The aggressor’s invasion into Ukraine froze the real estate market in most Ukrainian cities. Many commercial properties have been destroyed, but even those that were not damaged by the shelling have been negatively affected in one way or another. Therefore, as UTG analysts note, the commercial real estate market will not be the same after the war. “In the new conditions, a number of commercially successful objects of the past that have lost their positions, have become undemanding on the market, or new ones that have not had time to gain popularity, will need to undergo extreme reconstruction – complex redevelopment, repurposing or a complete change of format,” believes Kostyantyn Oliynyk, the manager of the strategic consulting department of UTG.

According to the expert, active development and evolutionary development of commercial real estate was observed in Ukraine from 2014 to 2021. This was expressed in the increase in the scale of the facilities, their acquisition of new functions, and the expansion of the range of participating operators (document service, medicine, sports clubs, co-working spaces). The increase in the concentration and saturation level of retail spaces per 1,000 inhabitants in most regions of the country was comparable to or even exceeded the indicators of many European cities. However, already during the coronavirus epidemic in 2020-2021, almost all shopping malls noted a drop in attendance, and the increase in health care costs led to a reduction in spending on other groups of goods, an increase in loyalty to online shopping, and the rapid development of marketplaces. As a result, there was a change in consumer behavior and a decrease in demand for entertainment operators (cafes and restaurants, fitness centers, cinemas, bowling alleys, SECs). All this led to a drop in indicators and a decrease in the turnover of operators and the income of property owners (decrease in rental income, increase in the payback period), etc.

“Against the background of the negative factors listed above, there was a redistribution of consumer flows between objects and an increase in vacancy in some of the least successful SECs. At the same time, the existing surplus of retail space led to the need for forced modernization, reconceptualization or reconstruction of real estate,” Kostyantyn Oliynyk says. Therefore, by the beginning of 2022, a number of shopping facilities in the country had completed or were in the process of complex renovations (Gorodok Gallery, Dream Town, Metropolis, Metrograd, Sirius, Piramida (all Kyiv), “Planeta Mall”, “Karavan” (Kharkiv), “s) Mall”, “Megamall” (Vinnytsia), “Global UA” (Zhytomyr), “Ostriv”, “Mega Dim” (Odesa), “Appolo”, “Dafi”, “NeoPlaza” (Dnipro) and others. However, not having managed to overcome all the negative consequences of the previous years, the commercial real estate market faced a new challenge – the start of hostilities and the invasion of occupation forces into Ukraine.

According to the analyst, practically from the first days of the war, the market saw a complete exit from Ukraine of all networks connected to Russia, which led to the release of a significant amount of space and a one-time increase in the average market vacancy rate. But due to the limited range of anchors and the lack of reserves for the development of adrenaline / family / interactive entertainment operators, cinemas, shopping malls, large-format fitness centers, almost all shopping center management companies have difficulties with the prompt search for alternative operators of a comparable scale. There is also a change in the consumer portrait in the regions (well-to-do residents have left, migrants have arrived), which leads to a discrepancy between the structure of the presented brands and the existing income of the population. At the same time, despite the temporary suspension of a number of international operators until the end of hostilities (brand groups of the “Inditex”, “H&M”, “IKEA”), most of the chains not only did not leave Ukraine, but also continue their active work – “McDonald’s”, LPP group (CROPP, House, Reserved, Mohito), LC Waikiki, DeFacto, Desathlon, New Yorker, Adidas, Reebok, JYSK, “Leroy Merlen”, “Auchan”. And as a result of world solidarity and loyalty to our country, many popular brands that previously ignored development in the country may come to Ukraine after the end of hostilities (“Uniqlo”, “Starbucks”, “Peek & Cloppenburg”, “Abercrombie & Fitch”, “C&A”).

But one way or another, according to the forecasts of UTG company experts, after the end of hostilities, almost all commercial real estate in Ukraine will require significant transformation. “Large-format objects (regional SECs), in the structure of which a significant share of Russian brands or a wide range of entertainment operators were designed, will continue to experience difficulties in filling. Shopping centers of a smaller format (district SECs) or objects located within walking distance of housing concentrations (local district SECs) will be more flexible and will be able to recover faster,” Kostyantyn Oliynyk notes, – “But it will be more commercially successful to build objects with a new purpose on their areas.” For example, in his opinion, if located in areas close to the city center or near subway stations, the real estate object can be transformed into a multi-apartment residential complex. At the location on the edge of the city or at the intersection of transport arteries, a modern specialized logistics complex can be created on the site of a commercial facility. Also, an economically expedient solution may be the transformation of a SEC that has lost its position into a knowledge-intensive production enterprise – an innovative technology park. Or to a commercial research or educational center: a business incubator, a grant research institute, a branch of an international university. Another way out can be the creation of specialized shopping centers on the basis of SECs in the form of centers for electronics, construction goods, children’s clothing and toys or entertainment for adults: “drunken mile”, discos, pubs, restaurants.