The Latvian property market

THE LATVIAN PROPERTY MARKET LATVIA IS ENTERING A NEW PHASE OF MARKET EXPANSION

Latvia’s economy displayed slower growth in 2019, as was expected. Annual GDP grew about 2.5 per cent, with forecasts for this year offering hope of faster expansion. The biggest driver of economic growth is domestic consumption, which is what ensures the greatest stability. Employment is rising and the unemployment level should fall below 6 per cent. The situation on the labour market is positively influencing wage growth. Latvia has been among the first in the Baltics to start feeling the negative impact of falling external demand and thus also reduced foreign trade volumes. However, many companies view such challenges as opportunities. The resilience, ability to adapt goods and services to new markets and tenacity working in difficult conditions that they have acquired provide an advantage relative to competitors.

The real estate investment market in Latvia performed similarly to 2018 in 2019, with a total invested amount of just over EUR 230 million. Prime office yields compressed to 6.2 per cent, while retail and industrial yields fell to 6.75 per cent and 7.75 per cent respectively. The Riga real estate market is seeing changes it has not seen in at least the last decade, a time when new office projects have been rare and the new office space market has stagnated. Newsec is finally noting a supply of new office space, though new premises are dominated by class B projects in class B locations. Future supply of quality class A space that could liven up the leasing market is still awaited. There is no clearly delineated central business district in the Riga office market, so planned new projects (like those by Lords LB and Galio Group) are sure to position themselves as alternative CBDs with their attractive business locations.

Contact: Kristina Živatkauskaite ˙ k.zivatkauskaite@newsec.lt

»In late 2019, the Vienna Insurance Group’s VIG Fund acquired three office buildings in Riga from the Baltic RE Group. This was the first purchase in the Riga office sector by a Western European investor and one of the biggest investments in Latvian commercial property in several years«

Interesting trends on the Latvian investment property market in 2019 and 2020:

MAJOR INVESTOR SHIFT ON THE LATVIAN INVESTMENT MARKET Since US-based Blackstone, the world’s biggest investment fund manager, entered Latvia in 2015, the country had not seen any significant new investors. In late 2019, the Vienna Insurance Group’s VIG Fund acquired three office buildings in Riga from the Baltic RE Group. That market entry by a Western European investor of such calibre is the first sign of trust in the country and the first investment of its size on the Latvian office market in several years. This can be compared to German investment fund Deka Immobilien's return to the Baltics, with their acquisition of a prime office project in the central business district of Vilnius.

EUR 230 MILLION 2019 transaction volume

GDP GROWTH of 2.5 per cent

OFFICE PROJECTS consisting of more than 235,000 sqm are in the planning stage

RIGA AKROPOLE CONTINUES TO MAKE WAVES On the retail market, the main player on whom everyone’s eyes are fixed is the new Riga Akropole. The shopping and leisure centre will mark its first anniversary in April 2020. The long-planned project has clearly made serious waves in Riga’s retail market, as preparations for the new player’s arrival began before its launch and competitors are still working on adapting to the new situation. Besides the often mentioned expansions and upgrades at the longstanding Alfa, Origo and Riga Plaza shopping centres, the Ozols shopping centre (formerly Atrium Azur) has been heavily overhauled, Domina Shopping and Spice are still being renovated and enlarged, and the older part of Origo is being closed entirely for reconstruction. The opening of new shopping centres with formats not yet seen on the market is awaited: the Via Jurmala Outlet Village and the Saga family-focused shopping and entertainment centre which is in development beside the Riga IKEA. Riga’s retail market is set to ascend to a new level and form a supply of quality investment projects.

EXPERIENCED BALTIC PROPERTY DEVELOPERS ARE PREPARING FOR NEW PROJECTS IN LATVIA Over the last 2 years, at least 3 or 4 major office development projects have been initiated by developers that have experience on the market and are serious about undertaking new projects. Projects consisting of more than 235,000 sqm are already in the planning stage. These steps suggest the market can expect new foreign investors, who could be attracted as early as the construction stage.

RIGA HAS NOTABLE POTENTIAL TO BECOME THE BALTIC REGION’S CAPITAL Newsec believes it is essential for the city of Riga, at a strategic level, to clarify the location of its central business district, focusing business and municipal efforts and investments in order to take advantage of the favourable market conditions, the scale of which Riga has not seen in the past 10 years. Developers in Riga should look to seize this opportunity and make use of the fact that the foreign developer and investor community has turned its attention to all of the Baltic capitals.