The retail sector in Kyiv suffered the most from Ukraine’s economic decline since 2014. But recovery is on the way.
Last year, three new shopping centers opened in Kyiv. The latest and largest one, Lavina, added 127,000 square meters to the total retail stock.
There are about 50 malls in Kyiv today, according to the data collected by the Ukrainian Trade Guild, a consulting firm specializing in retail. Cumulative leasable area of shopping centers amounted to 1.2 million square meters or roughly 400 square meters per 1,000 people, according to Kyiv-based real estate consultancy firms NAI Ukraine and Colliers International. By the end of 2016, vacancy rate surpassed 10 percent.
The hryvnia’s recent stabilization has helped considerably.
From 2014–2016, when Ukraine’s economy shrunk dramatically, mall owners were forced into desperate measures to keep tenants. They fixed rents in hryvnia and sometimes tied them to a tenant’s sales.
By the end of 2016, rents had recovered to $25–60 per square meter, while some prime retail premises may cost $70-80 per square meter.
Another 10 shopping centers are commissioned in 2017–2018. If built, they will add another 600,000 square meters of retail space. However, the openings of the malls are known to be delayed often. The market is still far from saturation, experts say. Kyivans enjoy far fewer square meters of retail space than most European capitals. Despite comparatively low salaries, Ukrainians also love to shop.
Diversity needed
Some 26,000 people in Kyiv visit shopping centers monthly on average, according to NAI Ukraine research.
Ocean Plaza in Kyiv is especially trendy. It opened in 2012 and now boasts more than 400 shops. The secret of Ocean Plaza’s success is its location near Lybidska metro station and a bus station, said Yevheniya Loktionova, director of the Ukrainian Trade Guild. It also offers a wide range of popular brands for a wide range of incomes, including Mango, Furla and Calvin Klein.
Other successes are Dream Town and SkyMall.
Dream Town is located in the densely populated Obolon residential neighborhood and close to metro stops. SkyMall’s location is less attractive — on a peninsula between the Obolon and Troeshchyna neighborhoods —
but attracts shoppers with large selection of brands and Auchan supermarket.
Yet, even with all new shopping centers opening in Kyiv, there is still plenty of room for competitors who stand out.
“When you have 5–10 malls that are absolutely the same, it isn’t saturation,” UTG’s Loktionova told the Kyiv Post.
Kira Pruglo, head of research at CBRE Ukraine, believes that the only way for malls to be sustainable is for them to increase their value as places to socialize. Besides retail shops, this means adding entertainment, services, restaurants and bars.
“Last year CBRE conducted global research and found out that one third of visitors come to malls only to eat or have drinks. It’s an opportunity to open authentic restaurants and bars besides standard food courts,” said Pruglo.
Some of the unconventional occupiers of mall space include fi tness centers, spas and coworking spaces.
Another example of developers aiming to better serve clients is creating play zones for kids. Factory outlets and value fashion chains are also vacant in the Ukrainian retail market.
E-commerce not a threat
However, shopping centers have to grapple with competition from the internet.
While China and the U.S. report shrinking mall shopping traffi c due to the boom in online shopping, experts say that e-commerce isn’t yet a threat to Ukraine’s brick-and-mortar retail outlets.
“In the West e-commerce sector is more developed in terms of customer service, logistics, returns and warranty policy. In Ukraine, there are more significant issues facing retail,” Igor Zabolotskyi, director of retail agency at Colliers International, said.
Vitaliy Boiko, CEO of NAI Ukraine, said that many brands in Kyiv use online retail as an additional sales channel and as a means to draw more traffic to stores.
New brands
Another factor in favor of more shopping centers in Kyiv is the absence of many international brands on the market.
Typically, major international retailers seek to open several stores in different locations at once to lower the costs of logistics.
In 2014–2015, most Ukrainian and international brands postponed entry or expansion plans due to lower sales. Still, 25 new entries hit the market, including Intersport, Uterque (part of Spanish Inditex Group), Converse,
Tezenis, Armani Exchange, Kiehl’s, NYX, Calvin Klein Underwear and many others.
Most of the 600 brand retailers that operate in Ukraine trade under franchise agreements with local retailers. Big international brands still view Ukraine too volatile of a market for direct presence.
This year, Kyiv’s retail market expects more foreign brands, Turkish among them, to be introduced. For instance, it’s known that sporting goods retailer Decathlon (part of Auchan Group) will open its stores in Kyiv since Auchan Group is building two shopping centers on Kyiv’s left bank, Retail Park and Rive Gauche.
Investors
Most shopping centers in the pipeline were conceived before 2013, but economic times have prompted second thoughts.
Still, there are acquisitions. In September, Dragon Capital acquired the 12,600-square-meter Pyramida shopping center in Darnytsya district, but the transaction details weren’t disclosed.
Yet, according to CBRE, as long as credit remains tight to non-existent, the investment market will be mostly driven by equity financing — and that’s a rare and risky road.
