February 6, 2014. Vilnius. Inreal analysts and lawyers of SORAINEN, participating in the conference that was held by Lithuanian Real Estate Development Association (LREDA) today, stated that a stable growth is still continuing in the commercial real estate (hereinafter – RE) market. Business centres enjoyed well-occupied premises and increasing prices, the rental demand in shopping centres has been further exceeding the supply, and the lessees of commercial premises stopped disputing on the reduction of rents. The vacancy rate in logistics has been further decreasing – it was particularly difficult to rent up modern warehouses, larger than 500 sq. m., in the major cities, and, due to record-breaking investments, 7 new hotels were opened in the hotel market. Usually the investments in RE are made by purchasing shares of companies, which are engaged in RE management activity.
In 2013, the trends of well-occupied premises and growing rents were prevailing in business centres in Lithuania. Active investments have been further continued in the business centre market of the capital city – 2 business centres (13,300 sq. m.) were opened and 6 new business centres (73,500 sq. m.) are being built. “Despite the new projects, the vacancy rate in the capital city has been further decreasing – it has shrunk by more than a half over a year – from 7.1 to 3.5 percent,” - stated Arnoldas Antanavičius, the Head of Consultations and Analysis Department of Inreal Valdymas. According to him, the total area of modern offices, occupied in a year, exceeded 26,000 sq. m. Considering the fact that the newly scheduled projects will be implemented in two years, the existing increase in supply should meet the need in the market. Vacancy rates in Kaunas and Klaipėda have also been decreasing, from 6.9 to 5.8 and from 18.1 to 14.0 percent, respectively. Rents of modern offices in Kaunas and Klaipėda have remained stable. Current market indicators do not promote investing in the construction of new modern projects. Currently the investors focus on the renewal or reconstruction of the existing buildings into offices in these cities.
“Currently, the recovery in the market promotes the managers of the shopping centres to start certain rearrangements, implement new concepts and activity strategies. This results in arising of the issues related to a lessor’s right to rearrange the lessees in the shopping centres, expand or reduce premises to certain lessees, and make changes in the segment of lessees,” – agreed Giedrė Frolenkienė, the attorney at law and the Chief Lawyer at the Law Firm SORAINEN. According to her, the present circumstances as well as the changes in the attitude of the lessees of commercial premises will lead to the formulation of a new case-law in the field of disputes related to RE. “If during the economic crisis a rare lessee of commercial premises has not argued about the reduction of a rent, last year there were almost no such disputes. It is possible, that in the nearest future the object of disputes related to RE will be the rearrangements of commercial property, related to the lessor’s rights,” – stated the lawyer Giedrė Frolenkienė.
The demand of premises has been further exceeding the supply in the shopping centres, which are attracting the major flows of people. It was influenced not only by the recovering consumption, but also by the powerful foreign brands, which joined the market of the country in 2013; one of the leading ones – the global leader of retail clothing trading Hennes & Mauritz (H&M). The new powerful brands have significantly enlivened the market of shopping centres. As a result of the new powerful lessees, joining the market, the major shopping centres of the country, that are completely occupied almost permanently, decide to terminate the contracts with lessees, whose trading results are weaker. The latter, in turn, are moving to a more distant shopping centres, where vacancy rates are also decreasing significantly. In mid-2013, the first IKEA mall in the Baltic countries was opened in Vilnius (25,000 sq. m.), the construction of the shopping centres Prisma (10,000 sq. m.), Domus Pro I (7.500 sq. m.) and the reconstruction of Gedimino 9 (16,500 sq. m.) was launched. The construction of the shopping centre Luizė, 6,500 sq. m., was launched in Klaipėda. The major part of premises in the shopping centres, which currently are under construction, are already reserved, although the opening dates of the shopping centres are expected no earlier than in the first half of 2014.
According to Inreal analysts, there was no lack of investments in the retail trade sector in 2013 as well, but at this time the development in this sector has been made not only by the major shopping centres, which open or reconstruct 10-20 points-of-sale every year, i.e. Maxima, Norfa, or Iki. In 2013, several new shops in Lithuania were opened by Rimi (3) and Kubas (2), but the highest number of new shops belongs to the market newcomer Fresh Market (12). This network is planning even a more active development in 2014. The total amount of investments of retail trade networks in their development in Lithuania has exceeded 210 million Litas over the year.
A high number of RE transactions was also confirmed by SORAINEN lawyers. “The recovery in RE market showed that the majority of transactions are being made by purchasing real estate not directly, but through the so-called “share-transactions” by purchasing shares of companies, which are engaged in RE management activity. Considering this trend, it would be possible to conclude that, essentially, the RE investors tolerate the risk which is related to the “historical” activity of a company, e.g. appropriate payment of taxes, legitimacy of design and construction, transactions made by a company; and they believe in the effectiveness of the legal and commercial instruments for management of such risks, and the legal environment is stable sufficiently,” - stated SORAINEN lawyer Giedrė Frolenkienė.
The analysis of the vacancy rates of modern logistic centres in the major cities on the country in 2013 showed that it was particularly difficult to rent up modern warehouses, larger than 500 sq. m., in all three largest cities of the country. The vacancy rate in Vilnius city decreased up to 0.9 percent (3,600 sq. m.). The rate has also remained almost equal to 0 in Kaunas, while the vacancy rate in Klaipėda reached 0.5 percent (350 sq. m). In early 2013, the managers of logistic centres have increased rents for new lessees by 5-10 percent, and it seems that the balance, corresponding the expectations of both sides, was achieved. Therefore, the prices should remain stable in the nearest future. In late 2013, the rents of modern logistic centres in the capital city reached 12–17 LTL/ sq. m., and 11–15 Lt/ sq. m. – in Kaunas and Klaipėda. The rents in old logistic centres in Vilnius reached 6–10 LTL/ sq. m., and 5–9 Lt/ sq. m – in Kaunas and Klaipėda.
The construction of logistic centres Transekspedicija II (17,000 sq. m.) in Vilnius and Vlantana II (15,000 sq. m.) in Klaipėda, launched in 2013, has gained momentum. In 2014, the development of existing centres in Vilnius should be started by Arvydo Paslaugos (8,500 sq. m.), and Ad Rem Lez (8,200 sq. m.) in Klaipėda. In 2013, the construction of the “built-to-suit” warehouses was launched by Hormann Lietuva (5,000 sq. m.) and Wurth Lietuva (5,700 sq. m.) near Vilnius, the trade company Osama (2,000 sq. m.) and Gintarinė Vaistinė (9,600 sq. m.) – in Kaunas, and AB Klaipėdos Jūrų Krovinių Kompanija (KLASCO, 8,000 sq. m.) – in Klaipėda.
In 2013, even 7 new hotels were opened, which have supplemented the hotel market with more than 440 rooms. Such active investment in this segment market in Lithuania has not been seen for long, however the majority of new hotels were partially financed through EU support funds for Tourism development. Investments in the hotel market should not be missing this year as well – the opening of a 60-room, 4-star hotel Amberton Green in Palanga is expected in the first quarter of the year. Some more Lithuanian RE investors are considering the idea of investing in this segment, moreover, international hotel networks give more hints about their intentions to join the Lithuanian market or start development in it.
Review of Lithuanian Economics and Real Estate Market of 2013-2014 is available on the websites www.inreal.lt and www.sorainen.com.
ABOUT INREAL GROUP
Inreal group provides probably the widest spectrum of services in Lithuania, related to real estate services. The group consists of JSC "Inreal Valdymas" (Inreal Management), JSC "Inreal" and JSC "Inreal GEO". Inreal group companies belong to SC "Invalda privatus kapitalas". 90 employees are currently working in Inreal group; mediations in lease or sale of 550 thousand sq. m. of commercial premises; the value of asset, evaluated per year, is above 2 milliard Litas. Company offices or representations are operating in Vilnius, Kaunas, Klaipėda, Šiauliai, Mažeikiai, Alytus, Plungė and Utena. Currently JSC "Inreal Valdymas" develops two real estate projects: houses in Nida "Kopų vetrunges" ("Dunes weathervanes") and apartments and comercial premises in Klaipeda oldtown "Danes uzutekis" ("Danes Bay").
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