NAI Ukraine is launching office brokerage due to revitalization of Ukrainian office real estate market.
Due to the increase of offers and growing activity of office tenants on the Ukrainian real estate market, there is a non-typical for the last crisis years' vacancy rate reduction. Thus, the results of 2016 show vacancy rate in Class A going down to 28% and in Class B it reached 21%. The average market vacancy rate is 20.7%.
In 2016 several new Class B business centres were added to the capital's office real estate market. These are Protasov (phase 4), Lagoda (phase 3), Irva (phase 3) and business centre at 15 Leiptsizska St. (phase 3). Their total space for rent is 36 900 м2. So at the end of 2016 more than 100 business and office centres were functional in Kyiv with close to 1 700 000 m2 of rental space offered on the market.
As in the past, international companies continue to be major lessees of office space. In terms of types of economic activity ІТ companies (44%), pharmaceutical companies (23%) and FMCG companies (20%) are among major lessees.
"Rent for office premises is relatively low now since the proportion of vacant premises remain rather high. Today office real estate is considered by investors only in the case if it brings a yearly profit of 12-13%. This is much higher than, e.g. in 2008 when profit was in the range of 8-9% ", said founder and CEO of NAI Ukraine Vitaliy Boyko.
Devaluation of the local currency and crisis in the Ukrainian banking system still produce a negative effect over foreign currency rent rate dynamics. The rate for 1 m2 for premises in Class A business centres ranges between $18 and $28 and in Class B business centres — between $12 and $18 (not including the VAT and utilities). However, thanks to demand revitalization and a small volume of new offers the speed of rent rate decline became slower in 2016.
General reduction of development on the market and postponing the opening of projects will continue in the coming years. At the same time, there are conditions for maintaining the increase in demand that appeared in 2016. New foreign lessees are not expected to come but the companies already working on the Ukrainian market will be using the situation on the market to make the commercial rent conditions better for themselves. Besides, the world trend of reorganization of companies (acquisition, merger and demerger, etc.) may have its effect.
In these conditions, further reduction of vacancy rate and rent rate stabilization is expected. However, since rent rate for a square meter is tied to foreign currency, it is unlikely that the rates will increase before Ukraine's macroeconomic situation getting normalized.
Office real estate is not attractive for development due to a low level of profit and high volume of vacant premises on the market. An active influx of foreign companies to the Ukrainian market is not expected for the moment and there are no grounds for dynamic development of local companies. "Nevertheless, compared to previous years all these factors are showing a positive development. In 2017 the market of office real estate is expected to get considerably more active, so our company is offering a new service - office brokerage. As for development — this year it is time to make plans, and next year construction can begin. Part of vacant premises on the market may disappear during the next 2 or 3 years. Then new space will be needed due to lack of available premises — and that will create conditions for rent rate increase," - said Vitaliy Boyko.
About NAI Ukraine
NAI Ukraine represents NAI Global in Ukraine since July 2016. In the first 10 months, the company has become a leader in commercial real estate consulting and leasing. NAI Ukraine is a consultant and leasing agent of the major Ukrainian commercial real estate projects – such as Lavina Mall, Ocean Mall, Blockbuster Mall and many others. NAI Ukraine team has a vast experience: 600 consulting projects, over 100 properties put into operation, and over 3 million sq.m. leased. To learn more, visit http://naiukraine.com/en