Interesting trends on the Latvian property market

New office developments excitedly awaited in 2023

There has been a lot of discussion about the significant amount of high-quality office space under development in Latvia for future delivery. Although the timeline has been delayed, the “future” is getting closer, with delivery planned for 2023 of nearly 100,000 sqm of new office space built to meet the latest standards and energy requirements. Over 70,000 sqm of Class A space will become available in the Skanste area, with 3 outstanding office projects: the second stage of Verde, Elemental Skanste, and New Hanza. The center of Riga will also be enhanced with the Novira Plaza, located in the busiest part of the city close to the Origo One office project completed in 2020. Each project is unique and inspiring. Meanwhile, the Class B market will see an increase of 28,000 sqm of quality office space, including the fully pre-leased Gustavs Business Center, and 3 other medium-sized offices: Valdemāra Biroji, Zeiss Biroji on Mūkusalas Street, and an office building extension of the existing Barons Kvartāls. These Class B projects are in many ways equivalent to Class A ones.

No clear indexation strategy yet

The season with increased heating needs for properties has started, and new utility bills have been received. While most lease agreements include negotiated indexation, such as inflation caps, this time the situation is difficult. With rising additional costs, like utilities, property owners are unsure if they should raise the rent and to what extent. Decisions will vary segment by segment and on a case-by-case basis, depending on the leased space, agreement length, and other factors. It seems clear that as energy prices and ESG requirements increase, more attention will be paid to energy consumption, alternative energy options, and optimization through automation.

Experienced developers are encouraging industrial market growth

Currently, nearly 140,000 sqm of new high-quality industrial space is under development and scheduled for delivery in 2023. Most of this space is being developed by 3 experienced developers: VGP, Sirin Development, and Piche. In a few years, Sirin Development also plans to build another 200,000 sqm of high-quality modern industrial space near the Riga airport. With rising energy prices, smart energy consumption will be particularly important in the logistics industry, where the difference in rental rates among property classes may be less than the difference in utility costs. Thus, the market will embrace advanced, flexible, energy-efficient industrial developments.

Green rush

Recently, every business has been trying to implement energy-saving measures, from simple ones like lighting adjustments and energy equipment upgrades to hiring experts to review energy consumption and recommend optimization. Many property owners have turned to alternative energy sources, such as solar energy through solar panels.

Previously, tenants paid little attention to a property's “greenness,” but now that has become much more important. Real evidence is often demanded, such as utility costs, to enable comparisons with other similar properties. Before, end-user energy saving among consumers and organizations was often seen as an outdated habit, but now most such measures are viewed as normal or even smart, as every household and business has been affected by the rise in energy prices. Experience seems to have taught this lesson faster and more effectively than listening to the theoretical advantages.