Office Market, Kyiv, Q3 2020

Kyiv office property market, Q3 2020

Against the backdrop of the СOVID-19 pandemic, the demand from tenants of office real estate remains moderate and the vacancy rate in the segment has grown. At the same time, two out of five business centres opened this year achieved 90% and 100% occupancy, and some business segments are recovering.

 

Demand

According to a new report from Cushman & Wakefield in Q3 2020, occupier demand was similar to Q2 with take-up estimated at approximately 32,500 sq. m, while cumulative take-up in January- September 2020 was around 70-75% less than during the first 9 months of 2019 and 2018. Out of 5 properties delivered in Q3 2020, two business centres achieved 90% and 100% occupancy. Net absorption was estimated at 3,500 sq. m in Q3 2020.

 

Key office lease transactions, Q3 2020

Property

Submarket*

Tenant

GLA, sq. m

Type

BC Hillfort Business Mansion

CBD

Confidential

8,550

Additional location

BC at 15 Leiptsigska St.

Pechersk

EvoPlay

4,500

relocation

BC Venetsianskyi

NC-EB

Frag Lab

3,600

relocation

* CBD – Central Business District; C – Central outside CBD NC-WB – non-central on the western bank of Dnipro River; NC-EB - non-central on the eastern bank of Dnipro River.

GLA – Gross Leasable Area.

 

Source: Cushman & Wakefield

 

New Supply

According to Cushman & Wakefield in Q3 2020, new supply on the office property market in Kyiv amounted to around 43,200 sq m GLA, bringing cumulative new supply for 9 months to around 78,800 sq m, which is 30% and 50% more than in Q1-Q3 2019 and Q1-Q3 2018 respectively. New deliveries in Q3 2020 include the business centres Hillfort Business Mansion and Avenue 53, along with Forum Infinity and Forum Park Tower developed via reconstruction. The business centre Sigma was also completed and opened in Q3 2020, but the property was commissioned by its previous owner back in 2014, therefore it is not included into the new supply figure for Q3 2020. The next phase of UNIT.City Innovation Park will be completed in Q4 2020.

New Delivery

Source: Cushman & Wakefield

 

Vacancy

Due to ongoing impact of COVID-19, economic slowdown and significant new supply, at the end of Q3 2020 primary vacancy reached 10.4% increasing from 9% in Q2 2020 and 6.5% at the end of 2019. Nevertheless, primary vacancy is expected to decrease by the end of 2020.

 

Office properties delivered in Q3 2020

Property

Submarket*

GLA, sq. m

Owner / Developer

BC Sigma

NC-WB

18,764

MERX

BC Avenue 53

NC-WB

18,300

Local developer

BC Hillfort Business Mansion

CBD

8,550

NEST

BC Forum Park Tower

NC-WB

8,207

FMG

BC Forum Infinity

NC-WB

8,176

FMG

* CBD – Central Business District; C – Central outside CBD NC-WB – non-central on the western bank of Dnipro River; NC-EB - non-central on the eastern bank of Dnipro River.

GLA – Gross Leasable Area.

 

Source: Cushman & Wakefield

 

Rents

During Q3 2020 prime office rents remained at USD 27 per sq m per month (net of VAT, service charge and utility payments). In view of the sharp deterioration of economic situation both in Ukraine and globally since Q1 2020, some downward correction in occupational costs across all office property classes is still likely during the coming months, but various properties on the market will demonstrate differing rental performance depending on their quality, occupancy and management.

 

Rent and Vacancy

Source: Cushman & Wakefield

 

“With the continued IMF support being now under serious threat, Ukraine is facing difficult choices in financing its budget deficits of 7.5% of GDP in 2020 and 6% in 2021. The GDP is forecast to grow by 3.8% in 2021 and 3.5% in 2022-23 after the projected fall by (-5.2%) in 2020,” said Marta Kostiuk, Head of Research and Development Consultancy, at Cushman & Wakefield in Ukraine.

“On the positive note, in Q3 2020 a certain recovery of business activity was seen, particularly in the retail sector, along with the improved dynamics in industrial production due to improved domestic and international demand. Nevertheless, the constantly increasing number of new COVID-19 cases in Ukraine means that business activity is at risk, and the challenges for the office real estate market in Kyiv will be acute, at least in the short term.”

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