Where there\'s MUC there\'s brass

The emergence of mixed-use complexes in the Ukraine is a natural consequence of the growth in the living standards of the population as a whole. The marketing of these developments often vividly portrays them as ‘cities in a city’.ixed-use complexes (MUCs) may have been a common feature in Western Europe since the 1980s, but in the Ukraine they have only been on the scene for the last few years. They represent arelatively new segment of the market, but at the same time arather dynamic and attractive one –for both foreign and domestic companies. In the Ukraine, those companies that are currently sticking todeveloping ‘mono-use properties’ are suffering from the fearful anticipation that there will be further liquidity problems, with the result that tenants might become thin on the ground. In contrast, the successful combination of several functions in one property could provide some insulation against this effect. For instance, ashortfall of commercial tenants can be compensated by more office leases –or vice versa. “Nowadays, the mixed-use complex format is only just taking hold in the Ukraine, thus wecannot yet regard it as aseparate market segment,” claims Anna Skripkina, the director of the real estate management division of Kiev-based TIKO Construction.        

This opinion is also supported bythe director for real estate development of Kiev-based developer XXI Century, Georgiy Tsagareishvili. “No projects for the development of classic mixed-use complexes have been implemented in either Kiev or the rest of the Ukraine. There are afew mixed-use properties, such as retail-office centres –but generally one of the functions is predominant. However, these facilities are not true MUCs, as according tothe Urban Land Institute’s classification, amulti-functional or mixed-use complex is one where the income is generated from three or more functioning segments, which are in independent demand,” Mr Tsagareishvili argues. 

The EU experience is that MUCs are generally built on plots of more than 1-ha, and sometimes in excess of 200-ha. However, in view of the lack of suitable available land in Kiev, developers have tomake dowith considerably smaller plots of 4,000-6,000 sqm.

According toXXI Century, today there are more than 10 large mixed-use complexes currently at different stages of design and development in the Ukrainian capital. Chief among these are (with the developer and size in brackets): Vyrlitsa (XXI Century, 970,000 sqm), Berezneva MUC (XXI Century, 239,000 sqm), one on Lisova (XXI Century, 118,000 sqm), Mirax Plaza (Mirax, 320,000 sqm), Forum Aerostar (Forum, 344,000 sqm), one on Zlotoustovskaya (Nest, 174,000 sqm); the Albor centre (Albor, 420,000 sqm); and Metro City Kiev (KDD Group, 372,000 sqm). According toGeorgiy Tsagareishvili: “Most of these MUC projects are still on the drawing board. The Mirax Plaza and Vyrlitsa projects are the only ones currently under construction.”    

However, the development process for these projects is perhaps one of the most complicated on the market, since in the preparation of the concept for MUC projects, specialists need toestimate each and every aspect in minute detail. Each of the formats within the complex will have its own modus operandi, so an unsuitable mix of functions can only result in a reduction in the attractiveness of the whole complex. 

At the same time, experts agree that those MUC projects developed in phases are the ones that tend toenjoy the greatest success, since this allows the complexes tobe sold in stages.  an MUC\\\'s construction are higher than those for mono-use centres, as the former requires the use and installation of more sophisticated technology and essential systems. The flip-side of this is that rents in MUCs in Kiev are generally higher than those for purely business, retail or residential complexes.       

Development prospects

Today, the MUC real estate segment in Kiev and the surrounding region is substantially undeveloped, with the demand for quality real estate considerably exceeded by the existing supply. Nevertheless, making predictions about the development of this segment would be rather unwise at the moment, as the real estate market is currently at the mercy of both the unstable political and economic situation, and the effects of the global financial crisis.

Georgiy Tsagareishvili believes that: “The saturation of the MUC market depends on the demand for each of the real estate segments that feature within the complex. Currently, the demand on the Ukrainian real estate market is considerably unsaturated in every segment, and saturation is not expected to occur earlier than 2012.” According to Anna Skripkina, the market will not begin to saturate any time in the next 3-5 years.

At the moment, market players are speaking of a fall in investors’ willingness to sink large funds into the development of MUCs in the wake of the credit crunch. In such circumstances, developing and selling MUCs in stages is clearly the most profitable course of action.

The most promising locations for mixed-use centres in the capital include the left bank and the ring-road. Boris Popov, the investment director of Kiev-based developer Terra Alliance believes that: "MUCs should be situated on the outskirts of Kiev and even outside it, to assist the economic development of these districts. But developers are not so keen to locate their projects there due to the lack of infrastructure. However, locating an MUC in the city centre is problematic, in terms of traffic congestion, and the fact that there are no large plots available there.”