In the first half of 2024, the trends outlined last year took hold and intensified in the Kyiv office real estate market. The situation has stabilized, the market is gradually returning to pre-war indicators. Property Times, together with experts, summarizes the first half of the year on the Kyiv office market.

The fall stopped

The main and most important trend characteristic of this period is market stabilization.

“The current state is still too early to consider the market up, but we can definitely say that the fall has stopped completely,” – comments Levon Papoyan, a partner at SnP Partners. – “To a small extent, but there is an appearance of international companies whose headquarters allow them to move with additional budgets for repair work, which was practically not observed in 2022-2023.”

According to data provided by Pavlo Makuha, an expert in commercial real estate and the founder of BRIDGY, the first half of 2024 was marked by at least four lease agreements for offices with an area of ​​3,000 to 5,000 square meters. “These agreements were concluded mainly in the buildings of the central business district of Kyiv. This fact demonstrates a clear trend: unique opportunities appear in crisis periods, which some companies successfully use. Moving from a building of dubious class and comfort to a premium location with professional service, thanks to effective room planning alone, allows you to place yourself in a much smaller office space, keeping the same number of workstations, the expert explains. — This, in turn, allows you to improve the office space without increasing the rent. Companies that break through non-standard solutions are always a minority, but it is thanks to such or similar solutions that you can see which of the players in the office real estate market have a chance to grow in their businesses in the near future.”

The trend towards cost reduction continues. “Small and medium-sized companies are rationalizing the cost part — changing the format, reducing the occupied space to the minimum necessary, moving to areas far from the center. The largest Ukrainian corporations transferred employees from rented premises to their own administrative real estate. A number of companies have turned to low-demand representative offices,” – comments Kostyantyn Oliynyk, head of the Strategic Consulting Department of UTG.

The expert notes that despite the war, the development of administrative real estate continues. In 2024, the Nyvky City business center and the business center at the intersection of St. Filatova and St. Saperne Pole with a total rental area of ​​13,600 square meters.

“Continuing the trend of recent years, in the first half of 2024, several agreements on the purchase and sale of office real estate with an area of ​​1,500 to 3,500 square meters were concluded. m in the central business district,” – says Pavlo Makuha. — “In general, if you look at the history of sales of individual office buildings for all the years of independence, you can conclude that a similar trend has not been seen for a very long time, and therefore, many companies and investors are not only looking for their best opportunities, but also realizing them.”

Discounts are cancelled

There were no significant changes in the contractual conditions. “Regarding force majeure renegotiations of current leases in force, most such negotiations were completed within the first year after the full-scale invasion began. Currently, there are often ongoing issues that need to be resolved or negotiated. For example, payment of diesel fuel costs by the tenant to the landlord in case of significant outages, if this was not provided for in the lease agreement. But this is a work process,” – comments Pavlo Makuha. — “As for planned negotiations, they take place constantly, since there are thousands of tenants in Kyiv, and contracts for a certain part of them are finalized every year. Usually, medium and large companies that rent office space for a long term (3-5 years) start negotiations on new contract terms about a year before the end of the current contract. If better alternatives appear or the parties do not agree on new lease terms, the company, which has started negotiations in advance, has time to sign a contract in a new building and move without cross-rental payments.”

Counting on significant discounts, which were massively provided at the beginning of a full-scale invasion, is no longer worth it. “Less and fewer landlords are ready to provide a significant discount (40-50%) from the pre-war rate. Everything else has not changed compared to 2023,” – comments Levon Papoyan.

From the new contractual trends in the first half of 2024, Pavlo Makuha singles out lease agreements in which the landlord and the tenant agreed on the schedule of work on interior decoration, i.e., in which the decoration was not completed. However, the majority of office deals in the first half of the year, as well as in the last two years, took place in rooms with finished decoration.

Is there a chance to reach pre-war absorption rates?

According to data provided by Pavlo Makuha, in the first half of 2024, the volume of absorption of office real estate in Kyiv reached approx. 50,000 square meters, which with a similar trend in the second half of the year will mean the return of this indicator to the pre-war level and a gradual recovery of the level of absorption that was in 2020-2021 (100,000 — 130,000 sq. m).

“Vacancy is decreasing due to the fact that there are practically no new properties coming to the market, while many companies are not just moving to other locations, but also expanding in new or current locations. Especially international organizations and charitable foundations related to aid to Ukraine,” – explains Levon Papoyan.

What to expect in the second half of the year

Kostyantyn Oliynyk predicts an increase in the load on current tenants due to the increase in the cost of energy carriers, the increase in the price of utility bills, and with them OPEX (including due to the increase in vacancy and the distribution of operating payments to a smaller number of operators). At the same time, according to the expert, rental rates will continue their further decline in the near future.

According to Levon Papoyan’s forecasts, in the second half of the year, on the contrary, there will be a slight increase in rental rates against the background of a decrease in vacancy, while landlords will become less flexible.

Pavlo Makuha gives the following forecasts for the second half of the current year:

Maintaining the main market indicators at the level of the first half of the year, with minor fluctuations in vacancy and rental rates.

Continuation of the trend of companies moving from less comfortable buildings to more modern and prestigious offices. This process will be reinforced by the desire of companies to optimize costs and improve conditions for employees.

An increase in the number of long-term leases compared to 2023.

Reduction of the vacancy rate in A and B class buildings with finished decoration.

There is an existing demand for new office buildings, as well as objects that were introduced in 2020-2022 and did not have time to fill at least 30%. Accordingly, the chances of further filling of new office buildings are higher. Stabilization of rental rates.

Source: propertytimes