Commercial real estate trends in Ukraine
There is no doubt that the Ukrainian retail real estate market is changing. What are these changes and what factors influence them?
The factors behind change
It is worth noting that retail trade is one of those markets in Ukraine segments that is developing dynamically. Store chains actively open new shop-points and international retailers enter the market. And this cannot but affect the developers actions who always look for new opportunities to build shopping centers. So what are the main trends in the field of commercial real estate expected in Ukraine in the future?
As a matter of fact, experts predict an even more active development of retail chains. This is a trend of the last few years, in which both Ukrainian and foreign retail operators are involved. If we talk about international retail, the Turkish chain LC Waikiki and the Polish LPP group, which owns the brands Reserved, House, Mohito, Cropp and SinSay, stand out the most on the Ukrainian market. Purely Ukrainian chains are Intertop Ukraine, the fashion brand Vovk and the Silpo supermarket chain – the last one has become one of the important tenants in shopping centers.
EVA and Varus, owned by Ukrainian businessman Ruslan Shostak, are remarkable examples of this trend. Last year was a bang-up for them. For the first time throughout the networks’ existence, the trade exceeded a billion dollars. So 2020 has become a year of active development.
New retail operators show up on the market
Of course, the uprise of a new retailers within such conditions is reasonable. Moreover, the majority of them are international. Thus, in 2018, the Swedish clothing department store H&M, Turkish Koton and De Facto, the Spanish brand of household goods Zara Home and the Japanese Usupso entered the Ukrainian market. In 2019 the French company Decathlon kept the torch burning – it has already opened two stores in Kyiv. This was a year-long slowdown in the rate of new brands entry into the Ukrainian market.
However, 2020 has demonstrated the readiness of global brands to show up on the Ukrainian market. The Swedish Ikea is undoubtedly the highly anticipated one. If the Ukrainian economy goes on getting boost, analysts expect that Ikea’s example will be followed by other retailers, which are not yet on the local market.
The problem of trading space shortage
The growth in demand for them was a logical consequence of large-scale plans by retailers to expand store networks. As a result, at the beginning of 2020 the level of vacant spaces in Ukrainian shopping centers was at a record low.
And this record low level has resulted in very long waiting lists. Such a situation has been in almost all the largest shopping malls in the country, while the trend is most noticeable at the large SECs that have practically not been opened recently. The situation may change for the better in the Ukrainian capital, Kyiv, as new large shopping and entertainment centers are expected to open there in the nearest future.
Rental rates keep rising
Ukrainian developers can afford it due to the already discussed reasons: a shortage of high-quality retail real estate and increased demand from retailers. The rent will be approximately around 20-25% higher in dollar terms, if we talk about the most popular Ukrainian shopping malls. Thus the management companies should not be afraid of tenants leaving – vacant spaces will be quickly filled in again.
It is difficult to predict if this trend will continue, but most likely the situation will not change. Especially if we talk about the cities in Ukraine with a million-plus population such as Lviv, Odessa and Dnipro, in which new offers of retail space will again be extremely limited. However, Kyiv is supposed to have a better situation with the stabilization of the average level of rental rates. Such expectations are possible as Ukrainian capital plans to bring a large volume of new supply to the market. Due to this fact the situation on the retail space rental market may improve.
Outdated buildings are to be renovated
If shopping centers were opened ten or more years ago, they are considered to be outdated, and the opening of new malls just emphasizes this fact. The only way the old ones could narrow down the visitors’ outflow is to invest in renovating and reinventing their properties. If the shopping center does not pass such a process, it will lose the tenants and face a significant decrease in profitability.
It should be noted that almost all retailers have already taken appropriate measures due to the situation. Rising competition leads to the two possible options for the owners: either renewal or gradual loss of positions, which will lead to the shopping center shut down. This is an inevitable trend, so care has to be taken to meet new consumer demands and market conditions. If the company neither can nor want to do this, then it will be closed in the nearest years. And this is in the case of not only million-plus population cities, but also all regional and even district centers of Ukraine.