Real Estate Market: Slow Growth

Real Estate Market: Slow Growth

14.03.2018 Analytics

In general, over the past 2 years, the real estate market has shown positive dynamics in almost all segments, especially since the situation has equaled both in the capital and in the regions. Let’s consider more different segments.

THE RESULTS OF THE 4TH QUARTER OF 2017 AT THE OFFICE REAL ESTATE MARKET IN KIEV

The fourth quarter of 2017 for the office property market was characterized by declining vacancies and rising rental rates. According to Cushman & Wakefield in Ukraine, the Kiev market has demonstrated a record low level of vacancy over the last 9 years — about 9 % by the end of December 2017. By comparison, at the end of 2016 this indicator was at 15.6 %.

This situation is due to an increase in demand from tenants with a small amount of new areas — last year the office property market in Kiev increased by 43,000 square meters (GLA). At the same time, the total area of office premises leased in Kiev, estimated by experts at 205 000 square meters, which is 16 % and 18 % more than in 2016 and 2015, respectively. For the 4th quarter of 2017 accounted for 44 % of the total annual rental area.

The annual net absorption rate reached 161,000 square meters (GLA), of which almost 83 000 square meters falls to the 4th quarter of 2017.

According to experts, the new offer of office space in 2018 may amount to 85,000 square meters (GLA).

The emerging demand for high-quality offices with low development activity provoked an increase in rental rates, which in the fourth quarter of 2017 reached $ 27 per square meter. m per month (excluding VAT and operating costs).

“We expect that in 2018, the dynamics of rental demand in the office real estate segment in Kiev will remain positive, given the low activity of developers and the subsequent decline in vacancy, it will lead to a rise in the cost of renting high-quality office space in the city, especially in the Central Business District and directly adjacent to him locations. And this, in turn, will increase the financial feasibility of the new office building and will attract investors to the segment, “commented Marta Kostiyk, Clusman & Wakefield real estate development and analysis consultant in Ukraine.

According to Cushman & Wakefield, the total volume of secondary investment in the office real estate market in Kiev was about $ 89 million. Among key investment deals in 2017 is the acquisition of Prime and Eurasia business centers by Dragon Capital Investments Limited.

Experts predict that in 2018, the total volume of secondary investment in the office real estate market in Kiev may exceed $ 130 million.

The rates of profitability of office real estate while continuing to decline, at the end of last year they reached 12.25 %.

FAVORABLE PERIOD: THE RESULTS OF THE HOTEL REAL ESTATE MARKET IN 2017 AND THE FORECAST FOR 2018

The market of quality hotels of Kiev has shown the highest positive dynamics of loading for five years, according to the report of the company JLL company.

The key event for the Ukrainian hotel market was the appearance in 2017 of new branded hotels: “Park Inn by Radisson Kiev Trinity” for 196 rooms and “Mercure Kyiv Congress” for 160 rooms.

“The level of loading of a qualitative number fund in Kiev has reached 47,3 %, having increased by 7,4 pp. It should be noted that for the period of 2015-2017 years the quality of the hotel’s quality hotels increased in the range of 5-7 pp. in a year, commented Tetiana Veller, head of the hotel business department at JLL. — In the near future, we expect the appearance of two more
branded hotels in Kiev: “ibis Kiev Central Station for 280 rooms and “Aloft Kiev” for 312 rooms.”

Compared to 2016, the average rate in hryvnia slightly increased — by 2.6 %, to UAH 3.9 thousand. At the same time, in the currency, there was a decline — by 1.3 % (to $ 148), despite this, the profitability of the number (RevPAR) in dollars increased by 16.8 %, to $ 70. The rate of return in local currency exceeded 1.8 thousand UAH, adding 21 % per year.

In 2017, the passenger flow of the airport “Borispol” increased by 17 % compared to the previous year: more than 10 million people took advantage of the airport services, of which 3.2 million were transit passengers. In the long run, the largest air hub of Ukraine plans to expand the segment of budget air transportation and attract low-level vehicles. There are currently active negotiations between the airport representatives and Ryanair, WizzAir. The output of large international lowspeed vehicles will contribute to the further growth of passenger traffic. The Ukrainian budget carrier SkyUp will make its first flights already in April 2018.

This year, the positive dynamics of hotel occupancy will be maintained. “In Kyiv, it is planned to hold international sports competitions, concerts of international musicians, as well as numerous conferences and exhibitions. The activation of the business and cultural environment will, in our opinion, be one of the main incentives for both domestic and foreign tourism. Due to the cheapness of the national currency, Kiev is still considered a budget for recreation”, — comments Tetiana Veller.

COMMERCIAL REAL ESTATE: IN ANTICIPATION OF GREAT DISCOVERIES

In 2017 the market of commercial real estate of Kiev did not replenish new areas. According to JLL, in the capital there are 33 professional shopping centers with a total area of 960.8 square meters. In the second half of the year, it is expected to open new quality areas with a total area of 48 thousand square meters: Smart Plaza shopping center (15 thousand sq. m.), Rive Gauche shopping mall, phase 1 (22 thousand square meters), “Retail Park Petrivka”, phase 1 (11 thousand sq. m).

The share of free space in the shopping centers of Kyiv decreased by 3 pp. — up to 5 %. This is the largest reduction of vacancy in the history of the modern Kiev market.

Against the background of reducing the vacancy, there is an increase in rental rates. The maximum rental rate has increased by 3 % to $ 840 / sq. m / year ($ 70 / sq. m per month), excluding VAT and operating costs. This is one of the lowest rates among European cities. The highest rental rates in London — $ 3381 sq. m / year.

The distribution of retail space in the districts of Kiev is not uniform, for example, in the Holosiivskyi rayon for 1 thousand inhabitants has 720 square meters commercial areas, the same indicator in the Solomyansky area barely reaches 160 square meters.

Despite the stabilization of the situation both in terms of rental rates and vacancy, 2017 was not marked by major discoveries or the entry of the market of iconic brands. Exactly in 2018 we expect a significant replenishment of retail space by opening several large shopping malls at once. The output of many foreign brands, the opening of which the market expects the last few years, is also scheduled for 2018.

The material is based on data from JLL Ukraine
and Cushman & Wakefield in Ukraine

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