The limited volume of gross absorption led to an increase in the level of vacant space by 3.5 percentage points (p.p.), to 21.2% over the third quarter of 2022 compared to the previous quarter, the press service of CBRE Ukraine told Interfax-Ukraine.
At the same time, as follows from a review of office real estate by CBRE Ukraine, in July-September the trend of the two previous quarters of limited rental activity continued. In the third quarter, this figure was only 12,000 square meters, which is 80% less than at the beginning of the year. Most of the transactions involved the extension or renegotiation of contracts and the reduction of existing office space.
“Subleasing is becoming more and more common, with tenants willing to sublease parts of their offices to optimize rent or operating costs due to low occupancy rates. Depending on the terms of the lease, subleasing is most often the solution if leases cannot be terminated. However, the volume of sublease agreements concluded remains low due to limited rental activity in the market,” Diana Kvitchuk, Head of Marketing and Research at CBRE Ukraine, is quoted in the message.
Net absorption has remained negative for three quarters in a row – over the third quarter, it is minus 74,000 square meters.
Analysts at CBRE Ukraine estimate that negative net absorption is likely to persist until the end of 2022, but is expected to slow down towards the end of the year.
In the third quarter, not a single new business center was put on the market, so the total supply of offices in Kyiv did not change and amounted to about 2.11 million square meters. About 23,500 square meters are planned for commissioning by the end of the year – in Unit.City B15 and Unit.City B6.
Low market activity led to rate cuts. The prime rental rate has decreased on average by 8-10%, from $25 to $22-23 per square meter/month since the beginning of the year. Rental rates in class A ranged from $18 to $26 (less by 7% of lower limit), in class B – from $7 to $17 (less by 22% of lower limit and less by 15% of upper limit).
“Requested rental rates are not indicative now, since the actual or effective terms of the agreements are often significantly lower than the declared ones and the difference can be from minus 20% to minus 50% of the declared ones,” Kvitchuk said.
In order to maintain occupancy and income streams, landlords continue to provide discounts, special lease terms or incentives, up to “free” rent, to attract new tenants or keep existing tenants looking to move, she said.
