Thank You All!

Thanks you all. Love and peace. See you next year! Sergey Kalinin

You Can Congrat Me - 1st Anniversary Of The Blog!

Monthly Economic Monitor Ukraine, September - November 2007

Monthly Economic Monitor Ukraine from Institute for Economic Research and Policy Consulting. Here is November issue.

• The official results on pre-term elections to the Verkhovna Rada were published on October 27, with two weeks delay.

• Real GDP growth was 7.3% yoy between January and September, relying mostly on high private domestic demand.

• Exports of grain harvested this year will start not earlier than in December due to cumbersome quota administration procedures.

• Between January and September the current account deficit increased to USD 2.5 bn, but was sufficiently covered by high inflows of long-term capital.

• Central fiscal deficit widened to UAH 7.5 bn (1.5% of GDP) in September.

• Inflation accelerated to 14.8% yoy in October.

• The NBU revised the regulations on the costs of external borrowings.

Amstor Has 19 Store Already

Amstor Company (Donetsk) has increased number of its supermarkets to 19, having opened a hypermarket in Zaporizhia at December 21.

According to the statement, shopping center has 13,500 sqm. The object is able to provide services up to 10,000 customers daily. The shopping center is conveniently situated near road intersection and three large multifamily areas, where 200,000 people live, at least.

Amstor is focused on shopping centres development and management in Donetsk and Zaporizhia regions.

Mass December Expansion - New JLL Kiev Ofiice Head

Jones Lang LaSalle announced today that Peter Honey is to become Head of its Ukrainian business and lead the firm’s growing team to success in Kiev and other core markets across Ukraine. Mark Jagger, Jones Lang LaSalle Managing Director of Russia & CIS: “Ukraine is a very important part of our growth strategy in the Russia & CIS business. We already provide clients a full range of property services in this market and our plan is to be number one in all our major disciplines within the next 12 months.”

“Peter is a long serving member of our firm and has delivered a first class service to our international clients over the last 15 years. His experience with us has given him a broad skill-set and perspective which is essential for such a business development role in an exciting emerging market.”

Jones Lang LaSalle opened in Kiev 18 months ago and the rapidly growing team now comprises of 20 professional staff. Currently, the Kiev office provides retail, offices, warehousing agency, capital markets, strategic consultancy, tenant representation and valuations services and this is set to grow as the office integrates into the wider global Jones Lang LaSalle business.

“Our presence in Russia & CIS is growing exponentially and I very much look forward to contributing to its exciting future. We have a great book of business in the Ukraine at the moment and by adding my personal experience from across a number of Jones Lang LaSalle’s service offerings we’re sure to achieve our ambitious targets for the Ukraine,” concluded Peter Honey.

Peter Honey joined the Jones Lang LaSalle in 1996 and his career in property has stretched across many areas of the industry including valuations, consulting, capital markets and corporate real estate. Peter will join the Ukrainian team in January 2008.

Ruslan Oleksenko - Commercial Real Estate Investment Prospects

Ruslan Oleksenko - Managing Partners, DEOL Partners

1. Is it the truth that commercial real estate is much more attractive for investment objectives rather than residential real estate?

It is difficult to compare the attractiveness of commercial real estate and residential real estate as these two real estate segments have different peculiarities of investment and ROI. So residential real estate development provides formation of investors' assets on the prime stage of building. That is why residential real estate projects are characterised with shorter period of payback (payout) and have higher rate of internal profitability. At the same time commercial real estate has more attractive future in long-term period of investment. Nowadays the situation that commercial real estate is more attractive for western investors is determined by these factors while the Ukrainian developers are still the main players at the residential real estate market.

2. Is it true that the opportunities for high returns have reduced?

It is quite an interesting question, but I would like to interpret it differently. There is a good English proverb: «No free lunches». The level of profitability of investment nearly always has the straight proportion to the level of risk which an investor is ready to take. With the other equal conditions, as less the risks of an investment, as less the profitability the investor could count on. Ukraine offers reasonable balance between the level of risks linked with the investment and the level of expected profitability or capitalization rate. This is the reason of the foreign investors' interest to the Ukrainian market of real estate. Thus the rates of capitalization for all kinds of commercial real estate in Ukraine at the end of the second part of 2006 were twice higher than the average European index: for office and trade real estate at the level 11-12% compared with 5-6 % in European countries. For warehouse estate - 12-15 % compared with 7-8 % in European countries. Development and saturation of the market rings appropriate capitalization rates reduce: for the present moment they are 8-10 % and in the nearest future they will decrease till 7-8 %. At the same time investment interest to the Ukrainian market of real estate from the side of the most successful businessmen and structures will gradually reduce.

3. Which kind of commercial real estate is easier to purchase?

The question is not about what kind of estate is easier to buy but what kind of real estate can bring the expected profitability to the investor. According to our forecasts during the short-term period land speculations will stay one of the most profitable businesses on the real estate market. The internal rate of profitability within the purchase and sale of land will vary from 40 % to 90 %. DEOL Partners recommend to clients that 60 % of all their investors profiles to be land deals. At the same time with the long term period (2010-2013) investors will be forced to redirect do the projects of strategic development because in some period land speculation will lose their investment attractiveness. In 3-4 years the interest of land operations will not exceed 10% in portfolio of investors while the part of projects of strategic development will increase from 30 % to 80 %. Moreover the increasing competition on the market will be conducive to develop projects in spare niches. As the examples of niche positioning on the market of office real estate can be Business Parks, Research and development complexes; Regional Shopping Malls - in trade segment; Flex Spaces, Self Storage is some kinds of warehouse and logistic real estate) - in the industrial segment; Master Planned Communities (some kind of cottage towns) - at the residential real estate market; Corporate Houses (service apartments) and Extended Stay Hotels (long-tern living hotels) - at the hotel market.

4. What amount of money should an investor need to purchase commercial real estate in the capital city?

Major investors, such as investment funds and companies are interested in projects which are valued from 30 to 100 m. US dollars. Moreover purchasing of land for building of large office, trade or warehouse premise should constitute 10-15% of its value. An essential sum of investment depends on lots of factors including of course size and lay-out of real estate project. However in commercial real estate the concept «price for 1 sq.m» is rare for project value definition in general. The main factor for definition of real estate value is net profit which characterize the ability of the object to generate cash flow. So, the average lease rate for Shopping Malls with total area of 10 000 sq.m can be 120$ for 1 sq.m, while larger units of real estate - 15-20$ for 1 sq.m. 5. Is it cheaper to purchase commercial real estate in the regions? Nowadays Kyiv, like other large capitals all over the world is like a magnet for foreign investors in spite of lower prices for commercial real estate in regions. The fact is that building costs in the regions will be the same as in Kyiv. It will be cheaper for investors to buy the ground area only. However, in the capital it is possible to lease the object of commercial real estate in a shorter period and at a higher price after finishing building. In addition while purchasing of functioning object of real estate in Kiev its rate of capitalisation is 8-10% but in the regions is from 14 to 17%. As a result of selling of commercial real estate object the developer can lose from 40 to 70 % of profit in regions in comparison with Kyiv.

6. Are there any hazards while purchasing commercial real estate?

How long is the process itself? Of course, there are a lot of questions while purchasing commercial real estate. First of all they are regarded to financial, commercial and legal audit. All these spheres need much attention, competence and professionalism as well as flexibility from the investor, customer and transit manager. So, real estate deals are connected with lots of risks. Some of them can be acceptable, some not. If nevertheless risks are unacceptable, chances for concluding a bargain are minimal. Inability to make a concession can cancel all the efforts of partners to conclude the deal. The process of structurization of a deal with amounts from $50 m. can take 3-5 months.

7. Foreign investors who enter the Ukrainian market maintain that lease rates are exorbitant in our country. Does the quality of office and trade real estate objects correspond to present prices?

Are there any differences between other European countries? In fact, in comparison with other Eastern Europe markets the leases rates in Ukraine are a bit overpriced. However simple economy laws allow this phenomenon to be proved. High tempos of lease rate increase mean the initial phase of development of real estate market and that there are no critical mass of areas on the Ukrainian market which could satisfy the requirements of all potential clients. Also when demand exceeds supply it goes to that the market is in the hands of owners of real estate who, in their turn, do not feel the necessity to make extra investments for improving their own commercial real estate. The process of saturation of the market and a large quantity of offers will stimulate developers to plan and build more qualitative premises and lease them at lower lease rates.

8. How much does the management of commercial real estate in Ukrainian conditions differ from the western «rules of the game»?

Both quality of the real estate objects and professionalism of the Ukrainian companies, which deal with the management of the commercial estate, characterize this level of the market development. It is not a secret that a lot of owners face with the lack of high-quality proposals when choosing the managing company to which they are ready to hand over all the volume of responsibility for the effective usage of their real estate. That's why we can state that future of the Property Management products presupposes the essential increase of professionalism.

9. How can the level of competition among real estate companies be determined?

To my mind, now it is too early to speak about the competition among the current real estate companies. Developing, a rapidly-moving market is able to ensure every player with a great deal of work. That's why I think that vice verse at the moment one can feel the lack of professional companies which can manage with the professional services demand in Ukraine. Competition exists only on the coordination level with the most prestigious real estate objects.

10. What factors does the profit of the managing company depend on?

Surely, the profit of the managing company depends on the volume of the accomplished work. Experience and professionalism allow the managing company to set the higher price for their services in comparison with the less professional players. Nevertheless, a more expensive solution is not always a loss for an owner of real estate according to the proverb which says that the cheapest things are not always best. That's why from the professional point of view it is more prospective to pay a high price but to get an expected and best result.

Shopping by Retail

From Property Times


At present, over 30 shopping centers are functioning in Ukraine, and more than 400 network operators of all the product groups are working here.

Ukrainians' infatuation for cheap markets seems to be passing into history. What influences that? Either people are paid better. Or dwellers' mind has altered so they give more credence to shops which have cash registers and provide warranties for products. Or marketing policy of retailers who, for example, launching various actions and clearance sales, reduce prices for their products to the level of the marketplace (or even below it), has improved.

However such as there were, people reach out for shopping centers, at that not only in the capital but in the regions, too. And this means that heterogenous shopping centers and shopping and entertainment centers are necessary and the more of them, the better. According to the calculations of 'Ukrainian Trade Guild*, there is some 170 complexes in Ukraine, which lay claim to be named shopping centers (SC) (31 of them - in Kiev). Though the capital used to be the leader in such complexes' trade space density per individual ratio, yet last year it lost its position - now Kiev is ranked third (after Dnepropetrovsk and Nikolaev), only slightly being ahead of Odessa and Donetsk.

In the words of director of the consulting company "Uvekon" Vladimir Shalaev, three types of retail exist - markets, shops, and cyber-retail. To the "shops" can be referred both traditional formats - a kiosk, a food store, a department store, and modern ones -hypermarkets, Cash&Carry, supermarkets, discounters. Cyber-retail is a mode when goods/services are ordered through the post, by phone, by catalogue, through the Internet. However, as to the markets, the head of the Ukrainian Trade Guild leasing department Sergei Khomenko is putting them into the retail category only nominally, since, though it is a trade, however it is predominantly a network trade, i.e. non-professional.

A trend is observed: Ukrainians gradually become disaccustomed to the marketplace's service. The degree of loyalty towards the contemporary trading modes has grown over the past year in Ukraine. In those commodity sectors, where network operators already put their fingerprints, market trade was noticeably squeezed out. "So, the share of food markets in the regions already shrinked to 20 % of sales, in the household appliances/electronics segment - to 10-15%. The share of markets selling clothes and footwear remains to be large (up to 50 % and more), though even here it has contracted during the year by 10-15 %," UTG discloses in Ukrainian realty market survey 2006.

So, what destiny is in store for capital's markets. Food markets will be step by step declining, yet they will not totally disappear, as many people prefer choosing on their own fruit, vegetables and dairy products originated from the housekeeping, Sergei Tomenko believes. As far as manufacture goods markets are concerned, then the specialist predicts the letter's significant shrinkage, though in the future. In the nearest time, most likely goods of economic assortment will be sold there, i.e. of low quality, or of doubtful origin. As a matter of fact, the customer has already come to a realization that, say, purchasing of clothes and footwear goes better not in the dark "container", but at a well-equipped and generously lit trading floor, with comfortable fitting-rooms and absence of bustling.

Vladimir Shalaev is also judgmental: "Markets' perspective is obvious - being forced out to the town's periphery, both in a sense of market share, and geographically."

Average monthly salary in Ukraine UAH/month

Head of marketing department at the development company "Forent", Andrey Shabayev, suggests the contrary: "At the present time, there is no tendency observed toward more civilized retail modes having very soon forced the capital markets out. Until there is a proper consumer available - the markets will fail to decease."

Still, there is one more reason that will provide impetus for markets' disappearance: they occupy huge, very expensive areas, which are used unpractically, i.e. yielding less income than a multi-story SC at the same territory provides. So, the market's owner can shut it up on his own, deciding on construction at his site of a large commercial facility, or on just selling the land under retail outlet. And the city government will hardly begin objecting it, since they realize that we are significantly falling behind the West Europe and even Russia in this realty segment, Sergei Khomenko suggests.

According to him, there are many SC projects available, which can appear on the spots of the former markets. The question is, when might they be implemented? After all, there is a need in political and economic stability in the country, since creating this kind of realty is a continuous process, which takes on average five years from the moment when it is conceived and up to the moment of its opening: for small complexes it could be 3 years, and for larger ones - 7-10.
Yesterday, today, tomorrow

As is said above, over these several years the people have changed their retail culture. "Whereas 5 years back one could say that most people buy things at the 'natural' markets, now people prefer a more civilized shopping. Parallel to rising incomes, the population is shopping in the stores and supermarkets, as well as in shopping centers. Just SCs today take one of the leading stands in retail development. And this trend will retain its place later on," Andrey Shabaev notes.
Immersing in history a bit, let's recall that the firstling of 1999 was SC "Kvadrat". "It marked the beginning of Ukraine's commercial property market development. Then appeared "Metrograd" and "Karavan" - in some aspect they had been successful, in another - not so, but, at any case, they were the first and enjoyed popularity from the start. The 2004-2005 period was characterized by appearance of a number of developed projects, but they were suspended owing to political situation that became complicated. In the country's crucial moments the owners always poise if they should invest money in commercial property, that's why a large number of projects had never seen their fruition," Sergei Khomenko recalls.

In 2006, an attempt was undertaken to come back to the previous tempo of areas enlargement. In fact, over the five past years a 80 percent of SCs were built in Kiev. As of today, there are above 30 SCs in the city: according to the data provided by Dmitriy Siniukov, Director on Development at LLC "IBT", there are 33 such objects (360 thousand sq. m.), yet according to UTG's statistics -they number 31 (343 thousand sq. m.), 5 of them were commissioned in 2006. But it is less than was expected. According to the statement of Dmitriy Siniukov, yet in the past year it was planned to put into operation over 100 thousand sq. m. of space, however, in reality less than 40 thousand sq. m. were launched. SEC "Komod" at Lunacharskogo st., circumurban SEC at Kharkovskoye shosse, the largest in Ukraine cinema complex with the capacity of 14 hans integrated with SEC "Multiplex-Plaza" at Moskovskiy prospect, "Kva-drat-Avrora" were sure declared for opening, still they are to welcome the customers only this year, at best. As far as circular road SEC at Kharkovskoye shosse is concerned, it might not be finished at all - there is a design for it re-design into the business center.

On the whole, Kiev is steadily lagging behind the majority of European capitals and even large Ukrainian cities of Dnepropetrovsk and Nikolaev as regards trade areas volume per head ratio (126 sq. m. to 1000 dwellers), Ukrainian realty market survey 2006 by UTG reads. Dmitriy Siniukov informs that in Moscow some 150 sq. m. of trade space falls at every thousand citizens, while in the capitals of Eastern Europe countries - around 200-300 sq. m. So, the leaders need to be caught up with. There is a hope that the present year's space accrual may amount to the level of 90 thousand sq. m. - appearance of 7 SCs is expected. In 2008, the construction of yet some 174 thousand sq. m. is awaited - 7 SCs, too, the most interesting of them being SEC "Troitskiy" on Bolshaya Vasilkovskaya st. and SEC "Dneprovskaya pristan" at the Vatutin prospect. Beginning from 2008 on, trade areas growth may start outpacing retail market capacity. As of 2007 year-start, there is known around 60 projects of shopping centers in Kiev, with a total area of over 2,5 mln sq. m., which can be implemented before 2012. But the main bulk of this projects can be put into service already in 2010. Though at present the projects are being implemented slowly, which is moving terms of market saturation away into the future.

The most successful shopping centers in Ukraine (data from network operators' survey)

Incidentally, the opening of SEC "Komod" on the left bank will be a bright event for Kiev inhabitants, Sergei Khomenko is confident. It is going to be a first fashion class shopping center for the left bank. Varied brands will be represented there, both renowned network Ukrainian operators and new ones. Its level is oriented to the people of the category "medium+" and higher. I.e., this facility is being positioned as the most elite complex upon the Kiev's left bank.

As a matter of fact, earlier on, the main trading activities were collected up on the right bank. "Everyone was bent on constructing shops as close to the city center as possible, on the main highways, so that to enjoy an opportunity of "capturing" large flows of potential buyers," Sergei Khomenko explains. - "These shops keep on being in requisition, however for an interesting complex' creation there are, basically, no appropriate land left in the center." Just because of that, the processes of further area redistribution will be going on in favor of SCs' placement in large "bedroom communities" and on the circular road, and not in the city center. For the next two years, a share of trading space in uptown city districts will significantly increase. I.e., if earlier the majority of population were forced to go onto the right bank to shopping centers ("Caravan", "Globus", "Arena"), now they will be able to shop without leaving the left bank.

One more trend, along with trade areas growth and increasing of SCs trade areas share in the uptown, is extending the Kiev shopping centers' format. During 2001-2004, newly built SCs' average size rising could be traced in Kiev, the Survey reads.

Interestingly, in the last year active development of the trade center market was going on in
the regions. The cause lies in that networkers are actively mastering their market segment, but quality areas are in short supply, and the majority of retail operators cannot boast of availability of a clear strategy of development. That's why, given the offering is appropriate, virtually every operator considers coming to any region's central city. The interest of networkers grew stronger towards the cities of Ivano-Frankovsk, Khmelnitskiy, Poltava, Sevastopol, Zhitomir, Nikolayev, Uzhgorod...New SCs and projects appeared in towns with population amount under 200 thousands: a first SC was opened in Alchevsk (the Lugansk region), some projects are assigned to Severodonetsk, Lubny, Shostka and other small towns.

As reported in the Survey, the leading tendency of the commercial property market in 2007-2008 remains the offer increase, on account of new shopping facilities being built. As of the 2007 year-start, over 80 shopping centers are known to have to be built (including as parts of multifunctional complexes), with a total area of over 1.7 mln sq. m. Thus, the number of SCs may increase 1.5-fold, and the total area - more than threefold. If at present in the regional capitals some 50-70 sq. m. of trade space fall at 1000 inhabitants, in 2008, given the declared projects are implemented, this indicator may grow twofold-threefold, and in some cities - four times -five times.

Only the question remains - whether they will be profitable. After all, consumer potential of some cities does not correspond to such an amount of new offerings, even taking into account the retail market growth and Ukrainians' loyalty increase towards contemporary trading modes. First of all it applies to Dnepropetrovsk, Kharkov, Chernovtsy, Nilolaev, Lvov, where particularly many projects of big SCs emerged.

than 30 percent. Out of them 30 percent are clothes operators. In 2006, the networker structure didn't change significantly: just maybe the share of clothes and catering operators had increased a bit, and, else, foreign companies, such as Praktiker, OBI, Auchan, Real, Imax, O'Key were actively getting familiarized with our market.

For example, Imax plans in 2007 opening its first cinema-hall in Kiev, and during next 2-3 years intends to "open up" Ukraine's large million-strong cities. The bright event is the appearance in Ukraine of the first clothes department store "Marks&Spencer", which is to open within SEC "Komod". Over 2 last years, several foreign networks have appeared in Ukraine, with an especially impressive share of Russian operators - "Dikaya Orhidea (Wild Orchid)", "Sbarro", "Krasnyy Kub (Red Cube)", "Shololadnitsa (Chocolate-lover)", "Arbat-Prestige", "Chili-Pizza" etc.

In particular, networkers account for the principal source of demand for quality trade premises. They, developing their own "web", experience lack for trading areas for extending their presence. In 2006, retail networks operating in Ukraine enlarged the number of their shops by 28 percent, as had been declared by them back in 2005. Leaders of the Ukrainian retail in 2006 had increased their turnover by 50-70 percent. According to the very networkers' schedules, in
2007, an increment of shops on average will amount 21 % y-o-y. In absolute values it totals over 900 thousand sq. m. of trade space.

The most successful center in Ukraine three years in a row is named "Caravan" - the opinion of 42 percent of network operators; at the same time 16 percent of them believe that good SC-project are absent in Ukraine.

By the way, the networkers willingly grow roots at the ground-floor shops along the downtown streets -and the so-called street-retail takes form. "Street-retail means separately standing shops of famous brands, companies' boutiques, which can be entered right from the street, for example, on Kreshchatik, Krasnoarmeyskaya, Lesia Ukrainka streets, as well as on the central highways," Sergei Khomenko elucidates.

Andrei Shabayev reckons that nowadays, the street-retail format remains on demand predominantly in the central part of the city, where large flows of pedestrians are observed: in particular, tourists visiting the historic part of the city, as well as Trading Network Population's increased well-being, retail market growth foster development of network operators. "They can be, by convention, divided into two groups: domestic nation-wide, working in several regions of Ukraine, and international. Also, such a notion exists as a city-scale network operator, which works only in a single regional capital. At that, a subcategory to international operators, for example, Russian ones, exists, who, except in Russia and Ukraine, nowhere are presented," Sergei Khomenko explains.

By the beginning of 2007, over 400 network operators in every product niche were present in Ukraine. For the last 1.5 year, their number increased by more city-dwellers who enjoy their leasure time at the center. And, though Soviet-related recollections say that we hardly knew anything else back then besides ground-level shops (except some department stores), street-retail in its contemporary format continues developing, and there are no prerequisites for saturation of this market segment so far, the specialist states.

According to data of Dmitriy Siniukov, Kiev's saturation with SCs remains as high now as in 2006 and reaches a level of 90-100 %. The share of free premises amounts to some 1 %, being situated primarily inside unsuccessful projects.

Trading space market deficiency can be scanned through the trend of ever increasing rental rates. Their highest values in Kiev have long ago outrun the ones in Eastern European capitals - Warsaw, Budapest and Prague.

Rent for trade areas in a SC depends on the letter's classification level, which is determined by its identical compliance with the European standards and by its residence.

For example:
• $150-200 per 1 sq. m. - "Globus", "Mandarin Plaza", "Arena City", "Caravan";
• $100-150 per 1 sq. m. - "Metrograd", some units of "Kvadrat" network, "Ukraina", "Gorodok";
• $60-80 per 1 sq. m. - some units of "Kvadrat" network, TSUM, "Magellan";
• $40-50 per 1 sq. m. - SCs in remote districts. UTG's specialists surmise that, along with the
growth of trading space amount, rental rates are supposed to decrease, finally approaching the European standards. But this is just for the long-run. However that may be, the 2007 market will enjoy its growing phase. The demand for commercial property will keep on rising. Reasons: further economic growth, rising confidence in Ukraine, appearance of new, including Russian, network operators, as well as conserved shortage of specialized trade areas. The next stage of SC development will feature an enlargement of a SCs average size, the latter's recreational sector share going up, as well as an increase of peripheral SCs share and functioning of anchor operators.

Short News - Praktiker In Ukraine Already

Pretty silently (I mean in whole Ukraine point), but this opening has been done.

First Praktiker' DYI store is located in Makeevka, Donetsk region. The total area of this store is 9790 sqm, where 8354 sqm GLA and 295 parking lots. Total investment amount was about EUR 11.5 mln. I took a very short time - the construction was started at April 2007.

Company intends to open another 4 stores at 2008.

Kyiv Ex-Mayor Omelchenko - Kyiv City Council Decisions On Allocation Of Plots Without Auctions Illegitimate

From Ukrainian News

Former Kyiv city mayor and Verkhovna Rada deputy of the Our Ukraine People's Self-Defense Bloc faction Oleksandr Omelchenko considers that decisions of Kyiv city council on allocation of land plots for construction without holding of auctions are illegitimate.

Omelchenko disclosed this in an interview to the Contracts magazine.

He reminded that when he was the mayor, in September 2005, he signed the order on auctioning-off plots to later refuse from allocation of land by the city council.

It was planned that allocation of land without holding auctions would be undertaken only in the case potential investors had managed to submit bids before September 1, 2005.

However, Omelchenko said that current Kyiv city mayor Leonid Chernovetskyi did not cancel the decision of his predecessor and resumed old scheme of land allocation.

«In fact, all recent decisions of Kyiv city council are illegitimate, as my order on holding of land auctions is still in force,» Omelchenko said.

Besides, he is sure that to terminate unlawful land sales by Kyiv city council it is necessary to have political stability.

As Ukrainian News earlier reported, in September 2006, Kyiv city council amended temporary order of plot purchase via competition, excluding the item foreseen allocation of lands only to those investors, who had submitted their bids before September 2005 and bids, which had not been considered by the city council before 1, 2006.

I guess this post is slightly wrong spelled, but that's just a source copy. Hope you will clear with it.

New CEO In Cushman&Wakefield Kiev Office

Robert Grant has been appointed as a CEO of Cushman & Wakefield office in Ukraine.

He has significant experience in the banking and financial areas, as well as in real estate in Ukraine and Russia. Before joining to Cushman & Wakefield, he held CEO position i well-know Midland International (just remember Midland F1 Team) is involved in real estate investment in Russia and Ukraine, as well as managing director in investment banking ING Barings, where he was responsible for Central and Eastern Europe development; finally a chairman of ING Bank Ukraine.

This is a worthy substitute for Bud Moore who was tragically died a couple month ago.

New JV for RE in Ukraine

Marbleton Property Fund, Alfa Bank Ukraine and Griffin Investment Partners have founded a joint venture named Metropolitan Properties to manage commercial real estate projects.

Investment strategy is portfolio of high-yielding assets, including new development, adding value to existing properties, reconstruction, proper tenant mix. Every part of this vehicle bring EUR 10 in equity.

Marbleton Property Fund specializes in investments in real estate, with total of USD 321 mln. under its management.

Griffin Investment Partners (GIP) is an investment company involved in real estate projects in Central and Eastern Europe, it manages over EUR 360 mln. from institutional and private investors.

Morarorium Comes Back

Lytvyn group in parliament is initiating prolongation the moratorium on sale of agricultural land until 2010.

The relevant draft law, which Parliamentary Deputy Kateryna Vaschuk of the Lytvyn Bloc prepared, has already been registered in the parliament. Lytvyn Bloc favored a land inventory with the aim of determining who actually own the land and the legal basis on which it is owned.

Early, parliamentary deputies Petro Symonenko, Oleksandr Tkachenko, and Volodymyr Matveev from Communist Party recently proposed that the parliament extend the moratorium on sale of agricultural land from 2008 until 2011.

President Viktor Yuschenko is confident that the moratorium is the cause of corruption on the land market.

The Ukraine Construction Qualitative Study 2007

This report is kindly presented by Jiri Vacek, who is the leader of construction research project, performed at the University of Economics in Prague and sponsored by KPMG Czech Republic.

To obtain this report you have to send me your company name, business sector you operate and email.

More info

Sorry For Silence

Dear readers!
It's all OK with the blog. Just a huge amount work to do. But I promise to find time slots to go ahead. Thanks for all of you for support.
Regards, Sergey.

NEST And Double W Go To The Close Cooperation With Rezidor

Double W and NEST plan until 2010 to start five projects in Ukraine for the hotels development. Slotted to build two 3-star-hotels, two 4-star and one 5-star one. Then, all these projects will be under the management of the Rezidor Hotel Group. Also, Double W plans to invest in improvements and infrastructure of ski resort in Yalta.

Earlier Rezidor Hotel Group signed with the Double W and NEST contract, which Rezidor Hotel Group will manage the hotel complex Radisson Paradiso Big Yalta in Yalta with of 44 000 sqm total area which will be provides by two hotels (4-star and 4+) for the 550 rooms, 11 bars, restaurants and cafes, 4 pools and SPA.

Currently, the draft is under way. Construction of the first phase of the complex will be completed by summer 2009, and the second one by the summer of 2010.

Monthly Economic Monitor Ukraine, September - October 2007

Monthly Economic Monitor Ukraine from Institute for Economic Research and Policy Consulting. Here is September and October issues.


October 2007

• Preliminary election results: five parties will be represented in the new Parliament.

• Real GDP growth decelerated to 7.5% yoy between January and August due to slowdown in agriculture value added.

• The President blocked the privatisation of Odessa By-Port Plant and suspended the sales of oblenergo shares.

• Current account deficit widened to USD 2.0 bn (3.4% GDP) in the first half of the year.

• Central fiscal deficit went down to 1.0% of GDP in August, primarily due to under-execution of expenditures.

• The Draft State Budget 2008: social standards are to be further increased.

• Inflation accelerated to 14.4% yoy in September.

• First Internet transaction took place at the PFTS.

September 2007

• Parliamentary election campaign is going forward.

• Real GDP grew at 7.7% yoy between January and July backed by still high agricultural growth.

• The subordination of the National Commission on Communication Regulation remains unclear.

• According to the Derzhkomstat, the positive service trade balance started to shrink due to lower volumes of gas transit through Ukraine.

• In July the central fiscal deficit increased to 1.2% of GDP.

• Although reduced, unemployment is still more widespread among females, youth, and rural population.

• The NBU tries to impose new capital controls.

• Inflation accelerated to 14.2% yoy in August.

Rezidor Wants To Cover Ukraine

Rezidor Hotel Group, an international hotel business operator with headquarters in Brussels, plans in future to manage hotels in all of the largest Ukrainian cities, Group Vice President for Business Development Arild Hovland has told the press.

"Talks [on the management of hotels] are being held in cities like Odesa, Lviv, Donetsk, Kharkiv, Dnipropetrovsk and Zaporizhia," he said at a press conference in Kyiv.

He said that the group is considering a possibility to manage three-, four- and five-star hotels under the Radisson SAS Hotels & Resorts and Park Inn brands.

Hovland also said that Rezidor Hotel Group plans to realize its plans irrespective of hosting the European Football Championship 2012 by Ukraine, as the group sees large potential in Ukraine.

At present, Rezidor Hotel Group manages two projects in Ukraine - the Radisson SAS Hotel in Kyiv - and soon it will open a second Radisson SAS Hotel near Kyiv's Boryspil airport.

New Forecasts From World Bank

The World Bank expects that GDP growth in Ukraine in 2007 will be 6.7%, while earlier the forecast was 6%. According to a World Bank report, the index of consumer prices is expected to grow by 12.5% in 2007, though the bank's previous forecast was 9.7%.

According to the bank, in 2008, 2009 and 2010, Ukraine's GDP is expected to grow by 5.5%, 5% and 5% respectively. Inflation in these years is expected to be 9.6%, 8.3% and 7.4% respectively.

Earlier this year, in July, the World Bank reviewed its forecast for Ukraine's real GDP growth in 2007 upwards from 5.5% to 6%, while the inflation forecast was changed from 10.9% to 9.7%.

Ukraine's real GDP growth was 7.1% in 2006, while in 2005 it was 2.7%. The government forecasts a GDP growth slowdown to 6.5% in 2007, along with a fall in inflation from 11.6% to 7.5%.

Ministry of Economy have also improved their GDP forecast: in October their forecast for GDP growth for 2007 was 7%, while in July it was 6.9%, according to a posting on the
Ministry's official Web site. However, the ministry said that the inflation forecast for 2007 had risen in October to 11.6% from 8.6% in July.

According to an October consensus projection, GDP growth in 2008 will be 6.4% with 9.8% inflation, while in July 2007 these figures were 6.4% and 7.9% respectively.

The exchange rate by late 2007 will be UAH 5.05/$1, while in July it was forecasted at UAH 5.07/$1, and by late 2008 it will be UAH 5.06/$1 (UAH 5.11/$1).

At the same time, World Bank experts stress that it would be expedient to make the exchange rate of the hryvnia, Ukraine's national currency, more flexible, as the revaluation of the hryvnia could slow the pace of inflation in the country.

Although Ukraine was possibly not ready for a shift to a free floating exchange rate, the revaluation of the hryvnia could, under current conditions, treat the fever on the markets.

Short News - new METRO Cash&Carry in Chernivtsi

Another one METRO was opened in Chernivtsi, Western Ukraine. This brand new shopping center has K11.8 sqm total area and K7.4 GLA.

METRO has bought 4.25 ha land plot for own property form the secondary market. Total funds invested are UAH 117.3 mln (USD 23.2 mln.) includindg land purchase, construction an equipment)

Ukraine Retail: $500M Investment For BRYSNYTSYA Chain

News Analysis: The Economist Intelligence Unit Limited New York, New York, Monday, Oct 15, 2007

Diversified holding group SCM Holdings has announced that it plans to invest around up to US$200m by 2013 to expand its recently launched retail chain, Brusnytsya, across Ukraine to as many as 500 stores.

SCM entered the retail sector earlier this year with the opening of its first Brusnytsya outlets in the Donetsk region in eastern Ukraine. Currently the company operates nine stores through its subsidiary Ukrainskiy Retail.

SCM explained that it plans to operate 20 stores by end-year, and that by end-2008 its retail network would reach 80 stores across the country. In the first phase, Brusnytsya stores are being built in a smaller format of 300-400 sq metres. Phase two calls for the construction of supermarkets of 800-1,200 sq metres.

SCM is Ukraine's largest holding company and one of the country's largest domestic investors. For the 2006 period, SCM posted consolidated pre-tax profit of US$1bn. Sales reached over US$6.7bn, a nearly 19% rise over the previous year. The group's assets reached over US$11.4bn at end-2006.

New B+ Office Building In Lviv

Commercial real estate in Lviv growth with significant trend. So, in January 2008 is opened new office center Optima Plaza on Nauki str.

Total area is more than K7 sqm. First 2 floors are situated for retail premises (2420 sqm) , while from 3 to 10 floors there are offices and 11 floor for conference facilities.

The developer is Optima Capital , who has been an investor for Opera hotel in Lviv.

Yuschenko Against Building Up Territory Around Olimpiiskyi Sport Complex

From Ukrainian News

President Viktor Yuschenko speaks against building up the territory around the national sport complex Olimpiiskyi.

This follows from a statement of the president’s press service, a copy of which was made available to Ukrainian News.

Yuschenko believes that Olimpiiskyi is a national sport facility that will serve Ukraine many years after UEFA Euro-2012.

The president noted that the state should consider the sport complex with all reasonable attitudes.

«If we place stakes that this arena has national prospects, and we should give it a second life, I am confident that we should do everything possible to clear the area around it,» the press service cited Yuschenko as saying.

The president insists on taking down the object built on the territory adjacent to the sport complex.

«The country and city residents should see the territory adjacent to the national sport complex without any constructions,» Yuschenko says.

In the president’s opinion, this question should be settled via dialogue between the investor and authorities.

As Ukrainian News earlier reported, UEFA demands demolition of the trade and entertainment center in front of the national sports complex Olimpiiskyi for holding the European football championship finals in 2012.

In February 2006, FIFA warned it would ban holding of official football matches at Olimpiiskyi sports complex in Kyiv, given that construction works of the center near the stadium continue.

The construction company Yudzhyn considers that all reports of authorities, FIFA and UEFA on necessity to terminate construction of Troitskyi Trade and Entertaining Center ("Olimpic plaza") in front of Olimpiiskyi National Sport Complex are political.

In August, the Kyiv city council decided to study options for paying compensation Yudzhin developer company for the trade and entertainment center.

US Investor Olimpus Capital Intends To Invest ,Too

US based Olimpus Capital announced its intention to invest in commercial real estate in Ukraine. The total investment would be about USD 100 mln.

The company is going to invest in development shopping and leisure centers in cities with a population exceeds 1 million people. Investment program counts for five years (until 2012). The first phase of the development efforts will search land plots for the shopping centers construction for K50 sqm each.

Olimpus Capital has been established in 1998. The main focus of investment portfolio is real estate and other high profitable industries. Now, an investment portfolio of the company aboutUSD 1,5 bln.

New Land Rent Rate Proposals For Kiev City

The Kiev Department for land resources has urged Kiev City council to approve standard land rent rate from 0.3% up to 10% valuation of the land.

The rent for land under residential buildings is proposed to be the lowest - 0.3%, while the highest rent rate will be for land utilizing by alcoholic beverage companies, metal companies, retailers sellers, open markets for non-food and automotive goods.

Financial institutions and gambling will pay 10% rent, too.

The rent is set at 3% for meat and diary manufacturing companies, as well as ice-cream, sugar, canned vegetables and fruit.

The rent is set at 5% for hotels, bars and cafes, 6% for restaurants and tourist agencies, 9% for mobile and Internet service providers , 8% for advertising companies, 1.5% for state medical and educational services.

The Department asked The City council to cancel its resolution of December 2000 setting land rent from 0.03% to 6% of standard valuation.

Petrovka Area Waits A New Shopping Centre

Within next 3 years nearby to Petrovka subway station may appear Petrovka shopping center with K187 sqm total area. The project drawings was approved at the last City planning council

Petrovka shopping centre will be built instead warehouses and book open-market, between Moscovskiy avenu and Verbov street. As described author of concept, Polish architect Anzhey Owczarek (he also designed Alta-Center), building will be 6 floors: 3the 3 floors of shopping area and 3 for underground parking. GLA is planned a K79 sqm. This is 2.5 bigger then Karavan shopping center has (K32 sqm respectively).

The first floor of the center located underground food supermarket, will be accessible directly from the subway. The two lower floors will serve parking for almost 2 000 cars.

There will be a new book market (K8 sqm), cinema multiplex for 15 rooms, restaurants, food courts, as well as bowling.

Construction works is scheduled to begin in spring 2008 and should be completed over two years.

Commercial Announcement

Land plot for sale

Location: Odessa city
Size: 13 ha
Zoning: Retail and social development
Title: Private property
Price: USD 110/1 sqm

write: kalinin.sergey@gmail.com

Dragon Capital About Ukrainian IPO Trends

Dragon Capital, Ukraine's top investment bank, expects initial public offerings from the country to more than double to $1.5 billion in 2007 and to reach $3 billion next year.

The Kiev-based investment bank, which accounts for about one-third of Ukraine's equity capital markets transactions, has completed seven IPOs this year, raising $500 million in total.

Last year, Ukrainian issuers raised a combined $482 million via initial public offerings.

"The pipeline is so full that we need more people to examine the deals," Brian Best, an investment banking director at Dragon Capital told Reuters after attending the Ukraine Capital Markets Forum in London.

"Investor appetite is still strong for Ukraine deals. The credit crisis doesn't have a huge impact, as investors look for high yields and fast growth," said Best.

Source: Reuters UK

One Line News - October 10

• Intermarket company (Lviv) is going to start operations for new K96 sqm shopping center at 2H 2008
• Kiev City Planning council did consider master plan for the last large territory (Osokorki) at the Left bank for 5 mln. sqm of residential construction
• Rizidor Hotel Group intends to open 4 brand new hotel until 2011 - one Radisson SAS and two Park Inn in Kiev and one hotel (brand is unknown yet) in Crimea
• Baltic Development is developing a new K 46 sqm logistic complex in Borispil, 13 km far from Kiev with USD 45 mln. total cost
• Kiev City Planning council has approved a additional area for Bolshevik shopping centre expanding more than K25 sqm
• XXI Century has announced its Net Asset Value - USD 1.498 bln, 1Q 2007 EBITDA - USD 27.27 mln.

Kiev Region - Current Land Prices, October 1

- Kiev-Svyatoshin district - $90.19/1 sqm;

- Obukhov district - $73.31/1 sqm;

- Borispil district - $57.30/1 sqm;

- Vyshgorod district - $54.73/1 sqm;

- Brovary district - $45.88/1 sqm;

- Vasilkiv district - $42.98/1 sqm;

- Makarov district - $22.51/1 sqm;

- Borodyanka district - $23.62/1 sqm.

- Fastov district - $10.97/1 sqm.

Valid for single-family construction, master planned communities.

Using source: SV Development

Some Info From Seven Hills About Development In Progress

Seven Hills (Kiev), a subsidiary of Scorpio Real Estate Group (Tel Aviv), a multinational group of developers, intends to invest more than USD 1 bln. in housing, offices and industrial property in Ukraine. Funds will be invested in the construction of residential complex Park Avenue in Goloseevskiy district, mixed-use retail and office center - Podil Center and the Airport City, mixed-use complex in Boryspil.

Their plans also include construction of suburban shopping mall and toll roads that would connect the Polish border with the Donetsk region and Russian border with Black Sea ports.

Currently, the company is involved in 3 projects: Park Avenue, Podil Center and City Airport.

Park Avenue - residential complex, which will be located in front of Goloseevo park in Kiev on the 4ha land plot. The total area is K 200 sqm., including K 120 of housing, K 10 sqm – the offices. The complex will include a sports centre, swimming pool, shopping center, underground parking, restaurant, bar. Now the site is being prepared for construction.

Podil Center is located near Kyiv - Mohyla Academy and will be a combination of A Class offices (K22 sqm.) and the K 30 sqm. shopping center. The company intends to begin construction through 14 months.

Airport City will be located on the 50 ha land plot near the Borispil highway.

According to the Seven Hills’ CEO, Ari Schwartz, the PB period for Park Avenue is 1.5-2 years, Podil Center 3-3.5 years, City Airport 4.5-5 years respectively .

All land plots for the development are under the long-term lease, in particular for the Park Avenue construction - for 5 years, Podil Center for 10 years, and Airport City in 49 years

Main Suspect On Elita Center Fraud Is Detained In St.Petersburg

The Ministry of Internal Affairs has confirmed that the detained in St. Petersburg person is really Alexander Volkonskiy, the founder of the well-known "Elita-Center", who was wanted as suspected concerning the biggest fraud in the Kiev real estate market.

"The information is checked. I can say that we have received confirmation that he is" said Mikhail Korniyenko, temporarily Minister of Internal Affairs, commenting the detention in St. Petersburg.

According to investigation information, the total amount of stolen funds is almost USD 100 mln.

Hyatt Regency Kiev - Direct Answers

I'm glad to present you a short interview with Irina Pshenna, recently Commercial Director of Hyatt Regency Kiev. It has been taken at August 2007 when Irina was charging for hotel. Now she is Director for Hotel Development for FUD (First Ukrainian Development). By the way, Irina perhaps the only one specialist who holds Cornell University degree for Hotel management.

I've planned to release this interview simultaneously with a hotel opening but there were much work for Irina, you know. Anyway, I hope it would be interesting for you.

S.K. What is Hyatt's market advantage in Ukraine?
I.P. Hyatt Regency Kiev is the first five star international hotel in Ukraine. Located in a heart of Sofievska square this 234 luxury rooms hotel provides extensive conference and banqueting facilities for any occasions. The hotel offers over 1,000 square meters of meeting and function space including a 371 square meter ballroom, 8 meeting rooms and 3 board rooms. All facilities are equipped with state-of-the-art technology. The Regency brand has the specious product as Regency Club with separate check-in for business guests and . The Hyatt Regency brand is the oldest brand in the Hyatt hotel chain.

S.K. How do you forecast a hotel market developing in Ukraine within next 2-3 years?
I.P. Before EURO 2012 it will be a huge hotel development within 2-3 years, fastest when it was previous 15 years in Ukraine. All the investments will be done by Ukrainian and foreign private investors, not governmental. Most of the international hotel chains are very interested in Ukrainian market with a high RevPar and AvRate as well as occupancy in all of the hotel business and leisure segments. But die to unstable political situation and as a result high risque economical situation none of them is ready to invest in Ukrainian market. The main players are the Russian investors who are already some experience in this field in Russia as well as foreign private foundation who are ready to take a big risque awaiting a fast return of investment and low capitalization rate ( Ukraine in 8-10 years compare to Europe and States up to 20 years).
Intercontinental Hotel Group is announced already 2 hotels in Kiev: Intercontinental Golden Dome and Holiday Inn. Radisson has already 2 projects: Radisson Yaroslavov Val and Radisson Airport under development. Marriott is actively looking for the projects. Accor group announced Sofitel in Kiev and a first brand which is ready to develop destinations with 3-4 star product as Novotel and Ibis. Hilton is going to open the first hotel in Kiev in the end of 2009.

S.K. Why the office and retail markets are more booming now rather than hotel one?
I.P.Due to the fact that hotel industry is more specific one and return of investments is longer (7-8 years) for 4-5 star sector comparing to offices and trade centers which is around 5 years. Main reason is the absence of professional advisors and expertise in this field at the market.

S.K. Why international investors should pay more attention to local opportunities?
I.P. International investors have already some expertise and background in development of that type of real estate. It is a big advantage to Ukrainian investors which are staring to learn that opportunity and sometimes it takes years to learn the ways and strategies for development.

S.K. How do you estimate market share for well-known international brands in period till Euro-2012?
I.P. I think that the main players will be Radisson with expertise of Radisson Yaroslavov Val doing very well at the market and Intercontinental Group which is very pro-active and open for Ukrainian market. As for other brands my feeling are quite pessimistic as Hilton and Hyatt are to much luxury for Ukrainian market to build second property.

S.K. What is the price policy in Hyatt hotel?
I.P. Price policy is Euro 370,- up to Euro 410,- .

S.K. Irina, thank you for your time and information,

For further reference visit Hyatt Regency Kiev

One Line News - September 29

• The average price for hotel room in Ukraine - USD 300 - Yulia Stefanishina, Ernst &Young
• Cost of land lease in Kiev will be tripled up to UAH 382 for 1 sqm - Kievgorstroy ex-chairman
• Meinl European Land is gong to invest USD 1.2 bln in Ukraine until 2016
• Construction works volume has increased up to 14.5%n in this year
• Lviv authorities will sell 10 land plots for hotel development in 2008
• New retail chain "Miriada" starts from Dnepropetrovsk with first K11 sqm office-retail project at November 1

Biggest Deal In Kiev Commrecial RE Announced

Dmitry Firtash became co-owner of one of the largest Kiev commercial real estate operator - JV Mandarin Plaza which owns same name de-luxe shopping center, as well as Parus Office in the heart of the Kiev.

According to the sources, he is owner of Heritage Properties International AB, which is involved in the deal .

Firtash received 55% stake of the property. The deal amount estimates by USD 500-560 mln., which is an absolute top result for the local commercial real estate market.

25% of the shares sold by Vagif Aliev, Head of Mandarin Plaza' supervisory board, the rest by another private person. After closing of the transaction they both will come away from this business project, but that Aliev will retain in supervisory board as a member.

According to the TMM CEO Nikolay Tolmachev, cost of 100% shares of JV Mandarin Plaza is about USD 1.02 billion. "Thus, 55% can cost at least $ 560 million," he said.

Before that, the largest purchase was Globus shopping centre deal for more than USD 200 mln., closed by British fund London & Regional Properties .

Ikea Inches Closer To Land Deal For Store In Ukraine

Hot topic today: IKEA. There is another article from Kiev Post.

Ikea inches closer to land deal for store in Ukraine
By John Marone, Kyiv Post.

A multinational furniture retail giant intent on expanding its presence in Ukraine looks set to finally get land to build a store after years of delay.

IKEA, a Swedish conglomerate registered in the Netherlands, has been trying for more than three years to acquire a plot on Kyiv's left bank, where it wants to put up a $400 million shopping mall, but a dispute over the land has delayed the vast shopping mall project.

Now, IKEA is close to clinching retail space in Odessa. "Yes, it looks like we are on our way," Director of IKEA's Ukrainian office Frida Malmqvist told the Post on Sept. 12.

She said negotiations are still in progress for land in six different Ukrainian regions, but "we are currently most hopeful about Odessa." Malmqvist said the company is prepared to invest around $2 billion in these projects, but first has to get land.

IKEA had originally set its sights on launching Ukrainian retail operations at a wooded site on the edge of Kyiv, but the city has stalled approval, citing environmental concerns.

The plans for Kyiv's left bank include a family shopping center with up to 150 different retail and entertainment facilities.

The main problem in acquiring land in Ukraine, according to Malmqvist, is a shortage of adequate plots. IKEA seeks green areas on the outskirts of urban areas but close to main transportation arteries.

The task is complicated by Ukraine's moratorium of the sale of agricultural or forest land, which necessitates getting a waver from top officials.

Amidst the country's continuing political chaos, the question becomes: Who do you ask?

In July 2004, IKEA founder Ingvar Kamprad first met with now former President Leonid Kuchma to discuss the company's investment plans. In March 2005, Kamprad returned to Ukraine to meet with newly elected President Viktor Yushchenko.

It was during this visit, according to IKEA spokespeople, that Kamprad received "verbal approval" for the company's $1.2 billion investment plans.

But negotiations were stalled, as environmental groups, such as Ukraine's Greens Party, protested against developing the wooded area that same year. The city offered IKEA an alternative plot of land in another part of the city, but IKEA continued to pursue the left-bank plot.

Six years earlier, in March 2000, the furniture giant had opened its first store in Moscow, where it has pumped hundreds of millions of euros into building retail outlets surrounded by modern shopping malls replete with restaurants and recreational facilities.

"We are always looking for new places," Malmqvist said. "But we have still not given up hope of opening our first store in Kyiv," she added.

In the meantime, IKEA Ukraine is involved in another segment of the company's operations - buying and exporting locally made furniture. "We don't just open stores, we trade furniture as well to widen our income base," Malmqvist said.

Currently, IKEA Ukraine has around 20 employees in Ukraine involved in seeking out Ukrainian furniture makers that meet the international company's standards. The furniture is exported and sold abroad under the IKEA brand name.

IKEA launched its Ukrainian trading operations in 2005. "They are still very small compared to Russia," Malmqvist said.

IKEA has also operated a saw mill and furniture plant in western Ukraine's Transcarpathia Region for more than a decade, but is better known for its furniture outlets and the shopping centers it builds around them.

The Swedish company sells low-priced products, including furniture, accessories, bathrooms and kitchens at retail stores around the world.

Study About Corruption in Real Estate in Russia And CIS

Swiss Realty Group has completed a study on corruption in real estate market in Russia and CIS. The study was conducted by interviewing of Swiss Realty Group' clients and partners , as well as personal in-depth interview.

The experts were selected among investors, developers and constructors. About 17% of respondents planned to enter on the real estate market during the year, about 83% is already working in. Among the experts were representatives of large and medium-sized businesses that develop projects in different regions and sectors of the real estate market, with various capital structure.

The main research questions were related to corruption on the business matters, expert evaluation of the corruption level RE, etc.

Aaron Haber, Swiss Realty Group' Director of investment department said: "We had hoped to see trend to reduce dependence market from corruption, but found that most market participants are support the corruption, and was unable to work on the market without it. Many international investors have stops high level of corruption in Russia and CIS countries, but they do not change their plans to come on the market. "

According to Ilya Shershnev, BDM Director of the company, more than 50% of respondents believe that corruption costs them from 25% up to 50% of their profits, and 5-10% of business turnover. In general, Swiss Realty Group experts still tend to believe that the level of corruption in the real estate market in Russia, Ukraine and Kazakhstan remained steadily high.

The Rough Guide to Taxation in Ukraine 2007

I'd like to present you a "The Rough Guide to Taxation in Ukraine 2007" from Deloitte Ukraine. I see that Ukraine RE market newbies pay much attention to legal issues, as well as blog audience. For sure, for more mature players it could be quite well known, but additional information from respected source does make sense to know.

I appreciate to Brian Mulholland, Director of Tax and Legal - friend of mine and blog' reader, too. There is no advertising from my part. Just well done job.

Table of content

• Investment in Ukraine
• Types of Business Entities
• Taxation in Ukraine
• Taxation of Businesses in Ukraine
• Transfer Pricing
• Taxation of Cross-Border Transactions
• Taxation of Individuals
• Customs Duties
• Currency Control
• Contacts at Deloitte CIS

Monthly Economic Monitor Ukraine, August 2007

Monthly Economic Monitor Ukraine from Institute for Economic Research and Policy Consulting. Here is August issue.

Main topics:

• The President issued the fourth decree on the dissolution of the Verkhovna Rada.

• Real GDP growth remained at 7.9% yoy during the first half of the year.

• Current account deficit increased to USD 1.9 bn (3.2% of GDP) in the first six months of 2007.

• The subordination of the National Commission for Telecommunications Regulation was changed.

• Central fiscal balance turned into deficit in June and amounted to UAH 2.6 bn (0.9% of GDP).

• The Constitutional Court renewed social privileges postponed by the Law on the State Budget for 2007.

• Inflation accelerated to 13.5% yoy in July.

Raven Russia Seeks To Develop Logistic Park In Ukraine

By Jim Pickard, Financial Times, London, UK.

Raven Russia, the Aim-listed Russian property vehicle, is seeking shareholders' permission to develop a 1m sq ft logistics park in Kiev, Ukraine. The joint venture requires an EGM because the deal would be outside Raven's original geographical remit.

The shares rose 5½p to 96¾p as it said it had committed $1.9bn (£945m) to various projects. The group raised £453m in its 2005 flotation - and a rights issue in 2006 - to invest $3bn in Russian real estate.

Pre-tax profit of £32.1m (£4.5m) for the six months to June 30 was boosted by the revaluation of its investment assets. Net asset value per share rose from 106p to 110p.

IKEA Buys First Land Plot In Ukraine

This fact was announced by Per Kaufman, IKEA CEO in Russia and CIS . According to him, IKEA is in the process of acquiring land near Odessa. This info is pretty unexpected for me. I don't say that Odessa is wrong city for beginning, but company has spent great efforts to enter Kiev market that this step does seem a little bit strange. I'm not confident that Odessa is better place for massive launch. Although it depends form the location, We can be sure that they will select the best site ever.

Perhaps you remember that previously IKEA announced plans to buy land for the construction preferable in Kiev, Kharkov and Dnepropetrovsk. But, according to P. Kaufman, the company has not acquired the land in those cities. "Ukraine is not the easiest market to dealing" he added.

And from my point, this fact means that IKEA should buy land in the secondary market, while they would get the land plot from the local authorities, in Kiev, at least. And there isa definite problem with it, 'cause they want property which is regulated by Verkhovna Rada.

Anyway, if this trend is going ahead, we'll see IKEA not only in Odessa, I guess.

My Last Article For CEPIF

I come back and would like to present short market overview, prepared for CEPIF Year book by me and Gerald Bowers. So, your comments are welcomed.

Real estate in Ukraine in 2007
S. Kalinin, G. Bowers

The Ukrainian market investment climate and potential for foreign companies

There is no doubt that the potential of the Ukrainian Real Estate market attracts foreign investors. However, globally-recognized market players have advanced slowly in general and are only now taking concrete steps to move in with projects. Political risk has played part in this process, but it also takes time to adequately study a new market. Apparently this course has been finished, for more and more foreign companies have started appearing on the Ukrainian market. The profitability seen in Ukraine’s real estate projects makes the attendant level of risk palatable for foreign investors. The expectation of long-term growth for the economy is also an important point for those entering Ukraine. And though Russian businessmen have been investors in Ukraine and they have made some impact, the wholesale entry of foreign investors into Ukraine is only a matter of time.

Politics, Economics and Football

The President of Ukraine, Victor Yushchenko, considers political stability as the essential factor in the formation of a proper investment climate in the country. “I assume that if we wish to have a stable investment climate, first of all our country has to learn to provide a stable political situation”, the President said.

Nowadays, the developing market in Ukraine provides a wide range of opportunities for investors, and the commercial real estate sector ranks at the top of these options. Its main advantages are based on the fact that adequate investment rules have already been adopted, and in some ways, it is easier to enter the commercial real estate market than other segments of the economy. Also, this part of the market is well protected by the state regarding ownership and the respect of foreign investments. As a result the market is seen as largely having concrete and comprehensible rules of play that correspond with those used all over the world.

From the economic point of view the Ukrainian market is one of the most attractive in the world. Profitability in particular segments (retail, offices) is approximately twice that of the European Union, and on top of that, it features constantly growing demand. An annual 11-12 % yield is normal for the commercial property market and in some particular cases it can greatly outdo these rates. For instance, according to AT Kearney’s ratings, Ukraine’s commercial property market is 4^th in the world as for its attractiveness to investors, and this has triggered moves into the market by a lot of players such as IKEA, Auchan, Tesco, Carrefour, OBI, Metro, Real, X5 in their rush to obtain a place in a European country that has constantly growing purchasing capacity.

The European football championship is definitely one of the most important factors that will give an extra impetus to the development of the Ukrainian economy for some years to come, and the commercial real estate market will be at the forefront of this development. This fact is difficult to overestimate. Properly preparing for the event will require almost 1bn Euros in investments, and these investments will come from domestic players as well as from international developers greatly experienced in handling business in similar conditions throughout CEE. Thus a lot of well-developed companies will take the opportunity to step into the market. First among these will be the companies that can bring hotel and retail projects to the table, and especially companies with experience in infrastructure development. The core idea would be to suggest sound decisions and projects that will become lucrative to the investor and at the same time useful to Ukraine as an investment recipient. There will be a great emphasis put on experience as well as mutual benefit.

One should also mention that among the main problems on the commercial real estate market that ought to be kept in mind is the implementation of a single proprietorship register accessible to anyone. The lack of it remains one of the principal factors affecting the investment climate in Ukraine and the possibility of creating high quality investment projects. In Ukraine currently there is no single real estate register that contains all of the information about a property and the rights for it. As a result the investor can’t easily find valid data about the vendor’s rights for the property. Another problem is that, for instance, the land and real estate situated on it are considered as two different types of property and as a result the ownership rights for them are listed in two different registers. Altogether this hinders the investors, both domestic and foreign, from taking more active positions in the country.

Kyiv, Odesa and Beyond

From the geographical point of view the most profitable location naturally remains the capital of the country, Kyiv. There’s a high deficit of office space and the annual yield reaches 20%. However, Kyiv isn’t the only city to take into consideration. Investors are paying quite a bit of attention to cities with populations of over a million people such as Dnipropetrovsk, Kharkiv, Donetsk and Odesa. L‘viv, the largest city near the Polish border, will be particularly important during the European football championship. Also, investors are starting to be highly interested in the hotel business in Crimea and in the Carpathian Mountains.

At present western investors coming into the market are mostly concentrating their attention on the Kyiv market though they are still very aware of the rest of the country. Only experienced companies well-acquainted with Ukraine are taking on business in the countryside. Above all, investors have been interested in the eastern portions of Ukraine. The industrial portion of eastern Ukraine has a certain accumulation of capital. To this list we may also include some southern port cities such as Odesa and Mykolayiv. At the same time one should remember that the west of the country is characterized by agriculture, and the east is known for metallurgy and heavy industry. That’s why one finds greater capital movement in the eastern and central regions.

Odesa Oblast and Crimea are perennially among the most interesting to foreign investors. And the real estate market both for commercial and residential property is one of the most attractive for their investments. According to the volume of foreign investments, Crimea comes ninth after Kyiv City, and Dnepropetrovsk, Kyiv, Zaporizhzhia, Donetsk, Odesa, Kharkiv and L’viv oblasts. But Crimea attracts mostly Russian investors, which can be partly explained by historical events.

In Odesa, which is not only a resort city but an important industrial region with highly developed transport infrastructure, the preconditions for commercial property development were formed a long time ago. Interest in commercial real estate is steadily growing, and one can find Russian, Polish, Czech and Baltic investors there already. Retail projects in particular are doing well in Odesa. Though most retailers are focusing on the Kyiv market, the opportunities available to those who look outside the capital are enticing, and 24% of retail network operators interviewed are interested in expanding into Odesa, with only Dnipropetrovsk ranking higher.

Nationwide, the most wide-spread proprietorship forms of land development are buying lots through acquiring the State Act of Proprietorship, or leasing the land for a period of 49 years by signing a land lease agreement with the owner. Forms such as leasehold (mostly of buildings) and Public Private Partnership, though popular practice in the European Union, are not yet dominant in the Ukrainian development landscape.

Attractiveness of various real estate market sectors in relation to investment projects

Residential property - Quick returns. Per capita living space half of western Europe. Local experience in this sector exists.

Retail - Great need for the development of retail spaces in cities with more than 200-300 thousand people. A first generation of trade centers exists. Highly developed retail networks within the country. Increase of personal incomes being felt.

Hotels - Shortage of good hotels. Increasing numbers of tourists and businessmen coming to Ukraine.

Warehouses (logistics corridors) - Beneficial geographical position of Ukraine. The development of warehousing has been triggered by the development of trade spaces.

Office property - Mostly concentrated in Kyiv where there’s a serious deficit of quality supply. A lot of projects to be implemented in Kyiv in the next several years.

According to the Ukrainian Investment Survey 2007 done by the Adam Smith Institute, foreign companies characterized the investment climate of Ukraine in the following way:

63 % of interviewed investors think that Kyiv has the greatest potential and the most attractive investment climate in Ukraine. 11 % preferred Donetsk, 10% Dnipropetrovsk, 5% Kharkiv, 4% - L’viv, 3 % - Odesa. The remaining oblasts attract only 5 % of investors.

In Ukraine the most attractive branch for investors is also Real Estate. It got 44 % of the votes; the second-favorite business is retail trade (15 %) and only after that - financial services (13 %).

The survey was held in February 2007 with 250 Ukrainian and foreign companies.

The Ukraine Market by Segment

Office property

The annual yield of Ukrainian commercial property investment is up to 10-15 % while markets of Poland and Czech Republic see 6 % less. To totally cover the invested money in Kyiv office property takes from 3 to 5 years while investors in European countries have to wait 12-15 years, which becomes a great advantage to foreign companies building office spaces in Ukraine.

Economic growth, reflected in positive trends for macroeconomic indices and an increase in the volume of foreign direct investment into the economy of Ukraine, has caused an even greater mismatch between supply and demand, particularly regarding A class business centers. This has resulted in a 17-33% increase in rents in A and В class business centers respectively, indicating one of the lowest vacancy rates, 1.7%, in Europe.

Foreign developers investing into office property may see high income but not as quickly as with a residential property investment, for instance. However, after delivery, the owner may sell it as a working business and see even higher income.

The increase in business activity that has been observed in recent years has led to very high demand for office property. Accordingly, this has become an incentive to investors and developers to bring about projects in this sector of real estate. The retail and office property segment, with its high rental rates and low supply of quality office spaces, will remain the top issue for investors in the short-term period.

Over the last 2-3 years one may observe that foreign companies have been buying active business centers that are already operating and that are filled with tenants. This is due in part to the fact that it’s much cheaper and certainly easier in Ukraine to buy an existing object than to get the land, to settle all of the issues regarding documentation, fill in other gaps such as project management and finally start building. Thus about 80 % of all office centers at the moment of being bought from domestic companies were ready to be delivered to the market or, in the case of older sites, were ready to undergo reconstruction. And only 20 % of Kyiv’s office centers were built from scratch by foreigners.

The demand for purpose built or dedicated business centers in Kyiv has continued to grow primarily due to the influx of foreign companies. These companies account for 71% of the tenants in class A and B+ office centers in 2006 in comparison with 62% in 2005. As of mid-2007, the vacancy rate for class A and B+ offices is 1.7% in comparison with 3% in 2005, confirming a continuing shortage of high class offices. There is also a trend now for domestic firms, especially business and financial services companies, to upgrade to better locations when possible. This tendency should continue for several years to come.

Retail premises

Retail projects in Ukraine are quite attractive for investors, and investments are completely covered in 5 – 8 years, or about half the time of the European average. Unlike warehousing and specialized industrial projects, domestic developers have some experience in meeting the requirements of building modern retail centers.

A look at 2006 shows how the retail market is evolving. The sale of Piramida – the first sale of a modern retail object in Ukraine - gives an example of yields, and the fact that 45 000 square meters of retail premises was delivered, both point to increasing and unsatisfied demand on the part of retailers. Taking into consideration the rise in the country's economy which in turn is increasing per capita income, developers expect the high demand for retail real estate to be maintained for several more years. The year 2007 has been characterized by the increase of developers' attention to the oblast centers of Ukraine though the retail real estate market in Kyiv remains undersupplied.

During 2005, Dnipropetrovsk Oblast led retail real estate development. Odesa oblast was the market leader for 2006. According to forecasts, L’viv Oblast should become the next hot spot for retail real estate development in Ukraine. A number of regional retail chains, such as "Intermarket" (L’viv), "Amstor" (Donetsk), "Tavria B", "Ideal" and "Kopeyka" (Odesa), "Soyuz" (Chernihiv) have declared their expansion intentions including the Kyiv market. It can be assumed that the tough competition and the shortage of vacant land plots in Kyiv itself will become a limiting factor, though building just outside the city limits is expected to pick up.

With the entrance of large foreign retailers on the Ukrainian market, the appearance of new formats and the strengthening of competition between domestic and foreign players is certain, and the need for purpose built retail sites will only grow.

Warehousing and logistics

Considering the fact that the warehousing market in Ukraine and in Kyiv in particular has just begun to develop it’s difficult to estimate its turnover. According to data from DEOL Partners, in the beginning of 2007 the capital’s supply of adequate warehouse premises meeting international requirements was about 184 000 square meters, despite a market capacity of about 0.85 – 1 million square meters. Class C and D class warehouses provided 70 % of the market space available. And this is despite constantly growing demand.

At the moment, all segments in Kyiv’s commercial real estate market, like that of Ukraine in general, are attractive to investors as the market is undergoing a period of high-speed investment development, but in 2007 the logistics segment is clearly becoming a favorite.

By the end of the next year developers hope to bring to market 4 to 6 warehouse complexes, with a total area of 230 – 370 thousand square meters. However, in 2007 only one A class complex, with a total area of 27 000 square meters is being put into operation. Major delivery slippages are the norm, especially for this market segment. The warehouse property market is the least developed major segment in Ukraine. There are a scant number of professional warehouses, so the potential for this segment is high. At present the potential demand for warehouses in the capital is a million square meters with 20 % an annual increase expected. The annual percentage yield is 12-15 % compared to other CEE countries, where it has dropped to only 5-10%).

In the next several years there could be built not more than 300 thousand square meters of modern sophisticated warehouses but upon the condition of realization of all declared projects at the moment, the influx of new investors on the market and growth of Ukrainian developers’ interest in this segment. In 2007 – 2008 the supply may become 400 – 500 thousand square meters but a lot of specialists are not so optimistic and call it in question. Nevertheless, disregarding its present lagging far behind the rest segments, real estate market analysts are unanimous as for booming development of this segment in the nearest future as western operators such as Ramstor, Auchan, OBI, and Praktiker have stated their intentions to come into the Ukrainian market within the next 2 years.

There is room for anyone who wants to enter the warehousing market, as the present demand for professional warehousing facilities exceeds the supply by a factor of two. Domestic developers do not have as much experience in the segment as in office or retail development, and foreign developers should take this into consideration when looking for a domestic partner.

As of the beginning of 2007, rental rates averaged $10-14/m² monthly, excluding VAT. The rental rates depend on the location of the warehouse, infrastructure, technical charac­teristics and range of services provided. Along with the high demand for warehouse complexes, there has been a noticeable tendency for rental rates to increase.