Kyiv office property market, Q2 2020
In Q2 2020, new supply on the office property market in Kyiv amounted to around 28,000 sq. m GLA, which is more than twice and three times higher than the figures for Q2 2019 and Q2 2018 respectively. At the same time, cumulative new supply for H1 2020 totals to 35,500 sq. m, which is almost 50% of the figure for H1 2019. New deliveries in Q2 2020 include the business centres ‘Zoryanyi’ and ‘M8’ developed through reconstruction along with the phase 2 of ‘Forum City Garden’. Over 140,000 sq. m of offices are scheduled for completion by the year-end.
In Q2 2020, occupier demand slightly improved compared to Q1 with take-up estimated at approximately 33,500 sq. m, being similar to the figure for Q2 2019, and around 25% less than the figure in Q2 2018. Around 65% of office take-up in Q2 2020 was formed by pre-leases, while net absorption was negative and reached (-19,500 sq. m).
Due to the quarantine measures and economic slowdown, at the end of Q2 2020 primary vacancy increased to 9.0% compared to 6.7% in Q1 2020 and 6.5% at the end of 2019. Primary vacancy is presently forecast to increase further towards the year-end, due to relatively significant pipeline supply combined with ongoing revision of occupational strategy of a number of major office occupiers in Kyiv.
By the end of Q2 2020, prime office rent decreased to USD 27 per sq. m per month (net of VAT, service charge and utility payments). In view of the sharp deterioration of economic situation both in Ukraine and globally, some further downward correction in occupational costs across all office property classes is now likely during the coming months, but various properties on the market will demonstrate differing rental performance depending on their quality, occupancy and management.