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Tuesday, October 20, 2009

Kiev Office Market - Fall 2009

According to CB Richard Ellis, from January to September 2009 the number of deals on office lease has decreased compared to the same period last year, at least twice. This is confirmed by Colliers International, adding that to date more than 90% of transactions are due to migration of tenants from one office center to another one.

Now many are trying to rent in a prestigious office spaces, located in CBD. In particular this applies to the pharmaceutical, FMCG and IT-oriented companies working with offshore partners, as well as representative offices of foreign companies that were least hit by the financial crisis.

At Colliers International argue that because of this trend, A class vacancy is now less than 10%, whereas in the 1H 2009, it reached 15-20%. In some properties, for example, Leonardo 2nd phase, Prime or Podol Plaza, almost no vacant space left.

In B and C class average vacancy rate, grew from the beginning of the year with a 5-10 to 15-20%. Most affected outdated and the poor quality office centers, where there outflow is significant.

Situation is even worse with the unclassified D and E properties, where vacancy has increased since the beginning of the year from 18 to 25%. The most tenants such offices on the first floors - are banks, insurance offices, telecommunications companies, beauty salons - suffered from financial crisis stronger than other companies.

This fall in A, B and C classes most demand space is 100-150 sqm, whereas a year ago there was a strong demand for 2500-1000 sqm. That's the fact many companies have reduced the number of staff and no longer need large spaces.

Increased competition for customers has forced the owners of office property slightly lower prices for rent. If in April 2009 base rent for A Class space estimated as USD30-40/1 sqm - now uSD25-38/1 sqm, USD18-25/1 sqm - now USD 15-22/1 sqm for B class spaces and USD12-18/1 sqm - now USD9-13/1 sqm for C class respectively.

Owners of office centers are also ready to fix the base rate at UAH with fixed USD exchage rate with volatility no more than 15%. If it exceeds this figure, the UAH rent rate should be reviewed.

In turn, tenants are now trying to sign non-breaking lease agreements for a term from 5 to 7 years, offering the fixation of current base rates and penalties for the break up. But to get good terms is possible for limited number of tenants - primarily in the business centers, whose owners want to sell property in the next 2-3 years. Others agree to sign not more than 1,5-3 years with a subsequent renegotiation.