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Home»Blog»Analysis of Kyiv commercial property market 2019 Summary

Market trends

Based on the results of 2019, all office real estate market indicators showed an upward trend. A decrease was only registered in the new facilities commissioning rates. Out of 146.4 thousand sq.m. (GLA) of the facilities scheduled, only 84.9 thousand sq.m. (GLA) were commissioned; as to the rest of them, the commissioning time has been postponed until 2020.

On the back of a high demand, there has been a growth in developer activities within the segment. Taking into account the facilities whose commissioning time has been postponed from 2019, 184 thousand sq.m. of space is expected to come on the market in 2020.

There is a tendency for entering into preliminary lease agreements with respect to facilities that are still under construction. In 2020, no significant reduction of demand for high-quality office premises is expected.

Given the limited supply of large high-quality Class A offices, the tenants are becoming less sensitive to above-average lease rates.

Class А, В+, В и С

3,482 millions sq. m (GLA)

Total area of office

84,9 thousand sq.m. (GLA)

New construction

227,8 thousand sq.m. (6,5%)

Vacancy level

122,3 thousand sq.m.*

Net absorption

More than 150 thousand sq.m. (according to preliminary estimates): the total area of office premises leased out in Kyiv in 2019.

* Net absorption – a value showing the difference between the volume of space occupied at the beginning and at the end of the period under review. Positive absorption means that space is being occupied on the market. Negative absorption reflects the opposite – vacation of additional space, which together with newly constructed facilities become vacant space.

** base lease rates, exclusive of VAT and maintenance charges

 

The market volume based on the results of 2019 was 3.482 million sq.m. (GLA)

in 476 classifiable business centers. The supply growth was 2.5%.

New construction:

the supply is 84.9 thousand sq.m., which is 23.2 thousand sq.m. less than the corresponding figure in 2018.

The highest volume of new supply was that of Class B facilities: 54,0 thousand sq.m.

Class B+: 14,2 thousand sq.m.

Class A: 9,5 thousand sq.m.

Class B: 7,1 thousand sq.m.

In Q4 2019, eight facilities were commissioned with an aggregate area of 46.5 thousand sq.m.

 *base lease rates, exclusive of VAT and maintenance charges

** the lease rate increase in the Class B segment was evened out by new facilities coming on the market

Demand

Offices located in the central business area and in the areas adjacent to the city center that are next to Metro stations are in highest demand. Proximity to Metro stations is becoming a higher priority than location in the city center.

For large companies, it is important to have modern utility systems in the building as well as category II power supply system, central ventilation and air conditioning system, availability of a car park and a bicycle parking facility, and availability of catering facilities.

Offices with excellent views, panoramic glazing and terraces definitely remain among the favorites.

Around 50% of the demand was created by IT companies, industrial energy companies come second, and agro-industrial companies and companies providing professional services (consulting, financial, co-working companies) played a significant role in shaping the demand profile.

There is a persistently high demand for both 100-200 sq.m. offices and separate premises with an area of more than 1,000 sq.m.

There has been a growth in the demand for Kyiv's Left Bank offices both with an area of 200-500 sq.m. and from 2,000 to 6,000 sq.m. There is also a growing demand for premises intended for infrastructural facilities, schools, developmental centers, and clinics.

  • According to forecasts, there is going to be a lack of large high-quality offices on the market in the long run. Even now we can see a deferred demand both on the part of tenants and buyers for 5,000 to 15,000 sq.m. space in areas with excellent location.
  • Developers and investors understand these trends and we can see a demand for sites allocated for the construction of business centers in areas having attractive location.
  • There is a growth of demand for high-quality office facilities not only among investors but also among companies wishing to purchase buildings/ premises for their own business.

Vacancy level

The vacancy rate for classes of  Q4 2018 and Q4 2019

 

 

Vacancy level rise in the business centers of class "B " and "B+" is due to:

commissioning (toward the end of the year) of new facilities of this class, the total area of which amounted to 64 thousand sq.m in the class B segment and 14,2 thousand sq.m in B +

The positive trends on the office real estate market and its robustness spurred investment activities within the segment. The growth of demand on the rental market and the vacancy level decrease resulted in the deficit of high-quality office space having good location; consequently, it led to minimization of risks of a decrease in facilities' profit-making capacity, which contributed to the growing number of office facility sale and purchase transactions.

The current market situation suggests steady volumes of new facilities coming on the market, stabilization and moderate growth of the lease rates for high-quality office premises in the business area of downtown Kyiv.

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