Russia’s full-scale invasion of Ukraine on February 24, 2022, triggered a deep crisis that has far-reaching consequences for the Ukrainian economy and real estate market.
During 2022, total sales of all forms of real estate declined 2.6 times compared to 2021[1]
Among the main factors that have influenced the real estate market of Ukraine since the beginning of the Big War (BW)[2] include:
- External and Internal displacement of Ukrainian citizens
- “Closing” air traffic for both passenger and cargo planes
- Impossibility or limited possibility of using maritime routes in the Black Sea for import and export of goods
- Constant hostilities within Ukraine, as a result of which many real estate objects, including residential, administrative, commercial and industrial real estate, have been damaged or destroyed.
External and Internal Population Displacement
The Russian invasion has turned territories in the north, east and southeast into combat zones and immediately resulted in population migration from these territories to the EU and other countries, as well as internal migration to the central and western regions of Ukraine. Approximately 6 million people left Ukraine and 5 million were internally displaced out of total of 40 million before the BW.
Closure of Airports and Loss of Sea Routes
Since the beginning of the BW, all civilian airports closed, and all passenger and cargo traffic (both import and export) moved to road and rail transport over the western borders with Poland, Slovakia, Hungary, Moldova and Romania. Increased flow of freight road transport across the western borders has led to increased demand for fuel stations and railroad service stations as well as the construction of dry warehouses for grain exports. By contrast, warehouses for imported goods near the airports and the Black Sea remain almost empty.
The opening of a Black Sea “Grain Corridor” and “Temporary Routes” increased the demand for export warehouses in the Odesa region
War Damage, Destruction and Loss of Real Estate Assets
Initially, Ukraine lost almost 35% of its territory, and when the territories were liberated, almost all forms of real estate were damaged or destroyed, often by the invaders as they retreated. By the end of 2023, Ukraine has lost almost 25% of its agricultural land due to occupation or despoliation by the invaders. Some cities, such as Severodonetsk and Bakhmut, do not have a single undamaged building.
As of January 2024, there are 1,314,441 damaged real estate objects with total area of 131,922,990 m² of which 2,759,432 m² were destroyed and 2,796,985 m² were damaged[3].
Valuing damages have to be done according to IVS and RICS standards[4].
Residential real estate
When buying or renting residential real estate, the following factors are now important value-drivers:
- Distance from the combat zone
- Floor location: lower floor levels avoid elevator use given potential loss of electricity
- Structural features of the building to potentially mitigate damage from missile attack
- Presence of underground parking in the building that can be used as a bomb shelter
- Distance from state administrative buildings or military production facilities
- Availability of gas supply.
Location as a driver of value is clearly demonstrated by the following areas:
- Front-line cities that are constantly being shelled by invaders: Kherson, Kharkiv, Nikopol, Chernihiv, Avdiyevka
- Central zone: Kyiv, Dnipro, Khmelnytskyi, Kropyvnytskyi, Cherkasy
- Western regions: Lviv, Ivano-Frankivsk, Ternopil, Volyn, Chernivtsi
- Cities that were liberated from occupation: Kherson, Izyum, Irpin, Gostomel and other cities within the Kyiv and Kharkiv regions.
Figure 2. Sales and rent prices in different locations
| Location | Rent, USD for 1 room apartment per month | Sales, USD/per sq m, / Current Market Condition | investment in mew development as % of pre-BW time | |
| 1 | Eastern Ukraine | 100-150 | no sales/ dead market | Decline 100% |
| 2 | Central Ukraine | 300-500 | 1000-1500, / small number of transactions | Decline 92% |
| 3 | Western Ukraine | 400-500 | 1000 – 1500, higher than pre-BW prices / Active market | Increase 30% |
Development Trends
Development trends within Ukraine have changed significantly (figure 2).
Compared to 2021, investments in new residential buildings during 2023 declined 100% in eastern Ukraine, 92% in central Ukraine, but increased by as much as 30% in Western Ukraine.
Capitalization Rates for Housing in Kyiv
Currently, cap rates range between 5-6%[5], although before the war the range was 10-12%. This decline is due to:
- Most housing that is purchased is by investors for rent to internally displaced persons
- Investors are waiting for the war to end and real estate prices to rise
- Investors are buying real estate of better quality and furnishings. Many of these objects are sold by those who emigrated and do not plan to return
- Impediments to withdrawing funds abroad for sold real estate
Commercial Real Estate
The Office Sector continues to stagnate. Employees prefer remote work because they want to be close to their families, especially during an air raid alert. In the frontline regions, rents have declined to the cost of utilities. In the central regions, vacancy reached 50% and rental prices fell to around USD 10 per Sqm/mo in class A buildings. There are very few contracts for sale.
The Retail Sector has experienced reduced demand owing primarily to a large reduction in consumers and consumer demand. The demand for both food and non-food products has decreased. Rental prices have decreased not only in the east, but also in the center. For example, retail lease agreements in Kyiv currently do not exceed USD 15-17 Sqm/mo .
Demand for hotel real estate[6] in the western regions has increased significantly because of the large number of internally displaced people. In Kyiv, five-star hotels are in demand by foreign journalists, diplomatic delegations and international volunteer organizations.
Logistics Warehouses and Manufacturing. As of June 2022, Kyiv oblast had suffered the destruction of about 382,000 Sqm of various types of logistics and warehouse space.[7] Despite rents for remaining space having declined in Kyiv and oblast, as tenant continue to move their businesses closer to the western border, demand continues to decline significantly in the central regions.
Prices for manufacturing and warehouses in western Ukraine have increased significantly, particularly in Lviv and Lviv oblast, where sales prices have increased to a range of USD 1000-1200/Sqm.
Summary
The Russian invasion of Ukraine has had devasting effects on Ukraine’s’ real estate markets. But after absorbing the initial shock of the war without collapsing, markets are gradually recovering and adapting. Although the number of transactions is still much lower than before the invasion, markets continue to function.
A vast number of real estate objects are damaged and destroyed and almost 5 million citizens have been internally displaced and left homeless, while another 6 million have emigrated abroad with no certainty of return. And yet, the economy operates, and the process of restoring and replacing damaged and destroyed real estate objects is underway.
About the author
Member of TAB of IVSC[8], member of American Society of Appraisers, Accredited Senior Appraiser, Machinery and technical specialties/ Machinery and Equipment, from January 11, 2007, ASA ID: 69756 Vice-president of European chapter, Fellow member of Ukrainian Society of Appraisers, member of the bord, qualification certificate of SPF and UTO # 11 from April 11, 1995., Member of State Property Fond of Ukraine Expert Committee
Position and Experience: Senior Valuation Appraiser, Partner, Thomas & Simonova appraisal company, Ire.kyiv.ua +38050-312-36-52
Images see attached to email.
[1] https://minjust.gov.ua/m/2022-rik-9685
[2] Russia started the war against Ukraine in 2014 when the Crimean Peninsula was annexed and Donbass was occupied. Ukrainians refer to the invasion started on February 2022 as the Big War (BW).
[3] https://damaged.in.ua/satellite-data
[4] Valuing War Damage for Financial Compensation (voxukraine.org)
[5] https://zn.ua/ukr/finances/chomu-popri-vijnu-nerukhomist-zalishajetsja-objektom-dlja-investuvannja.html
[6] https://www.epravda.com.ua/publications/2023/06/13/701093/
[7] https://cbre-expandia.com/uk/skladska-neruhomist-pid-chas-vijni-vtracheno-22-ploshh-u-kiyivskomu-regioni/
