Cushman & Wakefield : COVID-19 Impacts on Ukraine Real Estate

From the start of 2021, the epidemiological situation in the Ukraine demonstrated improving dynamics with a 7-day average decreasing from 7,896 new COVID-19 cases on 1 January to 5,087 on 23 January.

Following the intensified quarantine that took place on 8-24 January 2021, the adaptive quarantine will be restarted in the Ukraine and is presently envisaged to continue until 28 February. This means that on 25 January the shopping malls, shops, F&B, leisure and sports facilities are to fully re-open in the Ukraine, provided they meet the sanitary and epidemiological requirements.

In view of the general uncertainty regarding further evolution of COVID-19 and chances of additional lockdowns, the retailers and other operators on the retail property market in the Ukraine are not actively announcing their expansion plans for 2021.

Under such conditions it is hard to confidently make any projections regarding the retail property market in the Ukraine in the short term, but performance will obviously vary for different properties and categories of occupiers in the sector. Whereas cinemas, entertainment centres and eateries will further revisit their formats during 2021, in some cases downsizing or vacating retail space across the Ukraine, the food retailers are likely to continue demonstrating increased activity both in terms of M&A and, expansion and/or launching new formats (e.g. mini-markets & grocery stores).

14 January

The epidemiological situation in the Ukraine remains serious, with over 5,000 new COVID-19 cases reported daily starting from October 2020 and the peaks of over 10,000 daily cases in November followed by decreasing dynamics in December and the first week of 2021.

After the weekend quarantine in November, on 9 December 2020 the Government issued the decree providing for intensified quarantine for the period of 8-24 January 2021 with the following activities being prohibited:

• eateries (except for delivery and take-away);
• retail and servicing enterprises except for food retail, drugstores and medical goods stores, groceries, as well as stores selling mobile phones, printed media, pet goods, seeds and plant protection agents, if these goods account for at least 60% of retail area;
• cinemas, theatres;
• fitness clubs, gyms, swimming pools;
• educational establishments (except for kindergartens);
• shopping malls, leisure, entertainment and event centres;
• non-food markets.

At the same time, fuel stations have continued operations along with public transport, hotels, banks, postal delivery, beauty salons (by appointment), car servicing centres, medical and veterinary centres.

During the first 3 quarters of 2020 the real GDP dropped by -1.3%, -11.4% and -3.5% YoY respectively, and it is projected by Oxford Economics to fall by -4.6% YoY in 2020 followed by 4% increase in 2021. Despite the downfall in April-June, in January-November 2020 retail sales index was reported to grow by 7.8% YoY.

COVID-19 has led to retail and office property sectors in the Ukraine being hit hard in 2020. Meanwhile the warehousing property sector demonstrated positive dynamics thus increasingly attracts developers' interest, particularly in view of the shortage of quality space in the country. Total volume of the secondary investment transactions in these sectors amounted to around a quarter of the volume of 2019.

10 June

During the week 1 June - 7 June there was an increased number of new COVID-19 cases reported daily, with a peak of 588 cases on 3 June, which improved towards the end of the week. On 7 June, the Ministry of Health of Ukraine reported that the epidemiological situation remains challenging in the capital city of Kyiv and four regions of Ukraine (Volyn, Rivne, Lviv and Chernivisi).

Nevertheless, people are gradually returning to their normal lives, including shopping, visiting restaurants (summer terraces) and outdoor leisure activities in view of improved weather conditions.

As witnessed by the experts at Cushman & Wakefield, in many regional cities of Ukraine the footfall in the most popular shopping centres, upon reopening of their retail galleries from 11 May, reached up to 80% of the pre-quarantine levels, while the conversion rate (buyers-to-shoppers ratio) improved compared to the same period in 2019. The restaurants without delivery and take-away services are known to demonstrate largely modest performance, as their indoor seating areas remain prohibited.

Though the business centres remained open for tenant access for the duration of the quarantine period, the vast majority of office occupiers have applied the work-from-home approach. In view of recent relaxation of lockdown restrictions and resumption of the municipal public transport, more businesses returned to work from 1 June. However, many companies (including major IT firms) continue to apply a work-from-home policy and increasingly consider desk-sharing combined with a remote work option when planning their further office operations.

3 June

The epidemiological situation in Ukraine remains stable, with less than 500 new COVID-19 cases reported daily since 17 May.

The quarantine has been extended until 22 June, though the lockdown restrictions are being gradually lifted.

In the capital city of Kyiv, which in most cases is the last city to allow easing restrictions in Ukraine, the metropolitan started its work on 25 May, the shopping centres (with the exception of their entertainment zones, kid's play zones and seating areas in eateries) along with hotels recommenced operations on 30 May, and the kindergartens were allowed to open on 1 June. Importantly, on 30 May the new shopping and entertainment centre 'Retroville' of approximately 77,000 sq m GLA was opened in Kyiv, which is likely to become the only major retail property to be delivered in Ukraine during 2020.

Since 1 June, indoor sports centres, fitness centres and swimming pools are allowed to open in Ukraine, and the passenger rail transport and the interregional road transport will start operations.

According to preliminary estimates by the Statistics Office of Ukraine, in Q1 2020 the real GDP dropped by 1.5% yoy. Retail sales index was reported to increase by 3.2% yoy in January-April 2020 but decreased by 14.9% in April 2020 compared to April 2019 and by 23% month-on-month.

28 May

On 20 May, the Government issued the decree, extending quarantine until 22 June, though further gradually relaxing the lockdown rules (to be implemented subject to local authorities' decision). Amongst others, the following activities have been allowed:

• 22 May: hotels (except for restaurants) and public road transport (within city/region);
• 25 May: metropolitan and kindergartens;
• 1 June: indoor sports and fitness centres (excluding group training >10 people), passenger rail transport along with public inter-regional road transport;
• 10 June: eateries with indoor seating areas, hostels / sanatoriums / recreation complexes, and culture establishments with the requirement of a maximum 1 person per 5 sq m;
• 15 June: operation of air transport.

From 11 May, the majority of the shopping centres across the Ukraine opened fully, with the exception of entertainment zones and food-courts (except for take away and delivery). As of 24 May, the shopping centres remained largely closed in regard to non-essential retail only in Kyiv.

Significantly, on 21 May, the President signed the law banning the return of the nationalised bankrupt banks to their former owners. On the same day, the IMF reported that a new US$5 billion 18-month Stand-By Arrangement for the Ukraine was agreed, further contributing to the currency stabilisation and strengthening the positive expectations for the country's return to growth when the COVID-19 crisis ends.

21 May

For the week 11 - 17 May the epidemiological situation in Ukraine remained stable. According to the official data 375 to 533 new COVID-19 cases are reported daily.

Although the Government extended the quarantine until 22 May, from 11 May some lock-down rules were relaxed. This includes businesses being able to resume operations enabling F&B operators to run takeaway services and open summer terraces only, non-food retail shops (including those located in shopping malls) and beauty salons to reopen.

However, as per the adaptive quarantine approach, the relaxation was not applied in all regions of Ukraine. It remains at the discretion of local authorities and according to the local epidemiological situation.

Since 11 May, most shopping centres across Ukraine opened fully, excluding entertainment zones and food-courts (except for take away and delivery). Non-essential retail within shopping centres in Kyiv, Lviv and Chernivtsi, has largely remained closed.

Among the noticeable events of the week, on 14 May IKEA opened its Ukraine online store, while its first regular store format is still to open in the country.

During the period from 30 March 2020, the Ukrainian currency has remained generally stable.

14 May

The epidemiological situation remains generally stable in the Ukraine with over 500 new cases daily. On 4 May, the Government therefore decided to extend quarantine until 22 May, however allowing certain types of businesses and relaxing some lockdown rules.

On 11 May, parks and outdoor relaxation zones along with open-air sports and playgrounds opened to the public. Also, some businesses will resume operations (with additional sanitary requirements), and these include eateries (takeaway service and summer terraces only), non-food retail shops (including those located in shopping malls), beauty salons, dental clinics and community servicing enterprises.

At the same time, food-courts and entertainment facilities in shopping malls, cinemas, theatres and fitness centres remain banned, while metropolitan, suburban and intercity public transport, regular railway and flight connections do not operate, and access for the population to municipal transport remains limited.

Many non-food retailers, restaurants and landlords in the retail sector, which was hit the hardest, prepared to reopen on 11 May both in shopping malls and street retail locations.

Business centres are open for access by tenants' employees, but most office occupiers apply a work-from-home approach. The logistics property sector has so far proved to be the most resilient.

7 May

The COVID-19 quarantine commenced on 12 March 2020 with some activities being prohibited, including operation of retail and entertainment facilities, except for essential retail (food products, fuel, medical products and devices). Parks and outdoor recreation zones were closed for public access. In Kyiv the metro was closed, and other public transport stopped servicing passengers not employed in strategic industries.

On 22 April, the Government extended the quarantine until 11 May. The quarantine exit plan was announced, which envisages the following 5-stage lifting of restrictions for businesses:

• Beauty salons, non-food retail and wholesale, coffee cafés (takeaway), car washes, bike stores and rentals; parks and outdoor relaxation zones (except for playgrounds) to open for public, and group sports activities allowed.
• Public services, eateries (takeaway), open-air cinemas, sports and fitness centres (except for swimming pools) and hotels.
• Sports and playgrounds, metro (partially) and intercity pubic transport, shopping malls (except for entertainment zones and kid's play areas), theatres and cinemas, hostels / sanatoriums / recreation complexes, eateries (indoor seating area).
• All municipal public transport, shopping malls and entertainment centres.
• Cancellation of all other restrictions.
• Stage 1 might commence on 11 May, if the number of new infections does not increase over a period of 10 days in a row.
• Q1 2020 was generally stable for the commercial property market in Ukraine, but more significant impact of COVID-19 is likely in Q2.

30 April

Since the start of 2020 real GDP contracted for the first time since 2016. The country's risks were seen to increase in March due to the Government's reshuffle at the very unfavorable time of coronavirus outbreak with no IMF deal achieved.

During Q1 transactional dynamics on the office property market in Kyiv is traditionally lower compared to the other three quarters of the year, but in Q1 2020 amid the spread of COVID-19 many deals planned for March were temporarily put on hold and postponed till after the quarantine, which resulted in low take-up and net absorption figures. Nevertheless, vacancy reached 6.7% with only minor increase, and rents remained unchanged.

In Q1 2020, vacancy on the logistics property market in the Greater Kyiv area increased to 2.9% from 0.8% at the end of 2019, being largely attributable to a change in some landlords' leasing strategies prior to the spread COVID-19. Though many lease transactions were postponed until after the quarantine and occupiers initiated negotiations on rent reductions, demand dynamics and prime rents remained stable.

All leisure, dining and non-essential retail facilities have been closed since mid-March; therefore, the retail property market was hit hard, with no significant support provided by the Government.

In the Ukraine, quarantine commenced on 12 March 2020 and is now extended until 11 May 2020.

23 April

Since the start of 2020 real GDP contracted for the first time since 2016. The country's risks were seen to increase in March due to the Government's reshuffle at the very unfavorable time of the coronavirus outbreak and no IMF deal achieved.

During Q1 transactional dynamics on the office property market in Kyiv is traditionally lower compared to the other three quarters of the year, but in Q1 2020 amid the spread of COVID-19 many deals planned for March were temporarily put on hold and postponed till after the quarantine, which resulted in low take-up and net absorption figures. Nevertheless, vacancy reached 6.7% with only a minor increase, and rents remained unchanged.

In Q1 2020, vacancy on the logistics property market in the Greater Kyiv area increased to 2.9% from 0.8% at the end of 2019, being largely attributable to a change in leasing strategy of some landlords prior to the spread COVID-19. Though many lease transactions were postponed till after the quarantine and occupiers-initiated negotiations on rent reductions, demand dynamics and rents remained stable.

As all leisure, dining and non-essential retail facilities have been closed since mid-March, the retail property market has been hit hard, with no significant support provided by the Government.