Yields Up to 12% in Dollars: Can Commercial Real Estate Compete with Government Bonds? Insights from Alterra CEO

In the evolving landscape of Ukrainian investment opportunities, commercial real estate is emerging as a compelling alternative to traditional fixed-income instruments like government bonds (OVGZ). Dmytro Kovalchuk, CEO of Alterra, one of Ukraine’s leading real estate development companies, has been making the case that well-positioned commercial properties can deliver returns that rival or even exceed those offered by government securities, with yields reaching up to 12% in dollar terms.

The comparison between commercial real estate and government bonds has become increasingly relevant for Ukrainian investors seeking stable returns amid economic uncertainty. While OVGZ have traditionally been considered a safe haven, offering predictable yields backed by government guarantees, the commercial real estate sector presents a different value proposition—one that combines regular rental income with potential capital appreciation. Kovalchuk argues that for investors with a longer time horizon and appropriate risk tolerance, commercial properties can provide superior risk-adjusted returns.

The scale of investment required for significant commercial real estate development is substantial. According to Kovalchuk, launching projects with a total area of approximately 150,000 square meters demands considerable capital allocation and meticulous planning. Such large-scale developments typically include logistics centers, retail parks, and office complexes that require not only significant upfront investment but also sophisticated project management capabilities. The total development costs for projects of this magnitude can run into hundreds of millions of dollars, depending on location, specifications, and market conditions.

One of the critical factors influencing construction economics in recent years has been the volatility in fuel prices. Kovalchuk highlighted how fluctuations in energy costs have directly impacted construction budgets and timelines. Fuel prices affect virtually every aspect of the building process—from the transportation of materials to the operation of heavy machinery on construction sites. When fuel costs spike, developers face difficult decisions about whether to absorb the additional expenses, pass them on to future tenants through higher rents, or delay projects until market conditions stabilize. This energy sensitivity has become a key consideration in project feasibility studies.

The Ukrainian commercial real estate market has undergone significant transformation over the past decade. Before the full-scale invasion in 2022, the country was experiencing steady growth in modern warehouse and logistics facilities, driven by the expansion of e-commerce and international supply chain integration. Office markets in major cities like Kyiv, Lviv, and Dnipro were attracting both domestic and international tenants. Despite the challenges posed by the ongoing conflict, certain segments of the commercial real estate market have shown remarkable resilience, particularly logistics and warehouse properties that support critical supply chain operations.

For investors comparing commercial real estate to OVGZ, several factors merit consideration. Government bonds offer liquidity and government backing but are subject to currency risk and inflation erosion. Commercial real estate, meanwhile, can provide inflation-hedged returns through rental escalation clauses and tends to appreciate over time in nominal terms. However, real estate investments require active management, carry vacancy and tenant credit risks, and are significantly less liquid than securities. The 12% dollar-denominated yields cited by Kovalchuk typically assume full occupancy and stable tenant relationships—conditions that require experienced asset management to achieve.

Looking ahead, the Ukrainian commercial real estate sector faces both challenges and opportunities. Reconstruction efforts following the conflict’s eventual resolution are expected to create substantial demand for modern commercial facilities. International development finance institutions and private investors have already signaled interest in participating in Ukraine’s rebuilding, potentially providing favorable financing conditions for quality development projects. Companies like Alterra, with established track records and local expertise, may be well-positioned to capitalize on these opportunities while navigating the complex regulatory and operational environment that characterizes the Ukrainian market.

The debate over optimal investment allocation between government securities and real assets ultimately depends on individual investor circumstances, including risk tolerance, investment horizon, and liquidity needs. What remains clear is that commercial real estate, despite its complexities, continues to offer meaningful diversification benefits and return potential that merits serious consideration alongside traditional fixed-income instruments in the Ukrainian investment landscape.