7 February 2017, Vilnius. In 2016, Lithuanian economy developed quite consistently, despite "Brexit" and USA election results that shook the global financial markets. Real estate (RE) market in Lithuania was significantly more active than a year ago, with indicators reaching those of 2007. Number of RE purchase-sale transactions grew across all segments. Number of apartment transactions in Vilnius increased by 13.3 percent, 11 023, and became a record in the entire history of the RE market in Lithuania. Vilnius was the most active city in the business centre segment. 5 new business centres were opened in 2016, which added to the market 86 200 sq. m. of leased space. The overall vacancy rate in the capital increased from 3.4 percent to 4.8 percent. Positive rates in the storage facility market were maintained only in Vilnius, while the number of vacancies in Kaunas and Klaipėda remained around 11-13 percent. The RE market avoided any legal surprises in 2016.
In 2016, Lithuanian economy was pushed forward by the acceleration of consumption, while industry indicators appeared slightly weaker. Civil engineering, where lack of EU funds were evident, was the segment with the poorest results. On the other hand, according to Šiauliai Bank Market and Treasury Department Analyst Rokas Lukošius, the country's economy developed rather consistently, despite the change of most of those in power after Lithuanian Seimas election, and after "Brexit" or USA election results that shook the global financial markets. "Main future risks arise from lack of significant growth of direct foreign investments, consumption encouraged by low interest rates and pending political events in the European Union “, – says R. Lukošius.
Residential RE segment
Apartment market activity was particularly high in the capital – number of apartments acquired through purchase-sale transactions in 2016 reached a record in the entire history of the RE market in independent Lithuania. Currently, the capital offers the highest possibility of the growth of housing prices, because, next to the "cheap money" environment factors, fundamental indicators, such as population growth, increasing number of jobs, rather rapidly growing salaries, etc., are relatively strong.
"Vilnius housing market is partially saved from overheating prices by RE developers who actively provide the market with new projects, thus absorbing any possible heat in the market “, – says "Inreal" analyst Robertas Žulpa. According to him, developers were very active in Vilnius in 2016 – around 4090 apartments were offered to the primary RE market, which is around 12.1 more that in 2015. Developer sales also increased by 12.4 percent, compared to 2015 – around 4140 new apartments were sold. "Number of apartments sold in the primary market was the highest over the last 9 years and only 5 percent lower than during the peak period in 2007 ", – says R. Žulpa.
The total level of unsold (available and reserved) apartments in the capital's primary market decreased to approximately 4120. This year, the liquidity rate of newly built apartments calculated by Inreal is below 1, i.e. developers can expect to realize an averagely sized project within less than a year, and this will encourage sale prices to consistently grow. During 2016, prices of newly built apartments increased across all segments: in the economic class – by 8.9 percent (up to 1420 EUR/sq. m), in the average – 2.3 percent (up to 1735 EUR/sq. m), in the prestige – by as much as 11.3 percent (up to 2825 EUR/sq. m).
The housing market in other cities was also significantly more active in 2016 compared to the previous year. RE transactions increased by at least one tenth in Kaunas, Klaipėda, Palanga and Neringa, and developers were even more active – they offered the market several times more new apartments, and an increase of their prices could be observed. Even though there are less fundamental reasons for RE markets to grow in other cities compared to Vilnius, however, it appears that the "cheap money" effect is also beginning to have an impact on them.
Commercial RE segment
Vilnius was the most active city in the business centre segment in 2016. During 2016, 5 new business centres were opened, which added to the market 86 200 sq. m. of leased space. During 2016, the overall vacancy rate in Vilnius increased from 3.4 percent to 4.8 percent, and the number of available spaces increased across all segments. Constructions were also carried out of at least ten business centres. In 2017, new business centres will provide the market with around 78 400 sq. m. of leased space, of which around 25-40 percent will likely still be available for lease on the opening day, therefore the level of vacancies may soar to 8-12 percent or more at the end of 2017. Such quantity of new facilities will undoubtedly increase vacancy indicators, therefore lease price increase should not be expected in the near future.
In 2016, two new business centres were opened in Kaunas which offered the market 4100 sq. m. At the end of the year, the free space indicator in the temporary capital dropped by almost 1 percent, compared to the relevant period in 2015, and reached 3.7 percent. In 2017-2018, 69 080 sq. m. of leased space was offered in Kaunas, therefore it is likely that vacancy may grow up to 5-10 percent at the end of 2017.
In 2016, a business centre with an area of 2000 sq. m was opened in Klaipėda. The overall level of vacancies reached 11.9 in the city at the end of 2016, and decreased by 0.3 percent over the year. In 2017, one new business centre will be opened in Klaipėda which will add around 2000 sq. m of leased space to the market.
In 2016, three new or developed business centres were opened in the country – two in Vilnius and one in Kaunas. Even though business centre vacancies are minimal, and the economic conditions for business centre development remain favourable for quite some time now, developers are cautious when investing in this segment. "First of all, it is a rather risky segment since the Lithuanian retail market is relatively small, selling commodities of secondary necessity, and, in addition, the increasing popularity of online shopping poses more and more challenges to ordinary trade, therefore the demand for business centre space may even decrease in the long run", – says R. Žulpa.
Constructions of two logistics centres were finished in the industrial centre in 2016: In Vilnius (Woodline 6800 sq. m) and in Klaipėda (VPA Logistics 17 500 sq. m). The constructions of at least 3 logistics centres intended for lease will be finished in 2017 and will supplement the market with around 30 000 sq. m.
In 2016, a slight decrease in vacancies was observed in the storage facility lease segment of the major cities in the country, however Vilnius is the only city with only a few percent of unleased spaces. Meanwhile, vacancy rate in Kaunas and Klaipėda reached 11-13 percent due to available space and new development, and, according to "Inreal" analysts, this is a serious signal that the storage market in these cities is becoming redundant, particularly due to the fact that a similar vacancy rate remains for some time now.
In 2017-2018, hotel development in Lithuania will be active like never before. Prestigious and well-known international hotel brands such as Hilton, Marriot, Design hotels, etc. will enter the Lithuanian market and should significantly improve the image of Lithuania in international markets.
Increased focus remains on territorial planning and legality of constructions
According to "Cobalt" lawyer Simas Paukštys, the RE market did not provide any unexpected legal innovations or surprises.
"Territorial planning, matters related to the legality of constructions and the rights of home buyers continue to remain one of the priority areas in the real estate market. Legislative changes have already come into force from the beginning of this year and provided significantly more authority to the State Territorial Planning and Construction Inspectorate. Based on the adopted amendments, when the Inspectorate determines that constructions are carried out arbitrarily and issues a mandatory order to demolish the illegally built structure, and when the builder fails to carry out such actions within the indicated time period, the Inspectorate can transfer the mandatory order for execution to the bailiff without applying to court", – says Simas Paukštys, lawyer in the "Cobalt" RE field, reviewing the changes of last year.
According to the lawyer, the President's criticism aimed at the inactions of authorities and large-scale construction law violations on state land often published in the press have undoubtedly contributed to these changes.
ABOUT INREAL GROUP
Inreal group which includes UAB Inreal valdymas, UAB Inreal and UAB Inreal GEO offers probably the widest range of real estate services in Lithuania. Inreal group companies belong to AB Invalda privatus kapitalas. The companies currently have over 100 employees, as well as offices and agencies operating in 11 different Lithuanian cities and towns (Vilnius, Kaunas, Klaipėda, Šiauliai,Panevėžys, Mažeikiai, Alytus, Plungė, Utena, Tauragė, Druskininkai). During more than 20 years of operation, over 50 various real estate projects were implemented, which earned recognition and won awards both in Lithuanian and in international competitions. Real estate projects are curretly being developed: "Marių verandos" in Neringa, "Dangės krantinės" in Klaipėda's old town and "HIGHWAY" business center in Vilnius. Inreal manages around 120 000 sq. m. of commercial premises, mediates in lease and sale of more than 550 thousand sq. m. of commercial premises, over 550 residential housing objects, over 300 land plots, 50 residential housing projects, 24 investment projects or their portfolios. More than 4900 valuation reports and about 80 consultations (feasibility studies, investment memorandums, and market research) are being drawn up annually. The value of assets after their valuation exceeds 720 million euros.
Rūta Merčaitienė
INREAL GROUP
Head of Marketing and Communication
Mob. +370 611 29779
ruta.mercaitiene@inreal.lt