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Richard Woo

Moscow and Kiev's office markets are set to bottom out at the end of this year, according to a property expert specialising in Russia and Ukraine.

 Nick Cotton, regional director of DTZ Zadelhoff Tie Leung, said real estate in the capitals - Moscow and Kiev - had suffered due to the 1998 economic crisis.

  DTZ Zadelhoff Tie Leung is the central and eastern European arm of DTZ Debenham Tie Leung, in which the Executive Council convenor Leung Chun-yin is one of the major shareholders.

  Mr Cotton said development returns on offices in both cities were up to 40 per cent before the crisis but had since fallen to about 20 per cent. Office rents in Kiev had reached US$600 per square metre a year and were now stabilised at $300.

 Mr Cotton expected the market to return to a balance at the end of this year and rents to improve to $400 over the next two years.

 Returns on office development could also rise to 30 per cent within two to three years.

 Mr Cotton predicted the Moscow office market would return to a balance of demand and supply at the year-end.

 Returns on office development were about 15 to 20 per cent for central European cities, such as Warsaw, Prague and Budapest.

 Mr Cotton said the property markets in Warsaw and Moscow had been fully developed and were very competitive.

 However, Kiev was still relatively undeveloped and considered to be five years behind Moscow.

 In Moscow, the priority for an investor was to find the right site rather than deciding the kind of properties for investment, because the market was so developed and competitive. But Kiev still had no shopping centre or a supermarket meeting Western standards, while the quality of hotels was poor, Mr Cotton said.

 Most office towers were restricted to refurbished older office stock, although a Turkish investor had built up a medium-scale grade-A office last year.

 If investors were interested in quick return, residential sale projects could provide them opportunities for cashing-in.

 Kiev was very short of residential supply.

 If they were looking at income growth, office and retail developments would suit them, Mr Cotton said.

  At present, market players in Moscow and Kiev were mainly Turkish, with some British and Germans. There was also Dutch interest in Kiev. Asia had no exposure, and there was little US interest.



Crisis-hit capitals in position for extended price recovery