Current trends and prospects for the development of the commercial real estate market in Ukraine – UTG
Vadym Neposedov, founder and president of UTG company
The commercial real estate market in Ukraine is undergoing significant transformations during the war. Stressful challenges have shaped new trends in commercial real estate development. Therefore, UTG company experts are closely monitoring current trends and are already preparing for future challenges by replenishing and improving their knowledge base with new solutions and cutting-edge ideas.
Current trends
Over the past few years of military conflict in Ukraine, a number of distinct trends have emerged in commercial real estate development. First and foremost, unfortunately, there has been damage, destruction, and complete devastation of part of the supply. Among the affected commercial real estate properties are: Fabrika in Kherson, Port City and Ukraine in Mariupol, Retroville and BalticSky in Kyiv, Karavan and Vostorg in Kharkiv, Appolo in Dnipro, Riviera and Fozzy in Odesa, Amstor in Kremenchuk, Epicenters in Chernihiv, Bucha, Kharkiv, and many others. And the threat remains.
Against this backdrop, developers are choosing quieter regions to implement shopping center projects, concentrating mainly in cities in western Ukraine and almost completely ignoring all other regions of the country. These are cities such as Uzhhorod, Mukachevo, Lviv, Chernivtsi, Truskavets, Khust, Lutsk, and Kovel. There is also a shift in focus to other segments of commercial real estate: warehouses and logistics bases, recreational, hotel, and medical complexes, and alternative industries, such as specialized manufacturing enterprises.
Also, if the retail park format became widespread due to the coronavirus pandemic and the desire for social distancing, it has now further deepened due to the war. After all, retail parks offer the possibility of faster evacuation, which guarantees greater safety for visitors, and the combination of separate stores reduces the risk of the entire building catching fire at once.
Among the new trends, it is also worth noting the implementation of autonomous workplaces and points of invincibility. In addition, there are limited reserves for RTO growth in the market. The mass exodus of the population abroad and the decline in the number of children have led to a lack of demand for children’s entertainment, education, goods, and toys. Even among adults, there has been a decline in demand for leisure and recreation due to curfews, which has led to a low demand for evening wear, or due to remote work, which has reduced the need for new clothes in general. The negative consequences of the situation in the country are also reflected in the restrained work of entertainment operators (cinemas, shopping centers, bowling alleys), sports facilities, and catering establishments.
Looking at retailers, trends include the total expulsion of Russian retailers from Ukraine, the closure of international chain stores, and the lack of alternative department stores. Added to this is a pause in the entry of new players, the rapid development of online platforms, as well as the refusal to expand into the regions and sell products through the delivery services of Nova Poshta or Meest Express.
Future trends
Observing the current market situation, it can be predicted that after the war ends, other trends will begin to emerge in Ukrainian real estate development. For example, we expect the classic laws of trade to resume their influence. Specifically, cities with large populations and a higher proportion of young, active people, higher household incomes, predictable demand, and greater distance from the border will be in demand. That is why there will be a trend towards a return to activity in the country’s large regional centers, where construction work has been completely halted due to the war or where the existing supply has even been destroyed.
I am confident that classic or format shopping centers will return to demand. After all, after years of threats and missile alerts, with the gradual restoration of prosperity, shoppers will increasingly visit shopping galleries in modern, architecturally attractive retail facilities with a festive atmosphere, comfortable conditions, a wide range of goods, original entertainment, and dining options for extended leisure time. That is why developers will shift their focus from alternative industries and segments back to retail and housing.
The practice of applying and further evolving security elements in SECs will also continue in the future, embodying the experience of Israel: thicker load-bearing concrete walls, protected shafts, improved fire compartments, externally protected automated shutters, reinforced window technologies, the use of triplex glass to protect against blast waves and reduce the risk of injury, etc. Also, due to the growing number of people injured in the war, visitors to shopping centers will demand the implementation of additional comfort tools. Therefore, shopping centers will develop a trend of inclusiveness for people with limited mobility and special needs. Against the backdrop of the growth of systems and tools for safer stays in classic SECs, demand for retail parks will decline, and they will shift to other niches of specialized products, such as automotive, construction goods, garden equipment, or furniture.
I am confident that this evolution in the commercial real estate market and the end of the war will lead to the entry into the Ukrainian market of new brands from Europe or America, which are currently taking a wait-and-see approach. And in order to be ready for such changes, UTG company is already preparing for future challenges, replenishing and improving its knowledge base with modern solutions and cutting-edge ideas.