Gerald Bowers serves as general director in Ukraine for EFG Property Services, a property investment, development and management group active in Eastern Europe.
Gerald Bowers serves as general director in Ukraine for EFG Property Services, a property investment, development and management group active in Eastern Europe.
EFG is the real estate arm of the Swiss-based Eurobank EFG group.
In addition to his role at EFG, Bowers serves as general director for the British Business Club in Ukraine, a networking organization for investors.
In a Kyiv Post interview focused on Ukraine’s property market, Bowers said that the residential real estate sector is in a cooling phase, but insists the commercial segment continues to boom.
KP: What is the situation today in Ukraine’s real estate market?
GB: The residential market has calmed. Last month, in August, there was a slowdown in the number of transactions [mortgages]. Prices are not increasing. But prices have not deteriorated because the demand is still there.
KP: How about the suburbs, the so-called cottage developments?
GB: It is going very well. We are now seeing a shift away from the center. People are increasingly attracted by the price and value. You can buy a cottage house for about $3,000 to $4,000 per square meter with land. That’s a lot less than you would pay in the city center.
KP: This despite the lack infrastructure, schools and shopping?
GB: They are tolerating it for the moment. But there are new developments that include schools and shopping centers, the infrastructure we take for granted in the West. The development in Obukhiv is an example.
KP: Is residential real property due for a correction?
GB: I do not think we will see a decrease in prices. We are not going to see, as people say, the bubble burst. We are now approaching a calming in the residential market. A good analogy is Moscow. The bubble never burst in Moscow. I will admit that people are mystified by the prices in Ukraine. It is more expensive than Berlin, Prague or Budapest. But, there is no secret. It is the classical market situation, with demand dictating price.
KP: How about the commercial real estate market?
GB: We are still seeing a strong growth in rental prices for commercial property. Class A office space now rents for at least $75 per square meter per month. With class B, you’re looking at $50-$60. There is a significant number of Ukrainian companies relocating to Kyiv from other cities, and we still have a steady influx of multinationals. The supply is simply far behind demand.
In retail, prices are still increasing, especially in shopping centers. We have a situation now where shopping center owners have introduced tender processes.
If a retailer wants space, they must submit a tender and may have to offer a higher rent, pay an upfront fee or both.
In response we are seeing out of town locations being developed as genuine business parks with infrastructure, banks, restaurants and hotels.
KP: What is happening in the logistics infrastructure development?
GB: There is a huge demand for warehousing. This is where foreign developers have an edge. There are not too many Ukrainian firms with experience developing warehouses to Western specifications. Bonded and environmentally controlled warehouses are very lucrative.
KP: What developmental challenges are keeping supply low?
GB: I sometimes think that the Kyiv city administration really knows how to control the expansion of real estate. The frustrating thing for all developers is that it takes three years, sometimes four, to go from concept to getting a construction permit and breaking ground.
That is why there are so many projects in the pipeline and some fall by the wayside. Let’s face it: A lot of it has to do with corruption. You simply will not get the permits if you don’t know the right people.
KP: What are the trends in the regions?
GB: Unfortunately we always seem to focus on Kyiv. But if you are a property developer, you are concentrating on the regions, primarily the five major cities [Kharkiv, Dnipropetrovsk, Odessa, Donetsk and Lviv]. The regions are experiencing more demand and growth than Kyiv. It is cheaper to build in the regions and it is easier to deal with the governmental authorities there. There is less red tape.
KP: Today, what are the most promising real estate opportunities?
GB: Out of town business and shopping centers. There still aren’t enough shopping centers in Ukraine. Compared to the West, Ukraine has very little retail space per capita.
KP: What is your forecast for the real estate market?
GB: A year from now – in the residential market – I don’t think we will see significant change. Prices will not increase as they have done in the past.
In the commercial real estate segment, we will see significant growth. We will not approach saturation for five years. There are not too many places like Ukraine left where commercial real estate yields are as high as nine percent per year.
