The office real estate market in Kiev is recovering, the number of requests and transactions from IT-companies, nonprofit and international organizations has increased, CEO of allbc Valentin Lenchenko told Interfax-Ukraine.
The expert reminded that for many business centers last year was a year of tenants’ retention on any terms.
“The main task at the beginning of the fall was to survive the winter with tenants. On any terms. The main thing is that they paid utilities and OREH (often not in full). But with the advent of the blackout migration began, people who used to work from home, moved to co-working spaces with diesel generators and Internet”, – said Lenchenko.
According to him, as a result, offices in the capital during the blackout were filled almost completely. A temporary rush was created, which led to the opening of new locations. However, by January, when things stabilized and many had resolved the issue of household power plants, the situation was back to previous levels.
“Newcomers continue to recruit residents, but demand has dropped significantly. Demand is still high for finished offices – with renovations, furniture, diesel generators and shelter,” the expert stressed.
He noted a positive systemic trend in recent months – the activation of tenants.
“Many IT companies that relocated to Western Ukraine, began to return home to Kiev. And they are not the only IT companies – there are a lot of requests and deals from non-profit and international organizations,” Lenchenko said.
He gave an example of recent transactions of allbc. An IT-company has asked to find a ready office for more than 200 employees; in the process of searching and negotiating the lease agreement, it turned out that a lot more employees want to come back to Kiev. As a result, this company has rented two offices with total area of about 4 ths sq.m. instead of the office with 2 ths sq.m. Another IT-company recently rented an 800 square meters office with furniture and repairs in Podol Business Center.
But in general, according to the expert, the main tenants and transactions request was observed on the format of about 200 square meters. “As a rule it is medium-sized business which adapts to the current conditions or optimizes the space”, – he says.
Another trend is that large tenants with large equipped offices on the right bank have started asking to rent offices/workspaces in co-working spaces on the left bank.
This provides comfortable spaces for employees who prefer to work closer to home for safety reasons. “The criteria are the same: with repairs, furniture, a diesel generator and shelter,” Lenchenko stressed.
He also singled out a separate category of potential tenants with whom, despite high vacancy rates, most landlords do not want to contact. “We’re talking about so-called “musicians,” call centers that play music loudly. Now they call themselves IT people, marketing people and even agrarians, but as a rule, they are scam artists. The average area rented by them is from 500 to 2,000 square meters, but given the trail they leave behind, they do not want to do business with them,” stressed Lenchenko.
The expert also noted that despite the war, there are also deals on the market for the purchase and sale of office space/buildings. “There are buyers in the market. They usually come with a discount of 30% to 50%. Foreign investors who believe in winning are already starting to look at buying, because they understand: now is the right time,” he says.
allbc.info is a service for renting or buying offices in business centers and free-standing buildings in Ukrainian cities (Kiev, Dnipropetrovsk, Kharkiv, Donetsk, Odessa, and Lviv).
New supply on the office real estate market in Kyiv in 2019 was around 100,000 square meters and record-hitting 255,000 square meters of areas are announced to go live in 2020
“Over the past four years, the Business Expectations Index in construction has grown significantly (137.9 points) and has broken an eight-year record. Thus, the new supply almost doubled compared to 2018 and amounted to about 100,000 square meters, and the total supply of office space in Kyiv amounted to 1.8 million square meters,” CBRE Ukraine (Kyiv), the consulting company, said in a press release.
According to developers’ announcements, in 2020 a record number of areas should enter the market – about 255,000 square meters. Moreover, in 2021 an additional 250,000 square meters is expected to go live and in 2022 some 250,000-300,000 square meters.
“The shortage of quality space in Kyiv resumed the activities of developers, as evidenced by an increase in the volume of new supply by 70% year-over-year in 2019. Despite such a sharp increase in the volume of new space, it is expected that the bulk of it will be absorbed by IT and the flexible office segment, due to pent-up demand for large quality areas,” CBRE Ukraine said.
Thus, the average vacancy rate is likely to remain at the same level or show a slight increase in the best areas on the market.
“If in the next two to three years, demand will correspond to the supply, then significant fluctuations in rental rates are not expected,” CBRE Ukraine said.
The low standard of quality in the commercial real estate market in Ukraine and a lack of systemic changes are the result of withdrawal of foreign investors, Serhiy Serhiyenko, the managing partner of CBRE Ukraine, has said at the meeting “Global Review of Ukraine’s Economy” in Kyiv.
“In order for this to change, the state needs to be ready to help interact with potential investors. Because the barriers to entering the market are huge. Today there are practically no international investors. They were, they tried, and they practically all left. Now we need a thorough approach from the city and the state to plan competitive business infrastructure,” he added.
The managing partner of CBRE Ukraine said that a lack of international players is the reason for stagnation – almost everyone creates the same product with minimal innovations, while there is no systematic change in the approach to real estate, although there is demand for quality products in the country.
“Today, I would say, the commercial real estate market is in a state of stagnation and underdevelopment. We do not have system investors, we do not have a systematic approach to real estate, we have a very low quality standard, despite the fact that there is demand,” the expert said.
According to him, over the past 4.5 years, more than 500,000 square meters of offices have been leased in the Kyiv market, of which 200,000 were rented by IT companies.
He noted that the demand from IT specialists is huge, but it cannot be satisfied, as many companies need large-scale areas of 20,000-30,000 square meters, which can only be provided by systemic international players.
On Wednesday, July 10, at 10.30, the press center of the Interfax-Ukraine news agency will host a press conference by UTG entitled “Half-Year Results in Real Estate Market of Ukraine 2019: Main Trends and Challenges.” Participants: UTG Director Yevhenia Loktionova, head of the strategic consulting department at UTG Kostiantyn Oliynyk, deputy head of the strategic consulting department at UTG Oksana Havrylevych (8/5a Reitarska Street). Accreditation of journalists by phone: +38 067 216 4343, +38 044 537 2364, or by e-mail: pr@utg.kiev.ua.
The share of vacant space on the office real estate market in Kyiv in the first quarter of 2019 fell by 0.4 percentage points (p.p.), reaching 7.2%, the press service of Jones Lang LaSalle (JLL) in Ukraine has reported. “We expect a further decline in vacancy, although not significant. On the one hand, the low commissioning volume that has been observed on the market since 2015 and steady demand contribute to the absorption of space in existing buildings, on the other hand, rising rental rates restrain the activity of tenants,” Head of office Group at JLL, Alexandra Globina said.
The highest rental rates in class A facilities in the first quarter of 2019 increased 6%, to $32 per sq. m. a month, which corresponds to the value of five years ago, according to JLL. At the same time, rental rates in class B facilities also increased to $25 per sq. m. a month.
According to JLL, a decrease in vacancy and an increase in rental rates have led to a gradual increase in developer activity.
The total volume of transactions in the office real estate market in Kyiv in the first quarter of 2019 amounted to 22,500 square meters, with about half of the transactions accounted for IT-companies, JLL experts said.
