Presidential elections or campaigns for Verkhovna Rada deputies have always actively engaged large Ukrainian business in the election race process, affraying foreign investors due to instability of the political situation in the country. Active political struggles combined with crisis events in national economics do not add optimism to either domestic or foreign investors interested in building commercial real estate objects in our country.

We are talking to Igor Tsalenchuk, Executive Director of KARKAS Construction and Engineering Company, about the situation with the commercial real estate market in the run-up to Presidential elections.

How would you evaluate the current state of the commercial real estate market?

The outstanding feature of the commercial real estate market this year became virtually complete absence of commenced works under major projects and increased interests to minor objects (up to 5000 sq.m.), which customers can afford independently, without attracting borrowed funds. In practice this means that those investors, who actually want to fund construction of commercial buildings, have a very careful and responsible approach to selecting contractor. In 2009 we are expecting minimum 60% decline in commercial construction volumes and the quickly mounted building market accordingly, compared to 2008.

Do presidential elections have any influence on the investors’ activity?

The commercial real estate market is greatly affected by many factors, including the political situation in the country. Currently, major domestic business and foreign investors have adopted a wait-and-see attitude. There is still interest in building shopping malls, warehouses, plants, car showrooms and other buildings, financial resources are available as well, but everybody waits the election results before investing their money. Domestic investors now need money for the elections, and western ones demand stability and predictability of power. We anticipate resumed funding under many fairly large projects after the elections.

Did your company prepare itself for such disposition? What do you undertake to promote investors’ interests during this period?

We took no special steps in this regard. The system approach to work from the very foundation of the company and project management employed by KARKAS in its activity in the recent years are best safeguards from crisis phenomena.

We always use the same tactics to attract customers – offering them the best complex solution allowing for savings during construction. Absolute adherence to undertaken obligations (construction operations, services, guarantee) to existing clients irrespective from the political situation in the country and crisis events.

A correctly defined strategy and approach to work baselined at the stage of the company’s formation, as well as many years of experience yield fruit today. Against the background of overall decline in construction, customers actively cooperate with us in design, supply and mounting commercial real estate buildings.

What can you say about state support in the construction field? Is funding of commercial real estate, similar to that ofresidential real estate, probable?

Such funding for residential real estate segment is a drop in the ocean; it is of no special support for the field, but rather mends shortages in individual companies. Such approach is impossible for commercial sector, because the state doesn’t hand round shopping malls or logistic complexes as built free of charge, as it happens with residential buildings. Supporting the construction field would benefit a lot from construction of objects being built for state funds all over the world: bridges, roads, traffic interchanges, parkings, social and cultural centers, schools, kindergartens, household waste purification plants.

Will the end of the election race affect the commercial real estate market?

I think, when the elections are over, not only construction but also other fields of Ukrainian economics will operate in a new fashion. Firstly, an approximate trend of the country’s development for the nearest years will be clear for domestic business. Secondly, foreign investors will see the course shaped by the new president, and will build better-defined strategies in terms of investments in our country. This will help everyone to assess business perspectives.

In your opinion, what can revive the commercial real estate market?

The commercial real estate market is not saturated yet, and crisis events only suspended its active development. Strong catalyzers of further growth in this segment can be resumption of affordable business lending, not expected until late 2010, as well as steady political situation in the country. However, political struggle may continue even after the Presidential elections due to a possibility of early election in the Verkhovna Rada. And certainly, Ukraine’s overcoming the crisis will be a good impulse for development, because all fields of economics are interrelated.

Could you please give us your best and worst case scenario of the industry recovering after the crisis?