By Agija Verdina, Colliers Baltics analyst
This year, it can finally be stated that the commercial property market is reviving. Several long-awaited projects are being commissioned and developers are actively announcing their plans for the future.
The office segment was relatively quiet in the first half of 2019. Office spaces of totally 11,300 m2 have been put into operation in the Akropole complex and in the renovated Telegraph building, and another 98,000 m2 of office space is under construction (compared to 112,000 m2 in Tallinn and 162,000 m2 in Vilnius). The Z-Towers and Business Garden projects will also add to the office market in the near future, which will have an impact on the amount of vacant office space. While total office space leased in the first two quarters of this year is 5% higher than during the same period last year, tenants' interest so far has been lower than expected and the amount of office space reserved during construction is low. At present, the vacancy rate is around 5% and rent rates remain stable. The co-working spaces volume, with the opening of the Workland Telegraph and Teikums Teodors, has increased by nearly 400 work places during this year, bringing to ca 1,900 coworking places in Riga in total. Several more co-working projects are under development and we can expect at least 800 additional work places to be added to the market in the near future.
The most notable milestone in the retail space segment this year was the commissioning of the Akropole project, which increased the total area of Riga shopping centers space by 15%. With the opening of the Akropole, per capita area of shopping centers in Riga increased to 0.55 m2, which is still slightly lower than Vilnius per capita index of 0.66 m2 and significantly lower than in Tallinn (0.85 m2). The Akropole reached 1 million visits in the first 40 days of opening, which negatively affected other shopping centers, but so far the vacancy rate in shopping centers remains at a healthy level below 2%. The new shopping center spaces, which will be added to Alfa and Origo in the nearest future, as well as the new shopping center Ozols (formerly – Galerija Azur location), will increase the total volume of shopping centers by another 10% up to 493,000 m2. Currently, shopping centers make 60% of the total retail space in Riga.
In the industrial segment, most of the new facilities are leased before they are put into operation, which also applies to the second phase of VGP project and Lidostas Parks (Airport Park). This year 32,000 m2 of industrial area are already put into operation and 49,000 m2 more to be commissioned by the end of the year, accordingly this year the totally commissioned m2 of industrial premises will be by 42% more than in 2018. Many companies would like to be easy-to-reach for their employees and, consequently, there is hardly any vacant space in newly built industrial buildings in Riga, while vacancies next to bypass roads tend to fill more slowly and get less interest from the tenants’ side. This also has an impact on rents, which are growing and can reach as high as 4.8 EUR/m2 in Riga, while slightly decreasing in Riga region. As a result of company relocations, the amount of vacant market space has increased to 3%.
Compared to the same period a year ago, commercial property investment in the first 6 months of this year is 19% higher and reached 150 million EUR. Half of this amount is made up of a single transaction - Baltic Horizon Fund purchased the shopping center Galerija Centrs from Linstow for 75 million EUR. The second largest investment transaction during the first half of the year was the acquisition of Elipse BLC logistics center by Mariner Capital Limited. A new player in the Latvian market is Lumi Capital – Estonian fund, which has already managed to acquire the commercial space leased by Rimi and MyFitness in Imanta Anninmuizas Blvd and the DHL logistics center. Although there were no significant investment deals in the office segment in the first half of the year, the second half began with the sale of Luminor bank headquarters building to the investment company Colonna. Unlike in previous years, the hotel market has been relatively active over this period of 2019 - Radi and Draugi Hotel was sold to Estonian investors, while RIJA VEF HOTEL was acquired by the local hotel operator Mogotel. Despite of the difficult access to financing, the investment market remains active with stable return indicators.