It's pretty close to official. There's a good deal more high-end office space available in Kyiv than there are customers to rent it.
With the number of Western firms willing to set up shop in Kyiv stagnant, it seems office-space developers have run into something of a wall.
'It's because the Kyiv real estate market has become quite sophisticated and professional in the last four years,' said a recently-arrived U.S. developer who has pointedly decided not to go into office buildings for the time being. 'The number of Western companies coming here to use that space has simply not kept up.'
Just a year ago the office space market was booming. Property owners were demanding $80 per square meter a month for all types of locations, a price space-hungry businesses were coughing up. In many cases, tenants were willing to move into Soviet-era state institutes and put up with off-the-beaten-track locations, lack of phone lines, and shoddy lobby and corridor decor.
These days it's a different story, proving that even in Kyiv the laws of supply and demand are inexorable. According to the U.S. developer, at least 30,000 square meters of 'Class B' office space have been added to the city market over the last six months. With demand slack, rents have accordingly tumbled to the point that Class B office space now rents for $40 to $60 per square meter. Class B office space may not be enticing to Westerners, but in Kyiv Class B space is high-end. Most Western companies learn to adapt when the landlord is also a Westerner, the lobby looks decent, the parking lot is guarded, the electricity and air-conditioning are constant, and the elevators go 'bong' when the doors open.
Unfortunately for Class B landlords, the office-space shopper has the option of renting Ukrainian-managed office space, more and more of which is becoming available as the managers of half-empty Soviet-era office buildings spruce up their accommodations in a bid to attract paying tenants. Ukrainian managers of such buildings have learned that white walls, carpets, phone lines, a more-or-less steady flow of electricity, and a security guard at the door are the minimum requisites for luring private-sector occupants. The cash invested to upgrade office space is often returned with the first rent, and in most offices unused phone lines can be transferred from the desks of long-since departed employees to rent-paying tenants.
Although the journey from parking lot to office door can seem like time travel to the Soviet past, this office space option is attractive because of the $15 to $20 per square meter price attached.
It is not just Ukrainian companies that find that rate irresistible.
'There are a lot of smaller Western companies here who simply see no reason to pay the premium price for the premium space,' said the developer. 'They are perfectly happy in improved Ukrainian space, and there's a great deal of that available today.'
As for the big multinationals, their office options in Kyiv keep expanding due to the general lack of international business interest in the country. That leaves Class B landlords fishing for clients.
The obvious potential customers are those businesses currently holed up in renovated Soviet-era space. But according to the U.S. developer, the incentive to move up a notch to Class B space is just not there.
'These companies won't move unless they get offered Class A space,' he said.
But Class A office space – which justifies truly impressive rents – is nowhere to be found in Kyiv, or the rest of Ukraine for that matter. The difference between Class A and Class B accommodation is the difference between elevators that go 'dong' and polished brass elevators with windows that not only go 'dong', but announce the floor in three different languages. It's the difference between marbled lobbies and lobbies with ceramic tiles, and it's the difference between state-of-the-art security systems and security guards who know you by name, greet you with a nod every day for months, and then on the one day you forget your propusk, refuse to let you into the building. Companies presently occupying Soviet 'remont' offices, such as banks and some foreign representations who have the hryvnas to go Class A, are not going to be satisfied with Class B, the developer argued. The question he raises is a pertinent one: why would a company want to pay a lot more for space that is not much better than its present location?
And it's a question the owners of half-empty Class B office blocks are going to have to find an answer to.
