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No shopping centres opened in Kiev during 9M 2017

Rental rates continue to grow, on the back of new brands enter the market

KIEV

For the first time since 2006, no quality shopping centres entered Kiev market in the first three quarters. Three objects have been announced to open in Q4: Smart Plaza SC (15,000 sq m GLA), Rive Gauche SEC, Phase 1 (22,000 sq m), Retail Park Petrovka, Phase 1 (11,000 sq m). Thus, total volume of completions in Kiev will constitute 48,000 sq m.

Shopping centre completions in Kiev

Source: JLL

Decline in the volume of new supply is taking place on the back of the recovery in macroeconomic indicators. “Since 2016, real wages and retail turnover have been growing both in Kiev and in the whole country. At the same time, last year consumers were not ready to increase spending in proportion to real wages growth, this year we have seen comparable growth of these indicators in Kiev. This reflects the retail market recovery and facilitates new construction,” – notes Darina Kulaga, Analyst, JLL, Ukraine.

Kiev real wages and retail turnover growth

Source: JLL

JLL analysts expect the increase in SC completions in Kiev in the medium term. Thus, in Q3 construction of Ocean Mall SEC has resumed, Phase 2 of Aprel SEC has been announced. If economic recovery continues, in 2018 the construction is expected to resume in other frozen projects.

“At the same time, owners of existing SCs in anticipation of increasing competition are updating shopping centre concepts and optimizing tenant mix. They focus on the increase of anchors share, primarily entertainment, and mini-anchors, including fashion brands. Timely work today will allow to increase the shopping centre attendance in the future and prolong time spent there, which will have a positive impact on retail turnover and stability of rental flow,” – comments Ekaterina Vesna, Head of Retail Department, JLL, Ukraine.

Real growth of retail turnover and wages enhances the international operators’ confidence level in the prospects of Ukrainian retail market. In Q3 2017, seven new foreign brands entered Kiev market, which is the highest number in the last year. In July-September, a boutique of British clothing brand Superdry opened in TSUM, shops of Spanish jewelry brand Tous and Canadian retailer of kids clothes Hatley were opened in Gulliver SEC, Dutch Scotch & Soda and Italian Replay debuted in Sky Mall SEC, Italian premium brand Liu Jo opened in Ocean Plaza SEC, and Japanese clothing retailer Miniso opened its first store on Khreshchatyk Street. 

As a result of demand growth, vacancy rate in Kiev shopping centres dropped by 0.6 ppt, to 6.1% in Q3 2017.

Vacancy rate in shopping centres

Source: JLL

Maximum prime base rents are increasing on the back of no completions and growth of demand. In Q3, prime base rents increased by 3% reaching USD860 per sq m per year (USD72 per sq m per month, excluding VAT and OPEX).

Prime base rents in Kiev SCs

Source: JLL