The Latvian Property Market

RIGA’S INVESTMENT MARKET IN 2021 WAS ACTIVE AS NEVER BEFORE

Photo: ADM Holding

At the start of 2021, the Latvian economy continued its 2020 trend of relative sluggishness and unpredictability, with above-average unemployment. But Q2 was more active: a GDP jump of 10.3% from the year before contributed to inflation of 2.7%, while unemployment decreased slightly to 7.9%. In Q3, GDP grew by 5.1% and inflation was 4.2 %, while unemployment fell notably to 7.2%. For Q4, preliminary figures put GDP growth at 3.4% and unemployment at 7.6%. Average inflation for the year was 3.2%. Forecasts for 2022, as updated in December 2021, are slightly less optimistic than before. Overall, however, 2021 was better than initially expected. While some segments remained weaker than in pre-Covid times (hotels, catering), others like logistics, grocery and healthcare improved, spurring economic growth and employment. Rising energy prices gave some sense of uncertainty at the end of the year. Nevertheless, the latest forecasts for 2022 envisage GDP growth of 4.1% with a 6.6% inflation rate and 6.8% unemployment.

The office market remained active despite the popularity of working from home, with decreasing vacancy rates and new projects. Some of the large office developments put on hold in 2020 began construction in 2021, making the city of Riga more attractive to international companies. The real estate investment market in Latvia, meanwhile, was in record territory. Deal value of about EUR 610 million in 2021 was the most ever in Latvia and exceeded the figure for 2020 by 144%. There were 15 significant investment transactions in various sectors in the year, led by retail, with deals for one-fifth of the total value signed in the last quarter. It will be difficult to maintain similar levels of investment in the coming years, though the number of investment transactions may grow further and maintain development momentum.

Contact: Inita Nitiša i.nitisa@newsec.lv

»Deal value of about EUR 610 million in 2021 was the most ever in Latvia and exceeded the figure for 2020 by 144%«

Interesting trends on the Latvian property market in 2021 and 2022

MORE THAN HALF OF INVESTMENT GOES TO RETAIL

Of 15 investment deals 7 were in the retail segment and accounted for more than 50% of total deal value. The largest retail transactions were the acquisitions of the Alfa shopping centre by Lithuania’s Akropolis Group, acquisition of the Stockmann shopping centres in Riga and Tallinn in one transaction by Estonia’s Viru Keemia Grupp, and acquisition of the Ozols shopping centre by Titanium Baltic Real Estate. Ozols (formerly Azur) was previously acquired by KS Holding in 2016 and redeveloped over 3 years.

NEW FOREIGN INVESTOR ON THE LATVIAN MARKET

A new Finnish investment fund entered Latvia by acquiring the Ozols shopping centre, as noted above. The fund is focused on the Baltic real estate market, diversifying its investments in housing, business, logistics and industrial properties, hotels and commercial and social real estate. It invests mainly in new and contemporary properties.

OFFICE DEVELOPMENTS AND NEW LEASING DEALS

Construction commenced on several large office projects in 2021: Preses Nama Kvartals, Verde, Elemental Skanste and New Hanza. In total, there are plans to deliver more than 240,000 sqm of new office space by the end of 2023, mostly Class A. These projects are equal to 32% of current space in the Riga office market, which will provide tenants with a great opportunity to choose from a variety of high-class offices. Still, the market needs to be ready to absorb so much space over a short time period. Intense movement from lower class offices, expansions, and the entrance of new local and foreign businesses will all be needed to avoid oversupply on the market.

EUR 610 MILLION

Total investment volume in 2021

EUR 380 MILLION

Total investment volume expected in 2022

+4.1%

GDP growth expected in 2022

NEW PRE-LEASE DEALS FOR SEB

SEB Group’s business services centre in Riga has signed an agreement with the real estate developer GALIO Group to move its office to the newly constructed GUSTAVS business centre on Gustava Zemgala Street in the first half of 2023. SEB will occupy around 11,000 sqm, accommodating more than 1,000 employees.

In addition, SEB Bank in Latvia has signed a pre-lease office headquarter agreement with Linstow Baltic in the planned office building at Ernesta Birznieka-Upisa 2, in the very centre of Riga. SEB will become the anchor tenant of the new office development. Preparation works have started already, with a planned opening for 2025.

PAN-BALTIC INVESTORS DOMINATE THE MARKET

Overall, the real estate investment market last year was driven by pan-Baltic investors. Latvia had the smallest share of capital from non-Baltic investors of all the Baltic countries, at about 15% of total transaction value. Close to 85% of total investment was carried out by professional investors, mainly in large deals. Average deal size of EUR 40 million in 2021 was nearly double the previous year’s amount.