Thinking of investing in real estate in Ukraine? Think retail, the experts are saying – and investors appear to be listening.
A total of 12 shopping centers are planned to be built in Kyiv between 2016 and the end of 2018. The capital has seen its retail space quadruple between 2006 and today, from 300,000 to 1.2 million square meters, according to Ukrainian Trade Guild, a development company.
By the end of 2016, 138,500 square meters of space will be added to the total with the opening of the Lavina Mall and the renovated TsUM department store, and six additional projects due to be completed in 2017 will add another 400,000 square meters, the guild reports.
Despite the current economic downturn, “Ukraine has seen a gradual return to the growth path,” says Kira Pruglo, head of research at CBRE Ukraine, a global commercial real estate firm. CBRE calculates that Kyiv is currently second only to Moscow in Central and Eastern Europe in terms of volume of retail space construction.
The growth is driven by a lack of high quality, Western-style retail space for incoming retailors to showcase their products, according to Viktor Oborskiy, the head of the Strategic Consulting Department at the Ukrainian Trade Guild.
“(Ukrainian) consumers at the moment are moving ahead of what is available. They want more of what is called shopping-tainment, which includes experience activities, such as interactive games and arcades,” says Oborskiy.
Kyiv’s Pechersk neighborhood remains the most expensive in all categories — buying offices or apartments and renting apartments, whlle the outer regions of the capital are cheaper. (Kyiv Post)
At present, according to the Ukrainian Trade Guild, only 20 out of 50 shopping centers in Kyiv are of good quality. The rest were built in the early 2000s and desperately need renovation.
Vitaliy Boyko of property consulters NAI Ukraine also reckons the amount of quality retail space is low – between 200,000 to 300,000 square meters. Boyko also noted that retail consumption had increased by 30 percent in 2016 year-on-year. This is a sign for investors that Ukraine’s retail sector will continue to recover in the near future, he says.
Moreover, the rise in internet shopping in Ukraine is not yet a worry for retail space investors, says Oborskiy: “Even in the United States internet shopping hasn’t yet overtaken offline purchases, and in Ukraine it’s a long way off.”
At present only two property sectors in Kyiv are seeing healthy returns: retail and residential, says Oborskiy. The office, hotel and industrial segments are oversaturated, he adds.
CBRE Ukraine research supports this: Although vacancy of office and industrial space has decreased by 1 to 2 percent year on year, it still stands at 29.5 percent and 13.5 percent respectively. Conversely, prime and secondary retail space reported vacancy of 2- 4 percent and 7-10 percent in 2016.
“By U.S. standards, the indicator that a shopping center is doing well is that it has 1 million visitors a month. (Kyiv’s) Ocean Plaza mall has 1.5 million visitors a month,” says Oborskiy. This is what makes investing in shopping centers so appealing for Ukrainian businessmen, he adds.
Business peoples’ interest in investing in building retail space can also be explained by rental prices. Renting out space in a Kyiv shopping center brings in more on average than in Berlin, Warsaw, Brussels, Budapest, St. Petersburg and Prague, according to JLL, a real estate services company.
Yuriy Kryvosheya of Toronto-Kyiv, a mixed-use real development company, agrees.
“If you have free liquidity, I would really recommend investing it in high-quality retail units,” Kryvosheya says. “You’ll get a better return for your money than if it just sits in the bank. Interest rates abroad are negative, and here they are low.” n
