Abstract
The global financial crisis continues to depress Ukraine’s property
markets.
In commercial property, there has been a growth of vacancy rates
and lowered rents. But a significant
undersupply remains, and many
projects are in the pipeline or on hold.
The average prime rent for office
space in Kiev is now US$40 per m2 per month (m2/month). Prices
peaked in
mid-2008 (Source: DTZ Research). The average fall in prime office rents in
Kiev was more
than 20% from Q407 to Q408. This was the second worst in
Europe, after Moscow, according to Knight
Frank Newmark Research.
Rents are expected to fall for all classes of office premises for at least the
next three months. A slow
improvement is expected as the global recession
lifts.
House prices in Ukraine fell 2.3% from Q108 to Q309, while
apartment prices in Kiev plummeted 23%
from Q108 to Q408.
Residential
property still has to recover from the severe housing bubble that began in
2005, where price
increases were in the order of 550% from 2002 to 2007.
The bubble involved many property buyers who
were from the UK, the US and
other countries. But now that the UK and US are in recession, the property
market is overloaded with properties for sale by overextended buyers.
Transactions have fallen, and
construction is on hold.
Given the size
of the housing bubble, it will be at least two years before the market is
corrected.
The retail premises and industrial premises segments have
slowed, mainly due to the downturn in the
economy. New speculative
industrial premises built to the end of 2008 have flooded the market.
The
industrial premises segment has slowed. There had been a shortage of warehouse
space leading in to
2008. However, new speculative industrial premises
built by the end of 2008 have flooded the market.
In the wider economy,
the global financial crisis spread to Ukraine by Q308, such that the outlook
for
2009 collapsed during Q408. Ukraine is expected to remain in recession
throughout 2009, and recover
during 2010, when global conditions are
expected to improve.
We suggest that the following are the key issues to
monitor for the real estate sector in the coming year or
so:
- Any
signs of improvement in the low rents and high vacancy rates in the commercial
office
sector.
- Signs of stability of house prices, which still have
a way to fall after the dramatic implosion of
the recent large bubble.
- Banking sector efficiency and the level of bank lending in Ukraine, given
that the availability of
finance appears to have been one of the main
challenges in the recent past.
- Any clear sign of improvement in
bureaucracy and the legal system.
- The state of the local and global
economies, and any distinct signs of recovery (especially in the
unemployment rate) from the current recession.
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