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1. Office Property 2012 Results Kiev
2. Office Property in Kiev Significant events and transactions in the market of office real estate in 2012. KDD Group entered into an agreement for the sale of one of its largest facilities - multifunctional complex Sky Towers (Pobeda ave.) The U.S. company Cimbrorum Holdings LLC (USA) is the buyer.The deal amounted to $ 202.4 million (in addition to IFC Sky Towers budget deal includes the sale of the LCD "Zazime").After completion of the transaction, the KDD will receive only $12 million in cash.The rest of the sum will be directed on repayment of credits, attracted for construction of the sold assets. Samsung has become the anchor tenant of the class A business center "101 Tower” located on57 Leo Tolstoy street, Kiev. Long-term agreement to lease office space area of ​​15.7 thousand square meters was concluded with the option of further expansion to about 22 thousand square meters for the tenant. Development company "KAN Development "(Kiev) postponed the start of the project for the construction of the multifunctional complex Victory Towers onthe street crossing of Borshchagovsky and Vozduhoflotsky avenues in the Shevchenko district of Kiev. The Kyiv City State Administration alloted a plot for the construction of the “Kyiv city” business area.It is located on the left bank, in Northern Osokorki.It is planned to construct about 1,3 million sq.m of usable floor area from which one half will be intendedfor commercial real estate, the second half – for residential realty. The Class A business center "Podol Plaza” was proposedfor sale in the 4th quarter of the year 2012. It is located in the Podol district of Kiev, on30 Spasskaya street. Tendencies of 2012. In 2012, an increase in vacancy rates was observed in the office market of the capital and active price competition due to commissioning of a record-breaking amount of new office space, as well as toughening of requirements toquality of tenant space occupied. By the end of 2012 the volume of new supply of office premises amounted to 193 thousand sq.m.(GLA).In the context of classes more than 90% of this year proposals will be formed by the Office facilities of class "A" and "B +". Market average vacancy rate rose to 14.5% in view of the significant increase in supply of office space through a new proposal, that in absolute terms is over 200 thousand square meters of free space. The new proposal has a significant pressure on the market in terms of rental pricing.Owners of newly introduced objects are interested in their occupant loading, the rate of which depends on the rental value and the condition of the leased premises.For tenants dealing with large amounts of space rental ( over 1000 sq.m) there were offers of more attractive commercial terms witha 20% discount compared to the rates in the existing business centers. The main demand now comes from the companies moving from one office to another in relation to the quality improvement of the premises occupied, as well as the optimization of the cost of the rental.The segment of new companies starting their operations in Ukraine, is insignificant in the patternof demand , due tolimited business opportunities in the current political and economic realities of the country. Weakening of mass -company- relocations tendency from not classified objects to qualitative business centers. Despite the limited merger volume the Capital market of office real estate demonstrates active development, as evidenced by the construction of new business centers, announced for implementation in 2013-2014. Office real estate overview.Kiev.Results of 2012
3. Office Property in Kiev Proposal The total amount of office space in use in 2012 amounts to 192.9 thousand square meters, which is 2.5 times as much as in 2011. The positive tendency of putting into operation of new office premises is conditioned by prevailing practices of the term shifting of the buildings readiness.In general, the decline in investment in Ukraine has a negative impact on the office segment, which is expressed in the reduction of the number of new projects of the business centres. The total amount of qualitative office space (business centers of class "A», «B +» and «B-") as of December 2012 is 1.407 million sq.m.(GLA). In 2012 the market was entered by 16 office objects:three business centers of class A, nine business centers in grade 4 + and B-.43 % of the new supply account for A class offices. Business centers, commissioned in 2012 Dynamics of office space supply Office real estate overview.Kiev.Results of 2012
4. Office Property in Kiev Pattern of supply of office space In the year 2012, the market of office real estate got a record- breaking number of new proposals of the highest class (A)- the total supply volume in the segment increased by 31%.Thus in the general pattern of supply of the office premises inKyiv the share of high-quality business centers (A and B+) amounted to about 55% . Demand Dynamics of tenants’ activity in the Office real estate market in 2012, had the top-down nature , total take-up by the end of the year amounted to about 90 thousand. sq.meters. The stagnation of the Ukrainian economy, political risk and global trends affect the companies’ intention to open and expand existing offices in Ukraine.During the year there was no prerequisites for significant growth of demand for the office premises.The bulk of transactions in the real estate market were in moving of companies from their premises to other business centers.The reasons for this migration were through the desire to expand and improve the quality of facilities, the need to review the budget for the lease payments. Strengthening of the tendency of decentralization of demand in 2012 was due to the growing interest of the tenants in high-end office space located outside the CBD.The monthly rental rates are significantly lower in such business centres, and the quality of office space and the level of associated professional services do not yield to business centres,located in the central business area. Class "B” traditionally took the leading position in the pattern of demand for rental depending on the class of the object in 2012: 40% of applications were accounted for by class “B+”, 35% accounted for by class “B-”. In the first half of the year 2012 small lots were ofthe greatest demand:about 50% of all applications were accounted for by the facilities up to 200 sq.m,which is similar to the last year pattern. Commissioning of several major business centers in 2011-2012, at rather limited current demand, had a negative impact on the average market vacancy rate. The merger of quality office space during 2012 occurred at a low level - the volume of demand for rental quality space remained the same as last year.As of 2012, the amount of vacant office space supply in class A, amounted to 20% and in class "B"-12%. Pattern of demand for rental of the office space in footage, 2012. Pattern of supply of office space, commissioned in 2012. Pattern of demand for rental of the office space depending on the class of the object, 2012. Office real estate overview.Kiev.Results of 2012
5. Office Property in Kiev The significant growth of the share of vacant office premises was connected not only with the decline in business activity on the market, but was also the consequence of putting a large amount of new Office proposals, which will be taken up in the market in the next 2 years. Rental rates The price indices of the segment were subject to a substantial downward correction in 2012 in connection with a considerable supply of office space.The annual decline of rental rates amounted to 7-10% depending on the class and the location of the business centre. In the first half of 2012, the dynamics of rental rates remained stable - prices remained at the level of the 2011 proposals. Rental rates in the second half of the year were subject to reduction under the influence of substantial volume of the new proposal, released in January-June.The requested rental rates basically remained at the level of the previous period, but at the conclusion of the real bargains the discount amounted to 5-20% . As of December 2012 rental rates for offices of class "A" were ranged 28-40 $ / sq m / month and 16-32 $ / sq m / month for the offices of class B (excluding VAT and operating expenses). Operating costs are for Class A - 5 to 9 $ / sqm / month., Class B - 3 to 6 $ / sqm / month. Traditionally resistant to market changes Class A Office property segment was exposed to negative price dynamics and a significant increase in vacancy rate due to implementation of such large facilities as Toronto-Kiev and Gulliver . . Main indicators of Office real estate market in Kiev, 2012. Middle-level indicator of vacancy rate of office premises in Kiev,% Office real estate overview.Kiev.Results of 2012
6. Office Property in Kiev With limited demand this will lead to increased competition among less successful sites, that will be reflected in the reduction of proposed rental rates. Forecast Further development of the capital city office real estate will slow down in the medium-term perspective, as the market uptake and project financing conditions significantly reduce the investment attractiveness of projects realization in this segment. Downward correction in rental rates, followed by the stabilization in the medium term is possible in 2013 due to the prevailing trends in the segment. Commissioning of large business centers in 2012 will lead to the competition among less successful facilities in fight for the tenant, that will be expressed in decrease in rent rates and operational costs,more flexible conditions of the conclusion of the transaction,and granting other bonuses.However successful projects with professional concept will retain their positions in the market. Key leasing transactions of office space in 2012. Average rents on the free area of BC Kyiv, $/sq. m. per month. incl. VAT Office real estate overview.Kiev.Results of 2012
7. Office Property in Kiev Significant changes in the dynamics of demand of office space are not expected in the near future .The take-up volume will remain at the level of the previous period.Trends in 2012 in the market of business-centers, will be valid and in 2013 (decentralization of demand, merger of space due to the migration of companies, the high demand for office premises up to 150 sq. m.). At the current level of business activity the volume of commissioned facilities will be absorbed by the market long enough, the expected growth of the vacancy rate of office centers will make about 5%, that will determine the level of the average market vacancy rate of 18%. 200 thousand. sqm of office space (GLA) have been declared to commissioning in 2013.Most likely, the opening of more than half of the announced objects will be postponed till 2014. Nevertheless, the total volume of new supply, though it won't reach the level of 2012 will exert significant pressure on the market.The lack of preconditions for a significant increase in take-up of office space would have a negative impact on the vacancy rate and rental rates. Standard terms and conditions of lease agreements for professional office premises in Kiev Business-centers, declared for commissioning in 2013. Office real estate overview.Kiev.Results of 2012
8. Office Property in Kiev Business centers, commissioned in 2012 Office real estate overview.Kiev.Results of 2012