Social and Economic Catalysts will Drive the Real Estate Market in Lithuania in 2018

6 February 2018, Vilnius. 2017 was another year of success for both Lithuanian real estate (RE) sector and the entire economy. The market remained active and liquid in all RE segments. Slowing down growth of the number of housing purchase-sale transactions and high activity of developers hindered the rise in prices. Vilnius and Kaunas distinguished for the highest activity in the segments of business centres and logistics. The hotel segment has been growing moderately, yet safely.

“Overall economic growth of the Lithuanian and the surrounding markets and the environment of low interest rates formed favourable conditions for the activity of the RE market. For instance, the year was successful in attracting foreign investments: they have increased by even 8.3 percent over the third quarter last year. This was felt by the construction industry: the scopes of construction of non-residential buildings have grown in particular, as they have increased by even 16 percent over the first three quarters of the year, constructions of residential buildings have not decreased either. The quantity of granted mortgage loans has increased at the same time as well”, Rokas Lukošius, Analyst at Market and Treasury Department of Šiaulių bankas commented on the factors having affected the RE market growth.

Residential RE segment

Activity of the apartment market has been particularly high in the capital city in 2017, regardless that the number of transactions decreased in comparison to 2016. 2016 was a record-hitting year on the apartment market in Vilnius. “Maintaining the same level of activity is very difficult, however, growing population in Vilnius, establishment of new workplaces and increasing salaries would allow the RE market in the capital to maintain high activity and perhaps even moderate growth”, claimed Robertas Žulpa, Analyst at “Inreal”.

The growth in terms of the number of purchase-sale transactions in Kaunas lost its momentum in 2017 and only slightly exceeded the level of 2016. On the other hand, this does not mean that the demand “ceiling” has been reached in Kaunas. According to R. Žulpa, currently new business centres and factories are being actively developed, new well-paid workplaces are being established in Kaunas, therefore this would work as a catalyst of the housing market in the near future and it is much likely that it would have a positive impact on the growth of the entire RE sector.

The market in Klaipėda also maintained a positive trend, regardless of slightly decreased number of apartment purchase-sale transactions. The number of sales of apartments on newly built buildings has been increasing steadily, which indicates that the market of apartments on newly built buildings is recovering and it is much likely that the activity thereof would not decrease in the country’s seaport city in future either.

Commercial RE segment

The biggest activity in the segment of business centres was demonstrated by Vilnius and Kaunas with actively ongoing development of business centres. Active development in these two cities is planned during the next 2 years as well. Meanwhile development of new business centres remains sluggish in Klaipėda. Currently conditions for development of new business centres are not favourable in Klaipėda, because the level of vacancies in the seaport city has remained the highest one among the three biggest cities in Lithuania for some time already.

The scopes of retail trade have been growing in Lithuania for more than one year and the vacancies at shopping centres are minimal, however, development of this segment is sluggish. Several developers have announced their plans on building shopping centres in Vilnius in the near future, however, the exact dates for implementation of these goals are not known.

Positive mood in the logistics sector has led to rather intense development of storage premises and logistics centres in Vilnius and Kaunas in 2017. However, the majority of built logistics centres were designated for private use. In 2018 further development of this sector is planned not only in Vilnius and Kaunas, but in Klaipėda as well, because construction projects for several major storage premises is planned here.

Increasing flows of passengers serviced at air ports and the number of tourists accommodated at hotels have determined successful development of the hotel segment. Newly built or reconstructed hotels were opened in three cities in Lithuania and they offered a total of 263 rooms for the market. Analysts at “Inreal” expect that the development of the hotel segment would not stop. 4 hotels in Vilnius are being built or reconstructed in 2018. They are expected to increase the number of available rooms by 634 rooms.

Moderate changes in legal regulation

According to Simas Paukštis, the associate lawyer at Law Firm COBALT, despite repeated reports about withheld RE projects and inadequately coordinated work of the state institutions having a detrimental impact on the investment environment in Lithuania last year, based on the economic indicators, this had not ruined the overall result. One of the major causes leading to this was that 2017 was a moderate year in terms of changes in the legal regulation, which once again has proven one of the oldest known truths: stability of legal regulation is one of the prerequisites of successful business development.

There had been only minor changes in the major laws: Construction, Territorial Planning, Land, in 2017, and the biggest news associated with RE have become the Law on Architecture, which entered into force in autumn in 2017, and the provisions, which entered into force earlier, i.e. in the beginning of 2017, and obliged contractors and developers to ensure elimination of defects of the quality of the built or sold buildings.

However, even though no legislations have changed, year 2017 has had a negative impact in that the state institutions’ approach towards application thereof unexpectedly changed, which has led to rise of a partially completely new type of disputes. Thus a stricter policy on control of RE projects and lease of the state land initiated by the state and municipal authorities has led to not only positive consequences: cases of abusive practice were identified and eliminated, but it also added unnecessary confusion after steadily developed practices, which had been effective for decades, were called into doubt.

Even though the biggest expectation of the private sector, i.e. close cooperation with the state and municipal authorities enabling to prevent potential disputes in advance, seems like a distant dream, we would like to hope that the positive trends of year 2017 would continue and develop this year as well eventually leading to stabilization not only in legal regulation but also in the approach and the applied practice of the state institutions involved in the processes of construction and territorial planning.

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ABOUT INREAL

INREAL is a trademark of an idea, which gives spark to unique projects, basis for professional services, and added value to businesses, companies, clients, and partners. INREAL positions creativity as a core value in the dynamic business world. INREAL Group, which consists of: UAB “Inreal valdymas”, UAB “Inreal”, and UAB “Inreal GEO”, provides probably the widest range of real estate services in Lithuania. Currently they have over 90 employees working for them in 11 cities in Lithuania. The company has engaged in business operations for over 20 years and implemented more than 50 real estate projects of various purposes, which received recognition and awards at contests not only in Lithuania but on an international scale as well. In 2015/16 and 2016/17 Inreal Group was named as the National Winner during the prestigious European Business Awards in the category of Business and Environmental Sustainability.

ABOUT ŠIAULIŲ BANKAS

AB Šiaulių bankas was established in 1992. It is a bank successfully operating in Lithuania and holding the biggest share of Lithuanian capital. Šiaulių bankas strives to be a reliable financial partner maintaining stable and consistent growth, focussing on business financing and consumer financing solutions.

Šiaulių bankas is the fourth biggest bank in Lithuania servicing customers at 65 customer servicing divisions in 38 towns and cities in Lithuania. The Bank is the leader in financing renovation of apartment buildings in the country. Šiaulių bankas’ shares have been included in the official trading list on the NASDAQ Baltic Exchange.

In 2016 magazine and portal “Global Banking & Finance Review” nominated Šiaulių bankas as the best SME [small and medium-sized enterprises] bank in Lithuania. The international business and finance publication “Global Finance” announced Šiaulių bankas as the best bank in Lithuania in 2016 and in 2017.

ABOUT COBALT

COBALT is the biggest law firm in the Baltic States. More than 190 lawyers provide complex services to local, regional, and international corporations, foundations, credit institutions as well as private entities in all areas of business law. The Firm has been announced as the best law firm in the Baltic States for five times already. The professionalism of the lawyers is subject to continuous evaluations by the major guides on law firms such as “Chambers Global”, “Chambers Europe”, “Legal 500”, “IFLR 1000”.

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