Colliers International, Baltic States and Belarus , 2008-09-10
by Jurate kavaliauskaite
Vilnius, Lithuania
According to information from the international RE consultancy company, Colliers International, the various segments of the CRE market reacted differently in H1 to the slowing economy. The supply in the office market significantly exceeds the demand. Rent rates are stable and in some business centres they are falling. Despite this, it can be seen that potential tenants are taking a wait-and-see position. The retail sector, while still maintaining stable rent rates, is beginning to feel the declining consumer purchasing power, which is forcing retailers to stop expanding while poor quality and poorly managed shopping centres have already registered a shortage of tenants. The demand for warehouse space has been affected the most by the slowing activities of the logistics companies and retail chains, which are being directly affected by rising energy prices and falling consumption.
Change in the office market ‘The transformation, which has begun, of the Vilnius office market from a landlords’ to a tenants’ market will strengthen as it is expected that by year’s end 40% more modern offices will be available. The bulk of the planned projects will be completed on time but there are also those developers who are postponing the construction of their projects or delaying the opening date of the business centres,’ said Mindaugas Kulbokas, Business Development Director at Colliers International Lithuania. According to him, the significantly larger supply has substantially changed the former situation, where the supply of high quality office space was limited and there were not enough modern offices to go around. Today’s situation is contributing to the stabilisation of rent rates and, with the drop in construction material prices, it is possible to predict a drop in rent rates. The trend in recent years where new objects were completely leased out prior to opening will not occur again in the next few years. By year’s end the total office area in Vilnius will be 266,4 thousand sqm. (Vilnius currently has 190 thousand sqm.) The supply of modern office space in Riga will have 288 thousand sqm by year’s end. (It currently has 253 thousand sqm.) Tallinn is the leader in this sector, which position it will still retain at year’s end when the market’s total area of the leased office space will be 394 thousand sqm. (The total office supply is currently 353 thousand sqm.) The rent rates for class A offices in Vilnius have also risen and reached the average of the other Baltic capitals. The rent ceiling in Vilnius is EUR 21.7 per sqm, in Riga EUR 20, and in Tallinn EUR 22.4. These prices are asked for certain areas in class A business centres. The majority of the transactions occur at the average rent rate of EUR 16–18 per sqm. ‘Rent rates, which grew 7–8% in Vilnius in H1, were affected by inflation and the demand in the existing business centres,’ said Kulbokas in giving the reasons for expensive offices. Retail market: development is slowing ‘Negative consumption trends are inducing some retail companies to stop planned development investments. Therefore developers are beginning to develop only very attractive projects in exceptional locations. The lower demand is also reflected in the vacancy rate; in Vilnius it is up to 4.6%, eightfold higher than in the other capitals of the Baltic States. The shortage of tenants is already being felt in new, poorly conceived, and poorly managed shopping centres. But this has not strongly affected prices, which have remained stable even though they are ever more frequently linked to the tenant’s planned turnover and trademark strength,’ said Kulbokas. Although the main indicators for retail sector development, i.e. wages and operating expenses, have risen in Lithuania, consumer confidence fell steadily in H1, reaching its lowest level during the last six years. Inflation, declining purchasing power, changing expectations, and changing consumption habits have caused retail growth to slow: in Q1 turnover increased 20% yoy but total growth in H1 was only 13.6%. Many retail companies officially announced a slower growth rate in May – June. In respect to area, the supply of retail space in Vilnius (381 thousand sqm) is between the largest supply in Riga (521 thousand sqm) and the smallest supply in Tallinn (370 thousand sqm). This situation will also remain at year’s end when additional retail space will be available: 66 thousand sqm is foreseen in Vilnius, 7 thousand sqm in Riga, and 56 thousand sqm in Tallinn. Warehouse occupancy will fall ‘Warehouse space is mostly leased by transport and logistics companies and by retail chains. These will unavoidably be affected by rising energy costs and falling consumption and so it is likely that more vacant space will appear due to these reasons. This tendency should also be strengthened by the plans of retail chains to have their own warehouses,’ predicted Kulbokas. He stressed that the situation in this area differs among Lithuania’s regions: Klaipeda has reached maturity while Vilnius and Kaunas are still growing. In H1 the vacancy in Vilnius warehouse facilities was 5.2%, in Riga 7.6%, and in Tallinn 4.8%. The proportion of their areas also differed: Vilnius currently has 290 thousand sqm (The construction of another 5 thousand sqm is planned by year’s end.), Riga has 316 thousand sqm (Another 83 thousand sqm are planned.), and Tallinn has 643** thousand sqm (which will be supplemented by another 50 thousand sqm by year’s end). Tallinn, which has the greatest area and the highest occupancy, has maintained the highest prices with the most expensive warehouse being leased for EUR 7 per sqm. In Riga this price was 5.3 and in Vilnius EUR 5.2. ‘The warehouse market is distinguished by the fact that new projects are being organised and developed only after tenants have been found and if such negotiations fail, the plans are often postponed,’ the business development director at Colliers International Lithuania said in pointing out the segment’s specific features. According to Kulbokas, the activities of the banks and their stricter lending policies are having a positive effect on the market; the higher interest rates and tighter financing requirements are slowing the growth of the supply and protecting the market from inexperienced short-lived developers. * including industrial parks and all the facilities within their territories that belong to the same owner. New opportunities in neighbouring Belarus The tendencies characteristic of CRE in the Baltic States differs from those in the neighbouring Belarusian market, which is at a completely different stage of development primary due to the country’s specific market conditions. The market is only now beginning to develop since the lack of supply and the growing demand for all types of premises are creating many opportunities for those investors and developers, who are prepared to investigate the country’s legal and administrative differences and specific features. About Colliers International
At Colliers International, our mission is to provide our clients with the best possible real estate solutions. As a global affiliation of independently-owned real estate services firms with 11,000 employees in 293 offices in 61countries, we are able to provide expert local real estate advice wherever our clients need us.
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Contact Information
Jūratė Kavaliauskaitė Director of the Marketing and Communication Department for the Baltic States and Belarus Phone: (+370) 5249 1212 Fax: (+370) 5249 1211 Mobile phone (+370) 6115 9797
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