Boston, MA -- (ReleaseWire) -- 01/30/2014 -- The Ukrainian real estate sector is slowly recovering from the effects of the economic downturn, with the office and industrial sectors faring the worst, leading to high vacancy rates and low rents. Retail, on the other hand, provides some hope, with the country touted to have the fifth fastest-growing retail market in Europe over the next few years. However, the country is still battling against poor macroeconomic conditions, with bureaucracy and reports of corruption having a knock-on effect on investor interest.
Ukraine is attempting to emerge from the economic doldrums that have sent rental prices in all three of the sectors covered by BMI's Real Estate report - office, retail and industrial - tumbling. Industrial has the lowest rental rates of all three, although reports of industrial cooperation between Ukraine and Russia could result in increases over the longer term. Market saturation is deemed to be one of the reasons why Kiev has a worryingly high vacancy rate in terms of office space, with concerns that it could reach as high as 10% by end-2014, hampered by the creation of 12 additional business centres that are not needed and are likely to remain dormant.
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The retail sector, on the other hand, provides a more positive picture and has been garnering interest, particularly since Euro 2012, which generated sales through tourists. A plethora of projects have been announced over Q413; however, the construction industry's reputation for incomplete projects precedes it and doubt over whether these initiatives will be realised hangs in the air.
- Jones Lang LaSalle has touted Ukraine to be the fifth fastest-growing retail market in Europe over the next few years, putting it almost on a par with regional powerhouse Russia.
- In November 2013, Viktor Oborsky, head of department for strategic consulting at UTG, said the rise in vacant office space in Kiev could reach 10% in 2014, with unfavourable market conditions primarily to blame. He stated: 'We're expecting the vacancy in this segment of real estate to increase by 5-7%; in some cases, perhaps by 10%, and this is a realistic scenario'.
- By end-2013, the capital's retail market is due to have 95,700 m2 of additional retail space added, with Q413 results expected to exceed the combined outcome of the previous three quarters.
- In August 2013, it was reported that there are almost 16,000 incomplete construction projects currently in the pipeline.
Key BMI Forecasts
- Rental rates in Kiev, Kharkov and Dnipropetrovsk are to be stagnant over 2014. No growth or decline is anticipated.
- Retail is to be the outperformer, with the highest rents due to be seen in Kiev - top-end rents of US$105/ m2.
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