DTZ releases Urkaine's logistics property market Q1 2015 results
Due to suppressed business dynamics in Ukraine, the market-wide vacancy in the logistics property sector in the Greater Kyiv area increased to 8.1 percent at the end of the first quarter of 2015.
In late March 2015, total stock of modern warehousing and logistics space in the Greater Kyiv area amounted to around 1,730,000 sqm (GLA). This figure includes approximately 340,140 sqm (GLA) of modern specialised chilled & frozen and chemical warehousing facilities.
In the first quarter of 2015, the new supply on the logistics property market in the Greater Kyiv area reached approximately 14,000 sqm (GLA) with the warehousing complex FM Logistic (phase 2) delivered during the period.
Overall development activity in the warehousing and logistics property sector in the Greater Kyiv area remains generally low. DTZ projects that during the remaining three quarters of the year new logistics supply in the Greater Kyiv area may reach around 77,000 sqm (GLA).
All properties in the sector, scheduled for delivery in Kyiv and its suburbs in April-December 2015, are planned for owner-occupation purposes, whilst delivery of several speculative logistics schemes was postponed until the market conditions improve.
In January-March 2015, take-up in the warehousing and logistics space in the Greater Kyiv area amounted to around 39,500 sq m (GLA), which is similar to the figure registered in the first quarter 2014.
The demand for quality warehousing and logistics space in the Greater Kyiv area in the first quarter of 2015 was driven by the companies operating in the logistics and transportation sector, as well as retail companies, which cumulatively accounted for approximately 70 percent of total take-up registered during the first three months of the year.
In January-March 2015, the occupier demand was heavily dominated by relocations with the intentions of existing tenants to obtain better lease terms and secure lower rental payments. Similar to 2014, new market entries were almost absent in the first quarter of 2015.
As of late March 2015, primary vacancy in the logistics property sector in the Greater Kyiv area reached approximately 8.1 percent, increasing by 2 percent compared to the figure registered at the end of 2014.
Increase in primary vacancy in the sector resulted from weakened occupier demand for logistics and warehousing space in the Greater Kyiv area, due to very challenging economic conditions in Ukraine, as well as a decrease in imports in response to the devaluation of the national currency and drop in purchasing power of the country’s population.
In the first quarter of 2015, prime asking rents for warehousing and logistics space in the Greater Kyiv area remained unchanged compared to late 2014. As of March 2015, monthly asking rents varied from USD 3 to USD 5 per sqm for prime warehousing space in the Greater Kyiv area, while for B-class properties average monthly rent was at around USD 2 per sqm. Achievable rents in the sector mainly depend on the quality of space, its location and accessibility, as well as general lease terms.
In the first quarter of 2015, on the logistics property market in the Greater Kyiv area several new leases were signed in hryvnas without the rent being linked to the US dollar or Euro. At the same time, some landlords are offering incentives in the form of rental discounts to retain the tenants, which signed lease agreements prior to 2015.
Due to poor outlook for economic development and business dynamics in Ukraine throughout 2015, DTZ expects that occupier demand for quality modern warehousing space in the Greater Kyiv area will remain low during the remainder of the year.
Despite the weak demand in the sector, and given relatively low volumes of short-term speculative delivery pipeline, vacancy in the logistics property sector in the Greater Kyiv area is forecast to remain below 10 percent during the remainder of 2015.
DTZ projects that, other things being equal, during the remainder of 2015 rents for prime warehousing space in the Greater Kyiv area will be subject to further downward pressure in the US dollar equivalent, and various incentives will be increasingly offered by the landlords in the sector to retain their tenants.