Lviv's $150 mil­lion IT park

Kyiv Post Legal Quarterly - - Contents - #01/2018 [KYIV POST REAL ES­TATE] By Denys Kras­nikov kras­nikov@kyiv­post.com

Ukraine’s unof­fi­cial western cap­i­tal of Lviv, the city of 730,000 peo­ple more than 500 kilo­me­ters west of Kyiv, takes in­for­ma­tion tech­nol­ogy se­ri­ously. With ta­lented Ukrainian grad­u­ates in­creas­ingly pur­su­ing work abroad, and tech busi­nesses in the city fac­ing a real es­tate squeeze, IT com­pa­nies in the city have un­veiled an am­bi­tious so­lu­tion to at­tract and keep tech busi­nesses.

That pro­ject is Lviv IT Park — a 10-hectares of­fice park worth $150 mil­lion, un­der con­struc­tion, ac­cord­ing to its web­site, about five kilo­me­ters from down­town Lviv.

In­tended specif­i­cally for IT firms, the park is the re­sult of co­op­er­a­tion be­tween Lviv IT Clus­ter, an as­so­ci­a­tion of tech com­pa­nies that ad­vo­cate for eco­nomic and so­cial change. De­signed with pro­gram­mers in mind, it’s meant not just to rem­edy Lviv’s peren­nial of­fice space short­age, but also to of­fer so­cial perks and com­mu­nity to tech work­ers in the city.

Shrink­ing of­fice space

Lo­cals have been vo­cal about Lviv’s un­der­de­vel­oped busi­ness in­fras­truc­ture for sev­eral years, de­scrib­ing most of the of­fice space as “out­dated.”

And, says Nick Cot­ton, a Kyiv-based real es­tate agent, of­fices aren’t just old, they’re scarce: de­mand in­creases

ev­ery year, while new con­struc­tion has stag­nated ow­ing to Ukraine’s ex­or­bi­tant in­ter­est rates on credit.

Scarce, bad of­fices have helped fuel the brain drain, say Lviv lo­cals. IT com­pa­nies in par­tic­u­lar feel the squeeze: an av­er­age tech startup grows by about 20 per­cent a year, ac­cord­ing to Lviv IT Clus­ter.

De­spite this, Lviv au­thor­i­ties were re­luc­tant to pro­vide a strate­gic so­lu­tion. So Lviv IT Clus­ter took the mat­ter into its own hands, said the head of the clus­ter Stephan Ve­selovsky to the Kyiv Post.

“Real es­tate mar­ket was stag­nat­ing, con­struc­tion com­pa­nies didn't want to in­vest money into projects with long re­turns,” Ve­selovsky said. So he de­cided to do some­thing about it. The first step was to sur­vey Lviv IT Clus­ter mem­bers — 60 tech firms with nearly 10,000 em­ploy­ees –to un­der­stand the real de­mands for of­fice space.

This even­tu­ally lead Ve­selovsky to hire a con­struc­tion con­sul­tancy firm to come up with the pro­ject: a mas­sive in­dus­trial park called the In­no­va­tion District IT Park.

At­tract­ing in­vest­ment Lviv IT Clus­ter pre­sented the idea of the in­no­va­tion park in 2016 dur­ing the Lviv IT Jazz Con­fer­ence and Lviv IT Arena, im­por­tant an­nual tech-re­lated events in the city. In­vestors im­me­di­ately were in­ter­ested, says Ve­selovsky, es­pe­cially as dozens of com­pa­nies vouched for the pro­ject, promis­ing to oc­cupy of­fices once it was built.

Prop­erty de­vel­op­ment com­pany Galereja Cen­tre, di­rected by Volodymyr Zhen­chak, who ear­lier had built the Fo­rum Lviv mall, was the first to back the pro­ject. Later, there ap­peared sev­eral other in­vestors, but Ve­selovsky is not will­ing to dis­close their names yet.

To Zhen­chak, who is over­see­ing the con­struc­tion site, the pro­ject is im­por­tant for its so­cial im­pact. A mall or res­i­den­tial build­ing would bring money in much faster, but this one, he says, will bring longer-term profit to Ukaine.

“This pro­ject is a so­cial one, it is im­por­tant for the fu­ture of Lviv and Ukraine,” Zhen­chak told the Kyiv Post. “Every­one sup­ports tech in­dus­try around the globe for it to moves coun­tries fur­ther in their tech­no­log­i­cal de­vel­op­ment (and so should Ukraine).”

That said, Zhechank ex­pects the pro­ject to be solidly prof­itable, given the city’s need for of­fice space.

“There’s a de­mand in Lviv for such premises and no­body else seems to be ea­ger to ful­fill it,” he said. “So I will.”

So­cial ben­e­fits The IT park is to be con­structed south of Lviv at Ivana Ch­moly Street. It will break ground on June 30, and its first stage is slated to be com­pleted by 2020.

The list of ameni­ties in­cludes im­pres­sive so­cial in­fras­truc­ture. In ad­di­tion to 100,000 square me­ters of of­fice space in six of­fice build­ings, and two busi­ness cen­ters, it will have a sports and shop­ping cen­ters, a kinder­garten, and a univer­sity cam­pus be­long­ing to Ukrainian Catholic Univer­sity for tech-re­lated cour­ses.

Right now Lviv IT Clus­ter does not dis­close the price of a square me­ter. But Ve­selovsky says 70 per­cent of all planned rent space is al­ready oc­cu­pied. There are 12 tech firms, in­clud­ing Soft­serve, N-IX, and Global Logic, all which have signed a con­tract with the IT Park.

Soft­serve’s Board Mem­ber Taras Kytsmey sees the IT Park as “a plat­form that cre­ates syn­ergy be­tween com­puter com­pa­nies.”

He says the park offers plenty of con­ve­niences, and Soft­serve’s em­ploy­ees would love to work in a place like this — with kinder­gartens and su­per­mar­kets nearby.

Be­sides, Kytsmey says that there is a pos­i­tive ef­fect hav­ing a univer­sity nearby since both com­pa­nies and stu­dents will benefit.

“Com­pa­nies will be able to com­pete for the best

stu­dents, and the stu­dents them­selves will be able to start their ca­reers at the coun­try’s best tech firms, right af­ter their grad­u­a­tion,” Kytsmey said.

The IT park is a pro­ject with a busi­ness model that is ex­pected to gen­er­ate rev­enue. But the IT Clus­ter does not own any eq­uity.

Rather, says Ve­selovsky, it serves strictly as an evangelist for the pro­ject’s de­vel­op­ment and a bridge be­tween con­struc­tion com­pa­nies and tech busi­ness.

If the pro­ject is suc­cess­ful, says Ve­selovsky, it will im­prove Ukraine’s busi­ness rep­u­ta­tion. The Kyiv Post’s tech­nol­ogy cov­er­age is spon­sored by Cik­lum and NIX So­lu­tions. The con­tent is in­de­pen­dent of the donors.

A model of IT Park, which will of­fer 100,000 square me­ters of of­fice space in Lviv by 2020. This real es­tate pro­ject is specif­i­cally de­signed for tech com­pa­nies. (Cour­tesy)

Stephan Ve­selovsky, the CEO of Lviv IT Clus­ter, talks with jour­nal­ists, presents the model of a real es­tate pro­ject, IT Park, at a tech con­fer­ence in Lviv in June 2017. (Coutresy)

Lviv IT Park will in­clude a univer­sity cam­pus be­long­ing to Ukrainian Catholic Univer­sity for tech-re­lated cour­ses.

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