In order for a new company to enter the market or an existing one to expand, two essentially obvious things are needed - manpower and premises. As if a simple formula, however, the question of why Riga is moving forward so slowly remains relevant.
In 2021 we still compare Vilnius and Riga. Statistically, Vilnius is a smaller city with less population, a smaller airport, and so on. This means that, in essence, Riga is in a better position, but why are we still so far behind Vilnius? One should not seek for the answer too long – if there is supply, there will be demand.
In the beginning of 2021, there are 14 office projects under construction in Vilnius with total area exceeding 220,000 m2, as well as in recent years the volume of lease transactions has been in average 2-3 times higher than in Riga. In the last two years, six new international companies have entered Vilnius market, and the existing ones are not afraid to expand significantly, creating new global business, call and service centers, thus, of course, creating new jobs in the country. Basically, while we can offer only a few new projects in Riga, dozens are placed on the tray in Lithuania, thus creating a greater possibility that the companies in the Baltic market will also continue to expand in Vilnius. It should be noted that the increase in office area of the last two years has not remained invisible in Riga either.
Even considering Covid-19 caused situation in 2020, the total number of leased premises in Riga reaches approximately 34,000 m2. During previous years, a maximum one new company entered Riga market per year, although 2020 was marked by three new entrants - Norwegian Air Resources SSC, The Soul Publishing and Swisscom. Thus, as the supply increased, the ability to attract new companies and the number of leased premises during the pandemic remained at the level of 2019.
Should the city provide a special approach to large projects – so called ‘green corridor’?
Currently debates take place whether such system needs to be implemented when major development projects are moving faster, creating so-called 'green corridors'. It is worth mentioning Vilnius again, where the construction of an office building can be started 2 - 2.5 times faster than in Riga. Thus, from planning stage to the moment when construction can start, it takes much less time in Vilnius. In order for Riga to be able to compete, the City Council would have to make bold decisions and allow new modern office centers to grow in the city, which would create additional workplaces.
Has the pandemic stopped positive sentiment in the Riga office market in recent years?
In 2019 we saw the largest increase in office space for the last ten years, though in 2020 two significant Class A projects were completed: Z-Towers and Origo One Business Center, which complemented the relatively small number of Class A office buildings in the city. In general, office construction volumes slightly decreased in 2020. Several developers, taking into account the uncertainty caused by Covid-19 in spring, paused the construction start of their projects, waiting for the situation to change. Although the overall situation with Covid-19 has not changed, we see that construction works have started in Riga in two notable Class A office projects, Verde and Novira Plaza, which will complement the Skanstes and Center districts with more than 40,000 m2 of office space. The project developer - investment fund “Lords LB Special Fund V” - has started active work on the construction of a new business and commercial quarter in Ķīpsala by dismantling of old buildings. At the beginning of 2021, similar works have been commenced in the city center, where the Swedish real estate company Eastnine has begun to dismantle the old buildings in the Kimmel quarter, as it is also planned to develop a new business quarter here. Currently, there are more than ten projects in active planning in Riga with total leasable area exceeding 200,000 m2. The rather ambitious plans of the developers indicate that we are adapting to the new reality of the world.
How can one explain the large amount of vacant office space in Riga and does it mean that there is enough space?
In mid-2020, the amount of vacant space in Class A and B offices reached its highest level since 2010. Of course, the pandemic and its consequences had their impact. Some companies and their employees continued to work fully or fully from home, and as the speed of business activity has declined, they wanted to consider the amount of office space required. At the end of the year, however, the amount of vacant space decreased slightly at the expense of the new entrants already mentioned above, as well as local companies that expanded significantly, e.g. 'Evolution'. Though, it is important to mention that current vacancy for Class A and B1 offices fluctuates around 26-27% and 16-17%, respectively, and it could be reduced by more than half if we excluded a couple of relatively recently launched projects, office buildings that do not fully meet market demand for location or in terms of the price asked, as well as older projects that may no longer meet modern requirements.