INTERVIEW

Kyiv real estate market passes stress test and emerges with enhanced investor appeal

The Ukrainian capital’s transition from survival to growth mode is driving fresh demand for more sophisticated properties

Kyiv real estate market passes stress test and emerges with enhanced investor appeal
About the interviewee: Yuriy Kryvosheya is President and Managing Partner of PJSC Toronto-Kyiv
Business Ukraine magazine
Tuesday, 19 March 2019 19:47

As President and Managing Partner of the Toronto-Kyiv complex in the heart of the Ukrainian capital, Yuriy Kryvosheya has over two decades experience of international investment in the Ukrainian real estate market. He sees the Ukrainian-Canadian joint venture, which features the country’s first Holiday Inn hotel as well as office, retail and other commercial elements, as a case study of successful international real estate collaboration in Ukraine that underlines the importance of finding credible local partners. Kryvosheya believes current Ukrainian market trends are creating a window of opportunity for similar successes. He also counsels against excessive investor caution, arguing that the margins presently on offer will diminish once international audiences become more familiar with Ukraine’s increasingly enticing investment story.    

Kryvosheya’s optimistic outlook sits on the twin foundations of Ukraine’s broadly encouraging macroeconomic performance and the seemingly insatiable demand for quality new properties within the country’s commercial real estate sector. The Ukrainian economy posted 3.4% annual GDP growth in 2018, the third successive year this key indicator has risen. GDP forecasts show continued increases in 2019 and 2020, reflecting the belief that after years of turmoil and transition, the Ukrainian economy is on the right track. “Now is a good time for foreign investors to enter the Ukrainian real estate market,” comments Kryvosheya. “The country as a whole has moved from survival mode to growth mode, but a lot of properties are still emerging from the post-crisis period and price levels in many cases have yet to catch up. This creates opportunities for investors to benefit from additional marginality. The further they delay, the higher the entrance ticket price they will have to pay.”

Today’s Kyiv is a rapidly expanding and modernizing city that is more New Europe than Post-Soviet. Anyone visiting the Ukrainian capital will be struck by the sense of vibrancy reflected in a diverse range of commercial real estate projects that are already overtaking many Western capitals in terms of creativity and sophistication. This boom town mood is evident in everything from Kyiv’s funky co-working office culture and globally-competitive restaurant scene to the city’s innovative retail spaces and multi-purpose residential complexes featuring entire lifestyle eco-systems.

One key driver behind this upwards trajectory is the Ukrainian IT industry, which has risen to prominence in recent years as an increasingly crucial component part of the national economy while attracting attention and investment from many of the world’s biggest tech brands. IT companies are helping to change attitudes towards working environments and fueling growing demand for quality office space that local developers are struggling to meet. Undersupply has become such an issue that Kryvosheya says some companies are now exploring the possibilities of paying a premium to convert high-end retail space into office premises. “Smart real estate investors who are able to offer quality supply to the market might find they have a competitive advantage. In today’s Ukraine, more and more companies appreciate the importance of a quality working environment. It has become an important element of HR policy. You need the proper infrastructure to attract the right staff and retain them.” 

Kryvosheya sees the greater sophistication of Kyiv’s commercial real estate market as a sign of the times as Ukraine becomes more sure of itself within the wider international community. “It’s a mix of different factors coming together,” he says. “In one sense what we’re seeing is a natural evolution within Ukrainian society as people grow increasingly worldly in their outlook. Inevitably, their expectations also become more sophisticated. There is also a sense that the business community realizes they need to rely on themselves to create the country they want. They are not prepared to wait for the government to fix things for them. Instead, domestic investors and entrepreneurs are going where their creativity leads them. Their success is convincing others that there is huge appetite for creative approaches in Ukraine. All this is having a direct impact on the economy by creating additional demand.” 

This sunny appraisal of Ukraine’s real estate investment appeal overlooks the seemingly ominous geopolitical clouds on the horizon, with the conflict in eastern Ukraine still far from resolved and Crimea under Russian occupation. Tensions with Russia and domestic political instability are often cited as reasons to delay any decisions on entering the Ukrainian market, but Kryvosheya believes these factors should not be overstated. “None of the most pessimistic predictions regarding Ukraine in recent years have come true,” he notes. “In reality, things tend to turn out more positively than the forecasts. Some investors will always find excuses not to invest in Ukraine, whether it is waiting for presidential elections, parliamentary elections, or specific reforms, but this hesitation could prove expensive. When today’s cautious investors become more bullish on Ukraine, those who invest now will already be in a position to gain.”

Kryvosheya says the turbulence of recent years may actually have strengthened Ukraine’s case as a potential real estate investment destination by demonstrating the market’s durability. “If I am a provider of capital like a bank, I need to analyze how a client will behave during bad times. Will they survive the crisis? In the case of Ukraine and the country’s commercial real estate market, you do not need to rely on theoretical models. The country went through a major stress test in 2014 and 2015 and now has a proven track record.”

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