The populations of England and Ukraine are very similar at 48 million. If Ukraine had only 10% of the warehouse space available to the market in England today, it would equate to 1,350,000 square metres. This is considerably more than the most optimistic amount currently planned - 750,000 square metres.
According to presentations made at recent real estate conferences by Kyiv's leading estate agents, the current demand for professional warehousing in the Kyiv region is estimated at one million square metres with total availability at only approximately 550,000 square metres, inclusive of all types. Ready warehouse space of professional quality is estimated at 200,000 square metres, which is all fully leased. Another 500,000 square metres are at various stages in the pipeline, so in the next two years about 700,000 square metres will be available of the 1,000,000 required today while demand is growing by about 30-35% year-on-year.
Space-hungry retail trade booming
The primary users of warehousing are the FMCG industry, including retailers and major distributors. According to the latest statistics, the retail trade is growing by 35% y-o-y (as are new car sales) so demand is rapidly increasing as well as the requirements of tenants. Meanwhile, the level of competition is relatively low - there are no more than 20 professional logistics companies and traders operating in the Ukrainian warehousing market.
Rents are generally from USD 10-12 per square metres per month for quality warehousing with leases of up to 10 years. So with total construction costs per square metres running at about USD 400-520, this is offering investors yields of more than 15-17% on good long-term leases. As a consequence of this pent-up demand the price of land suitable for warehouse development around Kyiv and other major cities has doubled in the past 12 months. This situation has also been exasperated by the current government moratorium on the sale of OSG land.
If we look at other major cities where the warehousing business is most developed, there are no surprises. Concentration is along the major transit routes in and around the five major cities, Kyiv, Odessa, Kharkiv, Dnipropetrovsk and Lviv. In Kyiv, for example, suitable sites exist within 40 kilometres of the city along the Zytomyr, Warsaw, Odessa, Kharkiv and Dnipropetrovsk highways - the very locations where land prices have doubled during the last 12 months.
The bubble myth
But is the "bubble" going to burst? Well, the question should actually be "what bubble?"
Based on the figures detailed above, the Ukrainian warehousing market is a long way from saturation. From our research there are about 250,000 square metres due to come online in 2007 with a further 500,000-plus square metres due to come online by the beginning of 2009.
Several companies which have already broken ground, however, even if all these do go ahead it will only match this year's estimated demand. Supply and demand will eventually align and rental rates will drop to Central European levels of USD 5 per square metre per month, but in our opinion this is five years away at least.
We therefore believe that "booming" is a suitable adjective to describe the Ukrainian warehousing market - and it is not about to burst.
