Development of logistic real estate market in Ukraine

There were no significant changes on the Ukrainian warehouse market in 2011. Trends laid in 2009-2011, in general, will remain and will be observed by the end of 2012. The main of them are:

• After the boom of professional stores in 2008, there is a gradual decrease in new supplies for the 4th consecutive year;

• Preserving the highest demand for rent of storage sections with area less than 5000 square meters;

• Proposal exceeds demand of tenants. But there is a gradual reduction of the part of unoccupied space in the warehouse complexes. Mainly it occurs with the highest-quality storages with good location.

• Activeness of tenants is still low, that is why rental rates will continue stabilizing. The minimum rental rate of the most popular objects may increase slightly and the maximum rate is likely to remain unchanged. The rate requested on the free space in some warehouse complexes may increase due to the indexation of the signed lease agreements, but fluctuations of the average market rate are unlikely to exceed 1-2%.

• The main demand will be formed by the players, who are already present at the market (especially the large trading companies and logistics operators; they will expand occupied space, move to better-quality facilities and seek more favorable terms of the lease.

• Activation of local developers in major regional centers is possible due to the lack of high-quality warehouse space. First of all it concerns Donetsk and Dnipropetrovsk.

• Increase of interest of developers to upgrading warehouses of C and D classes.

• Low developers’ interest level to buying target sites.

It is worth mentioning the launch of construction of the Large ring road around Kyiv, which is scheduled for completion in 2015-2016. Even now it may provide an additional stimulus for the development of logistic facilities, close to the new road.

Logistic real estate sector in the regions virtually ceased to grow. Only a few projects were launched:

  • The Swedish group LLENTAB is building a new logistics center based in Kharkov with office and warehouse space of 5 thousand square meters. The new facility will be available to market operators this year.
  • Representative of the U.S. Embassy expressed a desire to support the project of the logistic center creation on the base of Krivoy Rog Airport (city Krivoi Rog),
  • "ATB-Market" LLC (Dnepropetrovsk), which owns the Ukrainian chain of stores in format "discounter", started construction of two logistic centers in Dnipropetrovsk (41.156 sq. m.) and Donetsk (34.6 sq. m.) regions, which are planned to open in late 2012 - early 2013,
  • "Scandinavia-fish" LLC - one of the largest operators on the Ukrainian fish market – is going to build a new logistics center with 20 thousand tons capacity in Odessa by the end of 2012.

We should also remind about the realization of the state program of creating wholesale agricultural products market (in the format of multifunctional logistics complex, which combines storage, industrial, commercial and office formats), adopted in 2009. Wholesale agricultural markets are the largest food distribution channel in Europe. The domestic program is planned to be implemented by the end of 2013 and provides the creation of 25 markets across the country, 4 billion UAH should be allocated from the budget. It is also expected to attract private investors, who were promised a number of preferences, in particular, accelerated land allocation and compensation of interest on loans.

Implementation of the state program is significantly affected by reducing the interest of international investors in this sector. Although we can not say that all niches are covered and the market is full. Thus, at present, Ukraine has three network WMAP markets (the wholesale markets of agricultural products) - "Shuvar" in Lviv (implemented in the format of a multifunctional logistics complex, which combines storage, industrial, commercial and office formats), "Hozyain" in Donetsk, "Stolichniy "in Kiev (almost 46 thousand square meters object has several specialized pavilions, vegetable storehouse and a platform for trade with motor vehicles). All products and prices in the markets of the network WMAP are from the manufacturer.

First industrial-wholesale market in Ukraine will be opened in the village Molodezhnoe in Kherson region by the end of 2012. It will have an electronic stock exchange, logistics centers and the country's only river terminal. The draft of this market differs from the wholesale markets that are already operating in Ukraine. In addition to product sales, it will be engaged in harvesting, storage, sale and export. In particular, the establishment of modern logistics system is provided - local logistics centers, which will act as regional commercial and industrial sites. The total sales area of the market along with interterminal will be about 260 hectares.

Apart from Kherson, the same markets will be created in Odessa, Zaporozhye, Mariupol, Kharkiv and Dnipropetrovsk in 2012.

The main obstacle for developers in the development of new projects is a relatively high vacancy rate (approximately 17-20%), which may be reduced by the end of 2012, despite the commissioning of new facilities, as well as the stability of the rental rates (in average $4-7 / sq. m.).

Development of new projects in these conditions will depend on the availability of potential tenants who can guarantee a steady income. Accordingly, new projects will be implemented mainly in the form «built-to-suit» (construction due to the agreement), as the presence of potential tenants allows developers to attract financing to the project and reduce construction costs, as well as to take into account the individual needs of specific customers. This form of meeting the demand is much more effective than construction of a warehouse project for its further speculative implementation for the rent. Format «built-to-suit» is widespread in Europe, while it is just beginning to develop in Ukraine. We can expect an increase in the share of such projects in Ukraine in the coming years.