Added-value and integrated real estate advisory services

  • 2006-08-23
  • By Kristine Kolosovka
As the commercial real estate market matures, the adjacent industries have been taking off as well. The real estate market in the Baltics is small, but competition is intensifying, and the market will not blindly embrace any newly commissioned property as was the situation a few years ago.

The time has come when the prime way to add value and boost the integrity of a transaction for both the seller and buyer is through high-level advisory. "The present market situation is such that in order to sell commercial property for a premium a sound marketing strategy is required," states Raitis Nespors, managing director of Re&Solution, a finance and real estate consultancy company that operates in Lithuania, Latvia and Ukraine.
"Nowadays people are not buying just an apartment, or just go shopping, they are willing to buy a lifestyle and are ready to pay for it," he said.

Undoubtedly, the first stage in adding value is comprehensive market research that focuses on identifying idle market niches and assesses performance of projects already implemented in the segment. "An investor willing to commit funds to a specific project wants to get full conceptual substantiation of the property he is investing in 's including choice of location, development mix, operating concept and potential tenants," says Sergejs Snegirjovs, project manager at Re&Solution.
Currently there are numerous attractive commercial and residential properties in the three Baltic capitals, including new shopping centers and office centers, that are about to be commissioned. And they all will pose unique challenges.

"For example, in Riga, land plots for new large format shopping centers are almost nonexistent. There are at least two shopping centers on every major highway. So in order to make a successful project you have to come up with something really big," explains Sergejs Snegirjovs.

"If you want to develop a shopping mall outside the city, you have to make sure that it will be the biggest in the region," Snergirjovs adds. "At the same time, developers who made successful projects in Riga have begun looking for opportunities in the regions as well. Prospects in retail become feasible in such cities as Daugavpils and Liepaja."
Re&Solution say the Lithuanian market is more active and dynamic. Regional investors long ago took interest in Klaipeda, Kalnis, Penevezhus and Palanga. "Moreover, as far as distance from Vilnius to Riga is the same as the distance from Vilnius to other major Lithuanian cities, it was not surprising that Lithuanian retailers have taken the Riga market by storm," says Snegirjovs.

Specialists claim that provided the real estate is realized based on sound marketing research, its value may increase by 10 's 15 percent. This is particularly important for international investors, who strive to deplore additional returns in the maturing market with quickly compressing yields. It is also of key importance for investors who pursue an aggressive marketing strategy and are seeking to carry out Baltic-wide expansions.

Generally, the commercial real estate market in the Baltics is developer-driven (as opposed to tenant-driven). No major developers have left the industry yet, nor have any significant financial investors appeared. Yet new large-scale projects keep popping up, while international tenants are mulling over participation in this segment. If they decide to do so, this will gradually make the market move to sale and leaseback type of property holdings, and process-integrated property advisors, who can lead a deal from concept to completion, are expected to play the crucial role in this process.

Kristine Kolosovka is head analyst at Bridge Capital.