Everyone would be definitely happy to read in the analytical reviews that the warehouse service market is perking up. Is that really so? The Ukrainian government, for instance, predicts that the crisis will end, yet the real situation shows that it is still to early… Many world experts believe that the developing countries have not yet sank to the crisis bottom. Moreover, the “dry” facts provided by the State Statistics Service of the Ukraine even convince us that the Ukrainian economy has not yet started to recover:

• The GDP of the Ukraine has dropped by 20% during the first quarter as compared to the same period last year.
• The retail goods turnover volume has dropped by 19.5% during January – May 2009 as compared to the same period last year.
• The consignment turnover during January – May 2009 was equal to 63.4% as compared to the same period in 2008.
• Goods export during January-May 2009 was equal to 58.9% and the import was equal to 49.9% as compared to the same period in 2008.
• The export-import coverage ratio was equal to 0.86.
   

Importers using warehouse services are known to be the main customers. As a rule, companies manufacturing their goods in the Ukraine have their own warehouses and organized logistics itself. Comparing to the pre-crisis period, imported products were mainly consumed, yet under the crisis conditions the situation has significantly changed in favor of the domestically manufactured products.
Such changes were caused by a more than 60% national currency fall over a short period.  Hryvna devolution led to an increase in prices on imported products and, consequently, to an increase in its demand.
Initially, the Ukrainian logistics center market was developing mainly due to foreign investors, but under the crisis conditions, an outflow of foreign capital took place. For example, the demand for high quality warehouse facilities outran the supply as early as in 2008 causing frenzy among real estate developers. Designers started erecting warehouse centers without knowing any particular future customer and firmly believed that the facilities will be in demand. 

At the same time, high demand for A-class warehouse facilities caused an increase in lease rates for this type of real estate which later affected the pride of the rendered warehouse services.
As the crisis came, many importers decreased their product flows and the demand for A-class warehouse facilities dropped accordingly.

The majority of experts believe that the objects declared to be commissioned in 2009 will be shifted to late 2010 at the earliest.

The current market tendency is that the construction of the majority of new objects will start only provided that there is a signed preliminary contract with potential lessees for all the premises or their larger part. Long-term leasing contracts will be concluded on built-to-suite terms (object construction for a specific customer taking into account the requirements and peculiarities of this very customer).
Summing up, one may say that the year 2009 has been characterized by a great recession on the warehouse logistics market. A lack of high-class logistical centers was replaced by their excess. Many importing companies decreased their volumes of storage on logistical premises, some switched to their own logistics and some ceased their activities at all. The warehouse premises vacancy rate is still rather high at the moment. Consequently, many logistical operators left the warehouse service market.

Yet, there are positive aspects to the world economic crisis. The fact that the prices for warehouse services have become more affordable is positive for companies in need of logistical services. As compared with late 2008, warehouse service prices have decreased several times. Logistical premises leasing prices are decreasing dramatically: the leasing rates were equal to 12-16$/sq. m in January, according to realtors, the leasing price was fluctuating between 6.5 and 8.5$/sq. m in April and now the leasing rates are equal to 4-5 $/sq. m. This has made warehouse logistics accessible to a far larger number of companies.
Besides, the growth of demand for warehouse facilities located on the left bank of Kyiv and Kyiv region is observed on the warehouse real estate market. This is caused by importing companies now focusing more on the sales of their products in the east of the Ukraine, as it is at the industrial forefront and, accordingly, there is a common opinion about higher purchasing power in the region. That is why logistical companies try to locate their warehouses closer to highways leading to the eastern part of the Ukraine. 

Every operator is now struggling particularly hard for its current and future customers. The competition in the industry has become a lot more tough; many logistical operators apply sizable discounts and use new marketing gimmicks to attract customers. It is common knowledge that competition is one of the most effective instruments stimulating economic development. There is a high probability that the current situation will give many companies not only a chance to survive, but also an incentive to develop.

Analytical Department
of AsstrA Group