Kiev Office Market Overview

Kiev Office Market Overview
Q3 2014
Kiev Office Market Snapshot, Q3 2014
Supply
Class А
Class В
Total
Modern office stock, sq m
430,500
1,346,700
1,777,200
Completions, Q3 2014, sq m
0
5,300
5,300
Completions, Q1-Q3 2014, sq m
33,500
77,700
111,200
Pipeline Q4 2014, sq m
0
5,300
5,300
Net absorption, Q3 2014, sq m
-550
5,150
4,600
Availability, sq m
139,440
260,860
400,300
Vacancy rate
32.4%
19.4%
22.5%
Rental Rates
Prime base rent*, USD/sq m/year (per month)
370 (31)
Base rent*, USD/sq m/year (per month)
230-370 (19-31)
140-260 (12-22)
Operating expences, USD/sq m/year (per month)
60-100 (6-8)
50-60 (4-5)
*Excluding VAT and operating expences
JLL – Kiev Office Outlook, Q3 2014
2
Supply
Modern Office Supply Dynamics
Class А
Class В
In Q3 2014 5,300 sq m of quality office spaces were commissioned.
Two business centres entered the Kiev market in Q3 2014: BC Intellect (Class В, 1,600 sq m GLA) and BC
DemievSky (Class В, 3,700 sq m GLA).
For YE2014 we expect two more business centres to be commissioned with total GLA around 5,300 sq m.
96% of announced completions for 2014 were commissioned in Q1-Q3 2014.
JLL – Kiev Office Outlook, Q3 2014
4
Main Office Buildings Completed in Q1-Q3 2014
Sigma
17,900 sq m, Class В
Domino
9,500 sq m, Class В
Q1 2014
Q1 2014
Lagoda
18,000 sq m, class В
IQ Business Centre
25,900 sq m, Class А
Q1 2014
Q1 2014
Forum Victoria Park,
Phase II
14,500 sq m, Class В
DemievSky
3,700 кв. м, Class B
Q2 2014
Q3 2014
JLL – Kiev Office Outlook, Q3 2014
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Kiev Office Submarkets
Supply, sq m
Rents, USD/sq
m/month*
CBD
Right
Bank
239,600
19-31
Class B
271,400
18-22
T otal
511,000
Podol
Podol
Left
Bank
CBD
Class A
Class A
22,700
19-26
Class B
184,200
16-22
T otal
206,900
Right Bank
Class A
168,200
19-26
Class B
743,700
13-20
T otal
911,900
Left Bank
Class B
147,400
12-19
*Excluding VAT and OPEX
JLL – Kiev Office Outlook, Q3 2014
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Central Business District (CBD)
Stock, sq m
Availability,
sq m
Rents, USD/sq m/
month
Class A
239,600
68,460
19-31
Class В
271,400
27,860
18-22
Total
511,000
96,320
Supply
• The CBD is the most prestigious location in the city in terms of office real estate
development.
• Class A accounts for 46.9% of total CBD office stock.
• The pipeline of future projects for CBD is limited due to its density.
• In Q3 2014 no new office spaces entered the CBD.
Demand
• The bulk of CBD occupiers remain international companies in manufacturing, IT and
business services sectors.
Vacancy and
Rents
• CBD vacancy rate is 18.8%. Vacancy rate in Class В is 10.3%, in Class А – 28.6%. In
Q3 2014 the vacancy rate in Class B increased by 210 bps, in Class A – decreased by
40 bps. Totally by submarket vacancy rate increased by 80 bps over the quarter largely
due to the low demand for the Class B offices in CBD.
• Rents for offices in CBD are the highest in the market.
Supply Dynamics
1
2
Key projects in pipeline for 2014-2015
#
Name
Address
Class
GLA, sq m
Year
1
BC on Zhylianskaya st., 32-36
Zhylianskaya st., 32-36
В
2,500
2014
2
BC on Gorkogo st., 46/46а
Gorkogo st. 46/46а
А
8,000
2015
JLL – Kiev Office Outlook, Q3 2014
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Podol
Stock, sq m
Availability,
sq m
Rents, USD/sq
m/ month
Class A
22,700
3,530
19-26
Class В
184,200
40,700
16-22
Total
206,900
44,230
Supply
• Podol is the historical part of the city with well-developed infrastructure.
• Podol comprises mansions which have been constructed or reconstructed as office
buildings.
• In Q3 2014 no new office spaces entered the Podol.
Demand
• The demand for office premises in this submarket in Q3 2014 slightly decline due
to the increased availability of office premises at a comparable costs in CBD.
Vacancy and
Rents
• Vacancy rate in Podol is 21.4%. Class B vacancy rate is 22.1%, and Class А –
15.6%. Vacancy rate grew in Q3 2014 by 190 bps due to the increasing of
availability in Class A (by 1300 bps or around 3,000 sq m). In Class B vacancy rate
increased not sufficiently - only by 50 bps.
• Rental rates for Podol business centres are more affordable in comparison with the
CBD, but are relatively high compared to the market average.
Supply dynamics
1
Key projects in pipeline for 2014-2015
#
Name
Address
Class
GLA, sq m
Year
1
Astarta
Residence
Crossroads Nizhniy Val sr., 63/
Yaroslavskaya st., 58/ NaberezhnoKhreshchatitskaya st.
В
20,000
2015
JLL – Kiev Office Outlook, Q3 2014
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Right Bank
Class A
Stock, sq m
Availability,
sq m
Rents, USD/sq
m/ month
168,200
67,450
19-26
Class В
74,700
154,920
Total
911,900
222,370
13-20
Supply
• The Right Bank has the most dynamic office market and offers a wide variety of
opportunities for developers and tenants.
• In Q3 2014 only DemievSky (Class B, 3,700 sq m GLA) entered this submarket.
Demand
• Demand for the Right Bank business centres remains consistently high. The Right
Bank remains more attractive for companies compared to the Left Bank due to its
well-developed infrastructure and high business activity.
Vacancy and
Rents
• Vacancy rate in the Right bank is 24.4%. Vacancy in Class A is 40.1%, in Class В –
20.8%. In Q3 2014 Right bank vacancy rate decreased by 110 bps vs Q2 2014.
Class A vacancy rate decreased by 90 bps, Class D vacancy rate decreased by
120 bps.
Supply dynamics
2
4
3
Key projects in pipeline for 2014-2015
1
5
#
Name
Address
Class
GLA, sq m
Year
1
BC on Gorkogo st., 64
Gorkogo st., 64
В
2,800
2014
2
Retroville
Pravdy ave.
В
8,200
2015
3
BC on Zoologicheskaya st.,
5/1а
Zoologicheskaya st.,
5/1а
В
7,200
2015
4
BC on Dorogozhytskaya st., 8
Dorogozhytskaya st., 8
В
5,000
2015
5
BC on P. Myrnogo st., 20
P. Myrnogo st., 20
А
5,000
2015
JLL – Kiev Office Outlook, Q3 2014
9
Left Bank
Class В
Stock, sq m
Availability,
sq m
Rents, USD/sq
m/ month
147,400
37,380
12-19
Supply
• The Left Bank is the least saturated submarket with no Class A projects.
• In Q3 2014 only BC Intellect (Class B, 1,600 sq m GLA) entered the
submarket.
Demand
• The Left Bank office market has a specific target audience. The absence
of traffic jams and its proximity to Boryspol international airport make it
attractive for companies which do not need prime location and aim to
minimize their costs (distributors, airline companies).
Vacancy and
Rents
• The vacancy rate is quite high and amounts of 25.4%. Due to the new
completions in Q3 2014 the vacancy rate grew by 100 bps over the
quarter.
• Rental rates are low compared to other districts in Kiev.
Supply dynamics
JLL – Kiev Office Outlook, Q3 2014
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Demand
Demand Breakdown*
Demand by business sector, Q3 2014
Demand by business sector, Q1-Q3 2014
During Q3 2014 demand for quality offices has been dominated by Manufacturing companies (37%), IT
companies (27%) and Business services companies (21%).
Generally, Manufacturing and IT companies were the most active tenants within the market in Q1-Q3 2014
(36% and 30% respectively).
*Kiev Research Forum, mass media
JLL – Kiev Office Outlook, Q3 2014
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Market Balance
Market Balance
The net absorption in Q3 2014 was 4,600 sq m, which corresponds to the Q2 2014 volume.
Total take-up volume in Q3 2014 amounted 42,000 sq m which is 40% more than for the Q2 2014. Most of the executed
deals were renewals or relocations.
JLL – Kiev Office Outlook, Q3 2014
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Office Vacancy Rate, Q3 2014
Vacancy rate benchmark*
Vacancy rate dynamics, Kiev
The vacancy rate in Kiev is one of the highest among European capitals.
At the end of Q3 2014 the vacancy rate reached 22.5%, which is 10 bps less than for Q2 2014 and 300 bps more than for Q3
2013.
*Data for all cities except Kiev, Moscow and Saint-Petersburg are given for Q2 2014
JLL – Kiev Office Outlook, Q3 2014
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Prime Base Rents*
In Q3 2014 the prime base rent continued to decline and reached USD370 sq m/year (USD31sq m/month).
Since the beginning of the year the prime base rent dropped by 11%.
The prime base rent decline in Q1-Q3 2014 was driven by low demand for Class A office premises.
*Excluding VAT and OPEX
Data for all cities except Kiev, Moscow and Saint-Petersburg are given for Q2 2014
JLL – Kiev Office Outlook, Q3 2014
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Office Property Clock, Q3 2014
Helsinki, Lyon, Moscow
Cologne
St. Petersburg
Berlin, Frankfurt, Stuttgart
Hamburg, Munich, Oslo
Dusseldorf
Dublin, Luxembourg,
London City, London West End
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Kiev
Geneva, Warsaw, Zurich
Stockholm
Manchester
Istanbul
Edinburgh
Amsterdam, Milan
Madrid
Lisbon
Athens, Barcelona, Bucharest,
Budapest, Brussels, Copenhagen,
Paris CBD, Prague, Rome
Source: JLL
JLL – Kiev Office Outlook, Q3 2014
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Market Practice, Q2 2014
Kiev Main Lease Term Conditions, Kiev
Payment terms
Operational expenses
Lease length
Rents are quoted in USD/sq m/month, but paid in national currency UAH according to the NBU cross
rate. In H1 2014 tenants and landlords conducted intensive negotiations about fixing the exchange
rate within the currency corridor. Terms and conditions of such fixation determined individually.
5-8 (60-100) USD/sq m/month (year) above the base rent.
3-7 years.
Rental indexation
Annual, up to 3%.
Security deposit
2 months.
Frequency of rate payments
Fit-out period
Rent free period
Monthly or quarterly.
For premises less 500 sq m – 1-2 months. For premises 500-1,500 sq m – 2-3 months.
For an anchor tenant occupying over 25% of the building – 3-6 months.
1-2 months.
Source: JLL
JLL – Kiev Office Outlook, Q3 2014
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