How mixed-use-projects (with focus on retail) should be developed to be successful in Ukraine nowadays
24.05.2021
How mixed-use-projects (with focus on retail) should be developed to be successful in Ukraine nowadays
Maryna Gurevych, Head of consulting department at NAI Ukraine
Nowadays mixed-use projects (MUP) format is trending in Ukrainian commercial development and pandemic situation only strengthened it. It has several drivers:
- Growth of Kyiv population: being the heart of economic and business life, the country capital thrives by several tens of thousands people each year officially, despite fertility is by 20-50% less than mortality. Taking into account non-registered citizens, it has added about 1 mln people for the last 5 years, reaching 5 mln people population with count of suburbs.
- As a result of the previous point, development density sharply increases, driving urban areas to extensive growth and brownfields redevelopment. Land costs rise, encouraging developers to look for more effective projects.
- Development of creative economy and 20-30% annual growth of IT sphere, change the landscape of Kyiv citizens: economically active and solvent audience represented by millennials seeking for modern trends and lifestyle: to satisfy all needs with maximum convenience and minimum waste of time. It forms demand for Live.Work.Shop.Play, shoppingteinement projects, sustainable, omnichannel and agile spaces. Kyiv market development and presence of architectural leaders as Leslie Jones Architecture in collaboration with local Urban Experts, allows to propose world-class projects.
The combination of these aspirations is most fully reflected in the concept of mixed-use formats.
From the developer’s point of view, MUP allows to diversify risks and cash flows in fluctuating real estate markets. MUP are offering synergy between different functions, have helped to hold rates in the changing business environment.
Despite the increase in retail turnover by 5% in 2020, rental rates in malls sagged in the negotiation process by -30-50%, but applying percentage of turnover helped to leverage shopping malls losses to -10-30%. Retail is the one that recovers most rapidly: 5 year in a row Ukraine reached top-5 European countries for growth of retail while volumes of retail (considering shade economy) exceed the results of Romania. Thereby, in 2021 we expect the retail property profits recovery, at least for successfully operating objects. Along with that, demand for offices fell by 50% with rents decreasing by 15-20%, in 2021 we do not expect market recovery due to lasting pandemic and new proposal pressure. Sales of housing varies from a fall of 15-20% to an increase of 10-20% based on the project.
MUP could preserve stable profitability in terms of different markets dynamics, combining profit diversification: recovering retail rents and higher apartments sales could cover office center losses or increase demand for office space, as flexible offices and infrastructure for MUP community. The other major point: housing sales could raise finance for commercial functions development in terms of lack of debt financing.
There are several factors making MUP successful in Ukraine nowadays: architecture and concept quality, location. High-class architecture allows project to increase demand and sales, and to work as a united mechanism, creating synergy and making all spaces effective and usable that maximize commercial output. Location determines demand for function collaboration: the most preferable places for MUP are CBD and close to it districts and transport hubs. The popularity of public transport is constantly growing against the background of fighting congestion, the need for cleaner air and reducing emissions, as well as cost optimization for citizens on the background of gas prices growth. Growth of customers in transport hub drives transit-oriented development that maximizes the number of residential, commercial, and recreational areas within walking distance of public transportation. MUP reflects transportation node needs in the best way, providing: concentration of all residents’ interests in one place, simple movement and time saving, maximization of pedestrian connections, creating a single community, convenient transport links with other parts of the city. Thus, the combination of further development of public transport in the capital and multifunctional construction in its key transport hubs is an example of modern and sustainable urban development, which will only become relevant in the future.
Source: Across
