• 20-С Kultury Str., 61058 Kharkiv, Ukraine
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OfficeOffice

GENERAL TRENDS

Obeying the law of world markets cyclic development Kharkiv office market currently experiences a dynamic growth. The dominating trends typical for active development are sharply defined on the regional market and distinguished as following:

  • significant volumes of new supply
  • dynamic development of multifunctional complexes with office component
  • shift of supply and demand to quality modern office premises
  • intensive absorption of commissioned premises
  • critically low vacancy rates which result in persistent increase of rental payments
  • development of suitable for office location areas out of city downtown

Currently Kharkiv witnesses office real estate market decentralization which results in new business districts forming. The main criteria for “out of city center” developers are availability of convenient accessibility, proximity of metro station or public transport hubs, good visibility and developed infrastructure in the adjacent areas.

The existing stock of Kharkiv office commercial market is over 500,000 sqm (according to data, providing by local real estate professionals) and this figure continues to grow persistently year by year. Still the city experiences a considerable lack of quality office space due to steadily growing business and as the result increasing number of office seeking companies. Favorable market conditions attract foreign companies willing to enter Ukrainian market. Hence this fact catches the attention of developers and investors due to extremely high profitability of commercial real estate in Kharkiv. Moreover local players start to occupy more confident positions and also do their best to seize the chance of top location office placement. Altogether these potential tenants keep solvent demand exceeding supply on the market and support the ongoing development volumes.

DEMAND

Regarding the facts of Kharkiv business activity growing faster than the volumes of
new construction we are concerned that a deficit of office space will remain for the nearest several years. Moreover the majority of existing premises are not able to meet the tenants’ requirements.

Major demand comes from expanding businesses, international and national companies and new local businesses operating in Kharkiv. The last two years showed the high level of demand for modern and quality premises. The companies conscious of providing decent working conditions are no longer satisfied with the premises envisaging no business infrastructure like conference rooms, intercoms, canteens or food-courts, parking lots. These are predominately C-class offices, or even nonprofessional office facilities. And still these premises are in demand in terms of supply scarcity. However the number of companies in need of more quality and comfortable offices is growing, but still isn’t so large. This is why the volumes of new office premises construction experiences a considerable increase. This trend appears to be irrevocable until the market saturation.

The increasing turnovers of the companies operating on the Kharkiv market and general improvement of economical situation have provoked not only strictness for the quality requirements but also increasing demand for office premises with the total area of 100-300 sqm and even 500-2,500 sqm. The unit weight of tenants preferring B-class office premises has increased by some 8% comparing to 2007. Still some small local players are not ready to follow up the quick development of the market and attendant growth of rents and prices. This group of tenants forms the demand for office spaces under hundred sqm in business centers of C-class and nonprofessional premises.

The key factors keeping demand for office premises high and supporting its further increase are:

  • Increasing number of employees in non-manufacturing businesses and service companies (consultants, brokers), who are the main consumers of professional office premises;
  • Increasing number of representative offices and subsidiaries of foreign companies;
  • The shift in demand structure provoking scarcity of quality professional premises.

 

SUPPLY

Out of all existing stock of Kharkiv office commercial market only about 150,000 sqm are considered as relatively professional and currently competitive on the market. Under such circumstances the office segment of commercial real estate can hardly reach saturation in the nearest future ensuring intensive absorption of even non-professional stock.

A major dilemma of existing Kharkiv office stock is a scarcity of floor space initially built as offices. A significant amount of premises offered for rent are old reconstructed administrative buildings of soviet era or non-residential premises located on the first floors. Both have substantial drawbacks and can not be evaluated as quality estate. Moreover in terms of limited supply “the price to class” ratio loses its objectivity. Landlords are taking an advantage of rough supply scarcity and raise rental rates regardless to the condition of the spaces offered.


The total amount of A and B-class projects scheduled to be completed by last quarter of 2009 is about 20.

Among the projects to be commissioned in 2008 several are announced to be of A-class standard. Developers’ desire to locate offices in the city centre has provoked a rough scarcity of land plots in Kharkiv downtown and adjacent districts. However even those office buildings which succeeded to be located in the center and were commissioned in 2004–2007 belong rather to B+class in the best case.

It is worth mentioning that even B-class premises are scarce on the Kharkiv market with total weight of approximately 20% in the general supply structure.

55% of premises represented on the Kharkiv market are located in the CBD of the city. However the trend of shift in business centers location becomes more widespread due to obstacles with obtaining land plots in the city center and overpricing of such sites. Another reason supporting this trend is lack of vacant land plots for development in Kharkiv downtown.

The significant part of the projects commissioned in Kharkiv is constructed by local developers although Kyiv operators also show interest to the market. Altogether they plan to add about 500,000 sqm of professional office space of different classes to total Kharkiv stock in the nearest 4 years. The distinguishing features of future development are increasing scales of construction (over 6,000-10,000 sqm), popularity of multifunctional complexes and regeneration of ex industrial city districts and areas.

PRICES AND RENTS

The misbalance between supply and solvent demand for quality office estate
strengthens landlords market and provokes persistent increase of both prices and
rental rates. Comparing to 2007 the office premises became at least 25% more
expensive for purchase and lease.

The most prestigious, highly demanded and correspondingly the most expensive office spaces are those situated on the first floors of professional business centers and premises with top location in the city downtown – Sumska Street, Pushkinska Street, Lenina Ave. The average sale prices for such “non-economy” offices fluctuate from $2,000 to $4,000 per sqm. The rental rates for Kharkiv office premises lie within the average ranges of $10-35 per sqm per month depending on various interrelated factors influencing the pricing policy.

The detailed information on the average rental rates and prices for office real estate
in Kharkiv depending on the class of the project is shown in the table below:

 

Class

Average Rental Rates
($/sqm/month)

Average Price ($/sqm)

B+, B25-352,500-4,000
C15-251,700-2,500
Non-professional10-151,200-1,700



        

 

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