTZ’s projections made in December 4 000 0002010, but exceeds our subsequent expectations. 2 000 000 02010 was marked by the recommencement of works on 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011several sizeable office schemes, and this has already ledto a significant upsurge in new supply in the office Budapest Warsaw Pragueproperty sector in Kyiv in the fourth quarter of 2011. Bucharest Moscow Kyiv Source: DTZ Research Note: All figures are year-endNevertheless, the office property market in Kyiv remainsstructurally undersupplied compared to the markets inother CEE capitals in terms of total office stock, as well As of early 2012, around 305,000 sq m (GLA) ofas the variety of formats and quality of properties new office space was scheduled for delivery in Kyivavailable for occupation (Figure 7). during 2012.From past experience of some delays however, DTZ projects that new office supply is unlikely to exceed 230,000 sq m (GLA) during the year.Table 1Key office property market indicators in Kyiv 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 OutlookStock (sq m) 916,510 1,040,370 1,118,695 1,139,955 1,163,455 1,173,755 1,276,635 New supply (sq m) 175,110 123,860 78,325 21,260 23,500 10,300 102,880 Take-up (sq m) 160,000 106,000 165,000 43,500 41,800 32,850 35,000 Vacancy rate (%) 4.2 17.6 12.7 13.6 11.9 11.2 15.8 Prime rents (USD / sq m / month) 70-85 25-35 30-38 38-40 38-42 38-44 38-44 Source: DTZ ResearchNotes: 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 6
  • 7. Property TimesUkraine Q4 2011Table 2Major office schemes delivered in Kyiv in 2011Period Project Location* Size Developer Major Occupancy** (sq m) occupiers** (%)Q4, 2011 101 Tower C 46,405 KAN Development KAN Stroy, Sport 13 Life, MonacoQ4, 2011 Premium Centre BC NC-WB 36,000 Premium Centre - 0 Bacardi-Martini, 100Q2, 2011 BC at 7a Klovskyi Uzviz CBD 19,000 Zhytlobud others***Q1, 2011 Rialto BC NC-WB 15,000 Istil Group Swedbank 57Q3, 2011 BC at 70 Saksahanskoho Str./ CBD 10,300 Elektrotekh LLC Uniqa 45 16b Pankivska Str.Q4, 2011 UTA Service NC-WB 6,500 UTA Service Kuprum, Olive 39 LineQ4, 2011 Maxim BC CBD 6,350 Aladdin / Rele Invest WND 46Source: DTZ Research WND – would not disclose* 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 January 2012. *** Individual office units in the scheme were sold to numerous occupiers.Table 3Major office projects scheduled for completion in Kyiv in 2012-2013Project Location* Size (sq m) Developer Developer’s nationalityMariya BC Pechersk 47,300 KAN Development UAGulliver BC (Parus-2 BC) CBD 43,850 Mandarin Plaza /Tri O UAToronto-Kyiv BC C 37,670 Toronto-Kyiv UAIQ BC Pechersk 33,950 KAN Development UASenator NC-WB 30,000 DeVision UABC at 36 Schorsa Str. Pechersk 27,280 Zhytlobud UABC at 28 Moskovskyi Ave. NC-WB 23,130 local developer UAForum Victoria Park BC NC-WB 22,500 Forum Group UABC at 15 Leiptsihska Str. Pechersk 21,800 Merx UASigma BC NC-WB 20,800 Midland Development Ukraine UAHorizon Podil (phase 2) Podil 16,000 ISA Prime Development UABC at Vasylkivska Str. / Hlushkova Str. NC-WB 13,000 Rele Invest UACity Gate BC (phase 1) NC-EB 13,000 City Capital Group UACrystal BC NC-EB 9,800 Pervaya Dnepropetrovskaya UA Investitsionnaya CompaniyaBC at 26/14 Spaska Str. Podil 9,350 Perspektyva Resydencia UABC at 19 Druzhby Narodiv Bould. Pechersk 7,000 local developer UABC at 7a Shamryla Str. NC-WB 6,700 Georgiy UABC at 98 Chervonoarmiyska Str. C 6,300 VS Energy International UA / RUSBC at 28 Smirnova-Lastochkina Str. Podil 5,500 local developer UAPatriarch Hall BC CBD 5,000 local developer UASource: 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 7
  • 8. Property TimesUkraine Q4 2011Demand Figure 8 Vacancy on the office property market in KyivThough Ukraine is still in recovery phase following the by locationsglobal financial crisis of 2008/09, the marketfundamentals in the office property sector in Kyiv %continued to improve in the first three quarters of 2011. 40 30Around 35,000 sq m of office space was transacted in theKyiv market in the fourth quarter of 2011, representing 20an annual decrease of around 31%. However, during 10the first three quarters of 2011 office take-up in theUkrainian capital amounted to around 118,150 sq m, 0increasing by around 3% year-on-year. Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2010 2010 2010 2011 2011 2011 2011In total, approximately 152,950 sq m of offices was CBD C (outside CBD) Podil Pechersk (outside CBD)transacted in the Kyiv market in 2011, exceeding total NC-WB NC-EBtake-up registered in 2009 by over 44%, but remaining Source: DTZ Researchgenerally stable compared to 2008 and 2010. VacancyThough office demand in Kyiv in 2011 became less Primary market-wide vacancy on the Kyiv office marketsector-oriented compared to 2010, it was strongly driven reached 15.8% in late December 2011, increasing fromby the companies operating in information & 11.2% at the end of the third quarter 2011 and 12.7% atcommunication technologies (38% of total take-up the end of 2010, but remaining lower than 17.4%registered during the period), manufacturing (26%, registered at the end of 2009. The increase in vacancy atdominated by FMCG and pharmaceutical production the end of 2011 was mainly due to recently deliveredaccounting for 4% and 6.8% respectively), financial projects, significant amount of which was not ready forsector (10%) and agriculture (5%). practical occupation.In view of a gradually improving economic situation, but The office availability ratio in the Kyiv central businessstill favourable office market conditions in Kyiv, many district further decreased in the fourth quarter of 2011,companies moved to a better location/space during 2011, amounting to 6.7% (Figure 8).or expanded / renegotiated current occupational termswith the intention of locking into a longer lease in At the same time, the availability ratio in the central andanticipation of a market uplift. non-central areas outside CBD increased to 33% and 17.4% respectively due to the recent delivery of sizeableIn 2011, pre-lets on the Kyiv office property market were office properties in these locations, as well asalmost absent due to the availability of opportunities to comparatively small volume and resultant high volatility ofoccupy space in existing projects. the market (Figure 8).Table 4Selected major office transactions in Kyiv in 2011 Period Tenant Area (sq m) Occupier sector* Building Location** Q1, 2011 CME / 1+1 TV Channel 10,350 A&M Shchekavytskyi BC Podil Q2, 2011 TNK-BP 5,923 Manufacturing Eleven BC NC-WB Q1, 2011 EPAM Systems 5,300 ICT Vremena Goda BC NC-WB Q2, 2011 Swedbank 4,520 FIRE Rialto BC NC-WB Q1, 2011 Kernel 3,577 Agriculture 92-94 Dmytrivska Str. NC-WB Q1, 2011 VOLIA 3,460 ICT FIM Centre NC-EB Q3, 2011 PwC 3,292 BS Eurasia BC CBD Q3, 2011 Microsoft 2,908 Manufacturing Eurasia BC CBD Q1, 2011 Canadian Embassy 2,264 Embassy 13a Kostelna Str. CBD Q4, 2011 SEB Bank 1,991 FIRE 7 Mykhailivska Str. CBDSource: DTZ Research*FMCG – fast moving consumer goods; FIRE – Finance, Insurance, Real Estate; ICT – Information and Communication Technologies; A&M – Advertising and Media; BS- Business services**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 8
  • 9. Property TimesUkraine Q4 2011Rents OutlookBetween the third quarter of 2008 and late 2009, office New office supply in Kyiv may potentially amount torents in Kyiv fell by over 50% due to the devaluation of 305,000 sq m (GLA) in 2012. This figure howeverthe national currency and weak occupier demand remains highly sensitive to delivery of several sizeablecaused by economic recession in Ukraine and worldwide. properties, commissioning of which may be delayed.In the second half of 2009 the negative dynamics DTZ expects that during 2012 the dynamics of occupierhalted, and office rents stabilised at around USD 25-35 demand in Kyiv will remain generally stable, howeverper sq m per month for prime space, down to USD 20- new supply may start outstripping take-up towards the25 per sq m per month for central and non-central B- year-end. As stated in the National Bank survey ofclass space, and USD 12-17 per sq m per month for business sentiment in Ukraine in the fourth quarter ofclass C. 2011, staff increase was planned in the following 12 months by all enterprises in the country, except forSome rental uplift was evident during the first three utility companies.quarters of 2011, as the supply of particularly primeCBD space has become constrained, combined with In the medium term, many leases signed or renewed ingradually strengthening occupier demand. The fourth 2008/10 on terms favourable to tenants, will expire inquarter of 2011 saw a stabilisation of office rents. one-two years, which may lead to a significant upsurge of take-up, subject to general macroeconomicIn late 2011, prime office rents in Kyiv reached conditions.USD 38-44 per sq m per month, while B-class andC-class space commanded monthly rents of USD 23-35 Significant new office supply is planned for delivery inper sq m and USD 8-25 per sq m respectively. Kyiv during 2012-2013, combined with generally stable demand and economic uncertainty. However, DTZDespite a downwards correction in late 2008, prime expects that the overall vacancy rate will increaseoffice rents in Kyiv area remain higher than those in mainly in the offices located outside CBD, as a numberBucharest, Budapest, Prague and Warsaw, but lower of sizeable centrally-located schemes are constructedthan in Moscow (Figure 9). on a build-to-suit basis.As most occupiers remain highly sensitive to capital DTZ projects that during at least the first half of 2012expenditures, they will continue to require offices in office rents will remain generally stable in Kyiv.Kyiv to be delivered with advanced base build levels. However, we expect that due to expected new supply in the office property sector in Kyiv, average rents may beFigure 9 subject to downward pressure towards the end of 2012Prime office rents in Kyiv versus other CEE capitals and in 2013. EUR/sq m/month Dynamics of prime office rents in Kyiv in the medium 100 term will be highly sensitive to general macroeconomic 80 conditions in Ukraine and worldwide, as well as pricing 60 strategy of sizeable business centres, such as 40 ‘Gulliver’, ‘101 Tower’ and ‘Toronto-Kyiv’, during 2012. 20 An overpricing of these schemes may lead to continued - upwards pressure on rents, while a more competitive Q1 2011 Q2 2011 Q3 2011 Q4 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 pricing strategy is likely to result in a softening of prime office rents. Prague Budapest Warsaw In view of the high level of competition anticipated in Bucharest Moscow Kyiv 2012/13, developers can enhance letting prospects inSource: DTZ Research their office properties by either delivering space in more advanced condition, or by being open to alternative solutions addressing the main barrier to relocation, i.e. capital 9
  • 10. Property TimesUkraine Q4 10
  • 11. Property TimesUkraine Q4 2011 Figure 10Retail Major indicators of retail property market in KyivThe retail property sector in Ukraine remains the most sq m sq mdynamic and resilient to the effects of economic crisis. 350 000 2 100 000 300 000 1 800 000Supply 250 000 1 500 000Total modern retail stock in Kyiv was estimated at 200 000 1 200 000around 1,001,400 sq m (GLA) in late December 2011, 150 000 900 000or 359 sq m of modern retail stock per 1,000 100 000 600 000inhabitants (Figure 10). This figure counts for major 50 000 300 000retail developments of or, over 5,000 sq m gross 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013*lettable area (including multi-tenant retail centres and‘big box’ single-occupied developments), and reflects asignificant undersupply of retail space in the Ukrainian Annual supply Cumulative supplycapital, particularly when considering the official versusunofficial population imbalance and grey salary. Source: DTZ Research Note: All figures are year-endAround 75,080 sq m (GLA) of new retail supply was Such formats as retail parks and fashion outlets are yet todelivered in Kyiv in 2011, comprised of the second be delivered in Ukraine.phase of ‘Dream Town’ in Obolon, the hypermarketNovus on Brovarskyi Avenue, as well as four relatively Though new retail supply during 2011 has been rathersmall neighbourhood retail centres: ‘inSilver’ on low both in Kyiv and the regional cities of Ukraine, 2012Sribnokilska Street, ‘Kvadrat’ on Onore de Balzaka and 2013 are likely to see significant augmentation inStreet, ‘Livoberezhnyi’ on Maryny Raskovoyi Street and new delivery in the sector.‘Victorio’ on Lvivska Square. In 2012 new retail supply in Kyiv may amount to aroundAs DTZ projected earlier, delivery of the city central 229,000 sq m (GLA), an increase on current retail stockretail and leisure centre ‘Gulliver’ and the retail centre of almost 23%. Schemes planned for delivery in the‘Mega-City’ (phase 1) was delayed further until 2012. Ukrainian capital during the year include the first phase of ‘Ocean Plaza’ developed by UDP and KAN Development,Major retail schemes delivered in regional cities of ‘Gulliver’ by Mandarin Plaza and Tri O, ‘RayON’ byUkraine in 2011 included ‘Ave Plaza’ and ‘Magellan’ Arricano Development, the extension of ‘Domosfera’ by(phase 1) in Kharkiv, ‘Passage’ in Dnipropetrovsk, DeVision and ‘Marmalade’ by VKF ‘Mava’. Opening of‘City Mall’ (phase 2) in Zaporizhzhya ‘Donetsk-City’ ‘Kiev E95 Outlet Centre’ was postponed to spring 2013.(phases 2,3) in Donetsk, ‘Ukraine’ in Mariupol and‘Galaktyka’ in Kremenchuh. Also, the DIY-stores In regional cities 2012 may see delivery of ‘City Centre’‘Epicentre’ opened in Chernihiv, Dnipropetrovsk, in Odessa, as well as extensions of ‘Magellan’ andSimferopol, Sevastopol, Kirovohrad, Mukachevo, ‘French Boulevard’ in Kharkiv, ‘Auchan City Park’ inKamyanets-Podilskyi and Mariupol. Donetsk and ‘Fabrika’ in Kherson.Table 5Key retail property market indicators in Kyiv 2007 2008 2009 2010 Q1-Q3 2011 Q4 2011 OutlookStock (sq m) 534,185 647,885 854,220 926,320 1,001,400 1,001,400 New supply (sq m) 89,200 113,700 206,335 72,100 75,080 0 Prime shopping centre rents 180-220 200-250 120-150 160-200 160-200 160-200 (USD / sq m / month)Prime high street rents 300-350 350-380 100-160 110-220 110-230 110-230 (USD / sq m / month)Source: DTZ Research Notes: All figures are period-end and quoted for retail units of area of 100-300 sq 11
  • 12. Property TimesUkraine Q4 2011Demand New Yorker and Oysho stores were opened in both ‘SkyDTZ witnessed further improvement in the general Mall’ in Kyiv and ‘Rivera Shopping City’ in Odessa.demand dynamics of the retail market across Ukraine in The first stores FiNN FLARE, Centro and Noa Noathe first half of 2011. Despite slightly deteriorating opened in Kyiv. In the high-fashion segment, the single-retailers’ perceptions of the Ukraine’s short-term retail brand stores Christian Dior, Ermanno Scervino andpotential, triggered by general dynamics on global Trussardi opened within the central areas of and political uncertainty in Ukraine, majorretailers continued seeking opportunities to expand in the The lack of critical mass of quality retail space throughoutcountry during the last six months of the year. Ukraine prevents a number of major international retailers from entering the market. DTZ believes that the openingRegardless improved performance of the retail market in of stores by such brands as H&M, C&A, Debenhams andUkraine, the country was not even listed in A.T.Kearney’s Peek&Cloppenburg remains unlikely in the short term.Global Retail Development Index in 2010 and 2011, afterbeing ranked the fifth most attractive retail market in 2007 ‘Big box’ retail operators with reliable sourcing ofand the seventeenth in 2008-2009. financing continued to demonstrate high activity in 2011, driven by their development strategies combined with theBeing the capital city of Ukraine, Kyiv remains the most widely recognised, largely unexploited potential of theattractive destination for all retailers operating and Ukrainian market and the availability of development landconsidering entry into the country. Occupancy levels in at comparatively affordable prices. Thus, Metrothe most popular, well located quality multi-tenant retail Cash&Carry, Epicentre and Nova Liniya further expandedcentres in Kyiv and other major regional cities returned to in Ukraine. A number of food hypermarket operatorspre-crisis levels in the first half of 2011 and remained high including Fozzy Group, Auchan, Novus and Amstor, asduring the remainder of the year. well as electronics and home appliance chains Comfy and Technolopolis actively expanded in the country,Several new market entries were registered in Ukraine considering occupation in retail developments not only induring 2011. GAP opened its flagship store on major cities of the country with populations over 750,000Khreshchatyk Street in Kyiv followed by the stores inhabitants, but also in smaller cities.launched in ‘Karavan’ in the capital city and ‘Passage’in Dnipropetrovsk. Quality retail operators in Ukraine remain very selective in terms of retail space quality and occupational terms.Table 6Major multi-tenant retail schemes scheduled for delivery in Ukraine in 2012-2013 Period Project City Size (sq m) Developer Developer’s nationality Q2, 2013 KyivMall Kyiv 75,400 Delice UA Q3, 2012 Ocean Plaza (phase 1) Kyiv 72,200 KAN Development / UDP UA Q1-Q3, 2012 Fabrika (in phases) Kherson 65,500 BUD HOUSE GROUP UA 2013 Retail and leisure centre Kyiv 57,000 BUD HOUSE GROUP UA 2013 Odessa City Odessa 55,000 Amstor UA Q1-Q3, 2013 Aquapark Kyiv 49,070 Vilna Ukrayina UA Q3-Q4, 2012 Magellan (phase 2) Kharkiv 46,500 Kray Property UA Q1-Q2, 2013 Prospekt Kyiv 40,390 Arricano Development UA Q3-Q4, 2012 Marmalade Kyiv 38,700 VKF ‘Mava’ UA Q4, 2012 Domosfera (phase 3) Kyiv 38,000 DeVision UA Q3-Q4, 2013 Forum Lviv Lviv 36,000 Multi Development NTL Q2, 2012 French Boulevard (phase 2) Kharkiv 35,000 Aksioma UA Q1, 2012 City Centre Odessa 33,000 Venford / GMG Development UA 2012 Gulliver (Continental) Kyiv 32,000 Mandarin Plaza /Tri O UA 2012 Auchan City Park (phase 2) Donetsk 26,000 Immochan Ukraine UA / FRA Q2-Q3, 2012 RayON Kyiv 23,000 Arricano Development UA Q1, 2013 Yuzhnaya Galereya (phase 2) Simferopol 19,700 Arricano Development UASource: DTZ 12
  • 13. Property TimesUkraine Q4 2011Rents Figure 11With increasing retailer activity in the country and their Dynamics of retail rents in Kyivimproved perception of market potential, the first three USD/sq m/monthquarters of 2011 witnessed an upward pressure onprime base rents in quality multi-tenant retail schemes 400in Kyiv, as well as in the few western-standard retail 350properties already well-established in other major cities. 300 250 200During the fourth quarter of 2011 average monthly rents 150in Kyiv retail schemes remained generally stable at 100USD 70-90 per sq m for premises of 100-300 sq m, 50reaching highs of USD 160-200 per sq m per month in 0the most sought-after prime properties (Figure 11). 2006 2007 2008 2009 2010 2011 Prime high street rent Prime shopping centre rentSimilar dynamics was also observed in relation to highstreet retail rents in Kyiv and other major cities of Source: DTZ Research Note: All figures are year-end and quoted for retail units of areas in the range of 100-300 sq mUkraine with total population over 750,000 inhabitants.Despite the positive dynamics of an increasing number Outlookof new retailers entering the market and the The retail segment proved to be the most resilient toimprovement in activity of companies already operating the effects of economic crisis in 2008/9 compared toin Ukraine, combined with nominal new supply of other property sectors in Ukraine. DTZ believes that thequality retail stock, DTZ does not anticipate any major retail property market will show further growth in theupswing in base rental rates in 2012. This is due to the medium term after global and domestic economiclack of critical mass of new market entries combined conditions further improve.with significant retail stock in pipeline, as well aseconomic uncertainty both globally and in Ukraine. Despite the remaining signs of the economic crisis and comparatively low incomes of the population, theThough prime retail rents across Ukraine may be potential of the retail property market in Ukrainesubject to upward pressure in the short term, the longer undoubtedly remains high because of its immaturity interm sustainability of current rental rates will depend on terms of quality and formats of existing retail schemes,the actual commissioning and quality of new sizeable large country size, high population density, perceivedpipeline retail schemes scheduled for completion in high brand awareness and propensity to spend.2012/13 and general macroeconomic conditions. The opportunities within the retail property sector, overQuality remains a crucial factor for the success of all other sectors, are of priority interest for most developersexisting and new retail developments in Ukraine. and investors active in Ukraine, particularly within cities of total population over 750,000 inhabitants.Owing to the deep economic downturn in Ukraine sincelate 2008, the majority of developers in the country now Active works on a number of sizeable retail projects inaccept the fact that only a well-considered approach to Kyiv and the regional cities of Ukraine wereselecting an appropriate location, efficient concept and commenced in 2010-2011 and more projects are inthoughtful phasing of a retail development with due delivery pipeline, which, if delivered to currentregard to the number and mix of quality retailers and schedules, will lead to a considerable increase in retailtheir planned expansion into the country, will secure stock in the country by the end of 2013.long-term financial viability and investment exit. 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 13
  • 14. Property TimesUkraine Q4 2011 Figure 12Industrial & logistics Key market indicators in the Greater Kyiv areaIn 2012, new supply in the Greater Kyiv area is sq m USD/sq m/ month; %expected to follow the dynamics of 2010 and 2011. 1 500 000 25 1 200 000 20SupplyAt the end of 2011, total stock of modern warehousing 900 000 15and logistics space in the Greater Kyiv area amounted 600 000 10to approximately 1,332,230 sq m. This figure includesaround 119,000 sq m of modern specialised 300 000 5chilled&frozen and chemical warehouse facilities. 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Similar to 2010, new supply on the logistics propertymarket in the Greater Kyiv area in 2011 reached Total supply Annual speculative supplyaround 156,380 sq m. During 2011 seven logisticsproperties were put into operation, four of which were Prime warehousing rents Vacancydelivered in the fourth quarter of the year (Table 8). Source: DTZ Research Note: All figures are period-endThe largest logistics scheme delivered in 2011 was the Figure 13first phase of ‘Amtel Logistics Complex’ developed by‘International Logistics Company’, affiliated with the Existing logistics stock split by major locations inRussian ‘Amtel Properties’. This property accounted for the Greater Kyiv area, as of late December 2011around 29% of total modern logistics space delivered tothe market in the Greater Kyiv area during the year. M-06 (Kyiv-Zhytomyr) 3% 4% 7%The majority of existing modern warehouse facilities in M-01 (Kyiv-Moscow), 7% Brovary-Boryspil RRthe Greater Kyiv area are located along the Kyiv- 29% M-03 (Kyiv-Kharkiv)Zhytomyr Highway (M-06) and in the location referredto as Kyiv-Moscow Highway (M-01) and Brovary- 7% M-07 (Kyiv-Warsaw)Boryspil Ring Road, accounting for over 29% and 25%of total stock respectively (Figure 13). Kyiv City 18% 25% M-05 (Kyiv-Odessa)As of the start of the year, DTZ projects that newlogistics supply in 2012 will amount to between 101,000 M-04 (Kyiv-Dnipropetrovsk)sq m and 181,000 sq m (GLA) (Table 9). OtherMany warehouse developers in the Greater Kyiv areaclaimed that they are ready to begin construction of Source: DTZ Researchnew projects as soon as relatively large tenants for theirspace are secured, or within built-to-suit contracts.Table 7Key industrial and logistics property market indicators for the Greater Kyiv area 2007 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 OutlookTotal supply (sq m)* 384,310 821,780 1,016,600 1,175,850 1,205,365 1,205,365 1,205,365 1,332,230 New supply (sq m)* 199,780 437,470 194,820 159,250 29,515 0 0 126,865 Vacancy (%) 1-2 14.5 20.6 17.9 14.7 13.3 11.6 15.7 Prime rents 10.5 7.5-10 5.5-7 5.5-6.5 5.5-6.5 5.5-6.5 5.5-6.5 5-7 (USD / sq m / month)Source: DTZ Research* Including ancillary office and mezzanine space Note: All figures are 14
  • 15. Property TimesUkraine Q4 2011Table 8Major logistics schemes delivered in the Greater Kyiv area in 2011Scheme Location Total area Developer Nationality Major tenants* Occupancy* (%) (sq m)Amtel Logistics Complex P-04 44,671 International RU - 0(phase 1) Logistics CompanyFruit and Vegetable M-03, E40 40,000 Factor Consults UA WND 65Logistics Centre (phase 1)Unilogic Park (phase 2) M-01, E95 25,344 Merx Real Estate UA - 0Arktika Logistics Centre Kyiv RR 16,846 Skandinavia UA Skandinavia-Fish 66Warehouse complex M-01, E95 15,755 Local developer UA WND 100Impeco M-07, E373 10,000 Local developer UA WND 100Santa Frost (phase 2) M-05 3,760 Santa Bremor BLR /GER Eko-market, 100 Ukraine RoshenSource: DTZ Research WND – would not disclose*As of late December 2011Table 9Major logistics schemes planned for delivery in the Greater Kyiv area in 2012Scheme Location Total area (sq m) Developer NationalityFruit and Vegetable Logistics Centre (phase 2) M-03, E40 40,000 Factor Consults UATerminal Bucha M-07, E373 31,600 Local developer UAADG Warehouse complex M-03, E40 30,600 ADG UAV-Log M-01, E95 15,900 AIC BELTerminal Vorzel M-07, E373 12,400 Local developer UASource: DTZ 15
  • 16. Property TimesUkraine Q4 2011Demand Figure 14In the fourth quarter of 2011, logistics property take-up Take-up of logistics space in the Greater Kyiv area }in the Greater Kyiv area amounted to 46,750 sq m,surpassing the figure for the third quarter of 2010 by 315 134 }around 10%, but reflecting the annual decrease by 30% }compared to the fourth quarter of 2010. } 214 028 } 177 987 164 044Total logistics take-up registered in 2011 exceeded 145 776214,000 sq m, which is approximately 47% and 30%higher than annual take-up figures registeredrespectively in 2009 and 2010 (Figure 14).DTZ revised take-up figure for the first quarter of 2011 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11from 106,975 sq m reported before to 99,285 sq m,while take-up in the fourth quarter of 2010 wasincreased by 7,690 sq m. Source: DTZ ResearchIn 2011, occupier demand for modern logistics space inthe Greater Kyiv area was dominated by logistics and Figure 15transportation companies, companies operating in the Take-up of speculative logistics space by type ofFMCG and food retail sectors, as well as occupiers in the Greater Kyiv area, share in total %pharmaceutical companies (Figure 15). 16% 13% 12%Deals of area in the range of 1,000-3,000 sq m 33%prevailed on the logistics property market in the Greater 21% 36% 22%Kyiv area in 2011. 93% 90% 22% 12% 63% 12% 52%DTZ is of the opinion that the 2011 take-up, which 28% 34% 14%surpassed the figures registered in 2009 and 2010, 2005 2006 2007 2008 2009 2010 2011reflects the intentions of many existing tenants toimprove their space occupied and/or secureopportunities to expand. However, it is not yet Logistics & transportation Retail - Fashionindicative of strong logistics property market recovery in Retail - Cosmetics, pharma White goodsthe Greater Kyiv area. ICT FMCG/Food retail Automotive Other Source: DTZ ResearchTable 10Major logistics transactions in the Greater Kyiv area in 2011Period Scheme Occupier Occupier sector* Total area Location Type of deal (sq m)Q1/Q4, 2011 BF Sklad Zammler Sklad L&T 24,000 M-03, E40 new lease/ extensionQ1, 2011 Plazma Logistics WND Pharma 21,600 M-03, E40 purchaseQ1, 2011 East Gate Logistics WND FMCG/ Food retail 17,300 M-03, E40 new leaseQ1, 2011 Komodor DHL Freight L&T 16,335 M-06, E40 new leaseQ2, 2011 Warehouse complex May Company FMCG 9,500 M04 purchaseQ3, 2011 MLP Chayka Omega Autopostavka Automotive 7,850 M-06, E40 new leaseQ1, 2011 BF Sklad F.Formula L&T 6,620 M-03, E40 new leaseQ4, 2011 Terminal Brovary Pernod Ricard Ukraine FMCG 4,265 Brovary-Boryspil RR new leaseSource: DTZ Research WND – would not disclose*FMCG – fast moving consumer goods, L&T – logistics and 16
  • 17. Property TimesUkraine Q4 2011Vacancy Figure 16As of late December 2011, primary vacancy in the Prime logistics rent in Kyiv versus other CEE capitalslogistics property sector amounted to 15.7%,increasing by 4.1% quarter-on-quarter, mainly due to EUR/sq m/monthrelatively significant new delivery during the quarter. 9 8At the same time, primary vacancy in the Greater Kyiv 7area at the end of 2011 was by 2.2% and 4.9% lower 6compared to the figures registered in late 2010 and 52009 respectively. 4 3DTZ projects that in 2012 primary vacancy in the 2logistics property sector in the Greater Kyiv area will 1 0decrease, remaining however in double digits. 2007 2008 2009 2010 2011Rents Prague Budapest WarsawIn 2011, headline rents for prime warehouse space Bucharest Moscow Kyivin the Greater Kyiv area varied from USD 5.5 to Source: DTZ Research Note: All figures are period-endUSD 7 per sq m per month in the properties located onthe western bank of the Dnipro River, while rents on theeastern bank were registered in the range fromUSD 4.5 to USD 6 per sq m. Rents depend on thequality of space, location and general lease terms.Prime logistics rents in the Greater Kyiv area aregenerally comparable to those registered in the suburbsof Bucharest (Romania), Prague (Czech Republic) andKrakow (Poland), but lower than in Moscow (Russia)and Warsaw (Poland).DTZ projects that, other things being equal, during2012 rents for prime warehouse space will remaingenerally stable.OutlookGiven the current economic conditions and deliverypipeline, vacancy in the logistics property sector in theGreater Kyiv area is forecast to gradually decreaseduring 2012, remaining in double digits, with primerents stable.An increase in commercial activity and strengthening ofoccupier demand, projected in the medium term, maylead to a fall in vacancy and an upward correction inlogistics rents in Greater Kyiv. DTZ is of the opinion,however, that the price elasticity of warehouse supply ishigher compared to other sectors of commercialproperty market in Ukraine, and new logistics deliverycould recommence relatively 17
  • 18. Property TimesUkraine Q4 2011 Figure 17Investment Volume of investment transactions in Ukraine*The commercial property investment market in Ukraineremains a buyer’s market. million USD 1 000DTZ witnessed a stabilisation of property investor 800sentiment in Ukraine in 2011. The third quarter of the 600year witnessed the 0.5% decrease in yields, driven byrental growth prospects witnessed in summer and 400generally positive economic dynamics in the country. 200Due to deterioration of economic prospects worldwide,prime yields remained generally stable in the fourth 0quarter of 2011. 2003 2004 2005 2006 2007 2008 2009 2010 2011 Office Retail Industrial HotelPrime yields in Ukraine are perceived to be at high Source: DTZ Research Note: All figures are period-endlevels compared to other European countries. The *The figure includes secondary investment transactions (the sale of land plots was excluded).commercial property investment market in Ukraineremains a buyer’s market as opposed to the seller’smarket that prevailed before the end of 2008. Other property investment transactions concluded in Ukraine in 2011 include:Transactions  The sale of the 12,120 sq m new-built businessThe majority of investment deals concluded on the centre ‘Shchekavytskyi’ in Kyiv to the UkrainianUkrainian commercial property market in 2011 took television channel ‘1+1’ for owner-occupation in theplace in Kyiv. Out of them, five investment deals first quarter of 2011, a deal estimated at aroundtotalled over $20 million in terms of estimated value. USD 25 million.  The sale of an office building in the central area ofThe bulk of completed investment deals in Ukraine in Kyiv to a Ukrainian commercial bank for owner-2011 were open-market transactions, in contrast to 2010, occupation. This deal, reported in the first quarter ofwhich was dominated by off-market investment deals. 2011, was estimated at around USD 25 million.Quality retail and office properties remained the most  The sale of a 21,600 sq m operating logisticssought-after investment assets in Ukraine. Investors’ complex in Velyka Oleksandrivka Village in Greaterappetites towards hotels eased compared to 2009/10, Kyiv area to a pharmaceutical company for owner-partially related to the fact that opportunities to enter and occupation in the first quarter of 2011.realise projects in time for the hosting of the UEFA EURO  The sale of warehouse complex in Obukhiv to May2012 became unrealistic. Company for owner-occupation. The deal estimated at around USD 5 million was reported in the secondThe acquisition of a city centre mixed-use development quarter of 2011.project in central Kyiv by a private European developerin 2011 was the largest deal in the Ukraine commercial  The sale of a 5,500 sq m warehouse complex withproperty market since 2008. 3 ha land plot in Lutsk by the Ukrainian subsidiary of Nestlé to the Ukrainian group of companies Avanta;The purchase of 50% stake in the business centre a deal closed by DTZ in the first quarter of 2011.‘Leonardo’ (phase 2) in Kyiv by ESTA Holding was  The sale of the operational retail centre Kvadrat atreported in the fourth quarter of 2011. Estimated at Lukyanivka by the AIM-listed Ukrainian companyaround USD 50-60 million, this deal became the largest XXI Century to Monkar Limited for USD 14 millionpurchase of an income-generating real estate asset with a buy-back option. The deal was reported in theduring the year in Ukraine. third quarter of 2011.  The sale of the hypermarket in Kyiv, previously operated as a DIY-store ‘Nova Liniya’, to the Ukrainian food retailer Fozzy Group for owner- occupation. This deal, reported in the third quarter of 2011, was estimated at over USD 10 18
  • 19. Property TimesUkraine Q4 2011 The sale of a 7.5 ha land plot near Chabany Village Figure 18 in Greater Kyiv area to the Russian company Amtel Prime yields in Kyiv Properties for potential commercial development. % The deal was reported in the second quarter of 2011. 25 The sale of the 12,000 sq m operating retail centre 20 ‘Amstor’ in Mykolayiv to the Ukrainian food retailer 15 Tavria-V. 10 The sale of a mixed-use development project in 5 central Kyiv in the third quarter of 2011, a deal estimated in the range of USD 20-30 million. 0 Q1-Q3 2008 2003 2004 2005 2006 2007 Q4 2008* Q1 2011* Q2 2011* Q3 2011* Q4 2011* 2009* 2010* The sale of the office building in Dnipropetrovsk to state-owned Oschadbank for owner-occupation. This deal, estimated at around USD 10 million, was reported in the fourth quarter of the year. Office Retail Industrial The sale of the office building in Kyiv to the state- Source: DTZ Research Note: All figures are period-end owned company Infrastructure Projects Financing. *No true open-market secondary investment transactions, yield perceived by market players The deal, estimated at around USD 4.5 million, was reported in the fourth quarter of 2011. Figure 19 Prime office rents and yields in KyivIn the third quarter of 2011, SECURE Management, areal estate investment company focused on property USD/sq m/month %investments across South-East Europe, acquired 50 20through convertible bonds the shares in Aisi Realty 40 16Public Limited, the latter being a company withdevelopment projects and related investments 30 12in Ukraine. This deal was estimated at around 20 8USD 12 million. 10 4In the fourth quarter of 2011, the AIM-listed Ukrainian 0 0company KDD Group reported the sale of its 68.2% 2009 2010 2011 2012* 2013* 2014* 2015*stake to Groumon Development, owned by the Ukrainianentrepreneur Andriy Verevsky, for around USD 16 million. Prime office rent Prime office yield Source: DTZ Research Note: All figures are period-end * ProjectionsIn 2011, commercial banks in Ukraine continued toprovide property development financing to selectedborrowers with strong attention paid to reputation and A majority of standing property assets in Ukraine weretrack record of the developer, its credit history, as well purchased in 2011 for the purpose of quality of a project to be financed and the collateral.In most cases, banks were ready to provide financing During 2011 DTZ registered a notable increase in thewithin the limitation of USD 30 million. number of high-quality income-generating office and retail properties proposed for sale in Kyiv. We believeDTZ expects, that in the first half of 2012 Ukraine will that this trend has been attributable to intentions ofsee further credit squeeze in the commercial property many landlords to minimise their risks, related tosector with the renewal in the sector by the year-end. property ownership, in view of the present economic and political uncertainty.The most active property investors in Ukraine in 2011,as in 2010, were local companies and private Putting these properties for sale generated high interestindividuals with a strong cash position. At the same among potential purchasers, due to the unique naturetime, European investors demonstrated modest interest of these assets and immaturity of the property market inin acquiring Ukrainian property assets. 19
  • 20. Property TimesUkraine Q4 2011Yields OutlookDue to the global credit squeeze, prime yields in the DTZ believes that pre-crisis yields in Ukraine werecore markets of Central Europe as well as in Prague, irrationally low in view of the clearly unsustainably highBudapest and Warsaw typically increased by around rents. However, post-crisis increased yields coupled3% in late 2008-2009 from the lows of late 2007. with a downward correction of rents, particularly in theMeanwhile prime yields in Kyiv increased by around office property sector, are now offering fair value to7% despite a far more profound downwards rental investors.correction in the Ukrainian capital. In DTZ’s opinion, still relatively low capital values inIn 2009, commonly perceived net initial yields in Kyiv Ukraine that have decreased since late 2008, combinedwere varying between 15-20% which, due to with rental growth prospects, present attractivesuppressed market rent levels, reflected relatively opportunities for investors in view of the recognisedlow capital values, discouraging vendors from selling, high potential of the commercial property market thatand banks from applying pressure on borrowers to remains structurally undersupplied across all sectorsliquidate assets. in the country.During the period from the second quarter of 2010 to DTZ expects that in 2012 prime net initial yields in Kyivthe second quarter of 2011, prime net initial yields in will remain generally stable in the logistics propertyKyiv were perceived to remain generally unchanged, sector, while prime office and retail property yields willi.e. at 13.5% for prime office space, 14.5% for high- be subject to slight downward correction in the rangequality retail properties and 15% for prime schemes in from 0.5% to 1%.the logistics property sector. In the longer term, as the Ukrainian property marketIn July-September 2011, DTZ witnessed a further matures, there is further scope for yield compression,decrease in prime net initial yields in Kyiv by 0.5% coming off comparatively high existing levels.across all commercial property sectors, driven byslight improvement of investor sentiment on thecountry’s potential.Due to deterioration of economic prospectsworldwide, prime yields remained generally stable inthe fourth quarter of 2011.It should be appreciated that yields remain highlysensitive to asset value due to constraints over theavailability of debt financing.At the same time, there remains strong interest ingood ‘flagship’ buildings mainly in central Kyiv,irrespective of size. Such assets tend to commandinterest on a value determined on sq m basis ratherthan on a yield basis. Sq m values applied on suchtrophy buildings by prospective investors provideequivalent indicative yields of between 11-12.5%based on present market 20
  • 21. Property TimesUkraine Q4 21
  • 22. Property TimesUkraine Q4 2011DefinitionsOfficesOffice 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.RetailRetail stock: Individual developments or stand-alone retail units with a gross lettable area 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.LogisticsLogistics 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.InvestmentPrime 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 22
  • 23. Property TimesUkraine Q4 2011ContactsGeneralDTZ Ukraine Tel.: +38 (0)44 220 30 6011th floor, Leonardo Business Centre Fax: +38 (0)44 220 30 6119-21 Bohdana Khmelnytskoho St., Kyiv, 01030 Ukraine info@dtz.kiev.uaManaging DirectorNick Cottonnick.cotton@dtz.kiev.uaOffice AgencyGeoff Hargreave Victoria victoria.goroulko@dtz.kiev.uaRetail AgencyNataliya Mykolaychuknataliya.mykolaychuk@dtz.kiev.uaIndustrial and Logistics AgencyFedor ArbuzovFedor.Arbuzov@dtz.kiev.uaInvestment and Land AgencyNataliya Stelmakh Volodymyr Volodymyr.Mysak@dtz.kiev.uaValuationYana Lytvynchukyana.lytvynchuk@dtz.kiev.uaResearch and Development ConsultingMarta Kostiuk Andriy,, at@dtz.kiev.uaProperty ManagementBen 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 23