Shoking Numbers

All of you, who remember situation in commerical real estate in Ukraine, as well as some of my old posts, should be shocked with current cap rates in Kiev. Particurlarly, for property owners. For example 1-1,5 year ago a prime office property deals could be negotiated at 7-7,5% yeild only. But now these figures completely different: 16-17% for offices, 15-17% for retail and 18-20 for logistics.

Feel the difference? Credit crunch in action

The Ukraine Construction: Sharp Fall

With kind permission from CEEC Research, I've posted a brief report regarding Ukrainian construction market

Prague, 3rd April 2009

Total decrease in construction industry in Ukraine

The Ukraine construction sector is experiencing significant and unexpected changes. For the year 2009, 73% of construction companies expect Ukraine construction industry to decrease. These facts are brought by the CEEC Research, whose general partner is KPMG Czech Republic. The research results also show that the first signs of the decline started to appear at the beginning of 2008, nevertheless the companies did not perceive it as the start of a potentially broader and longer crisis. Now the economic crisis fully influences the sector in question. All interviewed companies feel itself limited in their business – mostly by insufficient financial resources as well as a poor demand and a tough competition. Due to mentioned problems the usage of capacities of construction firms decreased by 50 %.

Are there any positive signs for the future? What are the basic issues which will mainly influence the existence of the construction industry in Ukraine? What are the major factors limiting companies growth? How are new business contracts acquired? What is the experience of companies with tenders? Which information sources do the Ukraine construction companies use? These and other important findings are provided by the Ukraine Construction Qualitative Study.

Highlights from the Ukraine Construction Qualitative study:

• 73 % of the respondents expect the sector to decrease in 2009 (from the 2008 basis, which was already a 16% decrease on the 2007 results). ). If we look on a more detailed level, the reality could be even worse (36% of respondents expect a decline of more than 20%).For the 2010-2011 period, the expectations are a bit more optimistic: in average respondents expect the sector to grow by 3 %.
• 100 % of the interviewed companies experienced limitations to their business. It means a significant increase from the previous years – only 64% in 2007 and 82% of companies in 2008.
• The most frequently mentioned limiting factor was insufficient financial resources (68 %, 22 % in 2007), followed by tough competition (increased from 15% in 2007 to 68% in 2009) and high material costs (which have doubled from 33% in 2007 to 66% in 2009).
• Companies have also decreased their employment of foreign workers on their projects from 16% to 7% 2008/2009.
• The Internet is used by 100 % of the interviewed construction companies, 89 % of companies use internet for information search, 50 % for company presentatin and about half of the companies use the Internet as an information source for potential new business deals
• Long-term contacts were rated as the main source of information (91 %), followed by meetings and presentations and the Intenet.
• The most often used sources of new deals/contracts for construction companies are preferred partnering agreements (frame contracts), long term contacts/networking (personal contacts) and tenders.
• Companies were asked: “Have you ever been asked for a bribe during the selection process/tender? 19% of respondents replied that they have never been asked for a bribe and the same share of companies replied “yes”. Nevertheless there was a great increase in “no comment” answers.
• Construction companies provided the tenders with one of the lowest transparency rating in the CEE region (only 3.2 points out of 10max, even lower than in Moscow with 3,9 points), which indicates that the transparency level is very limited. 25% of companies shows that public tenders are completely non transparent.
• 59 % of construction companies assess their risk management as intermediate; 5 % as advanced (decrease from 13 % in 2008), 33 % as basic and 3 % as low level.
• Only 29 % of the construction companies have never breached their risk management policy. The majority confirmed that they breach their risk policy to secure a new contract either rarely (34 %) or exceptionally (26 %); 11 % of firms do so often (increase from 2 % in 2008).
• The most often used methods for the selection of suppliers are preferred partnering agreements (which have further increased their share from 68% in 2008 to 83% in 2009), followed by long-term contacts/networking (60 %) and also recommendation (growing from 2007 until 2009 – 49 %).
• Key criteria during the supplier selection process are: price, mentioned by 74 % of the construction companies, experience of the supplier (68 %) and applied technologies (60 %).
• In the long-term, companies predict that the major factors impacting their business development will be mainly: financial situation of their company (increased from 63% in 2008 to 73% in 2009).
• The key investment areas for 2008-09 will be project management processes (increased from 38% in 2008 to 51% in 2009), the construction mechanization (top priority last year) has slightly decreased its share in the respondents’ samples.

The Ukraine Construction Qualitative Study is the first succefull report published by the CEEC Research in 2009. The interviews with construction companies operating in this region were performed in the Q1 2009 and provide findings based on 47 face-to-face structured interviews with the representatives of the local construction companies.

The analysis results provide interesting insight into the current construction situation which is visibly impacted by the financial crisis. The report is focused on the three key areas which are crucial for the qualitative analysis of the sector. These three areas are: companies’ expectations for the sector development, used sources of information about new business opportunities and last but not least applied methods for acquiring new business deals.

The full version of The Ukraine Construction Qualitative Study can be downloaded on the CEEC Research web site: www.CEEConstruction.Eu free of charge. At the same place you can find all details about the methodology, targets of the research and also qualitative reports of the other nine researched countries. The Central and Eastern European Construction (CEEC) Research project was conducted in partnership with KPMG in the Czech Republic.

IMF Mission Chief Notes Progress In Talks With Ukraine On Stand-By Programm

Source: Interfax-Ukraine

IMF Mission Chief in Ukraine Ceyla Pazarbasioglu has noted progress made in the talks between Kyiv and the International Monetary Fund on resuming their cooperation under the stand-by program.

"We have moved ahead rather significantly in our discussions," she said at a briefing in Kyiv on Monday.

Pazarbasioglu refused to disclose the details of the talks, but added that she would report on the progress in the talks within two or three days. She said that the IMF is currently monitoring Ukraine under a special program, as per a condition for allocating the country the first tranche of the fund's loan, worth a total of $16.4 billion.

Pazarbasioglu said that after the IMF mission works out its proposals, it will submit them to the IMF Executive Board and added that the latter would either amend the existing program or would approve a new one. She also refused to comment on the period of the mission's work in Ukraine and on the results of this work.

"Our goal is to reach agreement, and each of the sides in the process is doing everything to achieve this progress," she said.

She said that much depends on tomorrow's voting on anti-crisis bills by the Verkhovna Rada, Ukraine's parliament.

For Those Who Like Colliers Market Reports

If you a fan of Colliers Market Reports (actually, me either :) you can download them from Colliers Reports page. As usual - they're very informative and hi-level performed.

CBRE Evaluate Commercial Deals

Investments in Ukrainian commercial real estate in 2008 fell by 28% compared with 2007 - to 413 million dollars, says CB Richard Ellis' analytical report.

«The total investment for the last year amounted to around 413 million dollars, which is 28% less than in 2007, but 77% more than in 2006. After a sky-rocket 2007, investment activity in 2008, beginning to weaken. Although the number of transactions increased, the amount of each one is more than two times less than the average figures in 2007 - USD 32 mln. against USD 90 mln.», - mentioned in their market report.

Colliers Predict Vacancy Decreasing

According to Colliers Ukraine, they are expecting shopping centers vacancy at 10-15% level. And this is regarding Kiev. Just 1 year ago it has been unbelievable. And with it, rent rates in UAH will fall up to 30% during next 12 month.

Of course this situation is very painful for developers, particularly loaded with loans. I will not be surprised id some of them , will get bank owners. But it could an instrument for retailers for cut cost and prices, what in current situation can be only one solution for keeping sales.

Today I've seen forecast for retail turnover for 2009. These figures are terrible: we have to expect downfall either 35% or even 50% respectively if the economy won't wake up. I'm not sure in that deadly scenario, because significant part of households income is hidden for statistic. But this fall will be significant one, no way.

New personal activity

Now I provide personal negotiation support, consulting and services in RE market in Ukraine. If you interested - feel free to email me.

Flashback: Jan 09 - Feb 09 in Ukrainian RE

Due the many reason I did not post any new stuff for a while. So, I'd like to summarize some news and events in Ukraine for the past 2 month.

• Vacancy in A class office center reached 10-15 % comparing with same time at 2008. Rent rates lower as least for 30% in USD in some cases for the existing lease
• Rent rates in shopping center will drop for 10-15 % in USD next 6 month
• Residential market, especially the primary one has zero demand. So experts waiting for 30-40 % fall during 2009. Construction works are continuing only at 15% of objects-in-progress/
• Belgium IIG review their business in Ukraine, taking into instable condition in Head office.
• Nikolay Tolmachev, TMM's CEO predicts 90% level of bankruptcy in small and mid-developers.
• MOS City Group close their activity on Kiev' "Manhattan" on Rybalski island on Dnepr river
• Africa Israel stops their retail project in Zaporizhe
• Mirax is trying to sell uncomplete Mirax Plaza for USD90 mln. Maximum market price - 30 mln, funds say.
• Colliers Ukraine closed brokerage deals for more than 3000 sqm on Kiev office market
• NAI Pickard ans Metro Group Asset Management Ukraine LLC get into joint venture regarding property management
• NEST sells brand new 8100 sqm offiice center on Mechanizatorov str. But still no tenants there
• Schmidt Investors bougt A class office center "Illinsky" from Ukrsibbank co-owner Galiev
• Russians - Inteco, Sistema-Gals, Mirax, PIK go home - all activities are closed.
• East-Ukraine retaler Amstor has techical default on corporate bonds
• IKEA will start construction their first shopping centre at 3Q 2009
• OKEY seeks strategic alliance for future growth and put on the table 25% stake
• OBI has opened first own DYI in Odessa

Stay tuned!

Let 2008 Go With Peace and Honour

Dear friends,

2008 is almost gone. It has not to be a great guru to look at all that mess and make sad conclusion. We all have lost many things. Many cash, many deals, many projects. And to straight with you we all expect worse times, particularly at 1H 2009. That's why we, in New Park, just freezing our project for 6 month, at least. And going to new side project to middle-to-high consumer market, which seems be most stable in these conditions. Thanks to God we haven't debts and loans, there is some cash and I guess we should be successful with that. btw, if want to know more on that kind of activity, email me. And my best advise ever - looking for new opportunities on fallen RE market if you have free funds, as well as other markets, like we are.

I'm going to post 2008 RE overview at mid-January, so be in touch.

And Happy New Year! Only we can make it so.

Warm regards, Sergey

Investment Opportunity

Hello everyone.

I'm seeking an investor (or co-investor) for multistory parking complex in Borispil international airport.
Feel free to discuss for.

Regards, Sergey