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. Last Updated: 07/27/2016

Surging Kiev Office Supply Finds Few Takers




KIEV -- Ukraine's real estate market, hit hard by Russia's financial crisis, faces a difficult year of oversupply and low market confidence.


"1999 will not be a good year," said Jason Sharman, head of DTZ international property advisers in Kiev. "Companies will become smaller and will cut costs and property sizes."


Like many former Soviet republics, Ukraine saw a boom in its real estate market as market reforms gathered steam after independence, with prices peaking last year at about $780 per square meter for top A-class office space.


"There were unusual and unpredictable market conditions f a sudden influx of foreign companies and almost no office space," one one real estate expert said. "Those were great years f big commissions and constant growth."


But the market, confined largely to the capital, Kiev, has taken a huge blow from Russia's financial crisis last August.


The financial sector has melted away and major multinationals have downsized or left the country.


"Many clients tried to renegotiate old contracts and started looking for cheaper accommodation," said a real estate adviser.


Rents for new class A office space have dropped by about 20 percent to 25 percent from pre-crisis levels, according to industry specialists, while new high-profile projects that are due to be completed in 1999 will only apply more pressure to prices.


"The supply has increased," said Colliers International property advisers representative Mark Mangum. "By the end of 1999 the supply will be twice what it was at the end of 1998."


Mangum said clients were looking for open space, good telecommunications and good access from metros and roads.


"A number of properties coming onto the market will have these qualities," he said.


DTZ's Sharman estimated that about 30,000 square meters of class A office space were available on the market currently and added that up to 50,000 square meters would be coming onto the Kiev market at the end of the year.


"In 1999 we will see three to four buildings of about 10,000 square meters, five to 10 buildings of about 5,000 to 10,000 square meters, about 20 projects of about 1,000 to 5,000 square meters and many smaller projects," he said.


"This year, prices are about $40 to $45 [a month] and they will come down gradually as there is oversupply on the market. The natural level of prices is about $35 per square meter," he said.


Experts said there would be few new clients coming into the market this year because of low market confidence ahead of presidential elections slated for October.


The downturn is likely to bottom out by the end of 1999 or in early 2000, when the low level of prices is seen sparking demand in the underdeveloped market.


"If there is some stability, some economic growth and reforms, the real estate business will definitely pick up substantially," Colliers' Mangum said.


"It will be in late 1999, maybe in 2000, but Ukraine definitely has room to grow in the real estate market," he said.


In private, many in Kiev's foreign commercial community are gloomy about the chances of an upturn in the ravaged economy in the short term.


But when it eventually happens, real estate agents see the retail market as having the greatest growth potential.


Only a handful of major Western retailers are present in Ukraine, with old Soviet-style shops and open-air markets being the most popular places for shopping.


"Kiev is undeveloped in terms of retail. We have some stores popping up one by one, mostly in the center, but what we will see is retail centers and shopping malls coming in," Mangum said. "But it will take some time."


While the city center will remain the most desirable location for new space, there also remains aniche for lower-end retail outlets.


"It is a big sector f there is space for boutique retail on Kreshchatik [the main street], for shopping centers that have normal quality goods and there is also space for less expensive retail development outside the city center," Mangum said.