Editor's Choice Interview Ukrainian macroeconomics

After a period of deep crisis, 2017, for the first time, showed a significant increase in demand in every type of real estate in Ukraine

Vitalii Boiko, founder of NAI Ukraine and Urban Experts, gave a favorable forecast to the Ukrainian commercial real estate market and assured that today there are all conditions for the entry of international developers into the market of Ukraine.

According to Vitalii Boiko, 2018 will be a turning point not only for the commercial real estate market, but for the entire country. And the market will be pushed by increased competition. This year, for example, will open a number of sites run by NAI Ukraine, which is Ocean Mall, Blockbuster Mall, and the first turn of the Rive Gauche. Also, the founder of one of the best consulting companies in Ukraine predicted a higher activity of local brands, and given the recognition of Vitaliy’s Person of the Year in the Real Estate Market under the EEA Project Awards 2017, has no reason to doubt it.

: NAI Ukraine, one of the best consulting companies in Ukraine, annually publishes an analytical report on the state of all types of Ukrainian real estate market. What are the results of 2017, and should we expect positive changes in 2018?

V. Boiko: After a period of deep crisis, 2017 saw for the first time a significant increase in demand in every type of real estate. If in 2016 we talked about the market going to recovery, then in 2017 the market so rapidly change the indicators that by the end of the year we have already observed a deficit of free premises.

: The office property market has remained unattractive for investors for a long time. Should we expect the recovery of the market this year?

V. Boiko: This year, for the first time since the crisis of 2008, the surplus of premises “left” the market. Moreover,  the demand for office space continues to grow. Soon, the balance of quality free space that is still on the market will not be enough to satisfy the growing interest in expanding and opening new offices.

Recent years have been marked by very low commissioning of office space. Also, it significantly increased and reached the pre-crisis level of 120-130 thousand square meters. / year of absorption and, importantly, at the expense of domestic companies, especially in the IT field. If in 2008, 60-70 % of the market was occupied by international companies, today much more area is absorbed by local businesses. But at the same time,

in connection with European integration and positive economic changes in the country, the attention of international business to Ukraine is also growing, and soon foreign businesses will need more office space in Ukraine. Therefore, the need for new development of offices is obvious.

The share of vacancies today is at 13%, and this is a healthy market indicator. In 2017, 130-150 thousand sq. M were absorbed. office space, and in the near future it is planned to put into operation about 40-50 thousand square meters. Thus, dissatisfied demand is expected, the result of which will inevitably increase rates.

: According to the analytical report of NAI Ukraine, tourist flows to Ukraine continue to grow. Will it make the  hotel business more attractive to investors?

V. Boiko: Yes, today, tourist flows to Ukraine continue to grow: yes, according to the results of 2017, the inflow of tourists to Ukraine has increased by 11 %, and in Kiev — by 22 %, together with the growth of passenger traffic of airports. This, correspondingly, reflects the demand for hotel rooms — occupancy rate in Kyiv hotels in 2017 reached 50 %, gradually approaching normative values. It’s too early to talk about the deficit, but we already see the preconditions for growth in demand and development — in 2017, several 3 and 4 stars were opened under the control of international operators.

: You work practically with all the best shopping centers in the country and is an exclusive broker of a network of megamols in Kiev. What are the forecasts for the commercial real estate market of Ukraine in the near future?

V. Boiko: Ukraine’s retail real estate market has retained its investment attractiveness throughout the crisis period. More than a billion dollars annually invested in commercial real estate of the country. Yet last year the commissioning of new facilities was minimal. After the opening of the largest shopping mall of the country, the Lavina Mall in December 2016 was calm. But the calm is very temporary.

The next year will become a turning point for commercial real estate of the capital, and the country as a whole. The quality offer of shopping centers will increase rapidly, which will unquestionably increase competition and become a catalyst for changes in the market. In 2018, three objects with which NAI Ukraine operates will be opened — Ocean Mall, Blockbuster Mall (developer — Mandarin Plaza) and the first turn of the Rive Gauche (developer — Immoshan Ukraine).

The project of Immoshan Ukraine, one of the largest developers in Europe, will raise the quality standard for local developers.

Ocean Mall and Blockbuster Mall will become the next objects of the network of megamols, the first of which was the Lavina Mall. These shopping malls are not only unique for Ukraine, they are unprecedented for Europe. Due to the strategic location, strong entertainment component, thought-out tenant-mix, these new objects will win a monopoly right to the main brand of shopping in the capital for brands that are new to the Ukrainian market. And there will be only two variants of the development of events for the Kiev shopping malls — to improve the quality of the offer to the level set by the new trading complexes, or to get out of competition.

As for retailers, local brands have already returned to active development. Moreover, in Ukraine there are international retailers, which postponed entry into the country due to the crisis situation. The result of the emergence of new and strengthening of existing brands will be an increase in demand, which, in turn, will give a significant impetus to the growth of development.

: Should we expect growth in development and residential real estate?

V. Boiko: Due to internal migration and the lack of directions for private investment, residential real estate is the largest investment market in the market and the most popular among local developers.

Ukrainian developer companies have increased the volume of maintenance of dwellings. However, there are restraining factors for real estate development,among which – the lack of lending to developers, without mentioning the project lending. And if the construction of residential real estate property can occur at the expense of the population, then construction of commercial real estate – only at the expense of the developer, which significantly reduces the number of companies in this business. That is why the exuberant demand for land has not yet been observed.

Today there are favorable opportunities for the international developers and foreign companies to enter the Ukrainian real estate market, especially if they have the opportunity to get lending to work in Ukraine. It is important to “catch” this moment, while land prices have not started to grow.

With the improvement of the economic situation, the banking sector, which has survived the crisis, will recover and gradually return to lending. Accordingly, the range of companies that will be engaged in development will expand, demand for land will increase, and prices will start to grow.

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