RIGA - The gleaming modern facades of Domina Shopping Center, Alfa Center, Reval Hotel Latvia and other buildings you pass every day might fool you, because beneath their surfaces lurk the concrete and steel columns and beams of Soviet-era construction. Latvia is "blessed" with the skeletal remnants of thousands of industrial and commercial structures from the Soviet days, in many of which comrades were once churning out televisions, radios, chemicals and buses. But now these buildings stand silent and empty, rotting away through neglect.
The forced industrialization of Latvia, especially with heavy industry, started during the Stalinist 1950s and continued into the early 60s. To accommodate progress at any cost, giant structures were built to house large-scale production. The now-vacant RAF bus factory in Jelgava, with 130,000 square meters under one roof, is just one example. This madness continued through the Brezhnev era.
With the collapse of the Soviet Union came the loss of markets, jobs and lives accompanying the consequent factory closures. It also forced new opportunities and challenges upon those property owners, together with developers, to put the buildings to new use.
The sudden abundance of inexpensive space, matched with low-cost production and warehousing needs, attracted tenants both foreign and local. Depressingly gray administrative buildings were resurrected into Class B office space.
But many of these old carcasses are finding new life as high-end hotels, luxury apartments and entertainment centers.
Reflecting on the appropriateness of Soviet structures for modern companies, Karlis Plensners at PK Serviss, a general contractor firm, says that "if the measurements meet requirements, these buildings are a good, cost-effective solution."
"They need insulation on the walls and roof, a new facade, and always a new floor," he says.
For those utilizing Latvia as a low-cost manufacturing site or selling to the local market, it makes economic sense to locate in less-expensive renovated space. Naveen Singh, director of the Eden Springs Latvia bottled water company, says that his company has been in renovated facilities for several years. It's cheaper than new construction, and since clients don't come to the premises there's nobody to impress with more expensive facilities; there is full value for the money in the old buildings, he says.
What's attractive is that infrastructure is already in place in old buildings, and there's generally good road and rail access. And despite the fact that the Soviet structures initially might not look so safe, they are structurally sound.
After all, Soviet engineers designed with higher construction coefficients than a Swedish engineer would - meaning the buildings are actually stronger than they need to be, explains Plensners.
Notable examples of previously derelict industrial buildings include the PK Investments rehabilitation on part of Riga's VEF electronics factory, reconstructed into the stunning Domina Shopping Center. Most of these old buildings, however, will find new life again in industrial service.
Nordic Industrial Park in Olaine was one of the first developments in Latvia to bring in the modern industrial park concept. Based upon a collection of existing Soviet buildings, the fully renovated Class B office building and improved production space was an attractive location for foreign companies that arrived in the Baltic state early in the game.
Nordic Industrial Park is one of eight such parks owned and operated by Swedish-owned NP Properties. The total area of the firm's industrial park projects is more than 170 hectares.
In December NP Properties announced it intended to invest 4 million lats (5.7 million euros) in expanding the park. Plans include building a new Class A production and warehouse facility.
Norway's SIVA-owned Ogre Industrial Park, begun in 1999, was initially a collection of existing industrial buildings on 3.1 hectares. The project's first tenants 's Norwegian metals companies 's gradually found themselves surrounded by local firms in a now nearly fully occupied complex, says director Dace Paegle.
The park has been filled out with newly constructed space.
A changing market
The desirability of using Soviet-era structures will increasingly be determined by location and architecture. Those structures within the city limits won't work as production or warehouse space any more, but could be attractive as a residential project, says Dina Lukjanska, head of commercial property at the Latio real estate firm.
She adds that existing industrial properties are out of date and don't correspond to tenants' international requirements, and given the development over the past three years of new Class A warehouse and production space, the Soviet hulks will find it difficult to compete.
Singh also says that high expenses in repairs and maintenance every year are making it more attractive to move to newer space. Even though relatively more expensive, investors will make their money back on improved operating efficiencies and other cost savings. He expects that better floor plan design will mean not paying for wasted space.
There is a large supply of building stock standing idly in the regions, and as real estate prices continue to rise in Riga, companies are beginning to look beyond the suburbs. Plensners is investigating a 1,600 square meter building near Rezekne for possible renovation for a Swedish client interested in production space.
As Elvis Elsons at Realia brokerage points out, "Manufacturers looking for lower-cost facilities and labor are moving operations outside of Riga, to the regions."
The problem for many of these buildings in the regions is that they are located in very bad sites with no access, says Elsons.
Lukjanska notes that developers in search of profitable markets are turning to industrial space. Owners of the remaining Soviet era relics can take this as an opportunity to find new solutions to satisfying today's modern and more demanding tenants.
Domina Shopping, one of the largest shopping centers in Riga, announced last month that it posted sales of 52.6 million lats (75 million euros) in 2006, up 17 percent year-on-year.
Manager Baiba Gercane said that clothing sales were up 46 percent and shoes sales 27 percent.
Domina Shopping, which belongs to the Pro Kapital group, has floor space of 110,000 square meters, of which 42,000 square meters is comprised of sales area.
The mall has 156 stores, restaurants and cafes.