Real Estate Sector Lands New Players — Консалтинговая компания SV-Development

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KIEV, Ukraine — The Ukrainian commercial real estate market continues to attract more foreign investors and developers with one of the highest yields in Eastern Europe and promising growth potential.

Over the last year, several large business properties in Kyiv have been sold to foreign investors in deals valued hundreds of millions of dollars, with more major purchases on the horizon.

The promising growth potential of the Ukrainian market and sustained economic growth are key factors that have driven foreign companies to buy commercial real estate projects from Ukrainian developers. The new arrivals are betting on long-term returns acting as tenants on the market.

In December 2006, Irish Quinn Group announced the purchase of a 93 percent stake in Kyiv’s Ukraina shopping mall, located on Victory Square. The stake in the 35,000-square-meter mall went for $59 million, the group reported.

The purchase of the Ukraina shopping mall follows on Quinn Group’s acquisition of the upscale Leonardo business center, located across the street from the city’s Opera House, in February 2006.

Vladimir Shimkin, Quinn Group’s general director for Ukraine, said his company spent nearly $95 million for Leonardo and plans to buy an addition to the center when it is completed.

He added that Quinn Group intends to make large investments into Ukrainian retail, warehouse and office real estate, directing a significant part of its billion-dollar budget at Eastern Europe.

According to Shimkin, his group does not plan to renovate the Ukraina mall, which will keep its name.

“The Ukraina shopping mall, with an average monthly rental rate of $50 per square meter, is 95 percent filled up, and no tenants want to leave it,” he said.

Shimkin is equally optimistic about the future of the high-class Leonardo business center, which took a year to fill up with shops and offices since its opening in November 2005. Rent at Leonardo ranges from $50 to $70 per square meter.

Other recent sales of Kyiv commercial real estate to foreign investors include the Pyramida Shopping Center in the city’s newly built, albeit peripheral residential area Poznyaky.

Pyramida was sold to London-based real estate company 1849 PLC for $21 million. According to 1849 PLC’s website, the company “hopes to buy and build five to 10 shopping centers in Ukraine over the course of the next two to four years.”

Last year, Turkish development company Demir Evrasian Investments announced plans to sell its Podil-Plaza business center, located in the city’s low-lying Podil district, for $50 million.

Industry insiders say that the owners of the shopping and entertainment center Globus, located at Kyiv’s epicenter, Independence Square, plan to sell it for hundreds of millions of dollars.

Realtors also expect the 21,000-square-meter A-class business center IceBerg, also centrally located, to be sold soon after its opening this year.

Terry Pickard, the managing director of NAI Pickard, the Ukrainian representative of real estate consultant NAI Global, said there are two main reasons why more foreign investors are interested in the Ukrainian property market.
“First is that after the Orange Revolution [in 2004], the Eurovision Song Contest in 2005 and many others sport and cultural events that raised the profile of Ukraine, people became aware of Ukraine as a market.”

“Then, of course, is the massive increase of the money that institutions want to put into property in Ukraine.”
Pickard said investments into some equity markets around the world have not performed very well. “Even the yields on property [in Europe] dropped to 5 percent or 7 percent if you were very lucky.”

Nevertheless, Ukraine is still perceived to be a more risky place for investments.

That’s why one sees 10-15 percent yields on property in Kyiv, which is twice as big as in Warsaw, according to Pickard.

Pickard said foreign investors prefer to buy commercial real estate that can provide “regular annual income for leasing it,” while Ukrainian investors are “far more interested in building and selling it off for a short-term quick profit.”

He added that the growth of the Ukrainian real estate market is driven largely by huge demand that will continue for the next five to seven years, keeping the price for rent in the capital at the same high level from $50 to $70 per square meter in upscale offices.

“The poor office away from the center in Kyiv will cost around $25 per square meter, and for that money you can get the best office in the center of Prague,” he said.

According to NAI Pickard, total available Ukrainian shopping-center area in 2006 was 320,000 square meters, which in 2007 could increase to 460,000 square meters.

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