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Ukraine Real Estate Report Q3 2010
Business Monitor International, June 2010, Pages: 73
The Ukraine Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's Real Estate industry.
After what is almost certainly the world’s most brutal contraction in economic activity in the wake of the global financial crisis (with GDP shrinking by 15.4% over the course of 2009), participants in Ukraine’s commercial real estate sector have had to contend with a slump in rental rates of 25-40% – across all three sub-sectors – in the last year or so. Vacancy rates are running at 15-20% or worse in the three cities for which we gather data – Kiev, Kharkov and Dnipropetrovsk. The main exception to this appears to be the retail sub-sector in Kiev but, even there, rents have fallen by around one-third.
Our in-country sources are confident that conditions will get better, even though the economy appears unlikely to regain the 6-7% growth rates that were the norm prior to 2008. BMI expects that domestic demand will rise only slowly, given the over-leverage of the private sector, the under-capitalisation of Ukraine’s fragmented banking industry and the fiscal constraints that have been imposed on the government. In essence, much depends on an export-led boom (which, in turn, is driven by the sharp fall in the hryvnia over the past two years) feeding through to the real estate sector.
There is one other positive dynamic. Although not alluded to overtly by our in-country sources, there must be pent-up demand for new and high-quality office and retail space (in Kiev, especially). Our sources are confident that the overall levels of rents will rise as a result of the completion of a number of new projects – including several that were frozen during 2009 as a result of the crisis. We agree that this is good news, but caution that the implication is that there must be a lot of older real estate in the office and retail sub-sectors that will prove very difficult to let.
The slump in rents has – as in much of Central and Eastern Europe – caused yields to fall. However, we suspect that the drop in rents relative to prices and capital values is, in part, due to the lack of transactions in what must have been a traumatised marketplace. Looking forward, we expect that prices and capital values will come down over the next year or so, in part because of forced sales by over-leveraged investors. From 2012, rental rates should increase as a result of the occupation of new projects. In essence, we look for yields to stabilise this year and to start rising from 2011. Interviews with our in-country sources were conducted in late February 2010.
Key Features Of This Report
This is the latest edition of a new series of industry reports published by BMI that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. Once again, the questions that we seek to answer for each country remain as follows: What are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term? What are the main constraints that they face? What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries?
For Q3 we have introduced a very substantial new improvement to the reports. We have incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report.
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