After sharp falls in property values following the global financial crisis, Ukraines property sector began to recover in 2010. This momentum is expected to accelerate through 2011 as consumer spending supports the economy and export demand helps to strengthen the manufacturing sector, in turn driving demand for property. The banking sector has also begun to tentatively lend again.

While we have upgraded our expectations for full-year real GDP growth for 2011 to 4.8%, largely due to a stronger than expected agricultural crop, we expect this recovery to slow in the face of these economic headwinds and now expect 4.1% real GDP growth in 2012, from 4.4% previously. A weakening global growth picture bodes ill for Ukraines export-dependent economy and a faltering domestic demand picture underpins our lower growth expectations for 2012.

Key opportunities in the real estate market:

- A recovering level of demand for, in particular, high quality property in the office and retail space.
- A continuing increase in rents from the very low levels seen during 2008-2009.
- The short term opportunities on offer as co-host for Euro 2012 will give a welcome boost to consumer driven subsectors.
- A growing international interest in the country, particularly from retail groups.

Key risks to the real estate market:

- The economic recovery is weak and could be derailed. Our long-held view is for the economic recovery to slow in 2011. We expect final consumption expenditure to expand by just 0.4% in real terms. Credit growth to households in Ukraine continues to stagnate, and we broadly expect this to persist over the medium term.

- Some Ukrainian property companies have never fully recovered from the global financial crisis and may still hold too much debt. If a downturn persists or worsens, they may be vulnerable.

- The short term supply of new properties, particularly Grade A office space, is placing upwards pressure on rental rates especially in the capital where the divide between the desirability of East and West bank commercial space is further diverging.