The Kyiv office real estate market continues to develop and expand, despite today's difficult conditions. Renting and buying office space in the capital is in increasing demand compared to the first months of the war.
Despite economic uncertainty, significant risks, the real estate market demonstrated positive dynamics during 2023. Business representatives were able to adapt to the challenges associated with military operations in Ukraine. In fact, the companies that remained in the territory of Ukraine take active measures for adaptation on a daily basis.
It is worth noting that the real estate market has been affected by a large number of negative factors, especially in the office segment: increased risks, numerous attacks by the aggressor, a general drop in the solvency of individuals and legal entities, the closure or relocation of many enterprises of various segments, power outages, which affects construction, problems with the supply of materials, high cost of works, etc.
At the same time, the office real estate market coped with most of the difficulties and challenges of the Great War, adapted to the conditions of today, and is rapidly recovering its indicators. Modern landlords offer optimal solutions for business — offices with autonomous energy supply and heating, modern spaces for certain types of companies, locations with specialized shelters nearby, and other solutions.
The relative stabilization of the military situation made it possible to continue work in the capital and create conditions for renting office space. During 2023, the business gradually returned to work, and actively began to use office premises. In addition, some companies were relocated from dangerous regions to the capital, which also created additional demand in the market.
Today, the activity sector continues its development, new projects are created, construction works, and those projects that were suspended due to military operations are gradually being restarted.
Kyiv office real estate market: current state
Tenants mostly studied the possibilities of modernizing various office premises without additional investments. Rental activity maintains positive trends. At the same time, about 15% of lease agreements were the extension or re-signing of existing agreements.
Although business was able to adjust to the realities of the war, and the business expectations index reached a peak of 104.5%, office leasing remained relatively subdued, with relocations accounting for the majority of deals. At the same time, the attention of the tenants who changed the location was mostly directed to new class B objects and the higher category of class A, if the lease terms were favorable enough.
The structure of absorption by type remained the same as in the pre-war years — almost half of the contracts are made by companies in the IT and telecommunications sectors. At the same time, state institutions and non-governmental organizations significantly increased their share, almost to a quarter of all contracts since the beginning of military operations in Ukraine. At the same time, the medical and pharmaceutical sectors reduced their share to approximately 5%, as the major players in the industry were able to secure their space needs by extending existing leases.
During the first half of 2023, only one small office-type building was commissioned in the Unit.City complex, due to which the amount of competitive office-type space remained virtually unchanged at 2.22 million square meters.
The activity of developers in the office real estate sector has significantly decreased, and the amount of office space under construction has significantly decreased.
Due to the impact of the full-scale invasion of the Russian Federation, a large number of unfinished objects under construction remained on the market. At the same time, several office building projects that were scheduled for completion in 202 have been forced to suspend work until at least 2024. In addition, it should be noted that no new development projects were launched during 2022. In fact, the growth of real estate office space can be caused solely by the restart of various development projects that were previously suspended.
Kyiv office real estate market: vacancy rates and rental rates
Vacancy in the office real estate market as of mid-2023 was 26.4%, slightly more than at the end of 2022. The volumes of vacant areas began to be balanced by the volumes of occupied areas, which created a relative balance between the existing demand and supply, which was recorded for the first time since the beginning of military operations on the territory of Ukraine. At the same time, according to experts, the market is not yet stable enough, and may react to any deterioration of security conditions or economic factors, which will lead to negative consequences.
It is also worth considering the peculiarities of the distribution of vacant spaces by class of premises. The level of vacancy indicators in the A sector remains higher than in the B class, especially in the lower segment.
The increased vacancy rate in Sector B is due to a significant influx of new offers during the 4th quarter of 2022, while the vacancy rate remains virtually unchanged in the existing premium properties.
Such features of the dynamics indicate the presence of demand for high-quality premises at reduced rental rates. At the same time, a significant share of tenants today prefers to reduce the rental area.
At the same time, rental rates in office-type premises belonging to classes A and B in Kyiv remained almost unchanged and were in the range of $16-28 per sq.m per month and $8-16 per sq.m per month, respectively. The rental rate for prime-class properties remained unchanged at $21 per square meter per month. In the latter sector, no large-scale lease agreements were recorded. The market provides special offers of an individual nature, among which it is worth outlining:
- various discounts;
- deferrals on current payments;
- provision of short-term rent-free periods.
At the same time, due to the long period of martial law, the practice of fixing the most favorable lease conditions before the end of hostilities prevails, with the subsequent possibility of their review and adaptation to the market in the post-war period. Today, landlords demonstrate a high level of flexibility and try to adapt conditions to the needs of customers as much as possible, which is caused by a high level of vacancy, the need to maintain and attract new tenants.
Kyiv office real estate market: features of investments and forecasts
The market is witnessing a gradual change in the mood of potential investors. In fact, investors have gone from waiting for changes in the situation to carefully studying the situation and interest in investment opportunities. At the same time, no large-scale agreement has been recorded since the beginning of the war.
Activity was observed in the sector of private deals, in which the value of the object is less than $1 million. Among the deals in the commercial real estate sector, only 20% were concluded specifically in the office segment, as of mid-2023. The activity of companies considering the possibility of purchasing real estate for their own use in or near Kyiv is also increasing.
According to experts, the economic activity of enterprises remaining in the territory of Ukraine is gradually improving the market environment in Kyiv. Despite the high risks of shelling, the decrease in the number of specialized specialists, most of the Ukrainian business remains active and constantly adapts to the situation. Nevertheless, the full recovery of demand for office space depends on the cessation of hostilities. Therefore, it is still extremely difficult to predict indicators during martial law.
In 2024, a decrease in vacancy is expected due to the recovery of demand and low indicators of new supply. At the same time, the reduction of such vacant spaces will be observed in class A and B office premises.
The business is gradually moving to long-term planning of activities, which can increase the number of long-term lease agreements. However, such agreements are now more the exception than the standard solution.
A significant increase in rent and the market in general is predicted during the period of post-war recovery of the state.