The Lithuanian Property Market

INVESTMENT MARKET ACTIVITY IN LITHUANIA RETURNS TO RECORD LEVEL

The growth of Lithuania's economy in 2021 matched the latest forecasts, with GDP growing by 4.8%. The main contributors were strong exports and industrial production growth of nearly 20%. Rapidly falling unemployment put pressure on the labour market, with job vacancies surging and average wages increasing about 10% throughout the year. Meanwhile, positive trends in consumer confidence and economic sentiment spurred household consumption and boosted the retail sector. IT and logistics remained among the fastest growing sectors, while tourism and accommodation services also showed early signs of recovery. In 2022, the Lithuanian economy is currently forecast to grow by about 3.2%. Inflation, which has risen rapidly and was at 4.6% by the end of the year, will continue rising and this year could potentially reach around 7.0%. A shrinking supply of labour will continue to put upward pressure on wages, and companies that are expanding rapidly will continue to face challenges in attracting talent.

Activity on the Baltic property investment market increased notably in 2021, with transactions reaching a record level. Investment deals in Lithuania amounted to EUR 444 million, an increase of almost 70% from 2020. Activity was high throughout the year, but an especially good last quarter took the total amount of investments for the year into record territory. In fact, as the total is very similar to that in 2019, it is safe to say Lithuania has returned to pre-pandemic levels. Growth was mainly driven by deals within the retail and industrial segments, but investments were spread roughly equally across all the traditional commercial property segments. Of special note in 2021 was the emergence of a new segment in the market – demand for commercial residential property for lease projects was met through advance acquisition agreements. A similar level of investment activity is expected in 2022, and Lithuania’s share of investments, which has declined over the last several years, is expected to increase in the Baltic context.

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

Photo: Rehau

»Investment deals in Lithuania amounted to EUR 444 million, an increase of almost 70% from 2020«

Interesting trends on the Lithuanian property market in 2021 and 2022:

MORE COMMERCIAL RESIDENTIAL INVESTMENT DEALS SEEN IN THE FUTURE

As investors’ demand and competition for projects grows, market players are making increasing efforts and giving attention to segments that are still small and niche in the Baltics. Residential rental projects are attracting more and more interest among investors. The investment funds are available and what is needed now, is to find the right product and project development partners. Residential rental property has a broad promise in Lithuania and the other Baltic countries, with room for the number of investments per year to grow. Compared to other Northern European countries where this segment accounts for about 30% of all investments on the market, the development potential is big.

INDUSTRIAL SEGMENT HAS GROWTH POTENTIAL ON SALE-LEASEBACK BASIS

Growing investments to develop new industrial projects in Lithuania have also attracted the attention of real estate investors in recent years. Projects built for the specific needs of manufacturing companies are both long-term investments and attractive investment properties with long-term occupants. Transactions for the sale of built-to-suit projects that are still in the construction phase show the strong demand for industrial property. A surge in the development of industrial property in Lithuania’s outlying regions will also boost investor activity beyond the area of the capital city.

EUR 444 MILLION

Total investment volume in 2021

EUR 450 MILLION

Total investment volume expected in 2022

+3.2%

GDP growth expected in 2022

SMALL DEALS DOMINATE DUE TO LACK OF SUPPLY

Investment funds operating in the Baltics have plans to invest in target assets, but those plans exceed the supply of such properties. The largest deal of 2021 in Lithuania, with a value of EUR 40 million, ranked only 10th on the list of the largest deals in the Baltics. For larger deals, a supply of new projects needs to increase.

INVESTORS ARE PUTTING SUSTAINABILITY AT THE TOP OF THE AGENDA

All players in the market are getting seriously into the sustainability game, which is becoming somewhat of a routine. With banks now setting rules for green financing, the investment market is closing the circle, from the ambitions of builders and developers to the needs of tenants and the demands of investors and financiers. Modern project development without sustainability certification is becoming unlikely.

GEOGRAPHICAL DIVERSIFICATION OF INVESTMENTS

In Lithuania, it is easier to diversify real estate investments geographically. The more developed regions are attracting investor interest in both the commercial and industrial segments and diverting investments is less risky. The purchasing power and labour force in outlying regions are components of business growth and also a factor that boosts investor confidence. In recent years, most new industrial projects have been realized in the regions of Kaunas, Klaipeda, Kedainiai, Naujoji Akmene and Alytus. Future investments will also be seen in the capital of Vilnius and the regions of Kaunas, Kedainiai, Klaipeda and Panevezys.