The vacancy rate in office centers in Kyiv is rising

Kyiv business centers are becoming less attractive for tenants. A record high vacancy rate in the capital’s offices was registered in May at 22.1%, head of the Strategic Consulting Department at UTG Viktor Oborskiy told Capital. For instance, in January the vacancy rate was 18.3%, according to UTG. The office segment of the A category suffered most (i.e. new buildings located in the city center), with the vacancy rate in May reaching 31%, adds Oborskiy. In business centers of B category, around 20% of the premises are vacant, he says.

A similar situation is observed in some major cities. For instance in Kharkiv, the demand for office leasing dropped in May-June by 50-60% compared with the same period of last year, informed Viktoria Ryltseva, General Director at the ProConsul consulting company. As a result, the vacancy rate of professional centers increased by 5 percentage points to 15-20%, according to her data. “Last year, the premises were actively leased by production companies and this year there are none,” she says.
In Odesa, the vacancy rate increased by 7-8 percentage points to 10%, according to Director of the local real estate agency Planeta Raisa Berezska. “Many non-professional office premises are being leased,” she emphasized.
There is no panic among the tenants of office centers in Donetsk, says Director of the AdFactor advertising agency Enrique Menendez. “Nobody closes their offices in our business center Green Plaza,” he adds. The demand for non-professional offices decreased in May-June: the majority of tenants are reducing their office space, adds director of real estate agency Megapolis Donetsk Oleksandr Budarev. The demand for offices did not decrease in Lviv and Dnipropetrovsk.

Leasing rates are falling

The demand for office property describes business activity in the city, notes Ryltseva. In the majority of regions, however, it is low. New companies do not come to new populated areas. “There are combat actions in the country,” says Viktor Oborskiy. The companies that are not folding their business are reducing the space they lease. “For instance, an electronics distributor reduced its office space by five times – to 20 sq m,” says Budarev.

In Kyiv, unlike other cities with a population over one million, supply of office space increased this year. According to the JLL consulting company, 13 business centers with the leasable space of 105,900 sq m were commissioned in the first half of the year, which is 6.3% less compared with the same period of last year. “New tenants, however, are not knocking on our door” says Oborskiy. The majority of transactions are performed because tenants move from one office center to another.

The key instrument of attracting tenants is low leasing price, admits managing partner of the CBRE consulting company Serhiy Serhiyenko. He explains that lease rates in the majority of business centers are tied to the dollar exchange rate. According to JLL, the basic lease rate for offices in the A category this year was US $24-34 and in the B category – US $14-23 per sq m per month. “Management companies calculated their lease rates at the exchange rate of UAH 10/US $1,” tells Serhiyenko, adding that the preferential rate is provided for a period from three months to one year. In the new lease agreement, the rates have been reduced by 10-15% from the starting price, he says.

In the regions, the lease is calculated in hryvnia. Ryltseva says that one business center in Kharkiv tried to tie the lease rate to the dollar exchange rate, but rejected the idea. “It immediately experienced an outflow of tenants,” she says. At the moment, it is possible to rent an office in Donetsk for UAH 150-300 per sq m (the prices fell 15% over the year), in Lviv – for UAH 60-80 (stable rates), in Dnipropetrovsk – for UAH 75-150 (prices did not change), in Kharkiv – for UAH 80-130 (a 10-15% decrease) and in Odesa – for UAH 110-150 (around 10% decrease).

Things won’t get better

It is expected that 8% less office centers will be commissioned in Kyiv this year compared with last year, or 119,600 sq m, predicts head of JLL in Ukraine Oleksandra Hlobina. Developers are finishing centers they started to build several years ago. “Nobody is starting new projects now,” adds Serhiyenko. A similar situation is observed in the regions. That will not help stabilize the rates. Berezska forecasts that by the end of the year they may drop by another 10%. The situation will begin to stabilize a year after the military operations in the east of the country end. Serhiyenko believes the development of business will lead to a growth in demand for offices over the next several years. As soon as large business centers are fully occupied, the lease rates will start to actively grow, he forecasts.