Large foreign players are marching onto the market, primarily into commercial real estate.
Billions of dollars are being pumped into Ukraine’s booming real estate sector, considered one of the most lucrative investment markets in Eastern Europe.
Large foreign players are marching onto the market, primarily into commercial real estate, joining domestic developers and property managers that have been on the scene for years.
Experts say the demand for commercial real estate in Ukraine is still far greater than the supply available on the market, ensuring many more years of strong growth and profit margins.
According to Terry Pickard, managing director of NAI Pickard, the Ukrainian representative of real estate consultancy NAI Global, the market is “booming.” And more investments are coming in the future.
“There is a massive rush onto the Ukrainian property market … one that I have not experienced in my 15 years here,” he added.
Pickard said developers constructed about 150,000 square meters of new commercial space in Kyiv last year, including both new and refurbished buildings. Development activity has been consistently on the rise. About 90,000 square meters of new office space were opened in Kyiv in 2004. An additional 105,000 square meters were added the following year.
This trend has lured Israeli billionaire Benny Steinmetz to Ukraine. Seven Hills, a real estate development company he owns, announced last month that it will finance three property projects in Kyiv estimated to cost over $1 billion. The company’s commercial projects will include a Class-A office space project in the Podil district of the capital and a 50-hectare logistics center situated a few kilometers from Boryspil airport.
The arrival of big foreign players has not derailed the drive of domestic real estate developers such as XXI Century, which is backing commercial real estate projects valued at more than $1 billion.
XXI Century, majority-owned by former Kyiv City Councilman Lev Partskhaladze, was one of the first Ukrainian companies to float shares through an IPO on the Alternative Investment Market of the London Stock Exchange. The company raised a record $139 million for a 35.7 percent stake of company stock back in 2005.
Construction of one of the group’s newest projects, 25,000 square meters of commercial space to be located on a site across from the Lukyanivka metro station in the capital, is scheduled to start next year and be completed by 2009.
XXI Century officials said the land was acquired on a 10-year lease and that the company would likely sell the complex after its completion rather than managing it.
XXI Century General Director Mykola Yerzhakhovsky said the new building will help meet Kyiv’s continuing demand for first-class commercial space.
“A new office complex in the center of the capital will satisfy the demand of many companies for modern and comfortable offices,” he added.
XXI Century has several bigger commercial real estate projects under development, including a 90,000-square-meter office center to be built near Petrivka metro station. The center, which will cost $75 million to develop, is to be called Petrivka Office Center.
XXI Century is also developing a 424,250-square-meter office, entertainment and shopping facility with a three-star hotel on Kyiv’s left bank. When completed around 2012, the $401 million complex will be called Vyrlytsa.
The Ukrainian developer is also investing $390 million in a multi-purpose riverfront complex to be called Dnipro Riverfront. Upon completion in 2015, the 410,000-square-meter facility will include cafeterias, restaurants, apartments, offices and retail space. Another project XXI Century is currently developing is a 45,850-square-meter hotel and office center in Boryspil, near the country’s main airport.
Mirax Construction, the flagship company of Russian Mirax Group, broke ground in the capital’s Podil district in December 2006. The group is building a 44-floor office center with an estimated price tag of $300 million.
While the commercial real estate market continues to develop rapidly, demand still greatly exceeds supply due to the increasing number of foreign businesses looking to set up offices in Ukraine. The newcomers are heating up the demand in the sector, consequently driving property prices up. Spurred on by one of the highest yields in Eastern Europe and promising growth potential, both foreign and local developers are eager to engage in new projects.
According to Pickard, the shortage of commercial real estate in Kyiv is evident across the entire sector. Kyiv lacks decent hotel rooms, first-class office space and warehousing facilities.
In contrast, Pickard notes that there are over 500 square meters of professional office premises (Class A and B) per 1,000 inhabitants in Warsaw, while in Kyiv that ratio is only 145 square meters per 1,000 inhabitants.
