Kiev Office Property Viewpoint on the 1 st half of 2012.

Kiev

Office Property

Viewpoint on the 1st

half of 2012

Ukrainian Trade Guild © 2012

The large volume of the new offer has had a significant impact on the total market structure of professional office property, having shifted the qualitative distribution towards «А» и «В+» classes (class «А» - 20%, class «В+» - 27% and «В-» - 53%).

Market structure of Kiev office property in the class sectional view («А», «В+», «В-»)

The implementation of the office facility new offer with the gross leasable area (GLA) of 207,300 sq. m. is planned in Kiev for the second half-year of 2012.

Developers have announced about the implementation on the market of such large scale office center projects as BC Gulliver, BC Toronto, BC Metropol, BC Topaz, BC Mega City, which will even more enlarge «А» и «В+» class part in the total offer structure. However, taking into consideration the construction activity on these objects, it can be stated that the implementation of some of them can be postponed for the later term (2013).

At this stage of the office property market development and the competition level, BCs that are the closest to European standards (modern construction technologies, infrastructure, service etc.) have the highest chances of being successfully realized.

Demand

The tendency of the demand displacement towards the high class office property located outside CBD was outlined in the first half-year. With the intention of lease saving, the financial sector companies have been cutting down their office areas in BCs situated within CBD and locating them in business centers outside the city’s central business district. Telecommunication, IT, industrial and pharmaceutical companies, whose offices are mainly located outside CBD, have enlarged their existing areas.

The main part of the office area demand during the first half-year fell on the companies that were interested in their area increase or the quality growth of the leasable areas.

The demand part for BC office facilities of «В+» and «А» classes has considerably increased in the demand structure of office center classes. In the demand structure of a lot size the biggest part fell on the blocks of 100-200 sq. m. (47%) as well as the ones from 200 to 500 sq. m. (21%).

The basic leaseholder demands for the office facilities stay the same: the lease cost, BC location, office planning and decoration work, the availability of secured parking and its cost, the presence of a public catering point for employees inside the building or within the walking distance.

Offer

In the first half of 2012 the vacancy level increase, the growth impairment of lease rates as well as the expansion of leaseholders’ demands for leasable area quality were noticed on the capital’s office property market due to the record implementation number of new leasable areas.

As of July, 2012 126 office centers of «А», «B+» and «В-» classes with the gross leasable area (GLA) of 1.34 million sq. m. function in Kiev.

The segment’s main tendencies are based on the implementation of the record number of new office areas for Ukraine, which has happened because of the projects, the terms of delivery of which were put off earlier.

During January-June the new offer was replenished by five office objects (BC 101 Tower, BC Premium Center, BC Victoria Park, BC Crystal, BC Europe) with the gross leasable area of 140,700 sq. m., which is 7 times more than the implemented area volume during the same period of 2011.

2005 2006 2007 2008 2009 2010 2011 1st half of 2012

0

300

600

900

1200

1500

423536

751

916

1,0651,137

1,200

1,340

140 112216 164 125 71 63

141

Total offer, thousand sq. m. (A and B classes)

New area implementation, thousand sq. m. (A and B classes)

20%

27%

53%

А В+ В-

Kiev Office Property


Lease rates

The demand shift towards BCs located outside CBD as well as a great volume of the new office facility offer have stipulated the growth impairment of the lease rates, and the price policy adjustment for the leaseholder retention has been noticed in BCs situated in CBD.

According to the results of July, 2012 the lease rates for «А» class offices were in the range of $30-55/sq. m./month, for «B» class they made $18-45/sq. m./month (with VAT, without operation costs). The average level of operation costs for «А» class offices made $6-10/sq. m./month (with VAT), for «В» class it was $2-6/sq. m./month (with VAT).

Tendencies and forecasts

• The new offer volume will make a considerable pressure on the market in particular on the lease price determination. The owners of the newly implemented objects are interested in their quick filling, the rate of which depends on the lease cost and the condition of the leasable areas. The more attractive commercial conditions with a considerable discount of 5-20%, compared with lease rates in the acting business centers, can be offered for the leaseholders that are interested in the lease of big volume areas (from 1,000 sq. m.).

• The high volume of the new demand is expected on Kiev office property market in this year: 5 business centers with the gross leasable area of 140,000 sq. m. were implemented during the first half-year and 4 more objects with the area of about 180,000 sq. m. can be implemented till the end of this year. Thus, according to the results of 2012 office facility new offer volume can make about 320,000 sq. m. Office objects of «А» and «В+» classes make 80% of this year offer in class sectional view. Till the end of the year the total volume of office facilities in Kiev will reach the level of 1.5 million sq. m. represented in 130 business centers of «А» and «В» classes.

• Taking into consideration the current part of vacant office areas, it can grow to 20% with the implementation of the new offer, which will make up to 300,000 sq. m. of vacant areas in absolute expression.

• Considering the current demand volume on the level of 100,000-120,000 sq. m. of office areas per year, not less than 3 years will be needed to absorb the new offer of 2012 and to stabilize the market.

• In the medium-term perspective the office property segment will be a market of leaseholders that will toughen their requirements to the quality and the characteristics of the leasable areas as well as to the commercial conditions of the lease contracts.

Demand distribution according to office area size

Leaseholders are paying more attention to the power efficiency of the building because of the increase in operation cost.

According to the results of the first half of 2012 the vacancy in Kiev BCs has increased on the average for 3-4% and has made 6-7% for «А» class and 11-12% for «В+» и «В-» classes.

Vacancy level of Kiev office areas

47%

21%

17%

15%

up to 200 sq. m. 201-500 sq. m.

501-1500 sq. m. more than 1500 sq. m.



Leaseholder Area, sq. m. Leaseholder’s profile Object

Samsung 15,700 manufacture BC 101 Tower

МТС 6,400 telecommunication/IT BC on Druzhby Narodov boulevard , 19

Embassy of Canada in Ukraine

2,100 embassy BC on Kostelnaya Str., 13a

SEB Bank 2,000 real estate property BC on Mikhailovskaya Str., 7

Software outsorcing team 1,200 telecommunication/IT BC on Gaydara Str., 50

System integration service 1,200 telecommunication/IT BC on Gaydara Str., 50

Zakordonnaftogas 400 gas and oil sector BC on Institutskaya Str., 28

Groupe SEB 400 manufacture BC on Kharkovskoye Highway Str., 201

Printec Group 350 telecommunication/IT BC FIM Center

Licond 300 manufacture BC Mikom Palace

The most important deals of Kiev office facility lease in the first half of 2012

Contract typical conditions of Kiev professional office area lease


Lease periodA and B classes: up to 3 years. Longer periods are possible for the anchor leaseholders.

Terms of paymentMonthly average with advanced payment, the rates are nominated in US dollar or euro. The payment is made in hryvnias according to NBU official exchange rate.

Deposit 2 month

Rate indexation Not less than 3%

Facility decoration work As a rule a new facility is implemented in the condition of shell & core.

• At present, the main demand show the companies that are moving from one office to another because of the leasable area condition improvements as well as the lease cost optimization. The part of the new companies that begin their business in Ukraine is still small in the demand structure, which is connected with the limited possibilities of business running in the current political and economic country’s realities.

• The demand’s evident peculiarity is the companies’ readiness to consider the office lease outside the city’s Central Business District (CBD), which can be explained by the more attractive lease conditions in the objects represented there. CBD location is no more a key factor of the office facility selection, but the positioning on the left of right bank is as important as it used to be.

• In spite of the limited saturation volume, the capital’s market of the office property demonstrates its active development, the evidence of which is the construction of new business centers announced for implementation in 2013-2014.


Object’s photo BC’s name Address GBA, sq. m. GLA, sq. m. Parking, stall

numberDeveloper

BC 101 Tower Lva Tolstogo Str., 57 61,849 49,600 259 КАN Development

BC Premium Center Ivana Lepse boulevard, 6 52,000 36,000 175Yeditepe Construction

Group

BC Victoria Park Akhtyrskiy alley, 7 22,500 18,000 75 Forum Group

BC CrystalKharkovskoye Highway, 175-177

12,000 9,600 217 ICD Investments

BC Europe Stolichnoye Highway, 101 35,265 27,506 1,504 DeVision

TOTAL GLA, sq. m. 183,614 140,706

Kiev business centers implemented in the first half of 2012



Object’s photo BC’s name AddressGBA, sq.

m.GLA, sq.

m.

Parking, stall

numberDeveloper

Implementation possibility in the term announced

BC Metropol Moskovskaya Str., 2 53,984 47,600 154 КАN Development average

BC Toronto Antonovicha Str., 79 45,180 36,100 380 JV Toronto-Kiev high

BC Mega CityKharkovskoye Highway, 19

40,000 32,000 500 UKO average

BC Topaz Melnikova Str., 2-10 27,000 21,600 140Build&Live

Developmentlow

BC Gulliver Sportivnaya sq., 1 80,000 70,000 750CJSC Mandarin

Plazahigh

TOTAL GLA, sq. m. 246,164 207,300

Business centers planned for implementation in the second half of 2012


Contact information

Ukrainian Trade Guild

Mechnikova Str., 2-А (BC Parus)

Kiev 01601, Ukraine

Tel./ fax: (380 44) 537 23 64

www.utg.kiev.ua

Vadim Neposedov

Company president

[email protected]

Vitaliy Boyko

Managing partner

[email protected]

Yevgeniya Loktionova

Director

[email protected]

Victor Oborskiy

Manager of strategic consulting department

[email protected]

Andrey Bolshakov

Property market research specialist

[email protected]

Ukrainian Trade Guild is the national largest consulting company in the

real estate sphere. Today UTG is 55 highly qualified specialists and more

than 500 clients. Our participation in 350 business projects and

conduction of more than 400 market researches allow us to be a reliable,

responsible and competent partner.

This and other company’s reviews can be found on our website www.utg.kiev.ua

This presentation is the publication of the generalized character. Ukrainian Trade Guild is not legally liable for

the information, the analytics and the forecasts published in this overview of Ukrainian Trade Guild in terms of

possible third person losses as the result of this report result usage.

Any publication of news stories from the report given, whether as a whole or in parts, is possible only with the

company’s reference as the data source.


The most important business centers, implemented and planned to be implemented in 2012


№ Implemented BCs GLA, sq. m.

1. BC 101 Tower 49,600

2. BC Premium Center 36,000

3. BC Victoria Park 18,000

4. BC Crystal 9,600

5. BC Europe 27,506

№ Planned BCs GLA, sq. m.

1. BC Metropol 47,600

2. BC Toronto 36,100

3. BC Mega City 32,000

4. BC Topaz 21,600

5. BC Gulliver 70,000

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Kiev Office Property Viewpoint on the 1 st half of 2012.

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