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Ukraine Real Estate Report Q1 2011
Business Monitor International, Jan 2010, Pages: 72
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 the global financial crisis, and with GDP shrinking by 15% in 2009, participants in Ukraine’scommercial real estate sector had to contend with a slump in rental rates of 25-40% – across all three subsectors– in the year. In early 2010, vacancy rates were running at 15-20% or worse in the three cities forwhich we gather data – Kiev, Kharkov and Dnipropetrovsk. The main exception to this appears to be theretail sub-sector in Kiev but, even there, rents have fallen by around a third.
When we interviewed them in early 2010, our in-country sources were confident that conditions wouldget better, even though the economy appears unlikely to regain the 6-7% growth rates that were the normprior to 2008. BMI expects that domestic demand will rise only slowly, given the over-leverage of theprivate sector, the under-capitalisation of Ukraine’s fragmented banking industry and the fiscalconstraints 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 thereal estate sector.
There is one other positive dynamic. Although not alluded to overtly by our in-country sources, theremust be pent-up demand for new and high-quality office and retail space (in Kiev, especially). Oursources are confident that the overall levels of rents will rise as a result of the completion of a number ofnew projects – including several that were frozen during 2009 as a result of the crisis. We agree that thisis good news, but caution that the implication is that there must be a lot of older real estate in the officeand retail sub-sectors that will prove very difficult to let.
The slump in rents in Ukraine – as in much of Central and Eastern Europe – caused yields to fall through2009. However, we suspect that the drop in rents relative to prices and capital values is, in part, due to thelack of transactions in what must have been a traumatised marketplace.
By mid-2010, it was apparent that rents and yields were stabilising. We are confident that much of thenecessary adjustment to prices and yields is now in the past. We anticipate that yields will adjustgradually so that they return to the levels prevailing prior to 2008. The biggest changes will be in theoffice and retail sub-sectors of Kharkov, where yields soared during 2009.
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