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The Lithuanian property market
THE LITHUANIAN PROPERTY MARKET ALL EXPECTATIONS EXCEEDED AS RECORDS ARE SET ON THE PROPERTY MARKET
Economic growth in Lithuania in 2019 surpassed even the most optimistic forecasts. GDP last year grew 3.9 per cent, marking a third straight year of similar strength. The country is well placed to show further vigour. For the first time in almost three decades, Lithuania’s population increased, not only in the capital of Vilnius but also in the other big cities. The main factors behind the change are Lithuanian citizens returning from abroad, as well as immigrants from Ukraine and Belarus. Unemployment in Lithuania increased slightly in 2019, but the growing labour force offers a favourable environment for the foreign service providers and manufacturers that are rapidly setting up and expanding in the country.
2019 was a record-breaking year for Lithuania’s transaction market. The
country’s investment volume reached an all-time high of over EUR 435 million, and accounted for nearly 60 per cent of the total Baltic market. In 2020, investors, aiming to direct investments to properties that generate cash flows, will quite aggressively seek to acquire properties that offer a good ratio of quality to value. Newsec no longer expects marked compression of yields, which will stay just below 6 per cent in the prime office segment. There remains a big chance, though, that the 5 per cent yield level will be tested in the central business district. Yield compression has reached 6.5 per cent in the retail segment and 7.5 per cent in the industrial segment. After record activity last year, when new lease agreements were signed for approximately 115,000 sqm, demand will remain strong in the Vilnius office market in 2020 as well. Over the next two years tenants will be offered some 300,000 sqm of new office space. Pre-lease agreements will be the driver of projects now in development, with all office developers set to actively compete for several large tenants. Once those leasing transactions are completed in the market, the annual average will reach the level of the last 5 years, which was 70,000 – 80,000 sqm. Lack of space will be greatest in class A properties, especially in the central business district, with vacancies of less than 3 per cent.
Contact: Kristina Živatkauskaite ˙ k.zivatkauskaite@newsec.lt
Interesting trends on the Lithuanian investment property market in 2019 and 2020:
NEW INVESTMENT PROPERTIES MEET THE HIGHEST STANDARDS Vilnius very clearly stands out as the region’s city with the most institutional investor capital and where new generation office buildings are meeting the requirements placed on them. International investors currently see more opportunities in Vilnius than in Tallinn or Riga. The Vilnius office market has wellestablished leasing practices and a developed central business district, and the office projects that are being carried out meet the highest Western European standards.
TWO RECORD SIZE INVESTMENT TRANS- ACTIONS IN THE OFFICE SEGMENT In late 2019, German property manager Deka Immobilien purchased the Quadrum business center in Vilnius, with 44,000 sqm of leasable space, from the Norwegian-owned Schage group for EUR 156.1 million. This was the biggest business-centre acquisition in the history of the Baltic countries and again drew international investors’ attention to the Baltic capitals. In early 2019, Eastnine acquired the three buildings of the S7 office complex, with 42,500 sqm of leasable space, from Galio Group for EUR 128.3 million. These transactions mark a key stage in the development of the Baltic commercial real estate market, particularly in light of their size. They show increased investor trust and market liquidity, a result of international and local investors’ considerable need for especially high-quality projects. Akropolis could fundamentally alter the Vilnius Akropolis concept.
EUR 435 MILLION 2019 transaction volume
GDP GROWTH of 3.9 per cent in 2019
300,000 SQM of new office space coming to the Vilnius office market over the coming two years
THE RETAIL MARKET IN THE CAPITAL HAS MATURED FOR NEW AND PARTICULARLY LARGE PROJECTS Last year in Vilnius, construction began on the Vilnius Outlet shopping centre (~60,000 sqm in total) and plans for a second Akropolis Vingis shopping and leisure centre (~120,000 sqm in total) started moving in earnest. These projects will essentially redraw Vilnius’s shopping-centre map and spur the development of adjacent territories. Newsec believes that the second Akropolis and the development of a national stadium and multifunctional sport complex beside the first
LOCAL INVESTORS CANNOT COMPETE WITH INTERNATIONAL INVESTORS Acquisitions of small commercial properties are getting harder and harder to carry out due to sellers’ high price expectations and stricter financing conditions. Recent policy changes enacted by the central bank and commercial banks have continued to weaken small investors’ ability to acquire commercial properties. This mainly impacts local market players, who are finding it nearly impossible to acquire properties at a yield of less than 6 per cent. The Baltic region’s investors are being forced to bide their time or turn their investments to relatively niche properties such as logistics projects, hotels and development projects.
NORDIC APPETITE FOR VILNIUS Demand for Vilnius office space will continue to grow among companies operating in the Nordics and seeking to move some of their functions and activities to Lithuania. Newsec has calculated that service centres currently occupy 150,000 sqm, or 20 per cent of the modern office space in Vilnius. With the number of fintech companies and employees in Vilnius rapidly increasing, their demand for office space will also grow. Those companies are relocating from smaller offices and co-working spaces to expanded offices in the city centre and the old town.
