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«Does
Ukraine Need System Integration?» LonMark Magazine, Integrator’s Perspective #6 April
2006 Ukraine is still a new country You
might be surprised by the fact that Ukraine is Europe’s second largest
country with twice the area of Germany and a population of 47 million
(comparable to France, Italy or Spain). It is
also the second largest country of the former USSR. But although it gained
independence 15 years ago, it is still a relatively unknown country for most
of the world. Is there a market for LONWORKS solutions in
Ukraine? After
the disintegration of the Soviet Union and subsequent recession between 1991
and 1998, the real estate market has finally begun to develop. Just
like Russia – in particular Moscow – the building market in Ukraine,
particularly in Kiev, the capital of Ukraine, is truly booming. Visit this
beautiful country and you will definitely be impressed by the number of
building cranes visible every where. However,
as we used to say, Kiev is not the whole of Ukraine and is, as before, the
most developed and developing city in Ukraine. Although most investment is centered on Kiev, high return on investment is also
achieved in other major Ukrainian cities such as Dnipropetrovsk,
Kharkiv, Donetsk, Odesa
and Lviv. This article, however, will focus
primarily on Kiev. Even
last year’s revolution did not noticeably influence real estate market
prices. Many investors who wanted to enter the Ukrainian real estate market
postponed their activities, preferring to wait for a better time to invest.
Despite the turbulent political atmosphere, the legal climate was slightly
improved and the level of corruption reduced. Now – one year after the
revolution – investment in the real estate market has increased
significantly. At a
time when commercial building markets in countries of Central Europe are in
the saturation phase with accordingly low levels of profitability, the
Ukrainian market now provides a quick return on investment for investors.
Nowadays, profitability in all segments of commercial property in Kiev
exceeds the level of London, Budapest, Warsaw and even Moscow. At the moment,
investors in the retail property segment can expect to recoup their initial
outlay within 3 to 5 years (rest of Europe 10 to 15 years), in office
buildings in 5 to 8 years (rest of Europe 12 to 15 years), in the hotel
industry in 7 to 12 years (rest of Europe 14 to 16 years), in warehouses in 8
to 15 years (rest of Europe 15 to 17 years). Of course the pay-back period
for investment in real estate will expand, but it will take years and will
not occur overnight! Office buildings are the most attractive
market Although
there are a number of attractive markets for using LONWORKS networks in the building
industry, let’s take a look at the most advanced segment – the office
building market. The
demand for office space in Kiev is still much higher than the available
supply. Fifty to 100% of office space is already sold or leased at the
construction stage. Ukrainian realtors have no problem finding clients for
commercial property of any kind and quality. This imbalance will continue for
at least the next three years. The
quality of most offices in Kiev is low. This situation will only change when
supply meets demand. This in turn will force rental rates down (which are now
on average $372 per square meter per year) and developers will be needed in
order to provide better quality, i.e. better comfort, better security and
raised prestige. The
amount of office space in Kiev rose by 27.3% to Business
centers according to categories are as follow:
A-category – 12%, B+ – 12%, B – 65%, and C category – 11%. Under-occupancy is
averaging 3-8% and the level of unoccupied office space is predicted to
remain at 7-8% until 2008. Analysts say that Kiev’s office building market is
similar to the markets in Budapest, Prague, and Warsaw seven to nine years
ago. Also, at this point of time, offices of large multinational companies in
Kiev are on average still five times smaller than those in Budapest, Prague
and Warsaw, which on one hand confirms the underdevelopment of the market,
but on the other testifies its perspectives. Kiev
is expected to go the same way as Warsaw, Prague and Budapest, and by 2010 A-
and B-class office space is predicted to occupy Despite
the fact that the commercial property market is financially very attractive,
only local developers are currently taking advantage of it. This is due to
the specificity of the market, well-developed bureaucracy in the country and
opaque licensing rights for investors, developers and builders. Experts
agree that the standard of quality in the office building market will
immediately increase once leading international developers start building
modern office buildings in compliance with world standards and best
practices. The term “Intelligent Building” In
Ukraine the term “intelligent building” is still only a term and not the
usual practice. The reason lies in low awareness of the benefits of
intelligent buildings amongst constructors and developers. Often local
investors think of intelligent buildings in terms of single system
automation, for example, by putting a SCADA system on the HVAC they think
they have added intelligence to the building. Moreover,
Ukrainian developers still think of building management systems as being a
great way of wasting money and not as an effective tool for saving money in
the long-term. Therefore many huge business centers
are mostly built using old Soviet technology which is ineffective and
consumes enormous amounts of electricity and other resources. The trend
for applying cheap technology is also easy to understand. The mentality of
the overwhelming majority of investors is to put money in real estate
business today and to get money back tomorrow! And, of course, the easiest
way to do this is to build cheap and sell high. Another
hindrance for Ukrainian system integrators when it comes to implementing an
intelligent building concept is the absence of appropriate norms and
standards for the building industry. Most norms used here today originate
from the time of the Soviet Union. Prerequisites for investing in intelligent
technologies However,
big national companies are now striving to significantly improve their office
space and are looking for offers on the market which could provide them with
better comfort, security and energy savings for their premises. And, of
course, intelligent building technologies are by far a better alternative to
the existing old standards of building management. In
addition, constructors who need to maintain the premises they built
understand more and more that intelligent technologies are much more
effective and profitable than old-fashion building models. The
paradigm shift is also occurring in the minds of investors who are concerned
about energy costs. During the Soviet era energy was available practically
for free and nobody ever cared about the amount of energy they used. Energy
was just taken for granted. But times have changed and energy prices in
Ukraine are rising year by year. Little by little investors have started to
understand that old management building technologies are no longer
appropriate. And
last but not least, the recent scandal between Russia and Ukraine on gas
prices sparked off a dynamic turn towards energy-saving technologies.
Immediately after the gas scandal, Ukraine passed an ‘Energy Savings’ law
which will regulate state policies on energy. The profession of the system integrator System
integration in Ukraine is a relatively new concept for Ukrainian builders,
developers and investors. Since this profession didn’t exist in the former
USSR either, there are no design institutes specializing in this discipline. All
system integrators in Ukraine are privately run and relatively young
companies which still have a lot to learn about Building Automation and
Management Systems. Developers
find it difficult to select a competent system integrator who is capable of
integrating the systems the customer needs. Moreover,
too many system integrators in Ukraine are ‘semi-integrators’ here, i.e.
‘integrators’ who provide automation for one or a few systems but who are not
able to integrate the whole variety of systems present in a building. Conclusions The
future of the Ukrainian building market in terms of building automation
systems looks very bright. The office building market will probably be the
first building segment to broadly apply the intelligent building concept. The
market still has to be informed. Developers, builders and investors should
receive complete information and get the full picture on proper building
automation systems. This could be achieved through a series of seminars,
exhibitions, and the press. Developing
such awareness is the objective of the recently formed LONMARK Ukraine which
was launched on the initiative of Inteldome, the
system integrator’s based in Kiev. The
building automation market in Ukraine is starting to take off, with a number
of system integration companies forming over the last few years. One
of the biggest advantages of the Ukrainian market is that we can take the
vast experience of the West and applying it directly – we don’t need to
redevelop the wheel. As Microsoft says: ‘Cut & Paste’! General Manager Inteldome Ukraine |