Lagging retail sector expected to do well as consumers demand choices.
Ukraine has a new leader among shopping and entertainment centers – the Sky Mall, which opened in Kyiv on Aug. 27.
The 45,500 square-meter retail complex is set to be followed later this year by Continental shopping center in downtown Kyiv, as retail becomes the first real estate segment to emerge from the 2009 recession.
A lack of financing sidetracked many retail projects, but a huge unsatisfied demand make the sector’s growth prospects healthier than the rest of the real estate sector.
“In 2009, many developers paused to reassess or optimize their projects,” said Natalya Kravets, director of the Retail Property Deparment at Colliers International.
“First because there was no debt financing available, as no banks have given loans, and, second, it was difficult to set up a business plan because the rent rates was uncertain and hard to predict.”
Oleksiy Zerkalov, vice president of the investment banking department at Kyiv-based Dragon Capital, said that despite the general market decline, “quality retail real estate is in high demand: Quality retail centers have low vacancy rates and relatively high rental rates.
Current financial conditions prevent development of any new projects, but as financial conditions improve, high quality projects in Kyiv at the stage of development will find its investor.”
According to real estate brokers, retail real estate has suffered the least compared to other segments, such as the warehouse or office property markets, because it is less developed than its neighbors.
“Before the crisis, there was a huge unsatisfied demand [for retail space],” Kravets said.
“That is why average retail rent rates in Kyiv have dropped by only 20-25 percent compared to spring 2008. In the office and industrial segments, rent rates have decreased by 50 percent on average compare to spring 2008.”
According to the most recent report by Colliers International, the average rental rate in Kyiv trade centers in 2010 had dropped from a peak of $105 per square meter in 2008 to $80 per square meter – the same level as in 2007.
The total retail space available in Kyiv totals 275 square meters per 1,000 inhabitants, while in other Eastern European capitals this figure is much higher: 810 square meters in Warsaw, 620 square meters in Budapest and 615 square meters in Prague.
The huge Sky Mall is 500 square meters larger than the previous leader, the Obolon district’s Dream Town.
Situated on Henerala Vatutina Avenue on the way to populous Troyeshchyna district in Kyiv, the mall is jointly owned by Ukrainian developer Panorama Group and Oledo Group.
The shopping mall is the second stage of the project, which already contains French hypermarket giant Auchan.
By 2012, a 47,000 square-meter third stage will open with household hypermarket DIY, an entertainment center, restaurants, cafes and a yacht club, said Oleksiy Strulyev, director of Astra Property, a part of Panorama Group.
Together with more retail space, the Sky Mall brings several new clothing and footwear brands to Kyiv, such as U.K. clothing brands New Look and Topshop, Germany’s New Yorker, Spain’s Oysho, French children’s clothing store Okaidi and Obaibi, as well as Spanish footwear designer Massimo Dutti.
Apart from the two flagship shopping malls in Kyiv – Sky Mall and Dream Town, which opened in fall 2009 – several big retail real estate projects opened in other Ukrainian cities.
For instance, in 2009, the 72,000 square-meter Riviera shopping mall opened in Odesa, the 52,000 square-meter King Cross mall was completed in Lviv, the 16,000 square-meter Continent opened in Donetsk, and other smaller projects were finished in other major cities.
But despite the new openings, the Ukrainian retail market is slipping down in global attractiveness rankings as investors look for less risky projects and financing remains tight.
Once considered one of the most attractive markets according to the A.T. Kearney Global Retail Development Index, Ukraine has dropped from fifth place in 2007 to 17th place in 2008 and 2009 reports. In 2010, Ukraine fell out of the top 30.
“This shows that the Ukrainian retail market still has high potential, but peer countries may offer even higher potential growth. As a rule, money looking for investment opportunities is in far greater quantities than there are suitable projects. The Ukrainian retail industry offers a lot of opportunities which will be pursued by investors once the investment horizon improves,” said Zerkalov from Dragon Capital.
Vadym Livshyts, managing partner at First Realty Brokerage, a real estate consultancy, says that foreign institutional investors are now more focused on other European countries which offer lower risks and a more stable and predictable market.
“Now the lion’s share of developers who operate and invest are Ukrainian companies. Foreign investors’ and operators’ share and interest have dropped,” he said. “Future growth will depend on local investors.”
Sky Mall:2-T Henerala Vatutina Avenue, Kyiv
http://www.skymall.ua/
Kyiv Post staff writer Olga Gnativ can be reached at [email protected].
