Logistics real estate market of Ukraine: development trends and prospects

Describing the state of logistics real estate market in Ukraine, the role of the warehouse complex should be described first. Warehouse complex plays a major role in the modern distribution network.

Work efficiency and developed infrastructure of warehouse complex directly affect the successful sales policy of the enterprise, its competitiveness on the market. For the last time the players on the logistics real estate market began approaching to the design and building of such type of construction more professionally and seriously. Logistics real estate is one of the most promising sectors of the domestic real estate, and this is due to such features:

  • Geographical location of Ukraine
  • High rates of business development and trade, increasing business activity, deficit of the quality space on the warehouse real estate market
  • Plans of storage operators to enter Ukrainian market
  • Short payback period of storage facilities (up to seven years) in comparison with the West. In Europe, payback period of such objects formats is about 20 – 25 years.
  • Low cost for the warehouse real estate construction, comparing with the other real estate objects
  • High profitability of the warehouse real estate – up to 18-20% annually.

In general, Ukrainian logistics market development has its own distinctive characteristics, stipulated by the influence of many factors. Today warehouse real estate market is divided directly to the warehouse and complex logistics services. Gradually, traditional stores are losing their relevance. The list of services provided by logistics centers is growing steadily, and so is their quality, because of the competition increase. Entrepreneurs are looking for the “multi” format, preferring warehouse complex, which includes enterprises, storage, as well as office space and parking.

The logistics market is affected by the bureaucracy, legislation, human performance, market and political situation. Such risks risks dominate in this segment: legal, technical, market research, management, conceptual, – that must be managed for their minimizing. Moreover, if the construction of residential real estate and commercial and office space construction was accompanied by the “boom”, the commercial warehouses construction didn’t observe particular magnitude. Consequently, demand outstripped supply much. According to the participants’ assessment of the last annual scientific conference «The service market for the integrated, transportation systems and application problems of logistics in Ukraine» only about 7 million square meters of the warehouse real estate space was suggested to lease last year.

Considering regional dimension, it should be noted that commercial real estate market has stopped associating exclusively with Kiev and one-two developed cities as well, and there is growing commission of commercial real estate all over Ukraine. This tendency is also observed in the warehouse real estate, especially in the transit cities such as Odessa, Kharkiv and Lviv. Also the logistics complexes construction is planned nearby port cities: Nikolayev and Mariupol – industrial: Donetsk, Dnipropetrovsk and Krivoy Rog, etc.

There is some statistics: in Kiev for 1000 population there was 40 sq. m. storage space, in the other metropolis – there is only a half. In general, on average in Ukraine for 1000 there is less than 15 sq.m. storage space. In Western Europe the level of the warehouse property saturation per capita level is in 15-17 times higher. Taking into account quality indicators, in Western Europe, warehouse property meets modern requirements, contents new equipment, while in Ukraine high-quality warehouses (Class A and B) – are large deficit. In addition, today most operating warehouse real estate objects in Ukraine – are the ones, built in Soviet times, warehouses or restructured production facilities, that decreased their activity or bankrupt enterprises. The only positive point is that the rent for such stores is lower than on the market. But tenants have to spend much time for eliminating the lack of these stores: providing them with heating, storage equipment, telephone service.

Such situation on the market related to storage space demand resulted in overstatement of the high-quality warehouses rental rates. The rates for rental warehouse property in Kiev were higher for 20-50% than in the capitals of Eastern and Central Europe. Experts estimate that in Odessa prices for the warehouses rent for the last few years has increased for 70%, rental rates per square meter, depending on the quality of facilities, varies from 3 to 10 dollars. This refers to warehouses far from perfect stores, according to the fact that there are no other ones. The rental rate for the high quality warehouses around Kiev, was recorded as $ 9-12 per 1 square meter per month. Only 10% of the warehouses meet the requirements for the class «A» or «B» class. 50% of city stores represent segment «D», 30% – «C», 10% of the stores are not classified at all.

In Lviv the cost of warehouses rent increased by a third in a year. The old stores rent is about 3-4 dollars per square meter, and 11-13 for the ones, close to grade «A» and «B». In Dnipropetrovsk, Kharkiv and other major cities the storage space deficit is observed.

Nowadays, not more than 20 professional companies are working on the Ukrainian warehouse real estate market of Ukraine. Among them there are: logistics companies and traders, major international as well as domestic logistics companies, whose prerogative is building of their own warehouses or the ones, leased from developers for a long period (such as Kuehne & Nagel, Raben, Schenker Ukraine, Maersk Logistics Ukraine, FM Logistic, Revival Express; and several Ukrainian companies, among which there are «UCMJ – Ukrainian Vantazhni Couriers», «East-West Express», etc.).

«The volume of the logistics facilities construction in Ukraine in 2008 can be amounted to 732 thousand square meters, if all the alleged market projects are realized », – reported the Interfax-Ukraine (with reference to the head of the marketing department and advertising construction corporation Altis-Holding (Kiev), Natalia Kulakovskuyu.)

Accordingly, 589 thousand square meters of the alleged projects of logistics complexes in the current year are in Kiev and Kiev region, 96 thousand square meters – in Dnipropetrovsk and it’s region, 47 thousand square meters – in Odessa and it’s region. Among projects there is a large warehouse complex construction with 17 thousand m2 area, planning to be situated in the Kiev region at Troeschina, “Real Estate Solutions develops the building concept”. The company «VS Energy International Ukraine» announced that by 2009 warehouses on the Odessa (near Vasilkov) and Warsaw (in Buche) highways should appear. Their area is about 44 thousand m2 and 170 correspondingly. The Austrian company GLD Invest Group is planning to commission the second stage near Kiev: West Gate Logistic, – and in the mid-2008 to launch project of the warehouse center «terminal« Brovary » construction, it’s total area is about 42.8 thousand m2. On the highway Kiev – Zhitomir, 28 km from Kiev company “Delin Development” is planning to build a storage center of class «A». Logistics park will be about 226 thousand m2, of which 194 thousand m2 will be directed to warehouses.

Logistics Park «Delfin» company intends to build on the 9 km from Odessa, near the highway Kiev – Odessa. The area of the park is 122 thousand m2, British company Bovis Lend Lease will design and manage the projects. Company «XXI Century Kharkiv» develops a chain of logistics facilities in Ukraine and plans to begin construction of logistics complex on the highway Kiev-Kharkiv, 5 km from intersection of the ring road of Kharkov and Kiev highway, and next to the railway line Kiev-Kharkiv. The total area of the complex will be 115.76 thousand m2. At the moment, 9 logistics complexes were developed about 900 thousand m2.

In 2009, 1.9 million square meters of warehouse space should be built in Ukraine, in 2010 – 1.29 million square meters in 2011 – 1.85 million square meters, Whereas according to the outcome of 2007, 205 thousand square meters were buiit. The current trend of 2008 is share increasing of high-quality logistics space. In 2007, in Kiev and its region of logistics space class “A” had 19% of the total, class “B” – 20%, and projected for 2008, the total amount of storage space class “A” is 43%, class B” – 15%.

At the same time, there is increase tendency of logistics facilities. If in 2007 the average area of logistics centers was 23 thousand square kilometers in 2008, this figure should reach 49 thousand square m. in 2010 – 97 ths. sq. m in 2011 – 205 ths. sq. m.

The increase of warehouse space demonstrates the evolution of warehouse in logistics hub. It is the object of industrial property of significant scale (sometimes the area is up to several million sq.m.) with good traffic interchange, availability of various modes of transport, with center of concentration and redistribution of cargo traffic, and complete logistics services as well. Complex operation should be managed by complex IT-basis for optimal calculation of supply chain. Information centers, logistics companies, which would monitor the movement of goods, should be organized on the territory of hub. This distribution center allows controlling the transit of both domestic and international goods (eg: Distribution Center Berlin-South Grossberene occupies the area of 2.5 million m І.) Ukraine already has such examples. There is start-up project of logistics hub on the basis of the Black Sea port basis. The project of multimodal logistics terminal «Dry Port».

In Europe, there is developed construction plan of logistics hub. Hub is set up by management company (Private Public Partnership), which has 40% of State capital and 60% – the share of investors and companies. In Ukraine, this scheme is more complicated due to distrust of business to the Government, but the State is trying to influence the situation by legislation. In August 2006, the Cabinet council approved the concept of special economic zones. The goal of concept is establishing the mechanism and step-by-step procedure for implementation of government policies in development of industrial parks to attract investment. The program includes creation of pilot Industrial parks in the Crimea, Kiev, Lviv, Odessa and Kharkiv region.

So, describing supply and demand balance on the warehouse property market, it should be noted that currently the deficit of logistics complexes in Ukraine can be observed. It refers to specialized and commercial facilities. Developers do not put into operation announced projects in time, that does not allow to meet existing demand too. Also in Ukraine, many companies, particularly Western, can’t buy the land for construction within required period, but the demand for the advanced modern storage centers, according to logisters opinion, is estimated in 500-600 thousand square meters of warehouse space.

Particularly scarce are the stores of 1 500 to 4 000 square meters, free stores of such square is currently unavailable in Kiev. The demand for high quality storage facilities of more than 10 thousand square meters is not satisfied. Today in Ukraine in the segment of professional warehouse real estate, practically there is no competition. Because many developing companies do not understand the essence of investment projects organization, they are engaged in realtor activity, so the lack of qualified management creates the lack of market research, feasibility studies and business plans.

However, the positive steps in this real estate sector can be observed. Currently, there is increase of announced high quality building logistics projects. At the same time, there is a trend of reduction in price of the sites for logistics complexes. The increase of warehouse space demonstrates the evolution of warehouse in logistics hub, which is more advanced and professional product of logistics market. Some major logistics centers projects have already received a green light and are ready to meet the requirements of today’s producers