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Business Property In Ukraine Records Strong Price Growth

The Ukrainian property market has recorded remarkable rises in all its segments. Prices of retail, office and industrial areas have reached the highest levels in Central and East Europe (CEE) region, driven by lack of supply and increasing demand, Kyiv Post reported, cited by

Foreign and local companies are quickly expanding their activity in the country and, consequently, demand for office space is constantly growing, surpassing the most optimistic expectations, according to Nick Cotton, regional director of DTZ real estate adviser in Ukraine.

Rental levels recorded an abrupt increase last year due to the low vacancy and lack of high-quality office space.

“The auspicious business environment and an annual gross domestic product growth rate of around 7.3 per cent are among the main propellers of rising demand for modern office areas,” Alexander Nossachenko, managing director of Colliers International – Ukraine, said.

Gross absorption of office space in 2007 accounted for 250 000 sq m, reaching its largest level since 1998, according to Colliers.

The average rental price for class A offices, including VAT and maintenance fees, recorded a 38 per cent mark-up last year, peaking at $62 a sq m. Monthly class B rents rose from $35 a sq m at the end of 2006 to $48 a sq m at the end of 2007, Nossachenko added.

These figures are fairly high, compared to CEE and even Western European markets, according to Dmitro Selivanov, the director of Ukraine’s arm of SHM Smith Hodgkinson machinery dealer. Office stock in Kiev is quite low – only 0.4 sq m a person, which accounts for the high rents, he added.
The retail market faces a similar situation. Monthly rent of a retail unit with an area of 100 to 300 sq m fluctuates between 110 and 240 dollars a sq m for more attractive projects and between 50 and 70 dollars for less attractive ones, Nossachenko says.

Commercial space in some of the most popular Kiev malls, Karavan, Globus and Mandarin Plaza, rents at 200 to 300 dollars a sq m, excluding VAT, according to Liliya Shulgina, brand manager in DEOL Partners, one of the leaders on the Ukraine property market.

The considerable increase in construction costs has driven up rentals of warehouse developments, according to Colliers. However, this effect is almost thoroughly offset by the considerable supply of new stock in the industrial segment. As a result, the annual rental growth rate of logistic space is below 10 per cent. The only exception to this are establishments in central locations, which struck a 20 per cent rise due to high demand and lack of new supply. Construction and demand in this segment were stimulated by the market entry of foreign retail chains, Shulgina comments.

The hotel sector in Ukraine is the most under-developed, although accommodation has appreciated by almost 25 per cent on annual basis, Nossachenko notes. Analysts expect that supply will start growing and quality will improve.

Despite its rapid growth, the Ukrainian real estate market still has some considerable drawbacks to overcome: shady and corruption practices in land sales, complicated and cumbersome procedures in issuing of building permits and the speculative approach of local authorities towards resources as well as infrastructural and legislative gaps.
Nonetheless, the business sector in Ukraine attracts a lot of investors, offering them about  25 to 30 per cent returns, Selivanov says. More than 500 million dollars was poured in business developments across the country in 2007, according to Colliers.

Kiev's market will not reach its saturation point before 2011, he added. Until then he expects an average growth of 10 per cent in office space, 15 per cent in warehouse prices and between 20 and 25 per cent in retail developments.