Boston, MA -- (ReleaseWire) -- 05/29/2014 -- The Ukrainian real estate sector is slowly recovering from the effects of the global 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 more than a glimmer of hope, with the country tipped to have the fifth fastestgrowing retail market in Europe over the next few years. But, Ukraine is still battling against poor macroeconomic conditions, with bureaucracy and reports of corruption having a knock-on effect on investor interest. Furthermore, growing secessionist tensions in the eastern regions and the annexation of Crimea by Russia are severely undermining investor confidence in the country.
Ukraine is attempting to emerge from the economic doldrums that have sent rental prices in all three of the sectors covered in BMI's Real Estate report - office, retail and industrial - tumbling. Industrial has the lowest rental rates of the 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. The city has been hampered by the creation of 12 additional business centres that are not needed and are likely to remain dormant, and there is concern the vacancy rate could reach as high as 10% by end-2014. Our recent 2014 real GDP growth downgrade to -4.4% suggests that the siutation is going to get worse before it gets better.
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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 Q4 2013; however, the construction industry's reputation for incomplete projects precedes it, and doubts about whether these initiatives will be realised hang in the air.
Nevertheless, the country's volatile economic and political situation continues to pose huge downside risks, and we retain a broadly negative outlook across the short to medium term. The Ukrainian hryvnia has devalued by around 40% against the dollar by April 2014 following the central bank's decision to cease FX interventions due to low international reserves, which will sharply reduce household purchasing power. The central bank's 300 basis point emergency hike of the policy rate in an attempt to stem depreciatory pressures will also raise domestic borrowing costs.
- In April 2014, the National Bank of Ukraine hiked the main policy rate by 300 basis points to 9.5%, sharply increasing the cost of domestic financing.
- Jones Lang LaSalle has touted Ukraine as the fifth fastest-growing retail market in Europe over the next few years, putting it almost on a par with regional powerhouse Russia.
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