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Real Estate Modeling

While real estate development models may look complex, the actual concepts are simpler than what you see for normal companies.

Real estate development modeling is different because it’s more granular, happens in months rather than years, and because you start with nothing and generate revenue only when the building is complete.

If you’re acquiring real estate that’s already operational, it’s more like modeling a normal company – see the hotel acquisition and renovation tutorial for more on that.

MarketView Kyiv Offices

Because of unfavorable external conditions, Ukrainian economy was driven primary by domestic consumption in Q1 2012. In the first three months of the year, GDP grew 2% only y-o-y. Despite expectations for a faster pace in Q2, weak external demand hinders the expansion and the latest forecasts for economic growth in 2012 now vary between 1.3 and 2.5%1.

In H1 2012 total competitive stock grew by 74,000 sq m of space. Almost half of that space was delivered in just one scheme – class A offices as part of Toronto- Kyiv mixed use (GLA – 35,000 sq m). As of the end of Q2 2012 total competitive office stock in Kyiv equaled 1.304 million sq m.

MarketView Kyiv Retail

As the crisis in the Euro zone continued to drag on and external demand went down, Ukrainian economy started to lose steam in H1 2012, expanding by only 2% y-o-y in Q1 2012. However, even as the industrial production declined 1.1% y-o-y in March, the overall output was 0.7% larger over January-May 2012 versus the same period a year ago, which may be attributable to some improvements in external conditions. Agricultural output was up by only a moderate 1.5% y-o-y in five months to the end of May due to seasonal factors. Quite erratic growth in industrial sector was compensated by rising consumer demand. As a result of unstable economic situation on external markets, the forecasts for real GDP growth i 2012 were downgraded to 1.3-2.5%1 y-o-y.

MarketView Kyiv Warehouse

Retail sales, one of the key macroeconomic indicators for warehouse market, continue to grow strongly and were up 15.5% y-o-y in five months to the end of May. However, the change in industrial production, also a key indicator, was less impressive – only 0.7% yversus o-y over the same period versus 9.2% a year ago.

Take-up of warehouse spaace reached around 100,000 sq m in H1 2012, 19% less than over the same period a year ago. However, it is worth noting that last year’s results were boosted by a number of large transactions for owner-occupation, whereas this year no such deals were completed. Conversely, there is a clear increase in the number of leasing deals. Indeed, leasing activity in H1 2012 was 17% and 19% higher than in H1 and in H2 of 2011 respectively.

MarketView Kyiv Offices

The Ukrainian economy has been demonstrating mixed results over 2011. After growing at a healthy rate of 5.3% in Q1 2011, mostly on the back of private consumption increase, the economy started slowing down in Q2 2011 as base effects kicked in and the pace of consumer spending leveled off. In Q3 2011, however, the GDP was boosted by a record harvest and the y-o-y growth improved to 6.6%. According to the preliminary data from State Statistics Committee, in Q4 2011 Ukraine’s real GDP growth slowed to 4.6% y-o-y, bringing annual figure down to 5.2% y-o-y. Despite current economic forecasts being an improvement from 2010 results, most institutions have downgraded their outlook for 2011-2012 in light of a weakening global growth picture. Since domestic economy remains vulnerable to external demand shocks and is very sensitive to changes in foreign capital flows, deteriorating health of the world economy will have a disproportionate

MarketView Kyiv Retail

Driven by an upsurge in domestic consumption, the Ukrainian economy grew at a respectable 6.6% rate y-o-y in Q3 2011. Towards the final quarter, however, the growth began to slow amid brewing sovereign debt crisis in the euro zone and worsening global economic outlook, which led to a decline in external demand and brought about a noticeable slowdown in associated industries. At the same time, the negative impact on industrial production was offset by a strong growth in the agricultural sector, where output jumped by a whopping 17.5% y-o-y thanks to a record harvest of wheat. Real GDP growth rate in 2011 is estimated at 4.5 – 5.5%1. Forecasts for 2012 vary between 3.5% and 5%.

MarketView Kyiv Warehouse

Over the course of 2011, Ukraine’s real GDP growth was showing mixed results: after acceleration in Q3 2011 to 6.6% y-o-y (from 3.8% and 5.3% in the second and first quarters, respectively) the economy eased to 4.6% in Q4 2011. According to the preliminary estimations by State Statistics Committee, growth in comprised 5.2%, which is clearly an improvement from 4.2% rate achieved in 2010.

Обзор рынка офисной недвижимости

В 3 квартале 2012 года обьем предложения качественных офисных площадей увеличился в 58 000 кв. м.

Сроки ввода в эксплуатацию большинства проектов, анонсируемых на 2 полугодие, были перенесены на слеющий год. Одидаемый прирост нового предложения в 4 квартале 2012 года составляет 10 000 кв. м.

Обзор рынка торговой недвижимости

Потребительский сектор остается мощным двигателем развития национальной экономики.

В январе-августе 2012 года рост розничного товарооборота и заработных плат оставался на высоком уровне - 15,5% и 13,4% в годовом сопоставлении соответственно.

В августе 2012 года среднемесячная заработная плата киевлянина составляла 564 долл. США, в то время как средний показатель по Украине был на уровне 371 доллю США.

BRIEFING PAPER ON REAL PROPERTY TRANSACTIONS IN UKRAINE

Demand has always exceeded supply for commercial and residential real estate in Ukraine. In recent years, however, the prices have gone completely out of control. Today, residential prices in the cen ter of Kiev are hovering at around $6,000 per meter, threatening to increase anytime. Office rent goes for as much as $85 per meter per month (see Leonardo, across from the Opera Theater).

Rent is also on the rise, and fast. Just in 200607, the lease prices in the center of Kiev have grown by 2035%, finally reaching record numbers even for Western Europe. At the same time, the con struction boom, which Ukraine is currently undergoing, is clearly not enough to satisfy the market. Whether it's warehouses, office buildings or hotels, Ukraine needs them all!

And yet, there have been no radical changes for the better in the Ukrainian real estate legislative sys tem. The process for procuring land plots is wellknown, and many Western players have entered the Kiev market either by partnering with local companies on unfinished construction sites or paying top dollar for finished properties (i.e., registered at BTI). These days, large cities like Kiev, Donetsk and Dnepropetrovsk are hard to penetrate, but the rest of Ukraine is wide open for investment. In sharp contrast to the reception foreign investors get in Kiev, they are welcomed with open arms in places like Zaporozhye, IvanoFrankovsk, and other smaller towns.

2012 Eastern Europe Real Estate Review

While Ukraine looks to be recovering from the crisis its main risk is its relationship with, and dependence on, Russia for gas. Ukraine gets considerable transit fees from Russia as the latter exports its gas to Europe. Moscow, however, wants Kiev to transfer control of the Ukrainian gas pipeline to Russia. The fact that Ukraine is totally dependent on Russia for its domestic supplies is creating a tricky situation. Markets remain uncertain as to what kind of balancing act will be reached.

Ukraine is looking at a considerable increase in gas prices in Q1 of 2012 which is leaving it exposed on two fronts. Firstly, it will impact industrial performance as little modernisation of industrial processes have been carried out making Ukrainian industry rather energy inefficient. Secondly, the Ukrainian government is rather reluctant to let gas prices float freely and it still subsidises domestic consumption.

It is this second point which is upsetting the IMF. Having given Ukraine considerable assistance in 2008, the IMF does not want to see these funds used as political capital when they were intended for economic reform. Hence the suspension of further pay-outs until the matter is resolved.

RESEARCH & FORECAST REPORT

While Ukraine looks to be recovering from the crisis its main risk remains its relationship with, and dependence on, Russia for gas. Ukraine gets considerable transit fees from Russia as the latter exports its gas to Europe. Moscow, however, wants Kyiv to transfer control of the Ukrainian gas pipeline to Russia. The fact that Ukraine is totally dependent on Russia for its domestic supplies is creating a tricky situation. Markets remain uncertain as to what kind of balancing act will be reached.

Ukraine is looking at a considerable increase in gas prices in Q1 of 2012 which is leaving it exposed on two fronts. Firstly, it will impact industrial performance as little modernisation of industrial processes have been carried out making Ukrainian industry rather energy inefficient. Secondly, the Ukrainian government is rather reluctant to let gas prices float freely and it still subsidises domestic consumption.

It is this second point which is upsetting the IMF. Having given Ukraine considerable assistance in 2008, the IMF do not want to see these funds used as political capital when they were intended for economic reform. Hence the suspension of further payouts until the matter is resolved.

REAL ESTATE REVIEW UKRAINE 2012

This report is intended as general market research and based upon material in our possession or supplied to us, which we believe to be reliable. Whilst every eff ort has been made to ensure its accuracy and completeness we cannot off er any warranty that factual errors may not have occurred. We would like to be told of any such errors so that these can be corrected. Colliers International takes no responsibility for any damage or loss suffered by reason of the inaccuracy or incorrectness of this report. The information presented in this report may not be used without the prior written permission of Colliers International Ukraine. All the forecasts and scenarios made by Colliers International in this report are based on macroeconomic indicators, provided in Economic Overview. In case of deviations of real macroeconomic indicators from those we used as basic, our prognosis might be ether optimistic or pessimistic accordingly

While Ukraine looks to be recovering from the crisis its main risk remains its relationship with, and dependence on, Russia for gas. Ukraine gets considerable transit fees from Russia as the latter exports its gas to Europe. Moscow, however, wants Kyiv to transfer control of the Ukrainian gas pipeline to Russia. The fact that Ukraine is totally dependent on Russia for its domestic supplies is creating a tricky situation. Markets remain uncertain as to what kind of balancing act will be reached.

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