The Latvian Property Market

LATVIAN INVESTMENT MARKET EXPERIENCING UNPARALLELED GROWTH

The economy in the first quarter of 2021 continued to follow the trends of 2020, remaining relatively slow and still unpredictable. However, Q2 was more active, with GDP growth jumping by 11.1% compared to the same period last year. Annual average inflation also climbed to 2.7%. The economy reached pre-crisis levels and is expected to maintain this path towards growth. Although the economy is expected to stabilize in 2021, and grow in 2022, there are still several uncertain factors which may significantly alter the picture. First, Latvia has a relatively low vaccination rate and as a Covid-19 cases go up; restrictions may come into force again. In addition, there is the threat posed by the Delta Variant, which has already wreaked havoc globally. Any restrictions and limitations that arise from this may undermine the economy and erode the population’s optimism and confidence for the future.

The decision to change the current cadastral values of real estate has been delayed. Beginning in 2020, the government has been working on a plan to set new and increased values from 2022. Having cadastral values that were close to actual market value would significantly increase the amount of property tax paid by individuals and businesses. However, in June 2021 current cadastral values were frozen until 2025. This decision brings relief for business as it gives them extra time and will not impose a further tax burden on current properties, especially during the period of planning, construction, or when business activities are low or even absent and cash flow is limited. Despite the prevailing uncertainty and risks in the health segment, the real estate investment market is amassing record market deals. By September 2021 there were 9 significant investment transactions in various sectors - hotel, office, retail, industrial and logistics, and residential. The total investment volume reached about EUR 310 million and exceeded 2020 full-year volumes by 25%. This year will definitely be the most successful year for real estate in Latvian history.

Contact: Inita Nitiša i.nitisa@newsec.lv Kristina Živatkauskaite ˙ k.zivatkauskaite@newsec.lt

»This year will definitely be the most successful year for real estate in Latvian history«

Interesting trends on the Latvian property market in 2021

RECORD SIZE INVESTMENT DEALS FOR THE LATVIAN MARKET

One significant shopping centre transaction is of particular note. The Akropolis Group, which owns four large shopping and entertainment centres in Vilnius, Klaipeda, Siauliai and one in Riga, agreed to buy the largest shopping centre in Latvia – Alfa. The purchase consisted of a 9.7 ha land plot and a building with a total area of 154,000 sqm including large parking space. The shopping centre underwent a major EUR 55 million expansion and upgrading in 2019, while its annual visitor numbers now reach 7 million. The EfTEN Real Estate Fund’s acquisition of Jauna ¯ Teika office campus in Riga from Hanner Group for EUR 131 million is also significant. The campus consists of four office buildings, one of which was completed in 2009, with the remaining three being finished in 2016. The gross leasable area of the campus amounts to almost 59,000 sqm with 1,100 parking spaces.

THE OFFICE SECTOR IS ESPECIALLY ACTIVE

Although only three small offices will be commissioned during this year, both tenants and developers have been active in 2021. Several expansions and relocations to higher class offices decreased vacancy by 2% and at the end of H1 it stood at 13.2%. Developers, meanwhile, are continuing with their future plans, including the acquisition of new development properties and the commencement of construction works. Linstow Baltic has concluded a EUR 10.5 million deal with NP Properties, acquiring the Sporta 2 quarter with the aim of developing a modern, high quality, multifunctional urban environment that focuses on office premises, but also includes retail, service and residential functions, as well as premises designed for public entertainment.

EUR 250 MILLION

Total investment volume in 2020

EUR 500 MILLION

Total investment volume expected in 2021

+4.0%

GDP growth expected in 2021

OFFICE PLANS ARE NO LONGER JUST ON PAPER

Construction works were commenced on a few large properties in 2021. Plans are in progress to deliver 240,000 sqm of new office space by the end of 2023, most of which will be Class A. This will account for 32% of current office space in the Riga market and provide tenants with a great opportunity to choose from a variety of high-class offices. With the expectation of such a large area being absorbed in the near future, the market must be ready for an intensive period of movement. Active relocations from lower class offices, expansions, new local and foreign businesses will be necessary so that market oversupply can be avoided.

NEW SEB OFFICE – A GOOD NEW START AND A TRENDSETTER

A relocation plan has already been made by SEB Group’s business services centre in Riga. SEB has signed an agreement with the real estate developer GALIO Group to move its office to the newly constructed business centre GUSTAVS at Gustava Zemgala gatve in the first half of 2023. SEB will occupy approximately 11,000 sqm area, which will accommodate more than 1,000 employees.