Anna Koval, Executive MBA, Director of SCG — International Real Estate Investments, co-founder of UkraineGateway brand, Vice-President of the European Committee of the FIABCI International Real Estate Federation 2018-2020
In 2018 and 2019, Anna entered the TOP-10 most influential people in the real estate business of Ukraine, and in 2019, according to the results of the Professional Recognition all-Ukrainian competition, she received the Best Real Estate Investment Expert Award.
Why invest in Ukraine?
The International trade missions in Ukraine showed the growing interest of international investors in Ukraine during the last year. The mission provided foreign companies and investment funds a chance to explore investment opportunities in the real estate sector. The message was clear: now is the time to invest in Ukraine.
Today Ukraine is a ground floor investment opportunity located in Europe, offering a highly skilled and productive workforce, low-cost manufacturing platforms and attractive entry valuation. When combined with a cost-efficiency, strategic geographic location and rapidly-improving business climate, Ukraine has much to offer. International investors are no longer asking about the reasons to invest in Ukraine. A number of new international companies have started operating on the Ukrainian market and many existing businesses have expanded their investments significantly. Greater numbers of investors begin to understand the power of the reasons behind the statement Why Ukraine.
1. Country transformation
Located at the European Union’s frontier, Ukraine has a proWestern, a pro-business government focused on implementing reforms and strengthening the national economy and institutions. It is on its way to becoming an economic turnaround success story. In particular, Ukraine his climbed 5 more spots in the Doing Business Ranking (currently occupies the 71st position) this year and has risen by 41 positions since 2014. Furthermore, we have moved from the 89th to 83rd position in WEF Global Competitiveness Index 4.0 and in the Investor Relations and Data Transparency Rankings from the Institute of International Finance. Ukraine has shown the greatest progress among the developing countries increasing the overall score from 16 to 36.5 out of a maximum of 42.
2. Highly skilled human capital – world’s digital workshop
According to the World Bank, Ukraine ranks 50th among 157 countries in the new Human Capital Index. If one takes into consideration the size of our country, which is the largest in Europe with population of 43 million, its strong economic and scientific potential as well as the highly educated professional population, one will inevitably conclude that investing and doing business in Ukraine has limitless opportunities and great prospects.
Ukraine is 38th in the 2019 ranking of National Higher Education Systems by Universitas 21, a global association of research universities. With the educational system’s strong focus on technical disciplines, Ukraine is home to the largest IT engineering force in CEE.
International companies operating and expanding in Ukraine demand highly skilled workers and set high standards for the entire labor market. Over the last 10 years, the use of the English language has become more widespread, becoming an integral part of the education system and a key focus for the Ukrainian government.
3. Efficient production platform in Europe.
Cost of Living is one of the Attractive Opportunities in Ukraine. The cost of living in Kyiv, the capital of Ukraine, ranks 358th out of 454 cities in the world (information from numbeo). According to the “fDi European Cities and Regions of the Future 2018/19 Rankings” report, Kyiv took the 3rd place in the Cost-Effectiveness category.
4. Logistics and infrastructure opportunities.
Ukraine’s geographic location makes it an important transit corridor for trade and travel between Europe, Asia, and the Middle East. When combined with its other comparative advantages, Ukraine has the potential to become an exclusive and potent Eurasian Hub.
Ukraine has a robust infrastructure for sustaining an export-oriented economy – close to 170,000 km of roadways, some 22,000 km of railways, 13 seaports along mainland Ukraine and over 20 passenger airports.
5. Improved business climate
The Government has emphasized the critical role that foreign investment plays in Ukraine’s economy and has made great strides to improve the business climate in Ukraine. In fact, in the past 4 years more reforms have been enacted than in all the previous years since independence. The Government has approved its Strategic Action Plan 2020, which provides for on-going deregulation, improving corporate governance of state agencies and privatization, supporting innovation and improving the Ease of Doing Business.
In accordance with Doing Business-2019 by World Bank, Ukraine was ranked 71st among 190 economies on its ease of doing business, having moved up from the 76th position in 2018 and has improved in minority investors protection, contract enforcement, international trade, and construction permits procurement.
Рис. Macroeconomic indicators in Ukraine (%)
Real Estate investments
2019 was marked by further improvement of market sentiment and actual transactional dynamics in the investment market. This was driven by continued currency stability, improved dynamics of the commercial property markets in Ukraine, and an increasing number of local companies seeking to deploy accrued equity into real estate both as purely income-producing investments and for owner-occupation.
Occupier demand in ofﬁces, retail and logistics markets throughout Ukraine has strengthened throughout the last two years and now there are signs that lack of available supply is hindering some relocation and expansion plans. Pipeline delivery, though increasing, remains constrained, resulting in ofﬁce vacancy levels in Kyiv and the key regional cities being at historic lows not witnessed since 2008. This is having the effect of driving up rents, and this trend is likely to continue in the short to medium term.
Commercial real estate in Ukraine is generating annual Yields 12-14%
Рис. Capital values and yields in KYIV
During 2019 new supply in the office market sector amounted to around 59,600 sq m.
Low development activity during the earlier periods combined with relatively strong occupier demand, largely driven by IT companies, industrial companies and companies providing business services, has continued to put upward pressure on effective rents for office space in Kyiv – in 2019 prime base office rent in Kyiv was around 30 USD per sq m.
Prime yield for office properties in Kyiv is around 11.5-12% and it is projected to remain at the current level in the short term. Office properties in Kyiv remain an attractive asset class for investment acquisition in Ukraine, however, the availability of quality product at price, perceived by the market to reflect fair value, is becoming scarce.
The average vacancy rate in Kyiv decreased in 2019 to 6.2%. This is due to the fact that for several consecutive years the offer of new business centers on the market was minimal, and those premises that were commissioned were absorbed relatively quickly due to the development of the IT industry in Ukraine and the activities of outsourcing companies. The leaders in popularity among tenants are high-quality A-class business centers located in the central areas of the capital that meet such requirements as a well-thought-out concept, the presence of a large parking lot, excellent views, modern engineering systems, etc.
The rate of provision of office space in Kyiv is significantly lower compared to other European cities. At the same time, an increase in demand from tenants, a decrease in vacancy and an increase in rents indicate the potential of this market segment and the prospects for its development.
Despite the fact that there are currently a sufficient number of land plots for the office centers development , a shortage of funds and difficulties in attracting borrowed capital remains a limiting factor in the market.
Рис. Office Property Market in Kyiv
In 2019 occupier demand in the warehouse sector was largely driven by traditional logistics and transportation service providers, as well as retailers. E-commerce was also a major driver of the firms’ warehouse interest in the past years. Some companies use warehouses for manufacturing.
Prime rents for the most sought-after warehouse and logistics properties in the Greater Kyiv area were subject to further upward pressure in 2019. This trend is likely to continue during 2020. The prime yield for logistics properties remained at 12.75% in 2019. It is projected to remain at this level during the next year.
Weak development activity combined with strengthening occupier demand continues to keep vacancy at low levels with upward pressure on effective occupational costs in the most sought-after properties. At the end of 2019, primary vacancies further decreased to 1.9%, whilst asking monthly base rents for prime warehousing space increased and were in the range of USD 4-5 per sq m. These numbers show that Ukraine has great potential for the development of logistics in real estate projects.
Рис. Key indicators of the logistics property market
Retail remains the most vibrant segment of the commercial property field. An unprecedented volume of new supply is scheduled for completion in 2019-2020 with 650,000 square meters of the gross leasable area under construction. The Kyiv retail segment counted 1,3 million square meters in 2019.
Every new investor is of great value to us and we are committed to continuing our work to support and improve the business opportunities for the foreign investors in Ukraine.
We highly appreciate your trust in our country, your confidence in the future successes of investments, and your vision of Ukraine as a promising and rising market.
All these opportunities contribute to the image of Ukraine as an attractive investment destination.