Dtz+property+times+ukraine+q3+2011+eng

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New merket research from DTZ Ukraine analitics. Trends the same - prices slowly grows up, vacancy - fall fown.

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Dtz+property+times+ukraine+q3+2011+eng

  1. 1. Property Times Ukraine Q3 2011 Looking forward The first three quarters of 2011 were marked by Ukraine’s preparation21 October 2011 x for the EURO 2012 Football Championship and generally positive economic dynamics in the country. The major risks to Ukraine’s further sustainable development include external shocks, politicalContents risks accentuated by legal proceedings against former Prime MinisterExecutive summary 1 Yulia Tymoshenko, increases in public debt, unemployment andEconomic overview 2 inflation, as well as lack of efficient structural and legal reforms.Offices 5 x The office property market in Kyiv remains structurally undersupplied,Retail 11Industrial 13 while any material delivery of pipeline stock will not commence in theInvestment 16 city prior to mid-late 2012. Further rental uplift was apparent duringDefinitions 19 the first three quarters of 2011, as the supply of particularly primeContacts 20 CBD office space has become constrained, combined with strengthening occupier demand. Though new retail supply during 2011 has remained generally lowAuthors x both in Kyiv and the regional cities of Ukraine, the years 2012 and 2013 are likely to see significant augmentation in new delivery in theMarta KostiukAssociate Director sector, reflecting the strengthening confidence of retailers, developersHead of Research and Consulting and investors.+38 (0)44 220 30 60marta.kostiuk@dtz.kiev.ua x In January-September 2011, the warehouse stock in the Greater Kyiv area increased by only 29,515 sq m, representing an annual decreaseAndriy Tymoshenko in new supply by 55% and 72% compared to the same periods inSenior Research Analyst 2010 and 2009. Despite gradually strengthening demand and+38 (0)44 220 30 60 decreasing vacancy combined with lack of new supply, rents in theandriy.tymoshenko@dtz.kiev.ua sector remain stable.Dmytro Sokolskyy x DTZ witnessed stabilisation of property investor sentiment in UkraineResearch Analyst during the third quarter of 2011, reflected by 0.5% decrease in still+38 (0)44 220 30 60 high prime yields compared to other European countries (Fig. 1), anddmytro.sokolskyy@dtz.kiev.ua driven by rental growth prospects and generally positive economic dynamics in the country. Figure 1Contacts Prime office yields in Kyiv versus other CEE capitalsMagali Marton %Head of CEMEA Research 18+33 1 49 64 49 54 16 14magali.marton@dtz.com 12 10Hans Vrensen 8Global Head of Research 6+44 (0)20 3296 2159 4hans.vrensen@dtz.com 2 0 Budapest Warsaw Prague Bucharest Moscow Kyiv Source: DTZ Research Note: All figures are end-of-periodwww.dtz.com 1
  2. 2. Economic overviewThe first three quarters of 2011 were marked by Ukraine’s Figure 2preparation for the EURO 2012 Football Championship Macroeconomic indicators in Ukraineand generally positive economic dynamics in the country. % 40Nevertheless, the international ratings of Ukraineworsened owing to the country’s failure to comply with the 30requirements of the International Monetary Fund (IMF), 20as well as political risks accentuated by legal proceedingsagainst former Prime Minister Yulia Tymoshenko. 10The present risks for Ukraine’s further sustainable 0economic development include external shocks, political -10risks, augmentation of public debt, potential increases inunemployment and inflation, as well as lack of efficient -20structural reforms. -30 GDP growth UnemploymentEconomic growth Inflation Industrial productionAccording to preliminary data published by the StateStatistics Committee of Ukraine, real GDP increased by Source: Oxford Economics3.8% year-on-year in the second quarter of 2011compared to the economic growth of 5.3% in the first Inflationquarter of the year and 4.2% in 2010. In September 2011 consumer price inflation reachedAs stipulated in the 2011 State Budget of Ukraine, an 4.2% compared to December 2010.increase in real GDP is forecast for 2011 at 4.5%. As ofSeptember 2011, Oxford Economics project economic The 2011 State Budget of Ukraine was based on thegrowth in Ukraine at 4.8% year-on-year in 2011. projection that consumer price inflation will reach 8.9% at the end of 2011. Major Ukrainian and internationalAccording to the draft 2012 State Budget of Ukraine, an experts forecast year-end inflation for 2011 in the rangeincrease in real GDP is forecast at 5%, while Oxford of 8.4% to 13% compared to the actual 9.1% in 2010 andEconomics project the 5.9% economic growth for 2012. 12.3% in 2009.Industrial production and agriculture According to Oxford Economics, inflation in Ukraine will amount to 8.8% in 2012 and 6.7% in 2013, and isDespite the encouraging start to the year with 10.5% projected to be around 5.5% every year during the periodgrowth in industrial production in January-February, in from 2014 to 2020.March this slowed due to the decline in export-orientedmetallurgical and machine-building industries. Unemployment and salariesIn August 2011, industrial production increased by 9.6% In accordance with the ILO methodology (that definesyear-on-year, while in January-August 2011 by 8.9%. unemployment based on the population 15-70 years ofDuring this period the highest growth rates were age), unemployment rate in Ukraine amounted to 8.2%registered in machine-building, chemical, metallurgical in January-June 2011 compared to 8.1% in 2010,and light industries. 8.8% in 2009 and 6.4% in 2008. Oxford Economics projects unemployment in Ukraine to decrease to 7.8% byAs of September 2011, Oxford Economics projects the end of 2011.industrial production in Ukraine to grow by 7.1% year-on-year in 2011. According to the State Statistics Committee of Ukraine, the average nominal monthly salary in Ukraine inIn January-August 2011, agricultural output increased by January-August 2011 was UAH 2,550 (equivalent to10.5% year-on-year compared to the 4.1% annual US$320) increasing by 18.1% year-on-year. At the samedecrease during the same period in 2010. In January- time, real salaries grew by 7.7% year-on-year, thoughAugust 2011, total volume of agricultural goods sold by decreasing in August 2011 by 1.6% month-on-month.producers increased by 3% year-on-year.www.dtz.com 2
  3. 3. Economic overviewRetail sales Figure 3Retail sales in Ukraine grew by 15.2% year-on-year in Real monthly salary, retail sales and consumerJanuary-September 2011 compared to the 5.1% annual spending in Ukraineincrease in 2010 and the 16.2% annual decrease in 2009. % 40National currency 30In accordance with the official US Dollar exchange ratedetermined by the National Bank of Ukraine, the 20Ukrainian Hryvnia depreciated insignificantly, 10from 7.959 UAH/US$ in early January 2011 to7.9727 UAH/US$ in late September 2011. 0 -10The Ukrainian currency also weakened against the Eurofrom 10.573 UAH/EUR in January 2011 -20to 11.216 UAH/EUR in March 2011, but strengthened bylate September 2011 to 10.8548 UAH/EUR. -30 Real monthly salary growth Retail sales growth Consumer spending growth*According to the decree issued by the National Bank ofUkraine, from 23 September 2011 the new rules of Source: State Statistics Committee of Ukraine, Oxford Economics,foreign currency exchange by individuals in Ukraine were *For January-August 2011, consumer spending growth provided as a year-end projection ofintroduced to accommodate the requirement to present Oxford Economicsidentity documents prior to each currency exchangetransaction, while the limitation to exchange maximum Figure 4UAH 150,000 per day (instead of UAH 80,000) was set. Business sentiment in Ukraine 200Business sentimentAccording to the survey of business sentiment in Ukraine 150conducted by the National Bank since 2006, businesssentiment index remained generally stable in 2010/H1 1002011, though worsened compared to 2006/08 (Fig. 4). 50General business sentiment in relation to forthcoming12 months deteriorated in the second quarter of 2011 0compared to the first quarter, mainly due to uncertainty on Q1Q2 Q3 Q4 Q1Q2 Q3 Q4 Q1Q2 Q3 Q4 Q1Q2 Q3 Q4 Q1Q2 -50external markets and currency risks. Positive 2007 2008 2009 2010 2011expectations of enterprises somewhat worsened in -100relation to all compounds of business sentiment index, Businesss sentiment on staff increaseparticularly capital investment and staff increases. General business sentiment indexStaff increase in the coming 12 months was however Source: National Bank of Ukraineplanned by all enterprises operating in Ukraine, except forutility, transportation and communication companies. In early 2011, Ukraine was engaged in negotiations with Russia on prices for energy resources, as well as itsInternational support and cooperation membership in the Tax Union with Russia, Belarus andSince May 2008 Ukraine has been in negotiations with Kazakhstan.the EU for a free trade agreement as part of a futureAssociation Agreement. The 18th round of negotiations However, due to Ukraine’s obligations to the EU, itsbetween the parties started in September 2011. membership in the WTO and the restrictions related to entering the free trade zone with the EU, UkraineThe free trade agreement between the EU and Ukraine is withdrew from Tax Union membership negotiations.expected to be signed in 2011 and implemented in 2013.However, the position of Ukraine in negotiations with the Ukraine failed to receive another tranche from the IMFEU has been threatened by legal proceedings against scheduled for March 2011, due to non-compliance withformer Prime Minister Yulia Tymoshenko and adjudication the IMF requirements (reforms in the pension system,announced in October 2011. increase in gas tariffs for the population). The next tranche is likely to be granted to Ukraine in early 2012.www.dtz.com 3
  4. 4. Economic overviewForeign trade and foreign direct investment Figure 5According to the State Statistics Committee of Ukraine, Net FDI and FDI growth in Ukraineexports and imports of goods in Ukraine increased during billion $ %, y-o-ythe period January-July 2011 by 40% and 46.7% year-on-year respectively. The exports to imports ratio during the 12 390period was around 0.85. 10 325 8 260The National Bank of Ukraine reported that net inflow offoreign direct investment (FDI) into Ukraine amounted to 6 195around $4,520 million in January-August 2011, almost 4 13049% higher the figure registered during the same period 2 65in 2010. 0 0The most attractive sectors for foreign investment into -2 -65Ukraine are the financial sector, industrial production, realestate market, retail sector, construction, transportationand communication. Net FDI Net FDI growthEURO 2012 Source: National Bank of UkraineIn late 2009, the UEFA Executive Committee confirmedDonetsk, Lviv and Kharkiv as host cities for group Much attention has been also paid to the improvementmatches of UEFA EURO 2012, while Kyiv was appointed and repair of the motorways of international importance inthe venue of the final match of the tournament. Ukraine.Despite existing obstacles such as the after-effects of the Another major benefit for Ukraine hosting EURO 2012 isfinancial crisis, high borrowing costs and imperfect the development of tourism in the country. This issue islegislation, Ukraine has been undertaking a wide important, taking into account the distinct tourist-drivenspectrum of preparation works for the event. economic base of many major cities of Ukraine combined with the generally poorly developed tourist infrastructureThe hospitality sector, as well as the transportation and in the country as reflected in ratings. Thus, during theroad system, are the spheres most in need of significant 2011 World Economic Forum Ukraine was ranked 38thimprovement prior to UEFA EURO 2012. among 42 European countries in terms of tourist industry competitiveness.In July 2010 Ukraine adopted a law encouraging hoteldevelopment. In accordance with the law, starting from Outlook1 January 2011, 3*, 4* and 5* hotels that are opened prior In the first three quarters of 2011, the Ukraine economyto 1 September 2012 are exempt from income tax for demonstrated generally positive dynamics. The areas often years. concern include public debt augmentation, high unemployment and inflation combined with high risks ofThe National Stadium ‘Olimpiyskiy’ in Kyiv opened on external shocks and political instability in Ukraine.8 October 2011, while grand opening of the Lviv Stadiumis planned on 29 October 2011. The two other stadiums According to leading Ukrainian and international experts,to host group matches of UEFA EURO 2012, ‘Donbas Ukraine will witness economic growth at around 5% inArena’ in Donetsk and ‘Metallist’ in Kharkiv, have been 2011, depending on the level of domestic consumptionoperational since August 2009 and September 2010 and investments, as well as external market conditions.respectively. According to the 2010-2011 Global CompetitivenessTerminal ‘D’ and an extension to terminal ‘B’ at Boryspil Report, competitive strengths of the country include aInternational Airport servicing Kyiv are scheduled for well-educated population, flexible and efficient labourcompletion in 2011, while the passenger terminal ‘F’ has markets and a large market size, which set a strong basebeen in operation since September 2010. As of for the country’s future growth.September 2011, a new passenger terminal at LvivInternational Airport was reported 72% ready, and it is Institutional reforms and the improvement of inefficientplanned to open by the end of 2011. New passenger markets for goods and services are recognised as beingterminals at the airports in Kharkiv and Donetsk are to be the priority tasks for Ukraine to secure long-termdelivered in phases during 2011/12. economic development in the country.www.dtz.com 4
  5. 5. OfficeSupply Figure 6There was approximately 1,173,755 sq m (GLA) ofspeculatively delivered office stock in Kyiv as of the end of Major indicators of office property market in Kyivthe third quarter of 2011 (Fig. 6), excluding government sq m % / $ per sq mbuildings and offices constructed by owner-occupiers. 1 400 000 80 1 200 000 70Alike the first half of the year, the third quarter of 2011 did 60 1 000 000not bring any significant changes to the office property 50market in Kyiv, which remains structurally undersupplied 800 000 40compared to the markets in other CEE capitals in terms of 600 000 30total office stock, as well as the variety of formats and 400 000 20quality of properties available for occupation (Fig. 7). 200 000 10 0 0The 10,300 sq m (GLA) business centre located at70 Saksahanskoho Street / 16b Pankivska Street was theonly office property delivered in Kyiv during the periodJuly-September 2011. Total stock New supply Take-up Vacancy rate Prime rentNew office supply in Kyiv amounted to approximately Source: DTZ Research55,060 sq m in the first three quarters of 2011, Note: All figures are year-endrepresenting an increase in delivery of over 43% comparedto the same period in 2010. Figure 7DTZ expects that new office supply in Kyiv will amount to Total office stock in Kyiv versus other CEE capitalsaround 16,500-52,390 sq m in the fourth quarter of 2011, sq msubject to delivery of the 36,000 sq m (GLA) Premium 12 000 000Centre. 10 000 000Since late 2008 development of many large-scale office 8 000 000schemes planned in Kyiv before the onset of the financial 6 000 000crisis was suspended due to lack of finance, poor projectconception, economic decline and the resultant 4 000 000evaporation of demand. 2 000 0002010 was marked by the recommencement of works on 0several sizeable office schemes, which are scheduled forcompletion in 2012 and 2013.As of early 2011 around 372,000 sq m (GLA) of new office Budapest Warsaw Praguespace was scheduled for delivery in Kyiv during 2012. Bucharest Moscow KyivFrom past experience of continuous delays however, DTZ Source: DTZ Researchprojects that new office supply is unlikely to exceed Note: All figures are year-end250,000 sq m (GLA) during the year to come.Table 1Key office property market indicators in Kyiv 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Directional outlookStock (sq m) 916,510 1,040,370 1,118,695 1,139,955 1,163,455 1,173,755 SNew supply (sq m) 175,110 123,860 78,325 21,260 23,500 10,300 STake-up (sq m) 160,000 106,000 165,000 43,500 41,800 32,850 §¨Vacancy rate (%) 4.2 17.6 12.7 13.6 11.9 11.2 §¨Prime rents ($/sq m/ month) 70-85 25-35 30-38 38-40 38-42 38-44 SSource: 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 opportunities.www.dtz.com 5
  6. 6. Office Table 2 Major office projects completed in Kyiv in Q1-Q3 2011 Period Project Location* Size Developer Major occupiers** Occupancy** (sq m) (%) Q2, 2011 BC at 7a Klovskyi Uzviz CBD 19,000 Zhytlobud WND*** 100 Q1, 2011 Rialto BC NC-WB 15,000 Istil Group Swedbank 40 Q3, 2011 BC at 70 Saksahanskoho Str./ CBD 10,300 Elektrotekh LLC Uniqa 42 16b Pankivska Str. Q2, 2011 Moskovskyi BC NC-WB 4,500 TRC Petrivka ltd ABBYY 29 Q1, 2011 BC at 2 Novovokzalna Str. NC-WB 4,385 Roza - 0 Q1, 2011 Vasylevs BC CBD 1,875 Novohrad - 0 Source: DTZ Research WND – would not disclose * CBD – Central Business District; 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 September 2011 *** Individual office units in the scheme were sold to numerous occupiers. Table 3 Major office projects scheduled for completion in Kyiv in Q4 2011-2012 Project Location* Size (sq m) Developer Developer’s nationality 101 Tower CBD 57,720 KAN Development UA Mariya BC CBD 47,300 KAN Development UA Gulliver BC (Parus-2 BC) CBD 43,850 Mandarin Plaza /Tri O UA Toronto-Kyiv BC CBD 37,670 Toronto-Kyiv UA Premium Centre BC NC-WB 36,000 Premium Centre UA / TUR Forum Victoria Park BC NC-WB 22,500 Forum Group UA Topaz BC NC-WB 22,000 Artem UA Sigma BC NC-WB 20,800 Midland Development UA Ukraine Vynohradar BC NC-WB 14,800 local developer UA BC at Vasylkivska Str. / Hlushkova Str. NC-WB 14,400 Rele Invest UA City Gate BC (phase 1) NC-EB 13,000 City Capital Group UA Mega City BC (phase 1) NC-EB 10,000 UKOGROUP UA BC at 26/14 Spaska Str. Podil 9,350 Perspektyva Resydencia UA BC at 21-23 Verbova Str. NC-WB 8,690 Solidarnist UA BC at 7a Shamryla Str. NC-WB 6,700 Georgiy UA Maxim BC CBD 6,350 Aladdin / Rele Invest UA BC at 28 Smirnova-Lastochkina Podil 5,500 local developer UA Patriarch Hall BC CBD 5,000 local developer UA BC at 14 Koltsova Bould. NC-WB 4,470 NBK UA BC at 12 Chornovola Ave. NC-WB 4,000 local developer UA BC at 23 Bahhoutivska Str. NC-WB 3,600 Extend Holding / RealEst UA BC on 40/85 Saksahanskoho Str. CBD 2,500 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 Riverwww.dtz.com 6
  7. 7. OfficeDemand At the same time, the office availability ratio in the KyivThough Ukraine is still in the recovery phase following the central business district and Podil further decreased in theglobal financial crisis of 2008/09, the market third quarter of 2011, amounting to 7.2% and 5%fundamentals in the office property sector in Kyiv have respectively (Fig. 8).continued to improve during the first three quarters of 2011. An escalation in occupier demand combined with nominalAround 32,850 sq m of office space was transacted in the new supply led towards a position of shortfall in qualityKyiv market in the third quarter of 2011, representing an office supply in Kyiv, with efficient centrally-located officeannual decrease of around 32%. However, during the units of area over 1,000 sq m being particularly scarce.first three quarters of 2011 office take-up in the Ukrainiancapital amounted to around 118,150 sq m, increasing by In view of insignificant new office supply combined withover 3% year-on-year. strengthening demand, the vacancy rate is likely to further decrease by the end of 2011.Though office demand in Kyiv in the first three quarters of2011 became less sector-oriented compared to 2010, it Figure 8was strongly driven by multinationals operating in ICT (36% Vacancy on the office market in Kyiv by locationsof total take-up registered during the period),manufacturing (26%, dominated by FMCG and % 40pharmaceutical production accounting for 4% and 6.5% 35respectively), financial sector (10%) and agriculture (5%). 30Office lease transactions of over 3,000 sq m accounted 25for 15% of total number of deals registered in the office 20property market in Kyiv in the first three quarters of 2011. 15 10In view of a gradually improving economic situation, but 5still favourable office market conditions in Kyiv (i.e. low 0rents, some incentive packages offered by landlords),many companies moved to a better location/space duringthe first three quarters of 2011, or expanded / renegotiated CBD Podilcurrent occupational terms with the intention of locking into Pechersk (outside CBD) NC-WBa longer lease in anticipation of a market uplift. NC-EB Source: DTZ Research Note: CBD – Central Business District; NC-WB – non-central area on the western bank ofA lack of quality space with the possibility of expansion in Dnipro River, NC-EB – non-central area on the eastern bank of Dnipro Riverthe medium term remains a major barrier for officeoccupiers to move, particularly in central locations. Figure 9Due to the availability of opportunities to occupy space in Prime office rents in Kyiv versus other CEE capitalsexisting projects and the fading of occupier confidence in € /sq m /monthdevelopers’ ability to meet delivery deadlines, pre-lets on 100the Kyiv office property market were almost absent in the 90first three quarters of 2011. 80 70Looking ahead, DTZ believes that in the fourth quarter of 602011 the dynamics of occupier demand in Kyiv will 50remain generally stable with take-up outstripping new 40 30supply. At the same time, many leases signed or 20renewed in 2009/10 on terms favourable to tenants, will 10expire in two-three years, which may lead to a significant -upsurge of take-up.Vacancy Prague Budapest WarsawPrimary market-wide vacancy on the Kyiv office market Bucharest Moscow Kyivreached 11.2% in late September 2011, decreasing from Source: DTZ Research Note: All figures are year-end11.9% in late June 2011 and 12.7% at the end of 2010. *Office rents are typically quoted in the US dollars in Ukraine and Russia, converted based on exchange rate defined by the National Bank of each country at the end of the period analysedwww.dtz.com 7
  8. 8. OfficeRents OutlookBetween the third quarter of 2008 and late 2009, office DTZ is of the opinion that the office property market in Kyivrents in Kyiv fell by over 50% due to the devaluation of the remains structurally undersupplied, while any materialnational currency and weak occupier demand caused by delivery of pipeline stock will not commence in the city prioreconomic recession in Ukraine and worldwide. to mid-late 2012.In the second half of 2009 the negative dynamics halted, New office supply in Kyiv may potentially amount toand office rents stabilised at around $25-35 per sq m per 250,000 sq m (GLA) in 2012. This figure remains highlymonth for prime space, down to $20-25 per sq m per sensitive to delivery of several sizeable properties,month for central and non-central B-class space, and $12- commissioning of which may be delayed further.17 per sq m per month for class C. In the fourth quarter of 2011 the dynamics of occupierEvidence of some rental uplift was apparent during the first demand in Kyiv will remain generally stable with take-upthree quarters of 2011, as the supply of particularly prime outstripping new supply. As stated in the National BankCBD space has become constrained, combined with survey of business sentiment in Ukraine in the secondgradually strengthening occupier demand. quarter of 2011, staff increase was planned in the following 12 months by all enterprises in the country, except forPrime office rents in Kyiv amounted to $38-44 per sq m per utility, transportation and communication companies.month as of late September 2011, while B-class andC-class space commanded monthly rents of $23-35 per Dynamics of prime office rents in Kyiv in the medium termsq m and $8-25 per sq m respectively. will be highly sensitive to pricing strategy in the sizeable business centres ‘Gulliver’, ‘101 Tower’ and ‘Toronto-Kyiv’DTZ projects that there will be a further strengthening of scheduled for completion in 2012. An overpricing of theseasking rents by the end of 2011, and further reductions in schemes may lead to continued upwards pressure on rents,other concessions for prime office space. However, as while a more competitive pricing strategy is likely to resultmost occupiers remain highly sensitive to the incurrence of in a softening of prime office rents.capital expenditures, they will continue to require offices tobe delivered with advanced base build levels. In view of high level of competition anticipated in 2012/13, developers can enhance letting prospects in their office properties by either delivering space in more advanced condition, or being open to alternative solutions addressing the main barrier to relocation, i.e. capital expenditure. Table 4 Selected major office transactions in Kyiv in Q1-Q3 2011 Period Tenant Office area Occupier Building Location** occupied (sq m) sector* Q1, 2011 ntr l European Media Enterprises 10,350 A&M Shchekavytskyi BC Podil Ltd. / 1+1 TV Channel 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 Microsoft 2,908 Manufacturing Eurasia BC CBD Q3, 2011 Metinvest 2,590 Manufacturing Rubin BC CBD Q1, 2011 Canadian Embassy 2,264 Embassy 13a Kostelna Str. CBD Q2, 2011 Ericsson 2,184 Manufacturing Forum BC NC-WB Q1, 2011 Unilever 2,130 FMCG Mikom Palace NC-WB Q1, 2011 Syngenta 1,900 Agriculture 120/4 Kozatska Str. NC-WB Q3, 2011 IBM 1,800 Manufacturing Horizon Park BC NC-WB Source: DTZ Research *FMCG – fast moving consumer goods; FIRE – Finance, Insurance, Real Estate; ICT – Information and Communication Technologies; A&M – Advertising and Media ** 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 Riverwww.dtz.com 8
  9. 9. www.dtz.com 9
  10. 10. RetailSupply Figure 10Total modern retail stock in Kyiv was estimated at around Modern retail stock in Kyiv1,001,400 sq m at the end of September 2011, or sq m sq m359 sq m of modern retail stock per 1,000 inhabitants 250 000 1 500 000(based on official demographics statistics). This figure 200 000 1 200 000accounts for all major retail developments in the city of orover 5,000 sq m gross lettable area (including multi-tenant 150 000 900 000retail centres and ‘big box’ single-occupied developments),and reflects a significant undersupply of retail space in the 100 000 600 000Ukrainian capital, particularly when considering the officialversus unofficial population imbalance and grey incomes. 50 000 300 000 0 0Around 75,080 sq m (GLA) of new retail supply wasdelivered in Kyiv in the first three quarters of 2011,comprised of the second phase of ‘Dream Town’ in Obolonanchored by an aqua park, the hypermarket Novus onBrovarskyi Avenue, as well as four neighbourhood retail Annual supply Cumulative supplycentres: ‘inSilver’ on Sribnokilska Street, ‘Kvadrat’ onOnore de Balzaka Street, ‘Livoberezhnyi’ on Maryny Source: DTZ Research * Projection Note: All figures are year-endRaskovoyi Street and ‘Victorio’ on Lvivska Square.The 25,000 sq m ‘Mega-City’ (phase 1) is the only sizeable In 2010, investors and developers both local andretail development scheduled for completion in the fourth international undertook numerous market analysesquarter of 2011 in Kyiv. Quality of the scheme however is concerning the demand, competitiveness and financialgenerally sub-standard, with individual retail units offered efficiency of their projects. Such activity continued duringfor sale. the first three quarters of 2011 and indicated positive retail property market prospects in Ukraine.The opening of the city central retail and leisure centre‘Gulliver’ (earlier known also as ‘Esplanada’ and Though new retail supply during 2011 has been rather low‘Continental’) is likely to be postponed until 2012. both in Kyiv and the regional cities of Ukraine, the years 2012 and 2013 are likely to see significant augmentation inMajor retail schemes delivered in regional cities of Ukraine new delivery in the sector.during the first three quarters of 2011 included the secondphase of the retail and leisure centre ‘City Mall’ in In 2012 new retail supply in the Ukrainian capital mayZaporizhzhya, the retail and leisure centre ‘Ukraine’ in amount to around 220,000 sq m (GLA), an increase onMariupol and the retail centre ‘Galaktyka’ in Kremenchug, current retail stock of almost 22%. Schemes planned foras well the DIY-stores ‘Epicentre’ in Kirovohrad, Chernihiv, delivery in 2012 in Kyiv include the first phase of ‘OceanMukachevo (Zakarpattya Oblast) and Kamyanets-Podilskyi Plaza’ developed by UDP and KAN Development, ‘Gulliver’(Khmelnytska Oblast). In addition, the wholesale centres in by Mandarin Plaza and Tri O, the third phase of ‘Domosfera’the format ‘METRO Baza’ were opened by Metro by DeVision, the neighbourhood retail centre ‘RayON’ byCash&Carry in Ternopil and Lutsk. Astra Property (Arricano Group), ‘Marmalade’ by VKF ‘Mava’, as well as the first phase of ‘Kiev E95 OutletIn October 2011, the retail centre ‘Passage’ was opened in Centre’, the first fashion outlet development in Ukraine.the core city centre of Dnipropetrovsk. In regional cities 2012 may see delivery of ‘City Centre’ inThe fourth quarter of 2011 may see delivery of ‘Ave Plaza’ Odessa, as well as extensions of ‘Magellan’ and ‘Frenchand ‘Magellan’ (phase 1) in Kharkiv, the second phase of Boulevard’ in Kharkiv, ‘Intermall’ in Simferopol, ‘Auchan‘Donetsk-City’ in Donetsk and the first phase of ‘Fabrika’ in City Park’ in Donetsk and ‘Fabrika’ in Kherson.Kherson. Table 5 Key retail property market indicators in Kyiv 2007 2008 2009 2010 Q1-Q3 2011 Directional outlook Stock (sq m) 534,185 647,885 854,220 926,320 1,001,400 S New supply (sq m) 89,200 113,700 206,335 72,100 75,080 S Prime shopping centre rents 180-220 200-250 120-150 160-200 160-200 §¨ ($/sq m/ month) Prime high street rents ($/sq m/ month) 300-350 350-380 100-160 110-220 110-230 §¨ Source: DTZ Research Note: All figures are period-end and quoted for retail units of area of 100-300 sq mwww.dtz.com 10
  11. 11. RetailDemand The lack of critical mass of quality retail space throughoutDTZ witnessed further improvement in the general Ukraine prevents a number of major international retailersdemand dynamics of the retail market across Ukraine in from entering the market. DTZ believes that the openingthe first half of 2011. Despite slightly deteriorating of stores by such brands as H&M, C&A, Debenhams andretailers’ perceptions of the Ukraine’s short-term retail Peek&Cloppenburg remains unlikely before late 2012 –potential, triggered by general dynamics on global early 2013.markets and political uncertainty in Ukraine, majorretailers continued seeking opportunities to expand in the ‘Big box’ retail operators continued to demonstrate highcountry during the third quarter of the year. activity in the first three quarters of 2011, driven by their development strategies combined with the widelyBeing the capital city of Ukraine, Kyiv remains the most recognised, largely unexploited potential of the Ukrainianattractive destination for all retailers operating and market and the availability of development land atconsidering entry into the country. Due to increased comparatively affordable prices.demand, the availability of premises in high streetlocations and successful retail centres in Kyiv has been Thus, Metro Cash&Carry, Epicentre and Nova Liniyavery scarce. further expanded across Ukraine. A number of food hypermarket operators including Fozzy Group, Auchan,Occupancy levels in the most popular, well located quality Novus and Amstor, as well as electronics and homemulti-tenant retail centres in Kyiv and other major regional appliance chain Comfy actively considered occupation incities returned to pre-crisis levels in the first half of 2011 retail developments not only in major cities of the countryand remained low during the third quarter of the year. with populations over 750,000 inhabitants, but also in smaller cities.Several new market entries were registered in the firsthalf of 2011. GAP opened its flagship store on the central Quality retail operators in Ukraine remain very selective inKhreshachatyk Street in Kyiv. New Yorker and Oysho terms of retail space quality and occupational terms.stores were opened in both Sky Mall in Kyiv and RiveraShopping City in Odessa.Table 6Major multi-tenant retail schemes scheduled for delivery in Ukraine in Q4 2011-2013Period Project City Size (sq m) Developer Developer’s nationalityQ3, 2012 Ocean Plaza (phase 1) Kyiv 72,200 KAN Development / UDP UA2011- 2012 Fabrika (in phases) Kherson 65,500 BUD HOUSE GROUP UA2011- 2012 Magellan (in phases) Kharkiv 62,500 Kray Property UAQ1, 2013 Retail and leisure centre Odessa 55,000 Amstor UA2013 Europort Retail Park Odessa 45,000 Europort ISL2012 Marmalade Kyiv 38,700 VKF ‘Mava’ UAQ4, 2012 Domosfera (phase 3) Kyiv 38,000 DeVision UAQ4, 2012 Intermall (phase 2) Simferopol 37,030 Astra Property / Arricano Group UA2012 French Boulevard Kharkiv 35,000 Aksioma UAQ1, 2013 Forum Lviv Lviv 33,000 Multi Development NTLQ1, 2012 City Centre Odessa 33,000 Venford / GMG Development UA2012 Gulliver (Continental) Kyiv 32,000 Mandarin Plaza /Tri O UA2012 Auchan City Park (phase 2) Donetsk 26,000 Immochan Ukraine UA / FRAQ4, 2011 Donetsk City (phase 2) Donetsk 24,920 Domus UAQ4, 2012 RayON (M26) Kyiv 23,000 Astra Property / Arricano Group UAQ4, 2012 Kiev E95 Outlet Centre Kyiv 15, 250 EVO Land Development UAQ4, 2011 Passage Dnipropetrovsk 12,950 GUM / Akselrod Estate UAQ4, 2011 Ave Plaza Kharkiv 7,100 UNIQA Real Estate AUTSource: DTZ Researchwww.dtz.com 11
  12. 12. RetailRents Figure 11With increasing retailer activity in the country and their Dynamics of retail rents in Kyivimproved perception of market potential, the first quarterof 2010 witnessed an increase in prime base rents in $ /sq m /monthquality multi-tenant retail developments in Kyiv of around 40010-25% compared to 2009. 350 300By the end of 2010 retail rents in prime Kyiv retail 250schemes grew by a further 10%. During the first three 200quarters of 2011 average monthly rents in Kyiv retail 150 100schemes remained generally stable at around $70-90 per 50sq m for premises of 100-300 sq m, reaching highs of 0$160-200 per sq m per month in the most sought-after 2006 2007 2008 2009 2010 Q1-Q3properties. 2011Similar dynamics were also observed in the few western- Prime high street rent Prime shopping centre rentstandard retail developments already well-established inother major cities of Ukraine. Source: DTZ Research Note: All figures are period-end and quoted for retail units of areas in the range of 100-300 sq mSince the second quarter of 2010, strengthened demand Outlookfor high street premises in Kyiv led to an upward The retail segment proved to be the most resilient to thecorrection of base rental rates for this category of real effects of economic crisis in 2008/9 compared to otherestate. The first half of 2011 witnessed further upward property sectors in Ukraine. DTZ believes that the retailpressure on prime high street rents in Kyiv. property market will show further growth in the medium term after global and domestic economic conditionsDespite the positive dynamics of an increasing number of further improve.new retailers entering the market and the improvement inactivity of companies already operating in Ukraine, DTZ projects that in the fourth quarter of 2011 the generalcombined with nominal new supply of quality retail stock, dynamics of the retail property market in Ukraine willDTZ does not anticipate any major upswing in base rental generally follow the pattern established in 2010 andrates in the fourth quarter of 2011. This is due to the lack during the first three quarters of 2011.of critical mass of new market entries, as well asuncertain further economic dynamics both globally Despite the remaining signs of the economic crisis andand in Ukraine. comparatively low incomes of the population, the potential of the retail property market in Ukraine undoubtedlyNevertheless, DTZ anticipates that in the short term, due remains high because of its immaturity in terms of qualityto the gradually strengthening demand of retail operators and formats of existing retail schemes, large country size,and the present lack of quality retail space, base prime high population density, perceived high brand awarenessrents in well-conceived multi-tenant retail schemes and and propensity to spend.high street locations in Kyiv and other major cities ofUkraine will be subject to further upward pressure. At the The opportunities within the retail property sector, oversame time, the longer term sustainability of current retail other sectors, are of priority interest for most developersrents will depend on the actual commissioning and quality and investors active in Ukraine, particularly within cities ofof new sizeable pipeline retail schemes scheduled for total population over 750,000 inhabitants.completion in 2012/13, particularly in Kyiv. Works on several sizeable retail projects in Kyiv and theQuality remains a crucial factor for the success of all regional cities of Ukraine were recently recommenced,existing and new retail developments in Ukraine. Today which, if delivered to current schedules, will lead to athe majority of developers in Ukraine accept that a well- considerable increase in retail stock in the country by theconsidered approach to selecting an appropriate location, end of 2013.efficient concept and thoughtful phasing of retail schemeswith due regard to the number and mix of quality retailers As a result, the Ukrainian market will offer moreand their planned expansion into the country, will secure opportunities for retail chain expansion, but retail rentslong-term financial viability and investment exit. will be subject to downward pressure, particularly in some poorly conceived first generation retail schemes in light of to the strengthening competition within the sector.www.dtz.com 12
  13. 13. Industrial & logisticsSupply Figure 12In late September 2011, total stock of modern Key industrial market indicators in the Greater Kyiv areawarehousing space in the Greater Kyiv area amounted toapproximately 1,205,365 sq m. This figure includes sq m USD/sq m/ month; %around 103,000 sq m of modern specialised 1 400 000 35chilled&frozen and chemical warehouse facilities. 1 200 000 30 1 000 000 25New supply on the logistics property market in the 800 000 20Greater Kyiv area amounted to around 29,515 sq m in 600 000 15the first three quarters of 2011, being comprised of threeproperties, all delivered in the first quarter of the year 400 000 10(Table 8). 200 000 5 0 0New supply delivered on the logistics property market inthe Greater Kyiv in the first three quarters of 2011represented a 55% and 72% annual decrease compared tothe same periods in 2010 and 2009 respectively. Total supply Annual speculative supply Prime warehousing rents VacancyThe majority of existing modern warehouse facilities in Source: DTZ Research Note: All figures are period-endthe Greater Kyiv area are located along the Kyiv-Zhytomyr Highway (M-06) and in the location defined as Figure 13Kyiv-Moscow Highway (M-01) and Brovary-Boryspil RingRoad, accounting for over 28% and 26% of total stock Existing logistics stock split by major locations inrespectively. the Greater Kyiv area, as of late September 2011In accordance with DTZ’s projections at the end of the M-06 (Kyiv-Zhytomyr)third quarter of 2011, new logistics supply during the 3%period from October to December 2011 may amount to 4% 8% M-01 (Kyiv-Moscow),between 84,250 sq m and 128,000 sq m (Table 9). Brovary-Boryspil RR 6% 28% M-03 (Kyiv-Kharkiv)The largest logistics scheme scheduled for delivery in thefourth quarter of 2011 is the first phase of a 41,400 sq m M-07 (Kyiv-Warsaw)‘Amtel Logistics Complex’ developed by ‘International 8%Logistics Company’, affiliated with the Russian ‘Amtel Kyiv CityProperties’. 17% 26% M-05 (Kyiv-Odessa)New logistics supply in the Greater Kyiv area maypotentially exceed 200,000 sq m (GLA) in 2012. M-04 (Kyiv-Dnipropetrovsk)Many warehouse developers in the Greater Kyiv area Otherexpect to begin construction of new projects or finishobjects under construction as soon as relatively large Source: DTZ Researchtenants for their space are secured, or within built-to-suitcontracts.Table 7Key industrial market indicators for the Greater Kyiv area 2006 2007 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Directional outlookTotal supply (sq m)* 184,530 384,310 821,780 1,016,600 1,175,850 1,205,365 1,205,365 1,205,365 SNew supply (sq m)* 71,130 199,780 437,470 194,820 159,250 29,515 0 0 SVacancy, % 1-2 1-2 14.5 20.6 17.9 14.7 13.3 11.6 SPrime rents (USD per sq m) 11 10.5 7.5-10 5.5-7 5.5-6.5 5.5-6.5 5.5-6.5 5.5-6.5 §¨Source: DTZ Research* Including ancillary office and mezzanine space Note: All figures are period-endwww.dtz.com 13
  14. 14. Industrial & logisticsDemandIn the third quarter of 2011, take-up of modern warehouse Rentsspace in the Greater Kyiv area amounted to 42,664 sq m, Headline rents for prime warehouse space in the Greaterwhich was by around 68% higher compared to the second Kyiv area varied from $5.5 to $6.5 per sq m per monthquarter of 2011, and exceeded take-up in the third quarter depending on the quality of space, location and generalof 2010 by around 44%. lease terms. Prime rents in the Greater Kyiv area are generally comparable to those registered in the suburbs ofIn January-September 2011, take-up in the logistics Bucharest (Romania), Prague (Czech Republic) andproperty sector in the Greater Kyiv area increased by Krakow (Poland).80% year-on-year, totalling to around 174,968 sq m.Please note that DTZ revised take-up registered in the DTZ projects that, other things being equal, by the end offirst quarter of 2011 from 92,474 sq m reported earlier to 2011 and in early 2012 rents for prime warehouse space106,974 sq m. will remain generally unchanged.In the first three quarters of 2011, occupier demand for Figure 14modern logistics space in the Greater Kyiv area was Take-up of logistics space in the Greater Kyiv areadominated by logistics and transportation companies(around 34% of annual take-up), companies operating in sq m 350 000the FMCG and food retail sectors (around 17%), as well aspharmaceutical companies (around 14%). 300 000During the first three quarters of 2011 transactions 250 000registered on the logistics property market in the Greater 200 000Kyiv area were dominated by the deals of the area in therange of 1,001-3,000 sq m. 150 000 100 000Following earlier DTZ’s projections, take-up in the logisticsproperty sector in the Greater Kyiv area during the period 50 000January-September 2011 exceeded annual take-up in2009 and 2010 by 11.9% and 20% respectively. 0 2007 2008 2009 2010 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 11This increased take-up reflects the intentions of manyexisting tenants to improve their space occupied and/or Source: DTZ Researchsecure opportunities to expand. However, it does not yetreflect strong market recovery in the Greater Kyiv area. Figure 15Vacancy Take-up of speculative logistics space by type ofBy late September 2011 primary vacancy in the logistics occupiers in the Greater Kyiv areaproperty sector amounted to 11.6%, decreasing by 1.7%quarter-on-quarter mainly due to absence of new supply 100%and comparatively significant take-up registered in the thirdquarter of the year. 80% 60%At the same time, at the end of the third quarter of 2011primary vacancy in the Greater Kyiv area was by 10.9% 40%lower compared to the figure registered in September 2010. 20%DTZ projects that by the end of 2011 primary vacancy inthe logistics property sector in the Greater Kyiv area may 0%increase due to significant new supply scheduled for 2005 2006 2007 2008 2009 2010 Q1-Q3delivery in the last quarter of 2011. 2011 Logistics & transportation Retail - Fashion Retail - Cosmetics, pharma White goods ICT FMCG/Food retail Automotive Other Source: DTZ Researchwww.dtz.com 14
  15. 15. Industrial & logisticsOutlook An increase in commercial activity and strengthening ofGiven the current economic conditions and delivery occupier demand, projected in the medium term, may leadpipeline, vacancy in the logistics property sector in the to a fall in vacancy and an upward correction in logisticsGreater Kyiv area will increase by the end of 2011 and rents in Greater Kyiv. DTZ is of the opinion, however, thatwill remain in double digits in 2012, with prime rents stable. the price elasticity of warehouse supply is higher compared to other sectors of commercial property market in Ukraine, and new logistics delivery could recommence relatively quickly.Table 8Major logistics schemes delivered in the Greater Kyiv area in Q1-Q3 2011Scheme Location Total area Developer Nationality Major tenants* Occupancy* (sq m) (%)Warehouse 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 at the end of September 2011Table 9Major logistics schemes planned for delivery in the Greater Kyiv area in Q4 2011Scheme Location Total area (sq m) Developer NationalityAmtel Logistics Complex (phase 1) M-06, E40 41,400 International Logistics Company RUBF Sklad (phase 3) M-03, E40 30,500 BF Group UAArktika Logistics Centre Kyiv RR 18,800 Skandinavia UAV-Log M-01, E95 15,900 AIC BELOffice and Logistics Centre M-07, E373 12,400 Local developer UASource: DTZ ResearchTable 10Major logistics transactions in the Greater Kyiv area in Q1-Q3 2011Period Scheme Occupier Occupier sector Total area Location Type of (sq m) dealQ1, 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 leaseQ1, 2011 BF Sklad Zammler Sklad L&T 14,500 M-03, E40 new leaseQ3, 2011 MLP Chayka Omega Automotive 7,850 M-06, E40 new lease AutopostavkaQ1, 2011 Komodor Tarkett Manufacturing 7,690 M-06, E40 new leaseQ1, 2011 BF Sklad F.Formula L&T 6,620 M-03, E40 new leaseQ1, 2011 Office-Logistics Centre WND Retail & distribution 4,100 M-07, E373 pre-leaseQ1, 2011 Terminal Brovary DMT-Group White goods 3,160 Brovary-Boryspil RR new leaseQ1, 2011 Office-Logistics Centre Logistic Ukraine L&T 3,160 M-07, E373 pre-leaseQ3, 2011 Warehouse Complex Brevarex Ukraine Pharma 3,055 Kyiv RR new leaseSource: DTZ Research WND – would not disclose*FMCG – fast moving consumer goods, L&T – logistics and transportationwww.dtz.com 15
  16. 16. InvestmentDTZ witnessed a stabilisation of property investor x The sale of a 5,500 sq m warehouse complex with 3 hasentiment in Ukraine during the first three quarters of 2011, land plot in Lutsk by the Ukrainian subsidiary of Nestléreflected by a slight decrease in yields still considered to to the Ukrainian group of companies Avanta; a dealbe at high levels compared to other European countries. closed in the first quarter of 2011.The decrease has been driven by rental growth prospects x The sale of the operational retail centre Kvadrat atand generally positive economic dynamics in the country. Lukyanivka by the AIM-listed Ukrainian company XXI Century to Monkar Limited for $14 million with a buy-Nevertheless, the commercial property investment market back option. The deal was reported in the third quarterin Ukraine remains a buyer’s market as opposed to the of 2011.seller’s market that prevailed before the 2008/9 economicdownturn. x The sale of the hypermarket in Kyiv, previously operated as a DIY-store ‘Nova Liniya’, to the UkrainianTransactions food retailer Fozzy Group for owner-occupation. ThisDuring the first three quarters of 2011, several investment deal, reported in the third quarter of 2011, wasdeals were concluded on the commercial property market estimated at around $10 million.in Ukraine, with a focus on Kyiv. Out of them, four x The sale of a 7.5 ha land plot near Chabany Village ininvestment deals totalled over $20 million in terms of Greater Kyiv to the Russian company Amtel Propertiesestimated value, all registered in the capital city. for potential commercial development. The deal was reported in the second quarter of 2011.The majority of completed investment deals in Ukraine in x The sale of the 12,000 sq m operating retail centrethe first three quarters of 2011 were open-market ‘Amstor’ in Mykolayiv to the Ukrainian food retailertransactions, in contrast to 2010, which was dominated by Tavria-V.off-market investment deals. In the third quarter of 2011, SECURE Management, a realQuality retail and office properties remained the most estate investment company focused on propertysought-after investment assets in Ukraine. Investors’ investments across South-East Europe, acquired throughappetites towards hotels somewhat eased compared to convertible bonds the shares in Aisi Realty Public Limited,2009/10, as opportunities to enter and realise projects in which is the property investment company withtime for the hosting of the UEFA EURO 2012 become development projects and related investments in Ukraine.unrealistic. The severe shortage of quality properties with stable cashThe acquisition of a city centre mixed-use development flows remains the major constraint for the increase in theproject in central Kyiv by a private European developer number of secondary investment deals in the Ukrainianwas the largest deal in the Ukraine commercial property real estate sector.market since 2008. Figure 16Other property investment transactions taking place inUkraine in January-September 2011 include: Volume of investment transactions in Ukraine* million $x The sale of the 12,120 sq m new-built ‘Shchekavytskyi’ 900 business centre in Kyiv to the Ukrainian television channel ‘1+1’ for owner-occupation in the first quarter of 800 2011, a deal estimated at around $25 million. 700 600x The sale of an office building in the central area of Kyiv to a Ukrainian commercial bank for owner-occupation. 500 This deal, reported in the first quarter of 2011, was 400 estimated at around $25 million. 300x The sale of a 21,600 sq m operating logistics complex 200 in Velyka Oleksandrivka Village in Greater Kyiv to a 100 pharmaceutical company for owner-occupation in the 0 first quarter of 2011. 2003 2004 2005 2006 2007 2008 2009 2010 Q1-Q3 2011x The sale of warehouse complex in Obukhiv to May Office Retail Industrial Hotel Company for owner-occupation. The deal estimated at around $5 million was reported in the second quarter Source: DTZ Research Note: All figures are period-end of 2011. *The figure includes secondary investment transactions (the sale of land plots was excluded).www.dtz.com 16
  17. 17. InvestmentIn January-September 2011, commercial banks in Ukraine Figure 17continued to provide property development financing to Prime yields in Kyivselected borrowers with strong attention paid to reputation %and track record of the developer, its credit history, as well 25as quality of a project to be financed and the collateral. 20The most active property investors in Ukraine in the firstthree quarters of 2011, as in 2010, were local companies 15and private individuals with a strong cash position. 10European investors demonstrated modest interest inacquiring Ukrainian property assets. 5Similar to 2009 and 2010, the most active vendors in the 0property sector during the first nine months of 2011 inUkraine were local companies and private individuals.Yields Office Retail IndustrialDue to the global credit squeeze, prime yields in the core Source: DTZ Research Note: All figures are period-endmarkets of Central Europe as well as in Prague, *No true open-market secondary investment transactions, yield perceived by market playersBudapest and Warsaw typically increased by around 3% ** Projectionsin late 2008-2009 from the lows of late 2007. Meanwhileprime yields in Kyiv increased by around 7% despite a far Figure 18more profound downwards rental correction in the Prime office rents and yields in KyivUkrainian capital. $ / sq m / month %In 2009, commonly perceived net initial yields in Kyiv were 50 20varying between 15-20% which, due to suppressed market 40 16rent levels, reflected relatively low capital values,discouraging vendors from selling, and banks from 30 12applying pressure on borrowers to liquidate assets. 20 8During the last five quarters from Q2 2010 to Q2 2011,prime net initial yields in Kyiv were perceived to remain 10 4generally unchanged, i.e. at 13.5% for prime office space,14.5% for high-quality retail properties and 15% for prime 0 0schemes in the logistics property sector. In July- 2009 2010 2011* 2012* 2013* 2014* 2015*September 2011, DTZ witnessed a further decrease in Prime office rent Prime office yieldprime net initial yields in Kyiv by 0.5% across allcommercial property sectors, driven by improved investor Source: DTZ Research Note: All figures are year-endsentiment on the country’s potential. *ProjectionsIt should be appreciated that yields remain highly In DTZ’s opinion, still relatively low capital values insensitive to asset value due to constraints over the Ukraine that have decreased since late 2008, combinedavailability of debt finance, however there remains strong with strong rental growth prospects, present attractiveinterest in good ‘flagship’ buildings mainly in central Kyiv, opportunities for investors in view of the recognised highirrespective of size. Such assets tend to command potential of the commercial property market that remainsinterest on a value determined on sq m basis rather than structurally undersupplied across all sectors in the country.on a yield basis. DTZ expects that prime net initial yields in Kyiv will remainOutlook stable, at 13% for office space, 13.5% for high-quality retailDTZ believes that pre-crisis yields in Ukraine were properties and 14.5% for prime schemes in the logisticsirrationally low in view of the clearly unsustainably high property sector by the end of 2011.rents. However, post-crisis increased yields coupled with adownward correction of rents, particularly in the office In the longer term, as the Ukrainian property marketproperty sector, are now offering fair value to investors. matures, there is further scope for yield compression, coming off comparatively high existing levels.www.dtz.com 17
  18. 18. www.dtz.com 18

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