Dmytro Omelchuk is a Commercial Director of DELTA Ukraine. He is convinced that it is possible not only to save but also to expand the business even in crisis situations with the right work organization. An experienced manager demonstrates it on the example of his own company and shares with the LDaily readers the necessary organizational reforms, the principles of corporate culture and values, as well as particular qualities of the real estate market that require innovative solutions today and in the future.
LDaily: DELTA has been operating in Ukraine for over 12 years. How have trends changed over the years in the Ukrainian real estate sector?
D. Omelchuk: During all this time in Ukraine, we managed to see many incidents and survived a number of crises, which changed the country and us. Financial and economic crises, war, pandemic… All these events directly influenced development and trends in the domestic real estate sector and the company itself.
In fact, trends in Ukraine are changing similarly to European ones. I would say it’s happening almost simultaneously. Sometimes faster, sometimes slower. The approaches to development and the requirements for the architecture and concept of the object have mostly changed. If about 10 years ago the main criteria of the development project were the price and location, now the buyer has become more demanding and the market more saturated. Now the client needs to be “lured” to your object and this can be achieved by a thoughtful and modern concept of the object.
LDaily: Which segments of real estate in Ukraine are of the greatest interest among investors?
D. Omelchuk: Here we should divide the question into two parts regarding the priority in time. As for the short term, we all understand that the situation with COVID-19 has dramatically changed the real estate market not only in Ukraine. Currently, logistics real estate is developing very intense and there are several reasons for this. Firstly, the recent crisis has shown that the logistics segment has proved to be the most secure. That is, the need for product storage has not decreased. Secondly, there is an increasing demand for e-commerce. Here we can forecast further growth due to the fact that more and more retail will switch to e-commerce format and will actively develop it. Thirdly, there is an insufficient supply of quality warehouse space. Not many logistics projects have been launched on the market in recent years. Therefore, there is a certain shortage of quality spaces. Finally, the last one is the development of intra-city logistics. Right now, there is a great demand for warehouse projects in the city, which allows retail to save significantly on the cost of logistics and delivery time to the buyer. Also gives it an additional competitive advantage over others.
Regarding forecasts, in my opinion, the optimization and interconnection between logistics centers and their transport links will become more intense and developed, so the supply of warehouse real estate will enter a phase of rapid growth.
As for offices and co-working spaces, we see that such projects have taken a back seat and will transform into something different. We all understand that work from home will not last forever, so the need for office spaces will increase over time. However, in my opinion, office complexes that meet the criteria of safety, interior comfort, and quality will have the advantage over just square meters somewhere in the city center.
We also see healthcare facilities coming to the fore. Next year we expect moderate growth of investment, as the crisis has revealed potential opportunities and problems of existing clinics.
LDaily: What are the main factors influencing the construction market of Ukraine? What restrains its development?
D. Omelchuk: The most important factor is to attract investment. We noted that in mid-2020, the price of attracting bank investment was slightly lower, which had a very positive impact on the number of new projects planned for 2021. The cost of institutional financing from international financial institutions is much lower and available for many market players. Although the requirements for the project and the borrower have become stricter.
Significant over-regulation of the market, its opacity, and difficulty in obtaining permits are the main factors that impede the development.
That is, the construction and economic part of the project is clear and simple for the developer. However, there are always many “surprises” waiting for us when it comes to changing the purpose of the land, obtaining town-planning conditions and restrictions, a building permit, and putting the facility into operation. Particularly, the local investor has a significant advantage over the international one, as he is already adapted to these market conditions and features and can anticipate and avoid them in advance.
LDaily: Do you feel an increase in demand for eco real estate? What forecast could you give in this direction? What solutions does your company offer?
D. Omelchuk: I think that these projects will be in demand in the long run. Clearly, the investors’ interest is growing, but in many projects, it doesn’t go far from just an interest. One of the factors regarding the growth of demand and interest is financing though. If the developer aims to attract funding from the EBRD, IFC, etc., he must meet the criteria of sustainable development and energy efficiency. Therefore, the easiest and most understandable way to do this is “green” certification of buildings according to one of the international standards. LEED, BREAM, and EDGE remain popular in Ukraine. Each of them has advantages for certain objects and purposes of the developer.
Therefore, the development of eco-projects and projects with “green” certification is clearly a trend. Although slowly, but firmly gains a foothold in the Ukrainian market. For some companies, it is also an indicator of prestige and concern for the consumer (client).
Certification according to LEED, BREAM, DGNB, and EDGE standards is one of the services provided by DELTA Ukraine. It was our company that carried out the first DGNB certification in Ukraine in 2014 (BILLA supermarket in Kyiv) and the first LEED certification. Therefore, we can note a steady trend towards harmonious growth of this market in Ukraine.
LDaily: How did the coronavirus affect the real estate market of Ukraine? How is the company experiencing the current crisis?
D. Omelchuk: It is worth mentioning that there is not a single industry in Ukraine that would not suffer from coronavirus quarantine at least to some extent. It is too early to talk about the consequences it has caused both in the capital and in the regions, as they will depend on the further development of the situation in the country. The construction sector has not stopped and continues to function, although it certainly faces its difficulties and challenges. We see that some projects are frozen, while others, on the contrary, have moved into active construction and implementation. To be honest, in early spring we expected that 90% of our projects would be frozen. Fortunately, this did not happen.
On the contrary, the number of projects we have in progress now is much more than in 2019. This is not new for us to work, maintain communication, and hold meetings online, as the customer or project manager can be anywhere in the world. So we are keeping the events under the radar, and ready to react to changes quickly. Perhaps we adapted to the changes and changed the vector of development right on time. Today we are focused on working with local investors and developers because we have something to offer them. From the experience in project consulting and development, Western expertise and support, all the way up to modern digital project management tools.
LDaily: What projects is DELTA currently implementing? What are the main requirements of customers?
D. Omelchuk: Now we are focused on warehouse real estate. About five projects with a total area of 100,000 m2 are currently being implemented. Moreover, we are just starting to work on a few more. The gained experience gives us the opportunity to make such projects as attractive as possible for the market and to be effective for the investor.
Another vector of development is cooperation with international organizations in Ukraine. We currently provide a variety of services to organizations such as the World Bank, UNICEF, UNOPS, GIZ, and others.
The main requirements of the customer include a full understanding of their goals and plans, willingness to work at their pace (and often it means availability 24/7), in-depth expertise, and professional approach. Therefore, it is important for the customer to have a partner who would treat their project as their own.
For us, communication and culture is the main key to success. Properly constructed communication in the project is already a significant part of its success. The main rule of the company when interacting with customers is a win-win tactic, which means a win-win relationship. We will win only when the customer wins.
LDaily: Everyone knows the risks of doing business in Ukraine. Which ones can you highlight? How do you minimize these risks? Is it easy for a foreign company to work in Ukraine?
D. Omelchuk: In my opinion, every company doing business in Ukraine faces a number of risks, and we all know them well. The main difference is the preparation and reaction to them. Nowadays, it is better not to talk about minimizing risks, but about a quick and timely response to events. When properly assessed, this helps turn risk into controlled movement into the unknown. Formation of the right team and the principles of company culture are embedded in the DNA of DELTA and it is one of the greatest successes we have achieved. It is culture and communication that make it possible to avoid most risks or to respond to them correctly and in a timely manner.
In general, DELTA Ukraine operates in the same conditions as other market players, and it does not matter whether it is a local or foreign company. Yes, we have considerable experience in implementing projects in different European countries and expert support from colleagues from other DELTA Group offices. Nevertheless, we do not have any concessions: we compete with Ukrainian companies on the same level.
LDaily: What is the difference between running a business in Ukraine and Austria?
D. Omelchuk: Probably, this is the most frequent question addressed to us. If we approach it globally, there are differences, of course, but not as drastic as we might think. In my opinion, the first difference is that in Austria running a business is more amenable to long-term planning and more predictable. Namely, in Austria, we rarely radically adjust our plans, direction of development, financial indicators, etc. The second difference is that in Austria, and even in the Czech Republic and Slovakia, we do not have to explain to the customer that proper consulting and professional project management will be cheaper and much more efficient than building your own structure.
LDaily: Can you please share the company’s plans for the short-term period?
D. Omelchuk: Probably, the main plan is to prepare for a new challenge. Although we felt some relief in the summer, the crisis did not go away so now we must prepare for new challenges. Currently, the most important task is to maintain the team spirit, values, and quality standards of DELTA, regardless of whether the services are provided to the customer from the office or from the home office. Believe me, it is not that simple.
We have gone through the spring crisis thanks to the stable foundation of values and culture, so now we are only strengthening it and preparing for new challenges. Our main plan for now is to work with project teams and help their customers. Additionally, we work on the company’s development in the field of digitalization. We have our own cloud platform for managing Datenpool construction projects and are constantly adding new useful features. Most of our concepts are presented to customers in virtual reality glasses, so you can touch and see all the details of future construction. Our own design department is very focused on BIM technology, and people on construction sites are beginning to test and implement the augmented reality (AR) technology. Now we have a good chance to focus on the development of these technologies in Ukraine.
Another significant step was the development of our subsidiary in Ukraine, ALPHA Construction, which is focused on general contracting. Today, we can not only implement plans for the design or management of projects and construction but also carry out construction work directly, no matter it’s EPC or EPCM scheme. In the market of general contracting services, we offer a completely new model of interaction with the customer. It is built on the principles of complete transparency. Transparency in everything — in pricing and cost, in structure, cost of management of the general contract project, in the size of profit, and so on. For Europe, the Open Book scheme is already a classic of development, but in Ukraine, we are just beginning to prove its effectiveness and economic benefits.
LDaily: What was 2020 like for your company? What results have you achieved this year?
D. Omelchuk: Ironically, this year was quite successful for us. Even during the crisis, we have significantly expanded our portfolio of facilities and fully expanded the vector of development from cooperation with international investors to cooperation with local clients. Now we fully understand what the Ukrainian customer needs and what value we can bring them in the project. Our main merit is that we not only kept our team together in difficult times but also we developed and continue to do so. We have never reduced the cost of financing the salary fund, we are actively working on the development of our team, and we pay maximum attention to improving professional competence and personal training.
As for the financial results, I will say honestly: we have not achieved the forecasted indicators, and most likely we will not do so by the end of this year. However, fortunately, this is not the main goal for the company and shareholders. Our customers is the main value for us. Therefore, I can say that despite the fact that crisis 2020 wasn’t easy to handle, it nevertheless turned out to be interesting, solid, and successful for DELTA Ukraine.