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Real estate market review Q2 2014

Real estate market review Q2 2014

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Real estate market review Q2 2014

  1. 1. REAL ESTATE MARKETS REVIEW Q2 2014
  2. 2. SUPPLY In 2014, over 158,000 sq.m are scheduled to delivery. In case all the announced projects will be completed in time, the total market supply will amount to 1,814,000 sq.m and will result 9% increase of the total office stock in Kiev. In 2Q 2014, over 84,000 sq.m. of new office space have been delivered on the market. The most outstanding among them are BC ‘Domino’ and BC ‘IQ Business Center’. DEMAND The volume of office space leased in the Ukrainian capital in the second quarter reached about 18,000 sq m (GLA). It is by 28% less in comparison with the same period in 2013. But, nevertheless, this figure is higher than in 1Q 2014 by 40%. Tenants in Kiev and other big cities reduce their leased areas. VACANCY AND RENTS the overall vacancy rates in Kiev at the end of 2Q 2014 increased by 2% and reached 22%, driven by exceeding of new supply over take-up level. Traditionally, vacancy in Class A offices is higher than in Class B: in 2Q 2014 Class A vacancy rates were at the level of 31%, and nearly 20% in the Class B. Asking rents in business centers delivered to the market earlier before Y2012 (‘old’ group, represented by Parus, Leonardo 1 phase) are higher and can be treated as market prime rents, which are USD 34-36/ m2 / month triple net. ‘New group’ (built after 2012) provides more aggressive policy: their prime rents started from USD 24 / m2 / month to USD 35 / m2 / month. OUTLOOK In 2014, a significant volume of new supply conjoined with the further destabilization of economic and political situation in Ukraine, has negatively affected office market balance. Tenants turn to reduce spaces for business, rental rates are under the pressure of insufficient demand as well as grown up competition. Developers look cold suspicion on new business project and prefer to work with already existing developments. OFFICE Q2 2014 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1800.0 1750.0 1700.0 1650.0 1600.0 1550.0 1500.0 1450.0 1400.0 DYNAMICS OF OFFICE SPACE SUPPLY, THS SQM Total New Take up Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% VACANCY, % Total Class A Class B Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
  3. 3. SUPPLY In Q2 2014 there was only one new hotel in Kiev - Park Inn by Radisson with 199 rooms in 3 stars category. Thereby, there are approximately 10,300 rooms of different categories on Kiev hotel market, and the biggest share in structure is represented by 3 stars hotels. According to experts, hospitality market in the capital of Ukraine is oversaturated, so, developers’ attention should be concentrated on regional markets. The most preferable among them are Odessa, Donetsk, Lviv, Kharkiv markets. DEMAND Political tensions in the country caused a reduction of tourist flows and demand for hotel rooms as well. The average projected fall is 20%. OCCUPANCY AND RENTS Business trips to Ukrainian capital step by step return to the normal level, nevertheless, the amount of business guest from Russia remain stable low. So, in the Q3-4 2014 market expects renewal of occupancy levels at 35-45%, consider that dynamics of the last group of visitors’ inflow in the future is uncertain. OUTLOOK According to the developers’ announcements, the total supply of hotel rooms in Kyiv in 2014 may increase by 5% in 2014 and more than 15% during the next years. International and local developers maintain their interest in regional markets, in mid-range and economy segment. There are only few projects in the capital and their amount is not expected to increase. The future development of the Kiev hotel market may hang upon only reconstruction of the existing facilities. HOSPITALITY Q2 2014 4,610 4,610 4,809 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 End 0f 2013 1Q 2014 Q2 2014 5* 4* 3* 2* 1* SUPPLY OF ROOMS, % STARS UAH EUR Q1 2014 Q2 2014 Q1 2014 Q2 2014 3 1,150 955 77 61 4 1,990 1800 133 114 5 5,500 3245 365 205
  4. 4. SUPPLY Kiev primary residential real estate market supply starts to increase in April up to the end of Q2 2014. Secondary market supply dynamics wasn’t one valued: despite rather big growth in Q1 2014, it has dropped significantly in May, with further improving in June. Rental market supply has decreased slightly after significant apartment’s vacancy in Q1 2014. Step by step live in Kiev become suffer and after president elections business continue to develop, so, a part of vacant spaces was took up. DEMAND Demand for residential premises in Q2 2014 has shown a remarkable increase after outstanding fall in Q1 2014. Such growth has been driven by demand that comes from Donbas movers, as well as by rather flexible pricing policy of sellers, particularly on the primary market. The rental market was traditionally more active than sales market. Demand has grown, approximately by 50% in comparison with Q1 2014 and by 8-9% in comparison with the same period last year. PRICES AND RENTS During 2013 prices for apartments on primary market had mostly negative dynamics. A slight decrease was observed on secondary market as well. In Q2 2014 supply dominates demand, so a competition to win a client powers up. In Q2 2014 prices on rental market has decreased by 7-8% averagely. More significant reduction was observed in economy and middle-range segment of apartments. OUTLOOK Given to the difficult economic situation, there is a pent-up demand on the sales residential real estate market that may come into force in Q3-4 2014. It can leverage market balance and rise up market prices. RESIDENTIAL Q2 2014 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% DYNAMICS OF APARTMENTS SUPPLY, % Primary market Secondary market January February March April May June 2500 2000 1500 1000 500 0 DYNAMICS OF SALES PRICES, USD/SQ M Primary market Secondary market January 2014 April 2014 July 2014 DYNAMICS OF DEMAND ON THE SALES MARKET, % -21.78% -37.79% 23.11% 38.84% 18.03% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% -40.00% -50.00% February March April May June
  5. 5. SUPPLY In the second quarter of 2014 TC Atmosphere has appeared on the market (leasable area of 30.2 thousand square meters). The new hypermarket Leroy Merlin and TC Appetite also were delivered, but, their cumulative area is not significant. It is scheduled to delivery only 74.7 thousand square meters, which is by 50% less than in 2013. DEMAND Number of retail operators have cancelled their entrance to Ukrainian market. H&M is among them. On the other hand, considerable expansion prepare Polish operator LLP (Reserved, Mohito, Cropp Town, Sinsay) – its shop will appear in ‘Respublika’, ‘Prospect’, ‘Karavan’ (Dnipropetrovsk) and in Lviv. VACANCY AND RENTS The share of vacant spaces in Kiev by the end of Q1 amounted at 5.6%. During Q2 2014 it has risen by almost 40% to 7.8%. To keep the quality retailers, many landlords were forced to revise the lease terms with each tenant individually. Driven by such changes, prime rents in shopping centers become a subject of differentiation: from 70 to 100 USD per sq.m/month. OUTLOOK In the first half of 2014 about 55% of expected new supply was already delivered to the market. The other part of new supply is represented by TC Prospect (40.5 thousand square meters) and scheduled to delivery in the second half of the year. It results a 50% decrease in new market supply in comparison with 2013. Base asking rental rates for high-quality retail real estate in short-term period will remain stable, with some downward correction by 3- 5%. Due to political uncertainty, a lot of retailers postpone expansion and market entrance, so take-up will not be huge in 2014. RETAIL Q2 2014 1000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 DYNAMICS OF RETAIL SPACE SUPPLY Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% VACANCY, % Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
  6. 6. SUPPLY In the Q2 2014 developers’ activity brought 120.6 th. sq. m of new supply An additional 28,000 sq.m of modern warehouse space is expected to be delivered to the market in Q4 2014 Still active in terms of logistics infrastructure development remain the Kiev region, Dnepropetrovsk and Odessa region. DEMAND The largest share in the overall demand structure in Q2 2014 was represented by pharmaceutical, food, logistics and transportation sectors. The overall take up is approximately 31,000 sq.m. The whole demand was concentrated in Kiev region. Rather high and unsatisfied demand is for ADR and special temperature conditions warehouses with small area. VACANCY AND RENTS The vacancy levels in Kiev region were rather low and stable – approximately 3-3.5% during Q1-2 2014. For some object there is a slight vacancy growth – by 0.2-0.3%, the first rates rise since 2009. Kiev warehouses rents were also rather stable. The average rents for Western Bank were at 6-6.5 USD/sq.m./month, for Eastern Bank – 4.5-5.5 USD/sq.m./month. OUTLOOK 148.6 th. sq. m of warehousing premises are scheduled to delivery in 2014. Nevertheless, only 65% of this amount will be presented for open market. Thus, demand for warehouses space is higher than new supply delivery in market balance. Such situation provides stability in market rents, despite punctual rents reduction. Vacancy rates remain low, there is now expectation for substantial growth in the nearest future. WAREHOUSES Q2 2014 DYNAMICS OF WAREHOUSES SPACE SUPPLY 1328.93 1405.68 1529.68 1529.68 1529.68 1650.28 1800.0 1600.0 1400.0 1200.0 1000.0 800.0 600.0 400.0 200.0 0.0 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 300000 250000 200000 150000 100000 50000 0 TAKE UP VOLUMS, SQ. M. 2012 2013 2014

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Real estate market review Q2 2014

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