In the first half of 2023 concluded lease deals for 69 thousand square meters of offices in Kiev, which is 51% more than the same period of 2022, follows from the research of CBRE.
“These are not the volumes we saw before the war. But tenants have increased their activity in the market on the background of attractive discounts and the opportunity to improve the quality of their offices,” said Anastasia Kachan, Senior Office Real Estate Consultant at CBRE, at the conference “Ukrainian Real Estate Market Analytics: first half of 2023”.
According to her, most of the tenant categories have reduced activity in 2022-2023. – FMCG, business services, wholesale, medicine. At the same time, there is an increase in inquiries from public sector companies and non-government public organizations. Before the war, these tenants gave up to 5% of lease transactions, now they have almost 30%. As for the IT sector, it managed to keep its leading positions, last year its share decreased from 45% to 32%, now it is about 47%.
New supply is insignificant: in the first half of the year the office real estate market was replenished with only 13 thousand square meters, which is 86% less than the volume of new supply in the first half of 2022.
“Now only the objects started before the war are being completed, and this situation is likely to last for quite a long time, given the vacancy rate,” Kachan said.
As of the end of Q1 2023, 26.4% (+0.4% vs. the beginning of 2023) are vacant. At the same time vacancy in Class B office centers decreased from 29.2% to 28%, in Class A increased from 22.3% to 24%.
The expert explained the growth of vacancy in class A primarily by a significant amount of new supply of class A at the end of last year.
The effective prime rate has stabilized at $21/sq. m/month.
As for the timing of contracts, Kachan noted the willingness of businesses to plan for the medium term in a war-torn environment.
“Last year, contracts were more often renegotiated for three to six months with the expectation that the war would end soon. In 2023, the terms are fixed “until the end of wartime,” where the “war rate” is prescribed and there is an agreement that after the war it will be revised to reflect market conditions,” Kachan said.
In the spring, CBRE conducted a survey of companies’ plans for their offices. Most of them, 56%, intend to keep the volumes, some are negotiating more favorable lease terms, some are doing nothing. 13% reported that they will partially reduce the office, 12% are considering moving to a co-working space, 12% are closing/canceling the office, 4% are thinking about sub-tenants, 3% want to move to a cheaper office.
At the same time, actual office attendance ranges from 15-20% to 50+%, depending on the business model.
Factors in choosing a new office remain unchanged. Top requirements: equipped bomb shelter, distance from critical infrastructure, energy autonomy.
“Given the uncertainty of energy supply during the 2023 heating season, we anticipate an increase in fall/winter attendance,” Kachan reported.
Headquartered in Los Angeles, CA, CBRE is the world’s largest commercial real estate advisory and investment company, with revenues of $30.8 billion in 2022, according to Fortune, a Fortune 500 list of the world’s largest companies.
Shares of CBRE Group Inc. are traded on the New York Stock Exchange.
CBRE’s Ukrainian office was opened in January 2008 and is part of the company’s affiliated network.
