In sharp contrast to Ukraine's volatile political situation, the country's real estate market remains subdued as investors, developers and occupiers wait for stability.
In sharp contrast to Ukraine's volatile political situation, the country's real estate market remains subdued as investors, developers and occupiers wait for stability.
'There isn't much happening at the moment in the real estate sector; we can't control the political climate,' Alexander Nosachenko, managing director of Collier International Ukraine, told PropertyEU.
The simmering conflict with Russia in relation to separatism in eastern Ukraine threatened to flare up dangerously in December as Moscow reacted angrily to the US Senate passing a bill pressing for additional sanctions against Russia and the supply of weaponry to Ukraine. And, while the international focus in recent months has been on the impact of the existing sanctions on the Russian economy, there are warnings that Ukraine is running out of international reserves and faces a full-scale financial disaster.
Yet, Nosachenko is no fatalist. It is just a matter of time before the crisis - currently kept in check by an uneasy ceasefire - is consigned to history and stability returns. This stability will, in turn, see domestic and international interest in the country's real estate market return.
Nosachenko points out that the fighting has been confined to the eastern provinces of Donetsk and Luhansk. 'In early 2014 there was some panic among sections of the general public in Kiev. This definitely isn't the case now. If you are in Kiev you see life is absolutely normal and people are beginning to talk about business again,' he said.
NUMBERS GAME
Ukraine covers almost 604,000 square kilometres. It is one of the last under-developed big countries in Europe. 'Sooner or later the political problems will be solved and Ukraine will provide interesting opportunities for cross-border real estate investors,' Nosachenko said.
'Ukraine has a population of 46 million. In the very worst case scenario [if Donetsk and Luhansk split away from the rest of the country, ed.] this would be reduced to 37 million and take with it 15-16% of GDP - leaving a sizeable country and real estate market.'
At least one prominent business man has noted that such a split might result in a 25% cut in his operations, but would provide stability.
Nosachenko noted that the Ukrainian economy contracted 15% in 2009 and 'nothing happened'. Similarly, GDP projections in December 2014 for the full year range from - 6,5 to 9%, with growth of 1% foreseen for 2015. The World Bank's prognosis is -8% in 2014 and -1% for 2015. The IMF sees 1% growth for 2015.
REAL ESTATE
A Colliers' H1 report on the office market in Kiev cites the 'challenging socio-political and economic situation for the considerable reduction of business activity'.
The total competitive office stock in Kiev reached 165,000 m2 at the start of July, with 109,000 m2 completed in H1 2014. A JLL reports notes just 5,300 m2 was completed in the third quarter.
Occupier demand for Kiev office space, according to Colliers' report for H1, plummeted by 71% to 22,000 m2 compared to H1 2013. By end-H1 the overall vacancy rate increased from 15.1% to 23.9%. Base rate values decreased and Grade-A headline rents stood at $23-35 per m2 per month. Grade B office rents ranged from $15-21/m2/month.
The timeline for the delivery of projects is being extended and (pre-)leasing is taking longer. The same applies to shopping centres with 1 million m2 in the pipeline and 500,000 m2 of this scheduled for 2014-16, Nosachenko said. SEC Prospekt (41,400 m2) was the only shopping centre delivered in Kiev in the third quarter.
The international view of Ukraine is heavily influenced by the geopolitical troubles but several international players such as Multi Corporation and Amstar are active on the ground with projects which are due to come on stream over the next few years.
Multi, Blackstone's European shopping centre platform, has projects in Lviv and Kharkov. The 35,000 m2 Forum Lviv project is scheduled to open in Q1 2015, while the Forum Artem scheme in Kharkov is to open in two stages from 2016 to 2018.