Ukraine’s real estate market has yet to recover from the bubble that burst in 2008-2009, triggering a freeze in construction and a tumble in residential property prices from a peak price of $4,000 or so per square meter.
With prices across the board settling in at more realistic levels, activity is simmering again, most notably in the commercial real estate segment.
Investment is slowly finding its way, rebooting once-frozen construction projects even on the residential side. Demand remains strong for residential property, particularly in metropolitan Kyiv.
More Ukrainians are, nonetheless, shopping more at Western-style malls and working in modern office centers that are mushrooming across the country.
But the number of transactions is far below pre-crisis levels. Purchasing power is weaker, partially rooted in the stricter lending requirements adopted by banks that were hit hard during the global financial crisis.
Having to rent rather than own an apartment remains a painful reality for many Ukrainians. More Ukrainians are, nonetheless, shopping more at Western-style malls and working in modern office centers that are mushrooming across the country.
A decade ago, Ukraine did not have much in the way of large, modern shopping malls. Today, the capital has a handful and dozens are either under construction or in the pipeline.
The arrival of civilized shopping malls – boasting food courts, movie theaters and other forms of entertainment – has revamped Kyiv and other big cities across Ukraine, replacing outdoor Soviet flea markets known locally as bazaars.
“In 2012, about 10 new shopping centers are scheduled to open,” Ernst and Young said in recent report, noting that at least six of the projects are expected to be completed on time.
Analysts at real estate consultancy DTZ say that 16 shopping centers in Kyiv alone are currently in the pipeline.
But even with the arrival of these centers, Kyiv and Ukraine’s other major cities will trail noticeably behind other European cities such as Warsaw when it comes to the availability of quality retail and office space per capita.
The shortage of high-quality shopping malls is the main barrier to the entry of international operators.
“Demand for modern retail space is gradually growing” across Ukraine, reads a recent report by the Ukrainian branch of the Jones Lang LaSalle, a global real estate services firm.
“Many international brands that have come to Kyiv are planning to enter the market in Donetsk. However, the shortage of high-quality shopping malls is the main barrier to the entry of international operators. At present, the vacancy rate is around 7 percent. Due to small supply and growing demand, the vacancy rate will fall in 2012,” the firm added.
Generally, the rent price for shopping space in Kyiv went up by 10-12 per cent in 2011, according to the Ernst and Young report.
The authors of the report say that 2012 will follow the previous year’s trends in commercial real estate in Kyiv of last year, including a lower vacancy rate, the completion of old projects, the stabilization of rent prices and more interest for properties up to 5,000 square meters.
UTG, a domestic real estate consulting company, put the vacancy rate of top-tier office space in Kyiv as of April 17 at nearly 11 percent. Demand continues to slightly push up lease prices.
The average purchase price of offices in Kyiv in the first quarter of 2012 grew by almost 3 percent, according to figures from the Union of Realtors of Ukraine and Kyiv.
The current average purchase price for office space in Kyiv is around $1,591 per square meter, said Vsevolod Zhoholev, chairman of the market analysis committee at the Union of Realtors of Ukraine.
In contrast, residential property prices have remained largely flat in the past year or so.
UTG reports that in March about 8,517 apartments and private houses were being offered for sale, or 7 percent up, compared to February. This increase could drive prices, on average about $2,056 per square meter, further down.
Price increases on residential property are not expected to increase unless mortgage lending recovers or salaries surge, both unlikely in the near-term.
Prices for apartments and homes could inch downwards, but a significant drop is not expected.
“Some are forecasting that prices of apartments will fall, that everything will get cheaper. But nothing like this will happen on Ukraine’s real estate market,” said Serhiy Zlyden, president of the Realtors’ Association of Ukraine.
“A construction boom is necessary” for a big shift in prices, he said. “But it won’t happen in the near future.”
Kyiv Post staff writer Yuriy Onyshkiv can be reached at onyshkiv@kyivpost.com.
