Logistics snapshot

Warehousing property market in Q1 2020: stable occupier demand and no new deliveries

After economic growth of 3.5% in 2019, from the start of 2020 Ukraine’s economy slowed down with real GDP having contracted by estimated 0.5% for the first time since 2016. The country’s risks were seen to increase in March due to the government’s reshuffle at the very unfavorable time of coronavirus outbreak around the globe and no IMF deal achieved by Ukraine with around $15 billion debt repayments due this year. This resulted in falling international investment demand for the state bonds and weakening of the hrynya, while the situation was aggravated by a virtual lockdown gradually introduced in Ukraine since 12 March.

On the positive side, on 30 March the Ukrainian Parliament voted for two significant legislation changes required by IMF, i.e. the opening of the land market with the effect from 1 July 2021, as well as the banking sector law (in the first reading) preventing the nationalized banks, primarily Privatbank, from being returned to their previous owners; these had immediate positive impact on the Ukrainian hryvnya, which started strengthening on 31 March. As of late March 2020, the experts of Oxford Economics forecasted real GDP falling by 1.5% in 2020 and rebound by 4.3% in 2021 when global recovery from pandemic begins

Stable occupier demand

Take-up in the warehousing and logistics property sector in the Greater Kyiv area reached around 28,800 sq m in Q1 2020, which exceeded by around 15% the figure for Q1 2019 and doubled compared to Q1 2017, but it was by 35% less than take-up in Q1 2018. Significantly, pre-leases formed around 85% of all lease transactions signed in Q1 2020.

Cushman & Wakefield estimates that net absorption in the sector was negative and amounted to around (-40,800) sq m, being attributable to a change in leasing strategy of the landlords of several properties and partial vacation of a previously owner-occupied warehousing facility prior to the spread COVID-19. Though in March 2020 several lease transactions were postponed till after the quarantine, occupier dynamics in the Greater Kyiv area remained generally stable during the most of Q1 2020.

No new deliveries

Following the trend of the previous several years, overall development activity in the warehousing and logistics property sector in the Greater Kyiv area remained low with no new deliveries in Q1 2020. As of early April 2020, Cushman & Wakefield projects that two warehousing and logistics properties of cumulative area around 60,000 sq m are scheduled for commissioning during the following three quarters of the year.


Logistics snapshot

Source: Cushman & Wakefield

 

Increase in vacancy

Primary vacancy in the logistics and warehousing property sector in the Greater Kyiv area increased to 2.9% from 0,8% at the end of 2019, which is close to the level of vacancy during 2018. It is important to highlight, however, that both warehouses scheduled for delivery in 2020 are already from 40% to 100% pre-leased.
 

No rental growth

After several years of continuous rental growth during 2017-2019, in Q1 2020 rents for quality warehousing space were generally stable. In JanuaryMarch 2020, base monthly rents were in the range of 4.0-5.8 per sq m for prime warehousing space, and at around USD 3.2-3.8 per sq m for the highest quality B class properties. In view of the increasing risks related to economic slowdown amid the spread of COVID-19, since the second half of March 2020 many occupiers in the sector initiated negotiations with the landlords with the intention to decrease their occupational costs.

 

Logistics Snapshot

 

Source: Cushman & Wakefield

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