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Rental activity in office real estate market in Kyiv falls by 80% – CBRE
KYIV. Feb 21 (Interfax-Ukraine) – Leasing activity in the office real estate market in Kyiv amounted to 40,000 square meters m at the end of 2022, which is only 22% of the volume of 2021 (about 185,000 square meters), the press service of CBRE Ukraine has reported.
“Given the uncertainty about the duration and intensity of the war, the market situation remains fairly homogeneous, where most players have developed a unified strategy – to continue working in difficult conditions, taking a wait-and-see approach to long-term decisions. We expect tenants to remain cautious until there is more predictability in terms of security and the macroeconomic environment,” Managing Partner at CBRE Ukraine Serhiy Sergienko said.
He added that during the third quarter, there were some positive signs of a renewal of business activity in the office real estate market. However, after the ongoing attacks on the country’s power system began in October 2022, the market returned to a position of waiting.
As noted in the CBRE Ukraine office real estate market review, the distribution of rental activity by business industry indicates that the IT sector, which has been actively gaining momentum in recent years, has noticeably reduced demand for office space in 2022, like all other sectors.
The share of IT companies in the structure of rental activity was only 22%, with agreements on the prolongation of existing lease agreements prevailing, while the largest (38%) fell on the pharmaceutical and medical industry.
In 2022, the peak of the commissioning of new facilities fell on the fourth quarter, when about 97,000 square meters were commissioned, resulting in a total volume of office real estate amounted to about 2.21 million square meters (a rise of 5%).
“The full-scale war has led to the fact that a large number of unfinished properties appeared on the market, the construction of which was suspended. Since no new development projects were recorded in 2022 and a new one is unlikely to be recorded in 2023, the volume of office real estate in the next two three years will grow only when the suspended projects are restarted,” Sergienko said.
As of December 2022, the average market vacancy has grown to 26% (11.9 p.p. more since January 2022). This growth was driven by the reduction of office space by tenants and the release of a significant volume of new properties in the fourth quarter of 2022. Analyzing the vacancy by class, the vacancy rate in A class grew by 13.5% to 22.3%, and in class B – by 11.6% to 29.2%.
At the same time, almost 71,000 square meters (BC Retroville, BC LUWR, BC 101 Tower) of competitive office space were not included in the vacancy list, as they were damaged due to missile attacks and are not offered on the market at this time.
The effective rental rate for class A dropped by an average of 16% – from $25 to $21 per square meter a month since the beginning of the year. Declared rental rates in class A ranged from $18 to $26 (-18% below the lower limit and -7% above the upper limit since the beginning of the year), and in class “B” – in the range of $7-$17 (-22% below the limit and -15% over the upper limit since the beginning of the year).
According to the report, these rental rates are not indicative as actual or effective rental rates were 20-50% lower than declared. As a result, there was a significant gap between the requested and actual rental rates.
“Probably, the demand for office space will remain subdued during martial law, and new construction will practically not take place. We can expect rare investment deals, but mostly with the acquisition of one’s own needs,” Sergienko said.