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Kiev Office Property Viewpoint on the 1 st half of 2012
Ukrainian Trade Guild © 2012 The large volume of the new offer has had a significant impact on the total market structure of professional office property, having shifted the qualitative distribution towards «А» и «В+» classes (class «А» - 20%, class «В+» - 27% and «В-» - 53%). Market structure of Kiev office property in the class sectional view («А», «В+», «В-») The implementation of the office facility new offer with the gross leasable area (GLA) of 207,300 sq. m. is planned in Kiev for the second half-year of 2012. Developers have announced about the implementation on the market of such large scale office center projects as BC Gulliver, BC Toronto, BC Metropol, BC Topaz, BC Mega City, which will even more enlarge «А» и «В+» class part in the total offer structure. However, taking into consideration the construction activity on these objects, it can be stated that the implementation of some of them can be postponed for the later term (2013). At this stage of the office property market development and the competition level, BCs that are the closest to European standards (modern construction technologies, infrastructure, service etc.) have the highest chances of being successfully realized. Demand The tendency of the demand displacement towards the high class office property located outside CBD was outlined in the first half-year. With the intention of lease saving, the financial sector companies have been cutting down their office areas in BCs situated within CBD and locating them in business centers outside the citys central business district. Telecommunication, IT, industrial and pharmaceutical companies, whose offices are mainly located outside CBD, have enlarged their existing areas. The main part of the office area demand during the first half-year fell on the companies that were interested in their area increase or the quality growth of the leasable areas. The demand part for BC office facilities of «В+» and «А» classes has considerably increased in the demand structure of office center classes. In the demand structure of a lot size the biggest part fell on the blocks of 100-200 sq. m. (47%) as well as the ones from 200 to 500 sq. m. (21%). The basic leaseholder demands for the office facilities stay the same: the lease cost, BC location, office planning and decoration work, the availability of secured parking and its cost, the presence of a public catering point for employees inside the building or within the walking distance. Offer In the first half of 2012 the vacancy level increase, the growth impairment of lease rates as well as the expansion of leaseholders demands for leasable area quality were noticed on the capitals office property market due to the record implementation number of new leasable areas. As of July, 2012 126 office centers of «А», «B+» and «В-» classes with the gross leasable area (GLA) of 1.34 million sq. m. function in Kiev. The segments main tendencies are based on the implementation of the record number of new office areas for Ukraine, which has happened because of the projects, the terms of delivery of which were put off earlier. During January-June the new offer was replenished by five office objects (BC 101 Tower, BC Premium Center, BC Victoria Park, BC Crystal, BC Europe) with the gross leasable area of 140,700 sq. m., which is 7 times more than the implemented area volume during the same period of 2011. Kiev Office Property
Ukrainian Trade Guild © 2012 Lease rates The demand shift towards BCs located outside CBD as well as a great volume of the new office facility offer have stipulated the growth impairment of the lease rates, and the price policy adjustment for the leaseholder retention has been noticed in BCs situated in CBD. According to the results of July, 2012 the lease rates for «А» class offices were in the range of $30-55/sq. m./month, for «B» class they made $18-45/sq. m./month (with VAT, without operation costs). The average level of operation costs for «А» class offices made $6- 10/sq. m./month (with VAT), for «В» class it was $2-6/sq. m./month (with VAT). Tendencies and forecasts The new offer volume will make a considerable pressure on the market in particular on the lease price determination. The owners of the newly implemented objects are interested in their quick filling, the rate of which depends on the lease cost and the condition of the leasable areas. The more attractive commercial conditions with a considerable discount of 5-20%, compared with lease rates in the acting business centers, can be offered for the leaseholders that are interested in the lease of big volume areas (from 1,000 sq. m.). The high volume of the new demand is expected on Kiev office property market in this year: 5 business centers with the gross leasable area of 140,000 sq. m. were implemented during the first half-year and 4 more objects with the area of about 180,000 sq. m. can be implemented till the end of this year. Thus, according to the results of 2012 office facility new offer volume can make about 320,000 sq. m. Office objects of «А» and «В+» classes make 80% of this year offer in class sectional view. Till the end of the year the total volume of office facilities in Kiev will reach the level of 1.5 million sq. m. represented in 130 business centers of «А» and «В» classes. Taking into consideration the current part of vacant office areas, it can grow to 20% with the implementation of the new offer, which will make up to 300,000 sq. m. of vacant areas in absolute expression. Considering the current demand volume on the level of 100,000-120,000 sq. m. of office areas per year, not less than 3 years will be needed to absorb the new offer of 2012 and to stabilize the market. In the medium-term perspective the office property segment will be a market of leaseholders that will toughen their requirements to the quality and the characteristics of the leasable areas as well as to the commercial conditions of the lease contracts. Demand distribution according to office area size Leaseholders are paying more attention to the power efficiency of the building because of the increase in operation cost. According to the results of the first half of 2012 the vacancy in Kiev BCs has increased on the average for 3-4% and has made 6-7% for «А» class and 11- 12% for «В+» и «В-» classes. Vacancy level of Kiev office areas Kiev Office Property
Ukrainian Trade Guild © 2012 LeaseholderArea, sq. m.Leaseholders profileObject Samsung15,700manufactureBC 101 Tower МТС6,400telecommunication/ITBC on Druzhby Narodov boulevard, 19 Embassy of Canada in Ukraine 2,100embassyBC on Kostelnaya Str., 13a SEB Bank2,000real estate propertyBC on Mikhailovskaya Str., 7 Software outsorcing team1,200telecommunication/ITBC on Gaydara Str., 50 System integration service1,200telecommunication/ITBC on Gaydara Str., 50 Zakordonnaftogas400gas and oil sectorBC on Institutskaya Str., 28 Groupe SEB400manufactureBC on Kharkovskoye Highway Str., 201 Printec Group350telecommunication/ITBC FIM Center Licond300manufactureBC Mikom Palace The most important deals of Kiev office facility lease in the first half of 2012 Contract typical conditions of Kiev professional office area lease Kiev Office Property Lease period A and B classes: up to 3 years. Longer periods are possible for the anchor leaseholders. Terms of payment Monthly average with advanced payment, the rates are nominated in US dollar or euro. The payment is made in hryvnias according to NBU official exchange rate. Deposit2 month Rate indexationNot less than 3% Facility decoration workAs a rule a new facility is implemented in the condition of shell & core. At present, the main demand show the companies that are moving from one office to another because of the leasable area condition improvements as well as the lease cost optimization. The part of the new companies that begin their business in Ukraine is still small in the demand structure, which is connected with the limited possibilities of business running in the current political and economic countrys realities. The demands evident peculiarity is the companies readiness to consider the office lease outside the citys Central Business District (CBD), which can be explained by the more attractive lease conditions in the objects represented there. CBD location is no more a key factor of the office facility selection, but the positioning on the left of right bank is as important as it used to be. In spite of the limited saturation volume, the capitals market of the office property demonstrates its active development, the evidence of which is the construction of new business centers announced for implementation in 2013-2014.
Ukrainian Trade Guild © 2012 Objects photoBCs nameAddressGBA, sq. m.GLA, sq. m. Parking, stall number Developer BC 101 TowerLva Tolstogo Str., 5761,84949,600259КАN Development BC Premium CenterIvana Lepse boulevard, 652,00036,000175 Yeditepe Construction Group BC Victoria ParkAkhtyrskiy alley, 722,50018,00075Forum Group BC Crystal Kharkovskoye Highway, 175-177 12,0009,600217ICD Investments BC EuropeStolichnoye Highway, 10135,26527,5061,504DeVision TOTAL GLA, sq. m. 183,614140,706 Kiev business centers implemented in the first half of 2012 Kiev Office Property
Ukrainian Trade Guild © 2012 Objects photoBCs nameAddress GBA, sq. m. GLA, sq. m. Parking, stall number Developer Implementation possibility in the term announced BC MetropolMoskovskaya Str., 253,98447,600154КАN Developmentaverage BC TorontoAntonovicha Str., 7945,18036,100380JV Toronto-Kievhigh BC Mega City Kharkovskoye Highway, 19 40,00032,000500UKOaverage BC TopazMelnikova Str., 2-1027,00021,600140 Build&Live Development low BC GulliverSportivnaya sq., 180,00070,000750 CJSC Mandarin Plaza high TOTAL GLA, sq. m. 246,164 207,300 Business centers planned for implementation in the second half of 2012 Kiev Office Property
Contact information Ukrainian Trade Guild Mechnikova Str., 2-А (BC Parus) Kiev 01601, Ukraine Tel./ fax: (380 44) 537 23 64 www.utg.kiev.ua Vadim Neposedov Company president firstname.lastname@example.org Vitaliy Boyko Managing partner email@example.com Yevgeniya Loktionova Director firstname.lastname@example.org Victor Oborskiy Manager of strategic consulting department email@example.com Andrey Bolshakov Property market research specialist firstname.lastname@example.org Ukrainian Trade Guild is the national largest consulting company in the real estate sphere. Today UTG is 55 highly qualified specialists and more than 500 clients. Our participation in 350 business projects and conduction of more than 400 market researches allow us to be a reliable, responsible and competent partner. This and other companys reviews can be found on our website www.utg.kiev.ua This presentation is the publication of the generalized character. Ukrainian Trade Guild is not legally liable for the information, the analytics and the forecasts published in this overview of Ukrainian Trade Guild in terms of possible third person losses as the result of this report result usage. Any publication of news stories from the report given, whether as a whole or in parts, is possible only with the companys reference as the data source. Ukrainian Trade Guild © 2012 The most important business centers, implemented and planned to be implemented in 2012 Kiev Office Property Implemented BCs GLA, sq. m. 1. BC 101 Tower49,600 2. BC Premium Center36,000 3. BC Victoria Park18,000 4.4. BC Crystal9,600 5.5. BC Europe27,506 Planned BCs GLA, sq. m. 1. BC Metropol47,600 2. BC Toronto36,100 3. BC Mega City32,000 4.4. BC Topaz21,600 5.5. BC Gulliver70,000
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