dtz property times q4 2011

23
www.dtz.com 1 Property Times Ukraine Q4 2011 Spes ultima moritur 10 February 2012 Contents Executive summary 1 Economic overview 2 Offices 6 Retail 11 Industrial 14 Investment 18 Definitions 22 Contacts 23 Authors Marta Kostiuk Director, Research and Development Consulting +38 (0)44 220 30 60 [email protected] Andriy Tymoshenko Associate Director, Strategy Research +38 (0)44 220 30 60 [email protected] Dmytro Sokolskyy Senior Research Analyst +38 (0)44 220 30 60 [email protected] Contacts Magali Marton Head of CEMEA Research +33 (0)1 4964 4954 [email protected] Hans Vrensen Global Head of Research +44 (0)20 3296 2159 [email protected] The Ukrainian economy was subject to generally positive dynamics in 2011. Nevertheless, risks for further sustainable growth of the national economy increased, mainly due to deteriorating conditions on the global markets combined with the poorly diversified economic base of Ukraine, as well as high political risks and worsening perception of the country internationally. In 2011, new office supply in Kyiv amounted to around 158,000 sq m (GLA) with over 65% of annual figure delivered in the fourth quarter of the year. Due to the significant new delivery at the year-end combined with generally stable demand, overall vacancy in the sector increased by 4.6% quarter-on- quarter, though office availability in the central business district further contracted. A stabilisation of office rents was evident in Kyiv during the period October-December 2011. Though new retail supply during 2011 was generally low both in Kyiv and the regional cities of Ukraine, the years 2012 and 2013 are likely to see significant augmentation in new delivery in the sector, reflecting the strengthening confidence of developers and investors, and bringing more development opportunities for retailers. In 2011, new supply on the logistics property market in the Greater Kyiv area amounted to around 156,380 sq m, while take-up in the sector exceeded 214,000 sq m. At the end of 2011, primary vacancy reached 15.7%, decreasing by around 2% year-on-year. Headline rents for prime warehouse space in the Greater Kyiv area varied from USD 4.5 to USD 7 per sq m per month depending on the quality of space, location and general lease terms. Due to deterioration of economic prospects worldwide, prime yields on the property market in Kyiv remained generally stable in the fourth quarter of 2011, remaining high compared to other European capitals (Figure 1), but reaching 11-12.5% for trophy buildings recently placed for sale. Figure 1 Prime office yields in Kyiv versus other CEE capitals Source: DTZ Research Note: All figures are end-of-period 0 3 6 9 12 15 18 2003 2004 2005 2006 2007 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 % Budapest Warsaw Prague Bucharest Moscow Kyiv

Upload: andriy-tymoshenko

Post on 20-May-2015

973 views

Category:

Documents


2 download

DESCRIPTION

DTZ Ukraine has published new quarterly public report about Ukrainian commercial property market. Your feedback is always welcome!

TRANSCRIPT

Page 1: Dtz Property Times Q4 2011

www.dtz.com

1

Property TimesUkraine Q4 2011

Spes ultima moritur

10 February 2012

Contents

Executive summary 1

Economic overview 2

Offices 6

Retail 11

Industrial 14

Investment 18

Definitions 22

Contacts 23

Authors Marta Kostiuk

Director, Research and Development Consulting

+38 (0)44 220 30 60 [email protected]

Andriy Tymoshenko

Associate Director, Strategy Research

+38 (0)44 220 30 60 [email protected]

Dmytro Sokolskyy

Senior Research Analyst

+38 (0)44 220 30 60 [email protected]

Contacts Magali Marton Head of CEMEA Research +33 (0)1 4964 4954 [email protected] Hans Vrensen Global Head of Research +44 (0)20 3296 2159 [email protected]

The Ukrainian economy was subject to generally positive dynamics in 2011. Nevertheless, risks for further sustainable growth of the national economy increased, mainly due to deteriorating conditions on the global markets combined with the poorly diversified economic base of Ukraine, as well as high political risks and worsening perception of the country internationally.

In 2011, new office supply in Kyiv amounted to around 158,000 sq m (GLA) with over 65% of annual figure delivered in the fourth quarter of the year. Due to the significant new delivery at the year-end combined with generally stable demand, overall vacancy in the sector increased by 4.6% quarter-on-quarter, though office availability in the central business district further contracted. A stabilisation of office rents was evident in Kyiv during the period October-December 2011.

Though new retail supply during 2011 was generally low both in Kyiv and the regional cities of Ukraine, the years 2012 and 2013 are likely to see significant augmentation in new delivery in the sector, reflecting the strengthening confidence of developers and investors, and bringing more development opportunities for retailers.

In 2011, new supply on the logistics property market in the Greater Kyiv area amounted to around 156,380 sq m, while take-up in the sector exceeded 214,000 sq m. At the end of 2011, primary vacancy reached 15.7%, decreasing by around 2% year-on-year. Headline rents for prime warehouse space in the Greater Kyiv area varied from USD 4.5 to USD 7 per sq m per month depending on the quality of space, location and general lease terms.

Due to deterioration of economic prospects worldwide, prime yields on the property market in Kyiv remained generally stable in the fourth quarter of 2011, remaining high compared to other European capitals (Figure 1), but reaching 11-12.5% for trophy buildings recently placed for sale.

Figure 1

Prime office yields in Kyiv versus other CEE capitals

Source: DTZ Research Note: All figures are end-of-period

0369

121518

2003

2004

2005

2006

2007

2008

2009

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

%

Budapest Warsaw Prague

Bucharest Moscow Kyiv

Page 2: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

2

Economic overview Despite generally positive dynamics in 2011, Ukraine’s economic growth is expected to slow down in 2012. The year 2011 was marked by active Ukraine’s preparation for the EURO 2012 Football Championship and generally positive economic dynamics in the country (Figure 2). Nevertheless, the international perception of Ukraine worsened owing to legal proceedings against former Prime Minister Yulia Tymoshenko and other former officials. The present risks for Ukraine’s further economic development include external shocks combined with the country’s poorly diversified economic base, weakening of domestic and global demand, political risks related to parliamentary elections in October 2012, augmentation of public debt, increases in borrowing costs and difficulties in attracting finance, possible defaults of private companies, as well as lack of efficient structural reforms in the country. Economic growth

According to data published by the State Statistics Committee of Ukraine, real GDP increased by 4.6% year-on-year in the fourth quarter of 2011 compared to the economic growth of 6.6%, 3.8% and 5.3% in the third, second and first quarters of the year respectively. The preliminary figure of real GDP growth in 2011 is estimated at around 5.2% year-on-year compared to the 4.2% economic growth in 2010. According to the 2012 State Budget of Ukraine, an increase in real GDP is forecast at 3.9%, while Oxford Economics projects the 3.4% economic growth for 2012. All other major Ukrainian and international think tanks expect that real GDP growth in Ukraine in 2012 will be in the range from 1% to 3.5% year-on-year. Industrial production and agriculture

Despite the encouraging start to the year with 11.2% annual growth in industrial production in January-February 2011, since March it slowed due to the decline in export-oriented metallurgical and machine building industries. The annual increase in industrial production in 2011 amounted to 7.6% year-on-year compared to the 11.2% growth in 2010 and the 21.9% decline in 2009. During the year the highest growth rates were registered in chemical, machine-building and metallurgical industries.

Figure 2

Macroeconomic indicators in Ukraine

Source: Oxford Economics * projections

According to data of World Steel Association, during the period from 2006 to 2011 Ukraine was the eighth country in the world in terms of annual steel production. In 2011, agricultural output increased by 17.5% year-on-year compared to the 1.5% decrease in 2010, this being attributable to the record high harvest in 2011. Inflation

As a result of the record high harvest and utility tariffs regulation, consumer price inflation reached 4.6% in 2011 compared to 9.1% in 2010, 12.3% in 2009 and 22.3% in 2008. This was the lowest increase since 2002. The 2012 State Budget of Ukraine was based on the projection that consumer price inflation will reach 7.9% at the end of the year. Major Ukrainian and international experts forecast inflation for 2012 in the range from 6.6% to 11%. Unemployment and salaries

In accordance with the ILO methodology (that defines unemployment based on the population 15-70 years of age), unemployment rate in Ukraine amounted to 7.8% in January-September 2011 compared to 8.1% in 2010, 8.8% in 2009 and 6.4% in 2008. Oxford Economics projects that unemployment rate in Ukraine will further decrease amounting to 7.3% by the end of 2012. According to the preliminary data of the State Statistics Committee of Ukraine, the average nominal monthly salary in Ukraine in 2011 was UAH 2,633 (equivalent to $330) increasing by 17.6% year-on-year. During the period, real salaries grew by 8.7% year-on-year.

-30

-20

-10

0

10

20

30

40

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

*

%

GDP growth Unemployment

Inflation Industrial production

Page 3: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

3

Retail sales

In 2011, retail sales in Ukraine grew by 13.7% year-on-year compared to the 7.8% annual increase in 2010 and the 20.6% annual decrease in 2009 (Figure 3). Major Ukrainian and international experts expect that retail sales will be subject to less positive dynamics in 2012, with the highest monthly retail sales projected in summer, during the EURO 2012 Football Championship. National currency

In accordance with the official US Dollar exchange rate determined by the National Bank of Ukraine, the Ukrainian hryvnia depreciated insignificantly, from 7.95 UAH/USD in January 2011 to 7.99 UAH/USD in December 2011. The Ukrainian currency also weakened against the Euro from 10.61 UAH/EUR in January 2011 to 11.1 UAH/EUR in March 2011, but strengthened by late December 2011 to 10.3 UAH/EUR. According to the decree issued by the National Bank of Ukraine, from 23 September 2011 the new rules of foreign currency exchange by individuals in Ukraine were introduced to accommodate the requirement to present identity documents prior to each currency exchange transaction, while the limitation to exchange maximum UAH 150,000 per day was set (instead of UAH 80,000). Business sentiment

According to the survey of business sentiment in Ukraine conducted by the National Bank since 2006, business sentiment index remained generally stable in 2010/2011, though worsened compared to 2007/Q3 2008 (Figure 4). In 2011, general business sentiment in relation to forthcoming 12 months remained generally stable with a minor improvement in the fourth quarter of the year. At the same time, the fourth quarter of 2011 witnessed deterioration of expectations of the surveyed enterprises in relation to their industrial output, as well as inflation and the Ukrainian hryvnia depreciation. Business sentiment on staff increase during the next 12 months improved in the fourth quarter of 2011, as all surveyed enterprises expressed their intentions to increase number of staff, except for those operating in utility sector.

Figure 3

Real monthly salary, retail sales and consumer spending in Ukraine

Source: State Statistics Committee of Ukraine, Oxford Economics

Figure 4

Business sentiment in Ukraine

Source: National Bank of Ukraine

-30

-20

-10

0

10

20

30

40

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

%

Real monthly salary growth

Retail sales growth

Consumer spending growth

-100

-50

0

50

100

150

200

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

2007 2008 2009 2010 2011

Businesss sentiment on staff increase

General business sentiment index

Page 4: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

4

International support, cooperation, ratings

Since May 2008 Ukraine has been in negotiations with the European Union (EU) for a free trade agreement as part of a future Association Agreement. During the EU-Ukraine Summit held in December 2011, the Association Agreement, including the deep and comprehensive free trade area agreement, was not signed, and the perspective for Ukraine to gain EU membership remains very vague. According to European officials, the main reasons for this were deterioration of democracy and the rule of law in Ukraine. As stated in the joint declaration adopted at the summit, the EU and Ukraine intend to initial the Association Agreement as soon as possible. From December 2011 through until January 2012 Ukraine was engaged in negotiations with Russia on prices for energy resources, but failed to secure any price reduction. The Ukrainian authorities declared their intentions to significantly decrease consumption of Russian natural gas, as allowed by terms and conditions of the present contract. Ukraine failed to receive tranches from the IMF scheduled in 2011 within the existing Stand-By Arrangement, due to non-compliance with the IMF requirements (complex reforms in the pension system, increase in gas tariffs for the population). Renewal of financing within the Stand-By Arrangement remains uncertain, involving particular actions from the Ukrainian authorities required by the IMF. According to the report ‘Doing Business 2012: Doing Business in a More Transparent World’ (published by IFC and World Bank in October 2011), Ukraine was ranked 152nd out of 183 countries in terms of the perceived ease of doing business in the country. To compare, in the 2011 report the country was ranked 149th. Nevertheless, Ukraine is believed to have improved in four fields, i.e. ‘Starting a business’, ‘Paying taxes’, ‘Enforcing contracts’ and ‘Resolving insolvency’, but worsened in ‘Trading across borders’. In October 2011, Fitch Ratings revised Ukraine's ratings outlook from positive to stable, mainly due to increase in public and private external borrowing costs, possible future challenges to obtain external financing, as well as projected negative impact of further global economic slowdown. On the basis of similar considerations exaggerated by perceived political risks and projected weak economic growth, Moody's Investors Service revised Ukraine's outlook from stable to negative in December 2011.

Figure 5

Net FDI and FDI growth in Ukraine

Source: National Bank of Ukraine

Foreign trade and foreign direct investment

According to the State Statistics Committee of Ukraine, exports and imports of goods in Ukraine increased during the period January-November 2011 by 34.3% and 38.1% year-on-year respectively. The exports to imports ratio during the period was around 0.83. The National Bank of Ukraine reported that net inflow of foreign direct investment (FDI) into Ukraine amounted to around USD 5,773 million in January-November 2011, approximately 19% higher the figure registered during the same period in 2010 (Figure 5). The most attractive sectors for foreign investment into Ukraine have been the financial sector, industrial production, real estate, retail sector, construction, transportation and communication. State budget

The 2012 State Budget of Ukraine was approved in December 2011. According to the Act of the 2012 State Budget, the budget deficit has been set at around UAH 25.1 billion, while expenditures and revenues were approved at around UAH 358,010 million and UAH 332,821 million respectively. The budget is based on the average annual exchange rate for 2012 at 8 UAH/USD.

-65065130195260325390

-202468

1012

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Jan-

Nov

201

1

billion USD

Net FDI Net FDI growth

%, y-o-y

Page 5: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

5

EURO 2012

In late 2009, the UEFA Executive Committee confirmed Donetsk, Lviv and Kharkiv as host cities for group matches of UEFA EURO 2012, while Kyiv was appointed the venue of the final match of the tournament. Despite existing obstacles such as the after-effects of the financial crisis, high borrowing costs and imperfect legislation, Ukraine has undertaken a wide spectrum of preparation works for the event. The hospitality sector, as well as the transportation and road system, were initially defined as the priority sectors most in need of significant improvement prior to UEFA EURO 2012. Ukraine adopted a law encouraging hotel development in July 2010. In accordance with the law, starting from January 2011, 3*, 4* and 5* hotels that are opened prior to 1 September 2012 are exempt from income tax for ten years. All stadiums in Ukraine, which will host football matches of EURO 2012, were put into operation by the end of 2011. The National Stadium ‘Olimpiyskiy’ in Kyiv opened in early October 2011, while grand opening of the Lviv Stadium took place at the end of the month. The two other stadiums to host group matches of UEFA EURO 2012, i.e. ‘Donbas Arena’ in Donetsk and ‘Metallist’ in Kharkiv, have been operational since August 2009 and September 2010 respectively. Terminal ‘D’ at Boryspil International Airport servicing Kyiv is scheduled for opening in April 2012, while the passenger terminal ‘F’ and renovated passenger terminal ‘B’ have been in operation since October 2010 and September 2011 correspondingly. The trial run of a new passenger terminal at Lviv International Airport commenced in January 2012, and the facility is planned to be put into full-fledged operation in late March 2012. New passenger terminal, VIP terminal and temporary airways terminal for the EURO 2012, as well as new landing strip at Kharkiv International Airport were commissioned in 2010-2011. The first phase of reconstruction of the passenger terminal at Donetsk International Airport was delivered, and the trial test of the facility is planned to start in February 2012.

Much attention has been also paid by the country authorities to the improvement and repair of the motorways of international importance in Ukraine. Another major benefit for Ukraine hosting EURO 2012 is the impetus given to tourism in the country. This is very important, taking into account the distinct tourist-driven economic base of many major cities of Ukraine combined with the poorly developed tourist infrastructure in the country. Outlook

The Ukraine economy demonstrated generally positive dynamics in 2011, but 2012 is expected to bring new challenges to the country. The areas of particular concern for Ukraine’s future sustainable development presently include expected weakening of domestic and global demand, political risks related to outstanding parliamentary elections and political instability, debts repayment by public and private sectors, increases in borrowing costs and difficulties in attracting finance, possibility of devaluation of the Ukrainian hryvnia against the hard currencies, as well as lack of profound structural reforms in the country and its poorly diversified economic base. As forecast by leading Ukrainian and international experts, Ukraine will witness economic growth in a range from 1% to 3.5% in 2012, depending on the level of domestic consumption and external market conditions, as well as prices for natural gas for Ukraine. Institutional reforms combined with the improvement of inefficient markets for goods and services are recognised as being the priority tasks for Ukraine to secure long-term economic development in the country.

Page 6: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

6

Office High levels of new supply in 2011, but stable demand.

Supply

There was approximately 1,276,635 sq m (GLA) of speculatively delivered office stock in Kyiv as of the end of 2011, excluding government buildings and offices constructed by owner-occupiers (Figure 6). New office supply in Kyiv amounted to approximately 55,060 sq m in the first three quarters of 2011, representing an increase in delivery of over 43% compared to the same period in 2010. During the period October-December 2011, new office supply in the city amounted to around 102,880 sq m (GLA), including the 46,405 sq m (GLA) 101 Tower and the 36,000 sq m (GLA) Premium Centre. In 2011, new office supply in Kyiv amounted to around 158,000 sq m (GLA), which is around twice the amount delivered in 2010. Some of the properties delivered in 2011 were not ready for effective occupation on the commissioning date. Annual new office supply in 2011 falls in line with DTZ’s projections made in December 2010, but exceeds our subsequent expectations. 2010 was marked by the recommencement of works on several sizeable office schemes, and this has already led to a significant upsurge in new supply in the office property sector in Kyiv in the fourth quarter of 2011. Nevertheless, the office property market in Kyiv remains structurally undersupplied compared to the markets in other CEE capitals in terms of total office stock, as well as the variety of formats and quality of properties available for occupation (Figure 7).

Figure 6 Major indicators of office property market in Kyiv

Source: DTZ Research Note: All figures are year-end

Figure 7

Total office stock in Kyiv versus other CEE capitals

Source: DTZ Research Note: All figures are year-end

As of early 2012, around 305,000 sq m (GLA) of new office space was scheduled for delivery in Kyiv during 2012.From past experience of some delays however, DTZ projects that new office supply is unlikely to exceed 230,000 sq m (GLA) during the year.

Table 1

Key office property market indicators in Kyiv

2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Outlook

Stock (sq m) 916,510 1,040,370 1,118,695 1,139,955 1,163,455 1,173,755 1,276,635

New supply (sq m) 175,110 123,860 78,325 21,260 23,500 10,300 102,880

Take-up (sq m) 160,000 106,000 165,000 43,500 41,800 32,850 35,000

Vacancy rate (%) 4.2 17.6 12.7 13.6 11.9 11.2 15.8

Prime rents (USD / sq m / month) 70-85 25-35 30-38 38-40 38-42 38-44 38-44

Source: DTZ Research Notes: All figures are period-end and due to non-transparency of the market are subject to continued revision. Take-up and vacancy figures do not include sub-lease opportunities.

01020304050607080

0200 000400 000600 000800 000

1 000 0001 200 0001 400 000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

sq m

Total stock New supply Take-up

Vacancy rate Prime rent

% / $ per sq m

02 000 0004 000 0006 000 0008 000 000

10 000 00012 000 00014 000 000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

sq m

Budapest Warsaw PragueBucharest Moscow Kyiv

Page 7: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

7

Table 2

Major office schemes delivered in Kyiv in 2011

Period Project Location* Size (sq m)

Developer Major occupiers**

Occupancy** (%)

Q4, 2011

101 Tower C 46,405 KAN Development KAN Stroy, Sport Life, Monaco

13

Q4, 2011 Premium Centre BC NC-WB 36,000 Premium Centre - 0

Q2, 2011 BC at 7a Klovskyi Uzviz CBD 19,000 Zhytlobud Bacardi-Martini, others***

100

Q1, 2011 Rialto BC NC-WB 15,000 Istil Group Swedbank 57

Q3, 2011

BC at 70 Saksahanskoho Str./ 16b Pankivska Str.

CBD

10,300

Elektrotekh LLC

Uniqa

45

Q4, 2011

UTA Service NC-WB 6,500 UTA Service Kuprum, Olive Line

39

Q4, 2011 Maxim BC CBD 6,350 Aladdin / Rele Invest WND 46

Source: DTZ Research WND – would not disclose * CBD – Central Business District; C – central outside CBD: NC-WB-non-central area on the western bank of Dnipro River, NC-EB-non-central area on the eastern bank of Dnipro River. **As of January 2012. *** Individual office units in the scheme were sold to numerous occupiers.

Table 3

Major office projects scheduled for completion in Kyiv in 2012-2013

Project Location* Size (sq m) Developer Developer’s nationality

Mariya BC Pechersk 47,300 KAN Development UA

Gulliver BC (Parus-2 BC) CBD 43,850 Mandarin Plaza /Tri O UA

Toronto-Kyiv BC C 37,670 Toronto-Kyiv UA

IQ BC Pechersk 33,950 KAN Development UA

Senator NC-WB 30,000 DeVision UA

BC at 36 Schorsa Str. Pechersk 27,280 Zhytlobud UA

BC at 28 Moskovskyi Ave. NC-WB 23,130 local developer UA

Forum Victoria Park BC NC-WB 22,500 Forum Group UA

BC at 15 Leiptsihska Str. Pechersk 21,800 Merx UA

Sigma BC NC-WB 20,800 Midland Development Ukraine UA

Horizon Podil (phase 2) Podil 16,000 ISA Prime Development UA

BC at Vasylkivska Str. / Hlushkova Str. NC-WB 13,000 Rele Invest UA

City Gate BC (phase 1) NC-EB 13,000 City Capital Group UA

Crystal BC NC-EB 9,800 Pervaya Dnepropetrovskaya Investitsionnaya Companiya

UA

BC at 26/14 Spaska Str. Podil 9,350 Perspektyva Resydencia UA

BC at 19 Druzhby Narodiv Bould. Pechersk 7,000 local developer UA

BC at 7a Shamryla Str. NC-WB 6,700 Georgiy UA

BC at 98 Chervonoarmiyska Str. C 6,300 VS Energy International UA / RUS

BC at 28 Smirnova-Lastochkina Str. Podil 5,500 local developer UA

Patriarch Hall BC CBD 5,000 local developer UA

Source: DTZ Research * CBD – Central Business District; C – central outside CBD; NC-WB – non-central area on the western bank of Dnipro River, NC-EB – non-central area on the eastern bank of Dnipro River

Page 8: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

8

Demand

Though Ukraine is still in recovery phase following the global financial crisis of 2008/09, the market fundamentals in the office property sector in Kyiv continued to improve in the first three quarters of 2011. Around 35,000 sq m of office space was transacted in the Kyiv market in the fourth quarter of 2011, representing an annual decrease of around 31%. However, during the first three quarters of 2011 office take-up in the Ukrainian capital amounted to around 118,150 sq m, increasing by around 3% year-on-year. In total, approximately 152,950 sq m of offices was transacted in the Kyiv market in 2011, exceeding total take-up registered in 2009 by over 44%, but remaining generally stable compared to 2008 and 2010. Though office demand in Kyiv in 2011 became less sector-oriented compared to 2010, it was strongly driven by the companies operating in information & communication technologies (38% of total take-up registered during the period), manufacturing (26%, dominated by FMCG and pharmaceutical production accounting for 4% and 6.8% respectively), financial sector (10%) and agriculture (5%). In view of a gradually improving economic situation, but still favourable office market conditions in Kyiv, many companies moved to a better location/space during 2011, or expanded / renegotiated current occupational terms with the intention of locking into a longer lease in anticipation of a market uplift. In 2011, pre-lets on the Kyiv office property market were almost absent due to the availability of opportunities to occupy space in existing projects.

Figure 8 Vacancy on the office property market in Kyiv by locations

Source: DTZ Research

Vacancy

Primary market-wide vacancy on the Kyiv office market reached 15.8% in late December 2011, increasing from 11.2% at the end of the third quarter 2011 and 12.7% at the end of 2010, but remaining lower than 17.4% registered at the end of 2009. The increase in vacancy at the end of 2011 was mainly due to recently delivered projects, significant amount of which was not ready for practical occupation. The office availability ratio in the Kyiv central business district further decreased in the fourth quarter of 2011, amounting to 6.7% (Figure 8). At the same time, the availability ratio in the central and non-central areas outside CBD increased to 33% and 17.4% respectively due to the recent delivery of sizeable office properties in these locations, as well as comparatively small volume and resultant high volatility of the market (Figure 8).

Table 4

Selected major office transactions in Kyiv in 2011 Period Tenant Area (sq m) Occupier sector* Building Location**

Q1, 2011 CME / 1+1 TV Channel 10,350 A&M Shchekavytskyi BC Podil

Q2, 2011 TNK-BP 5,923 Manufacturing Eleven BC NC-WB

Q1, 2011 EPAM Systems 5,300 ICT Vremena Goda BC NC-WB

Q2, 2011 Swedbank 4,520 FIRE Rialto BC NC-WB

Q1, 2011 Kernel 3,577 Agriculture 92-94 Dmytrivska Str. NC-WB

Q1, 2011 VOLIA 3,460 ICT FIM Centre NC-EB

Q3, 2011 PwC 3,292 BS Eurasia BC CBD

Q3, 2011 Microsoft 2,908 Manufacturing Eurasia BC CBD

Q1, 2011 Canadian Embassy 2,264 Embassy 13a Kostelna Str. CBD

Q4, 2011 SEB Bank 1,991 FIRE 7 Mykhailivska Str. CBD Source: DTZ Research *FMCG – fast moving consumer goods; FIRE – Finance, Insurance, Real Estate; ICT – Information and Communication Technologies; A&M – Advertising and Media; BS- Business services **CBD – Central Business District, C – central outside the CBD, NC-WB – non-central area on the western bank of Dnipro River, NC-EB – non-central area on the eastern bank of Dnipro River

0

10

20

30

40

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

%

CBD C (outside CBD)Podil Pechersk (outside CBD)NC-WB NC-EB

Page 9: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

9

Rents

Between the third quarter of 2008 and late 2009, office rents in Kyiv fell by over 50% due to the devaluation of the national currency and weak occupier demand caused by economic recession in Ukraine and worldwide. In the second half of 2009 the negative dynamics halted, and office rents stabilised at around USD 25-35 per sq m per month for prime space, down to USD 20-25 per sq m per month for central and non-central B-class space, and USD 12-17 per sq m per month for class C. Some rental uplift was evident during the first three quarters of 2011, as the supply of particularly prime CBD space has become constrained, combined with gradually strengthening occupier demand. The fourth quarter of 2011 saw a stabilisation of office rents. In late 2011, prime office rents in Kyiv reached USD 38-44 per sq m per month, while B-class and C-class space commanded monthly rents of USD 23-35 per sq m and USD 8-25 per sq m respectively. Despite a downwards correction in late 2008, prime office rents in Kyiv area remain higher than those in Bucharest, Budapest, Prague and Warsaw, but lower than in Moscow (Figure 9). As most occupiers remain highly sensitive to capital expenditures, they will continue to require offices in Kyiv to be delivered with advanced base build levels. Figure 9

Prime office rents in Kyiv versus other CEE capitals

Source: DTZ Research

Outlook

New office supply in Kyiv may potentially amount to 305,000 sq m (GLA) in 2012. This figure however remains highly sensitive to delivery of several sizeable properties, commissioning of which may be delayed. DTZ expects that during 2012 the dynamics of occupier demand in Kyiv will remain generally stable, however new supply may start outstripping take-up towards the year-end. As stated in the National Bank survey of business sentiment in Ukraine in the fourth quarter of 2011, staff increase was planned in the following 12 months by all enterprises in the country, except for utility companies. In the medium term, many leases signed or renewed in 2008/10 on terms favourable to tenants, will expire in one-two years, which may lead to a significant upsurge of take-up, subject to general macroeconomic conditions. Significant new office supply is planned for delivery in Kyiv during 2012-2013, combined with generally stable demand and economic uncertainty. However, DTZ expects that the overall vacancy rate will increase mainly in the offices located outside CBD, as a number of sizeable centrally-located schemes are constructed on a build-to-suit basis. DTZ projects that during at least the first half of 2012 office rents will remain generally stable in Kyiv. However, we expect that due to expected new supply in the office property sector in Kyiv, average rents may be subject to downward pressure towards the end of 2012 and in 2013. Dynamics of prime office rents in Kyiv in the medium term will be highly sensitive to general macroeconomic conditions in Ukraine and worldwide, as well as pricing strategy of sizeable business centres, such as ‘Gulliver’, ‘101 Tower’ and ‘Toronto-Kyiv’, during 2012. An overpricing of these schemes may lead to continued upwards pressure on rents, while a more competitive pricing strategy is likely to result in a softening of prime office rents. In view of the high level of competition anticipated in 2012/13, developers can enhance letting prospects in their office properties by either delivering space in more advanced condition, or by being open to alternative solutions addressing the main barrier to relocation, i.e. capital expenditure.

-

20

40

60

80

100

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Prague Budapest Warsaw

Bucharest Moscow Kyiv

EUR/sq m/month

Page 10: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

10

Page 11: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

11

Retail The retail property sector in Ukraine remains the most dynamic and resilient to the effects of economic crisis. Supply

Total modern retail stock in Kyiv was estimated at around 1,001,400 sq m (GLA) in late December 2011, or 359 sq m of modern retail stock per 1,000 inhabitants (Figure 10). This figure counts for major retail developments of or, over 5,000 sq m gross lettable area (including multi-tenant retail centres and ‘big box’ single-occupied developments), and reflects a significant undersupply of retail space in the Ukrainian capital, particularly when considering the official versus unofficial population imbalance and grey salary. Around 75,080 sq m (GLA) of new retail supply was delivered in Kyiv in 2011, comprised of the second phase of ‘Dream Town’ in Obolon, the hypermarket Novus on Brovarskyi Avenue, as well as four relatively small neighbourhood retail centres: ‘inSilver’ on Sribnokilska Street, ‘Kvadrat’ on Onore de Balzaka Street, ‘Livoberezhnyi’ on Maryny Raskovoyi Street and ‘Victorio’ on Lvivska Square. As DTZ projected earlier, delivery of the city central retail and leisure centre ‘Gulliver’ and the retail centre ‘Mega-City’ (phase 1) was delayed further until 2012. Major retail schemes delivered in regional cities of Ukraine in 2011 included ‘Ave Plaza’ and ‘Magellan’ (phase 1) in Kharkiv, ‘Passage’ in Dnipropetrovsk, ‘City Mall’ (phase 2) in Zaporizhzhya ‘Donetsk-City’ (phases 2,3) in Donetsk, ‘Ukraine’ in Mariupol and ‘Galaktyka’ in Kremenchuh. Also, the DIY-stores ‘Epicentre’ opened in Chernihiv, Dnipropetrovsk, Simferopol, Sevastopol, Kirovohrad, Mukachevo, Kamyanets-Podilskyi and Mariupol.

Figure 10

Major indicators of retail property market in Kyiv

Source: DTZ Research Note: All figures are year-end

Such formats as retail parks and fashion outlets are yet to be delivered in Ukraine. Though new retail supply during 2011 has been rather low both in Kyiv and the regional cities of Ukraine, 2012 and 2013 are likely to see significant augmentation in new delivery in the sector. In 2012 new retail supply in Kyiv may amount to around 229,000 sq m (GLA), an increase on current retail stock of almost 23%. Schemes planned for delivery in the Ukrainian capital during the year include the first phase of ‘Ocean Plaza’ developed by UDP and KAN Development, ‘Gulliver’ by Mandarin Plaza and Tri O, ‘RayON’ by Arricano Development, the extension of ‘Domosfera’ by DeVision and ‘Marmalade’ by VKF ‘Mava’. Opening of ‘Kiev E95 Outlet Centre’ was postponed to spring 2013. In regional cities 2012 may see delivery of ‘City Centre’ in Odessa, as well as extensions of ‘Magellan’ and ‘French Boulevard’ in Kharkiv, ‘Auchan City Park’ in Donetsk and ‘Fabrika’ in Kherson.

Table 5

Key retail property market indicators in Kyiv

2007 2008 2009 2010 Q1-Q3 2011 Q4 2011 Outlook

Stock (sq m) 534,185 647,885 854,220 926,320 1,001,400 1,001,400

New supply (sq m) 89,200 113,700 206,335 72,100 75,080 0

Prime shopping centre rents (USD / sq m / month)

180-220

200-250

120-150

160-200

160-200

160-200

Prime high street rents (USD / sq m / month)

300-350 350-380 100-160 110-220 110-230 110-230

Source: DTZ Research Notes: All figures are period-end and quoted for retail units of area of 100-300 sq m

0

300 000

600 000

900 000

1 200 000

1 500 000

1 800 000

2 100 000

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

*

2013

*

sq m

Annual supply Cumulative supply

sq m

Page 12: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

12

Demand

DTZ witnessed further improvement in the general demand dynamics of the retail market across Ukraine in the first half of 2011. Despite slightly deteriorating retailers’ perceptions of the Ukraine’s short-term retail potential, triggered by general dynamics on global markets and political uncertainty in Ukraine, major retailers continued seeking opportunities to expand in the country during the last six months of the year. Regardless improved performance of the retail market in Ukraine, the country was not even listed in A.T.Kearney’s Global Retail Development Index in 2010 and 2011, after being ranked the fifth most attractive retail market in 2007 and the seventeenth in 2008-2009. Being the capital city of Ukraine, Kyiv remains the most attractive destination for all retailers operating and considering entry into the country. Occupancy levels in the most popular, well located quality multi-tenant retail centres in Kyiv and other major regional cities returned to pre-crisis levels in the first half of 2011 and remained high during the remainder of the year. Several new market entries were registered in Ukraine during 2011. GAP opened its flagship store on Khreshchatyk Street in Kyiv followed by the stores launched in ‘Karavan’ in the capital city and ‘Passage’ in Dnipropetrovsk'.

New Yorker and Oysho stores were opened in both ‘Sky Mall’ in Kyiv and ‘Rivera Shopping City’ in Odessa. The first stores FiNN FLARE, Centro and Noa Noa opened in Kyiv. In the high-fashion segment, the single-brand stores Christian Dior, Ermanno Scervino and Trussardi opened within the central areas of Kyiv. The lack of critical mass of quality retail space throughout Ukraine prevents a number of major international retailers from entering the market. DTZ believes that the opening of stores by such brands as H&M, C&A, Debenhams and Peek&Cloppenburg remains unlikely in the short term. ‘Big box’ retail operators with reliable sourcing of financing continued to demonstrate high activity in 2011, driven by their development strategies combined with the widely recognised, largely unexploited potential of the Ukrainian market and the availability of development land at comparatively affordable prices. Thus, Metro Cash&Carry, Epicentre and Nova Liniya further expanded in Ukraine. A number of food hypermarket operators including Fozzy Group, Auchan, Novus and Amstor, as well as electronics and home appliance chains Comfy and Technolopolis actively expanded in the country, considering occupation in retail developments not only in major cities of the country with populations over 750,000 inhabitants, but also in smaller cities. Quality retail operators in Ukraine remain very selective in terms of retail space quality and occupational terms.

Table 6

Major multi-tenant retail schemes scheduled for delivery in Ukraine in 2012-2013

Source: DTZ Research

Period Project City Size (sq m) Developer Developer’s nationality

Q2, 2013 KyivMall Kyiv 75,400 Delice UA

Q3, 2012 Ocean Plaza (phase 1) Kyiv 72,200 KAN Development / UDP UA

Q1-Q3, 2012 Fabrika (in phases) Kherson 65,500 BUD HOUSE GROUP UA

2013 Retail and leisure centre Kyiv 57,000 BUD HOUSE GROUP UA

2013 Odessa City Odessa 55,000 Amstor UA

Q1-Q3, 2013 Aquapark Kyiv 49,070 Vilna Ukrayina UA

Q3-Q4, 2012 Magellan (phase 2) Kharkiv 46,500 Kray Property UA

Q1-Q2, 2013 Prospekt Kyiv 40,390 Arricano Development UA

Q3-Q4, 2012 Marmalade Kyiv 38,700 VKF ‘Mava’ UA

Q4, 2012 Domosfera (phase 3) Kyiv 38,000 DeVision UA

Q3-Q4, 2013 Forum Lviv Lviv 36,000 Multi Development NTL

Q2, 2012 French Boulevard (phase 2) Kharkiv 35,000 Aksioma UA

Q1, 2012 City Centre Odessa 33,000 Venford / GMG Development UA

2012 Gulliver (Continental) Kyiv 32,000 Mandarin Plaza /Tri O UA

2012 Auchan City Park (phase 2) Donetsk 26,000 Immochan Ukraine UA / FRA

Q2-Q3, 2012 RayON Kyiv 23,000 Arricano Development UA

Q1, 2013 Yuzhnaya Galereya (phase 2) Simferopol 19,700 Arricano Development UA

Page 13: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

13

Rents

With increasing retailer activity in the country and their improved perception of market potential, the first three quarters of 2011 witnessed an upward pressure on prime base rents in quality multi-tenant retail schemes in Kyiv, as well as in the few western-standard retail properties already well-established in other major cities. During the fourth quarter of 2011 average monthly rents in Kyiv retail schemes remained generally stable at USD 70-90 per sq m for premises of 100-300 sq m, reaching highs of USD 160-200 per sq m per month in the most sought-after prime properties (Figure 11). Similar dynamics was also observed in relation to high street retail rents in Kyiv and other major cities of Ukraine with total population over 750,000 inhabitants. Despite the positive dynamics of an increasing number of new retailers entering the market and the improvement in activity of companies already operating in Ukraine, combined with nominal new supply of quality retail stock, DTZ does not anticipate any major upswing in base rental rates in 2012. This is due to the lack of critical mass of new market entries combined with significant retail stock in pipeline, as well as economic uncertainty both globally and in Ukraine. Though prime retail rents across Ukraine may be subject to upward pressure in the short term, the longer term sustainability of current rental rates will depend on the actual commissioning and quality of new sizeable pipeline retail schemes scheduled for completion in 2012/13 and general macroeconomic conditions. Quality remains a crucial factor for the success of all existing and new retail developments in Ukraine. Owing to the deep economic downturn in Ukraine since late 2008, the majority of developers in the country now accept the fact that only a well-considered approach to selecting an appropriate location, efficient concept and thoughtful phasing of a retail development with due regard to the number and mix of quality retailers and their planned expansion into the country, will secure long-term financial viability and investment exit.

Figure 11

Dynamics of retail rents in Kyiv

Source: DTZ Research Note: All figures are year-end and quoted for retail units of areas in the range of 100-300 sq m

Outlook

The retail segment proved to be the most resilient to the effects of economic crisis in 2008/9 compared to other property sectors in Ukraine. DTZ believes that the retail property market will show further growth in the medium term after global and domestic economic conditions further improve. Despite the remaining signs of the economic crisis and comparatively low incomes of the population, the potential of the retail property market in Ukraine undoubtedly remains high because of its immaturity in terms of quality and formats of existing retail schemes, large country size, high population density, perceived high brand awareness and propensity to spend. The opportunities within the retail property sector, over other sectors, are of priority interest for most developers and investors active in Ukraine, particularly within cities of total population over 750,000 inhabitants. Active works on a number of sizeable retail projects in Kyiv and the regional cities of Ukraine were commenced in 2010-2011 and more projects are in delivery pipeline, which, if delivered to current schedules, will lead to a considerable increase in retail stock in the country by the end of 2013. As a result, the Ukrainian market will offer more opportunities for retail chain expansion, but localised retail rents will be subject to downward pressure, particularly in poorly conceived first generation retail schemes in light of the strengthening competition within the sector.

050

100150200250300350400

2006 2007 2008 2009 2010 2011

Prime high street rent Prime shopping centre rent

USD/sq m/month

Page 14: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

14

Industrial & logistics In 2012, new supply in the Greater Kyiv area is expected to follow the dynamics of 2010 and 2011.

Supply

At the end of 2011, total stock of modern warehousing and logistics space in the Greater Kyiv area amounted to approximately 1,332,230 sq m. This figure includes around 119,000 sq m of modern specialised chilled&frozen and chemical warehouse facilities. Similar to 2010, new supply on the logistics property market in the Greater Kyiv area in 2011 reached around 156,380 sq m. During 2011 seven logistics properties were put into operation, four of which were delivered in the fourth quarter of the year (Table 8). The largest logistics scheme delivered in 2011 was the first phase of ‘Amtel Logistics Complex’ developed by ‘International Logistics Company’, affiliated with the Russian ‘Amtel Properties’. This property accounted for around 29% of total modern logistics space delivered to the market in the Greater Kyiv area during the year. The majority of existing modern warehouse facilities in the Greater Kyiv area are located along the Kyiv-Zhytomyr Highway (M-06) and in the location referred to as Kyiv-Moscow Highway (M-01) and Brovary-Boryspil Ring Road, accounting for over 29% and 25% of total stock respectively (Figure 13). As of the start of the year, DTZ projects that new logistics supply in 2012 will amount to between 101,000 sq m and 181,000 sq m (GLA) (Table 9). Many warehouse developers in the Greater Kyiv area claimed that they are ready to begin construction of new projects as soon as relatively large tenants for their space are secured, or within built-to-suit contracts.

Figure 12

Key market indicators in the Greater Kyiv area

Source: DTZ Research Note: All figures are period-end

Figure 13

Existing logistics stock split by major locations in the Greater Kyiv area, as of late December 2011

Source: DTZ Research

Table 7

Key industrial and logistics property market indicators for the Greater Kyiv area

2007 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Outlook

Total supply (sq m)* 384,310 821,780 1,016,600 1,175,850 1,205,365 1,205,365 1,205,365 1,332,230

New supply (sq m)* 199,780 437,470 194,820 159,250 29,515 0 0 126,865

Vacancy (%) 1-2 14.5 20.6 17.9 14.7 13.3 11.6 15.7

Prime rents (USD / sq m / month)

10.5 7.5-10 5.5-7 5.5-6.5 5.5-6.5 5.5-6.5 5.5-6.5 5-7

Source: DTZ Research * Including ancillary office and mezzanine space Note: All figures are period-end

0

5

10

15

20

25

0

300 000

600 000

900 000

1 200 000

1 500 000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

sq m

Total supply Annual speculative supply

Prime warehousing rents Vacancy

USD/sq m/ month; %

29%

25%18%

7%

7%

4%3%

7%M-06 (Kyiv-Zhytomyr)

M-01 (Kyiv-Moscow), Brovary-Boryspil RRM-03 (Kyiv-Kharkiv)

M-07 (Kyiv-Warsaw)

Kyiv City

M-05 (Kyiv-Odessa)

M-04 (Kyiv-Dnipropetrovsk)

Other

Page 15: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

15

Table 8

Major logistics schemes delivered in the Greater Kyiv area in 2011

Scheme Location Total area (sq m)

Developer Nationality Major tenants* Occupancy* (%)

Amtel Logistics Complex (phase 1)

P-04 44,671 International Logistics Company

RU - 0

Fruit and Vegetable Logistics Centre (phase 1)

M-03, E40 40,000 Factor Consults UA WND 65

Unilogic Park (phase 2) M-01, E95 25,344 Merx Real Estate UA - 0

Arktika Logistics Centre Kyiv RR 16,846 Skandinavia UA Skandinavia-Fish 66

Warehouse complex M-01, E95 15,755 Local developer UA WND 100

Impeco M-07, E373 10,000 Local developer UA WND 100

Santa Frost (phase 2) M-05 3,760 Santa Bremor Ukraine

BLR /GER Eko-market, Roshen

100

Source: DTZ Research WND – would not disclose *As of late December 2011

Table 9

Major logistics schemes planned for delivery in the Greater Kyiv area in 2012

Scheme Location Total area (sq m) Developer Nationality

Fruit and Vegetable Logistics Centre (phase 2) M-03, E40 40,000 Factor Consults UA

Terminal Bucha M-07, E373 31,600 Local developer UA

ADG Warehouse complex M-03, E40 30,600 ADG UA

V-Log M-01, E95 15,900 AIC BEL

Terminal Vorzel M-07, E373 12,400 Local developer UA Source: DTZ Research

Page 16: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

16

Demand

In the fourth quarter of 2011, logistics property take-up in the Greater Kyiv area amounted to 46,750 sq m, surpassing the figure for the third quarter of 2010 by around 10%, but reflecting the annual decrease by 30% compared to the fourth quarter of 2010. Total logistics take-up registered in 2011 exceeded 214,000 sq m, which is approximately 47% and 30% higher than annual take-up figures registered respectively in 2009 and 2010 (Figure 14). DTZ revised take-up figure for the first quarter of 2011 from 106,975 sq m reported before to 99,285 sq m, while take-up in the fourth quarter of 2010 was increased by 7,690 sq m. In 2011, occupier demand for modern logistics space in the Greater Kyiv area was dominated by logistics and transportation companies, companies operating in the FMCG and food retail sectors, as well as pharmaceutical companies (Figure 15). Deals of area in the range of 1,000-3,000 sq m prevailed on the logistics property market in the Greater Kyiv area in 2011. DTZ is of the opinion that the 2011 take-up, which surpassed the figures registered in 2009 and 2010, reflects the intentions of many existing tenants to improve their space occupied and/or secure opportunities to expand. However, it is not yet indicative of strong logistics property market recovery in the Greater Kyiv area.

Figure 14

Take-up of logistics space in the Greater Kyiv area

Source: DTZ Research

Figure 15

Take-up of speculative logistics space by type of occupiers in the Greater Kyiv area, share in total %

Source: DTZ Research

Table 10

Major logistics transactions in the Greater Kyiv area in 2011

Period Scheme Occupier Occupier sector* Total area (sq m)

Location Type of deal

Q1/Q4, 2011 BF Sklad Zammler Sklad L&T 24,000 M-03, E40 new lease/ extension

Q1, 2011 Plazma Logistics WND Pharma 21,600 M-03, E40 purchase

Q1, 2011 East Gate Logistics WND FMCG/ Food retail 17,300 M-03, E40 new lease

Q1, 2011 Komodor DHL Freight L&T 16,335 M-06, E40 new lease

Q2, 2011 Warehouse complex May Company FMCG 9,500 M04 purchase

Q3, 2011 MLP Chayka Omega Autopostavka Automotive 7,850 M-06, E40 new lease

Q1, 2011 BF Sklad F.Formula L&T 6,620 M-03, E40 new lease

Q4, 2011 Terminal Brovary Pernod Ricard Ukraine FMCG 4,265 Brovary-Boryspil RR new lease

Source: DTZ Research WND – would not disclose *FMCG – fast moving consumer goods, L&T – logistics and transportation

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

214 028}

164 044}145 776}

315 134}

177 987}

93% 90%

52% 63%

14%28% 34%

21%

12%12%

13% 12%

22%

36%33% 22%

16%

2005

2006

2007

2008

2009

2010

2011

Logistics & transportation Retail - FashionRetail - Cosmetics, pharma White goodsICT FMCG/Food retail Automotive Other

Page 17: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

17

Vacancy

As of late December 2011, primary vacancy in the logistics property sector amounted to 15.7%, increasing by 4.1% quarter-on-quarter, mainly due to relatively significant new delivery during the quarter. At the same time, primary vacancy in the Greater Kyiv area at the end of 2011 was by 2.2% and 4.9% lower compared to the figures registered in late 2010 and 2009 respectively. DTZ projects that in 2012 primary vacancy in the logistics property sector in the Greater Kyiv area will decrease, remaining however in double digits.

Rents

In 2011, headline rents for prime warehouse space in the Greater Kyiv area varied from USD 5.5 to USD 7 per sq m per month in the properties located on the western bank of the Dnipro River, while rents on the eastern bank were registered in the range from USD 4.5 to USD 6 per sq m. Rents depend on the quality of space, location and general lease terms. Prime logistics rents in the Greater Kyiv area are generally comparable to those registered in the suburbs of Bucharest (Romania), Prague (Czech Republic) and Krakow (Poland), but lower than in Moscow (Russia) and Warsaw (Poland). DTZ projects that, other things being equal, during 2012 rents for prime warehouse space will remain generally stable.

Outlook

Given the current economic conditions and delivery pipeline, vacancy in the logistics property sector in the Greater Kyiv area is forecast to gradually decrease during 2012, remaining in double digits, with prime rents stable. An increase in commercial activity and strengthening of occupier demand, projected in the medium term, may lead to a fall in vacancy and an upward correction in logistics rents in Greater Kyiv. DTZ is of the opinion, however, that the price elasticity of warehouse supply is higher compared to other sectors of commercial property market in Ukraine, and new logistics delivery could recommence relatively quickly.

Figure 16

Prime logistics rent in Kyiv versus other CEE capitals

Source: DTZ Research Note: All figures are period-end

0 1 2 3 4 5 6 7 8 9

2007 2008 2009 2010 2011

Prague Budapest Warsaw

Bucharest Moscow Kyiv

EUR/sq m/month

Page 18: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

18

Investment The commercial property investment market in Ukraine remains a buyer’s market.

DTZ witnessed a stabilisation of property investor sentiment in Ukraine in 2011. The third quarter of the year witnessed the 0.5% decrease in yields, driven by rental growth prospects witnessed in summer and generally positive economic dynamics in the country. Due to deterioration of economic prospects worldwide, prime yields remained generally stable in the fourth quarter of 2011. Prime yields in Ukraine are perceived to be at high levels compared to other European countries. The commercial property investment market in Ukraine remains a buyer’s market as opposed to the seller’s market that prevailed before the end of 2008. Transactions

The majority of investment deals concluded on the Ukrainian commercial property market in 2011 took place in Kyiv. Out of them, five investment deals totalled over $20 million in terms of estimated value. The bulk of completed investment deals in Ukraine in 2011 were open-market transactions, in contrast to 2010, which was dominated by off-market investment deals. Quality retail and office properties remained the most sought-after investment assets in Ukraine. Investors’ appetites towards hotels eased compared to 2009/10, partially related to the fact that opportunities to enter and realise projects in time for the hosting of the UEFA EURO 2012 became unrealistic. The acquisition of a city centre mixed-use development project in central Kyiv by a private European developer in 2011 was the largest deal in the Ukraine commercial property market since 2008. The purchase of 50% stake in the business centre ‘Leonardo’ (phase 2) in Kyiv by ESTA Holding was reported in the fourth quarter of 2011. Estimated at around USD 50-60 million, this deal became the largest purchase of an income-generating real estate asset during the year in Ukraine.

Figure 17

Volume of investment transactions in Ukraine*

Source: DTZ Research Note: All figures are period-end *The figure includes secondary investment transactions (the sale of land plots was excluded).

Other property investment transactions concluded in Ukraine in 2011 include:

The sale of the 12,120 sq m new-built business centre ‘Shchekavytskyi’ in Kyiv to the Ukrainian television channel ‘1+1’ for owner-occupation in the first quarter of 2011, a deal estimated at around USD 25 million.

The sale of an office building in the central area of Kyiv to a Ukrainian commercial bank for owner-occupation. This deal, reported in the first quarter of 2011, was estimated at around USD 25 million.

The sale of a 21,600 sq m operating logistics complex in Velyka Oleksandrivka Village in Greater Kyiv area to a pharmaceutical company for owner-occupation in the first quarter of 2011.

The sale of warehouse complex in Obukhiv to May Company for owner-occupation. The deal estimated at around USD 5 million was reported in the second quarter of 2011.

The sale of a 5,500 sq m warehouse complex with 3 ha land plot in Lutsk by the Ukrainian subsidiary of Nestlé to the Ukrainian group of companies Avanta; a deal closed by DTZ in the first quarter of 2011.

The sale of the operational retail centre Kvadrat at Lukyanivka by the AIM-listed Ukrainian company XXI Century to Monkar Limited for USD 14 million with a buy-back option. The deal was reported in the third quarter of 2011.

The sale of the hypermarket in Kyiv, previously operated as a DIY-store ‘Nova Liniya’, to the Ukrainian food retailer Fozzy Group for owner-occupation. This deal, reported in the third quarter of 2011, was estimated at over USD 10 million.

0

200

400

600

800

1 000

2003 2004 2005 2006 2007 2008 2009 2010 2011

Office Retail Industrial Hotel

million USD

Page 19: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

19

The sale of a 7.5 ha land plot near Chabany Village in Greater Kyiv area to the Russian company Amtel Properties for potential commercial development. The deal was reported in the second quarter of 2011.

The sale of the 12,000 sq m operating retail centre ‘Amstor’ in Mykolayiv to the Ukrainian food retailer Tavria-V.

The sale of a mixed-use development project in central Kyiv in the third quarter of 2011, a deal estimated in the range of USD 20-30 million.

The sale of the office building in Dnipropetrovsk to state-owned Oschadbank for owner-occupation. This deal, estimated at around USD 10 million, was reported in the fourth quarter of the year.

The sale of the office building in Kyiv to the state-owned company Infrastructure Projects Financing. The deal, estimated at around USD 4.5 million, was reported in the fourth quarter of 2011.

In the third quarter of 2011, SECURE Management, a real estate investment company focused on property investments across South-East Europe, acquired through convertible bonds the shares in Aisi Realty Public Limited, the latter being a company with development projects and related investments in Ukraine. This deal was estimated at around USD 12 million. In the fourth quarter of 2011, the AIM-listed Ukrainian company KDD Group reported the sale of its 68.2% stake to Groumon Development, owned by the Ukrainian entrepreneur Andriy Verevsky, for around USD 16 million. In 2011, commercial banks in Ukraine continued to provide property development financing to selected borrowers with strong attention paid to reputation and track record of the developer, its credit history, as well as quality of a project to be financed and the collateral. In most cases, banks were ready to provide financing within the limitation of USD 30 million. DTZ expects, that in the first half of 2012 Ukraine will see further credit squeeze in the commercial property sector with the renewal in the sector by the year-end. The most active property investors in Ukraine in 2011, as in 2010, were local companies and private individuals with a strong cash position. At the same time, European investors demonstrated modest interest in acquiring Ukrainian property assets.

Figure 18

Prime yields in Kyiv

Source: DTZ Research Note: All figures are period-end

*No true open-market secondary investment transactions, yield perceived by market players

Figure 19

Prime office rents and yields in Kyiv

Source: DTZ Research Note: All figures are period-end * Projections

A majority of standing property assets in Ukraine were purchased in 2011 for the purpose of owner-occupation. During 2011 DTZ registered a notable increase in the number of high-quality income-generating office and retail properties proposed for sale in Kyiv. We believe that this trend has been attributable to intentions of many landlords to minimise their risks, related to property ownership, in view of the present economic and political uncertainty. Putting these properties for sale generated high interest among potential purchasers, due to the unique nature of these assets and immaturity of the property market in Ukraine.

0

5

10

15

20

25

2003

2004

2005

2006

2007

Q1-

Q3

2008

Q4

2008

*

2009

*

2010

*

Q1

2011

*

Q2

2011

*

Q3

2011

*

Q4

2011

*

%

Office Retail Industrial

0

4

8

12

16

20

0

10

20

30

40

50

2009 2010 2011 2012* 2013* 2014* 2015*

%

Prime office rent Prime office yield

USD/sq m/month

Page 20: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

20

Yields

Due to the global credit squeeze, prime yields in the core markets of Central Europe as well as in Prague, Budapest and Warsaw typically increased by around 3% in late 2008-2009 from the lows of late 2007. Meanwhile prime yields in Kyiv increased by around 7% despite a far more profound downwards rental correction in the Ukrainian capital. In 2009, commonly perceived net initial yields in Kyiv were varying between 15-20% which, due to suppressed market rent levels, reflected relatively low capital values, discouraging vendors from selling, and banks from applying pressure on borrowers to liquidate assets. During the period from the second quarter of 2010 to the second quarter of 2011, prime net initial yields in Kyiv were perceived to remain generally unchanged, i.e. at 13.5% for prime office space, 14.5% for high-quality retail properties and 15% for prime schemes in the logistics property sector. In July-September 2011, DTZ witnessed a further decrease in prime net initial yields in Kyiv by 0.5% across all commercial property sectors, driven by slight improvement of investor sentiment on the country’s potential. Due to deterioration of economic prospects worldwide, prime yields remained generally stable in the fourth quarter of 2011. It should be appreciated that yields remain highly sensitive to asset value due to constraints over the availability of debt financing. At the same time, there remains strong interest in good ‘flagship’ buildings mainly in central Kyiv, irrespective of size. Such assets tend to command interest on a value determined on sq m basis rather than on a yield basis. Sq m values applied on such trophy buildings by prospective investors provide equivalent indicative yields of between 11-12.5% based on present market rents.

Outlook

DTZ believes that pre-crisis yields in Ukraine were irrationally low in view of the clearly unsustainably high rents. However, post-crisis increased yields coupled with a downward correction of rents, particularly in the office property sector, are now offering fair value to investors. In DTZ’s opinion, still relatively low capital values in Ukraine that have decreased since late 2008, combined with rental growth prospects, present attractive opportunities for investors in view of the recognised high potential of the commercial property market that remains structurally undersupplied across all sectors in the country. DTZ expects that in 2012 prime net initial yields in Kyiv will remain generally stable in the logistics property sector, while prime office and retail property yields will be subject to slight downward correction in the range from 0.5% to 1%. In the longer term, as the Ukrainian property market matures, there is further scope for yield compression, coming off comparatively high existing levels.

Page 21: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

21

Page 22: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

22

Definitions

Offices

Office stock: Gross lettable area of speculative office schemes (including new buildings and refurbishments) positioned in A, B and C classes and delivered since 1991.

Office take-up: Total floor space known to have been let (pre-let) to tenants or sold (pre-sold) to owner-occupiers during the survey period with respective contracts signed. Office take-up includes renegotiations and lease extensions, but excludes sub-leases.

Prime office rent: The attainable average prime rent that could be expected for an office unit of a minimum size of 100 sq m in a modern prime quality business centre located in the CBD. The rent is given as a base rent, i.e. no service charge and tax is included.

Retail

Retail stock: Individual developments or stand-alone retail units with a gross lettable area exceeding 5,000 sq m.

Prime retail rent: The attainable average prime rent that could be expected for a retail unit of size in the range of 100-200 sq m located along the high street (i.e. prime high street rent) or in the prime retail scheme (i.e. prime shopping centre rent). The rent is given as a base rent, i.e. no service charge and tax is included. Frontage zoning is not adopted in Ukraine.

Logistics

Logistics stock: Gross lettable area of modern logistics schemes of area exceeding 1,000 sq m, delivered since 2001. Logistics stock includes area of warehousing, office and mezzanine space.

Prime warehousing rent: The attainable average base prime rent that could be expected for a modern warehousing unit offering a minimum size of 1,000 sq m in a modern logistics scheme, which is located in a prime location away from the city centre and close to communication links. The rent is given as a base rent, i.e. no service charge and tax is included. It is quoted for warehousing space within the scheme, i.e. it is not a ‘blended rent’, rents for office and mezzanine parts of the property not included.

Investment

Prime yield: The initial yield estimated to be achievable for a notional property of highest quality and specification in the best location fully let and immediately income producing on present market terms at the survey date.

Page 23: Dtz Property Times Q4 2011

Property Times Ukraine Q4 2011

www.dtz.com

23

Contacts General DTZ Ukraine 11th floor, Leonardo Business Centre 19-21 Bohdana Khmelnytskoho St., Kyiv, 01030 Ukraine

Tel.: +38 (0)44 220 30 60 Fax: +38 (0)44 220 30 61 [email protected]

Managing Director Nick Cotton [email protected]

Office Agency Geoff Hargreave [email protected]

Victoria Goroulko [email protected]

Retail Agency Nataliya Mykolaychuk [email protected]

Industrial and Logistics Agency Fedor Arbuzov [email protected]

Investment and Land Agency Nataliya Stelmakh [email protected]

Volodymyr Mysak [email protected]

Valuation Yana Lytvynchuk [email protected]

Research and Development Consulting Marta Kostiuk [email protected], [email protected]

Andriy Tymoshenko [email protected], [email protected]

Property Management Ben Hunt [email protected]

Disclaimer This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ.