DTZ Ukraine’s Levon Papoyan says market marked by reduced rents and renegotiation realities
real estate
Office rental sector seeks to weather storm Some Ukrainian officials claim there are signs that the economic recovery is underway. Does your reading of the office rental sector support such claims? The question remains rather debatable. We have witnessed relatively low occupier activity on the office rental market recently. Most of the relocation deals which we are seeing have been characterized by rented space decreases or further corrections of office rents across all property classes in Kyiv. In terms of new business centre delivery, the majority of developers do not consider the current business environment in Ukraine to be favorable in terms of additional project development. Most of the buildings that are still under construction are only progressing because the projects were launched before the end of 2014 and therefore cannot be interrupted. On the other hand, in 2016 some improvements in the general economic situation in Ukraine are expected, as well as a resultant increase in occupier demand for offices in Kyiv. The prospect of positive economic dynamics in 2016 could also serve to attract potential foreign developers, which will increase future office stock. How has the office rental sector in Kyiv responded to the shocks of the last 18 months? The instability of the last 18 months have affected the office rental sector in Kyiv in many ways. Tenants tend to decrease the space they rent and optimize their long-term occupational conditions. In present market conditions, a number of major landlords have tended to give ground and renegotiate their lease contracts. In some cases there is a possibility for occupiers to fix rental rates in UAH, secure half-year or one-year discounts, or gain a 10-20% rental rate decrease, depending on the contract conclusion date. There has been a considerable increase in modern office buildings in Kyiv over the past
decade. Does the Ukrainian capital now risk a situation of oversupply? Currently the supply of office space in Kyiv exceeds demand, but this is only due to the low levels of demand which we are now witnessing. If we adopt a slightly longer-term outlook, over
Plans for new business centres in Kyiv may have to wait until expected economic recovery in 2016 (stock image/UNIAN) the coming two years as the country’s economic recovery proceeds, it will hopefully stimulate increased demand for high quality office space.
expenses and risks, investing in co-working when the situation in the country is stabilized could turn out to be a highly profitable option.
who are unable or unwilling to commit to traditional lease terms. In terms of the Ukrainian market as a whole, the co-working concept is not that well integrated. But in spite of the absence of strong growth, co-working in Ukraine has a future. If the entrepreneur is aware of the
high-quality ‘B’ class office space, as the most attractive segments of the Kyiv office rental market.
Have the challenging economic conditions of the past year led to any innovations on the Kyiv office rental market? I would identify the co-working concept as one of the innovations currently visible on the Kyiv office rental market. The concept was initially developed to provide a solution for specialists
Which segments of the Kyiv office rental market do you see as the most attractive for the coming few years? For the coming few years we see classes ‘A’ and ‘B’, especially
About the author: Levon Papoyan is the Head of Office Brokerage and Consultancy at DTZ Ukraine
May 2015
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