VILNIUS - What does a company look for in an office space? There are the basics, of course 's enough room to work, desks, phone lines, heat, plumbing and an Internet connection. Then there are the practical add-ons like a good location, access to parking and maybe a view.
But as businesses in the Baltics grow to more closely resemble their counterparts in wealthier Western European countries, many of them are looking for much more than what the standard, slapdash, repainted-Soviet rooms can offer.
Top-of-the-line office space, referred to in the real-estate world as "Class A," can make all the difference. An elegant premises with modern furnishings not only ensures the best possible work environment, but also creates an image of solidity that can reassure potential clients. As Baltic firms grow both in staff size and net worth, and more international representations set up shop in the region, the demand for Class A office space is on the increase.
The problem is that finding this kind of premium office space in any of the Baltic capitals is extremely difficult. The supply simply hasn't kept up with demand.
In Vilnius, that kind of space is mainly found in the top-of-the-line projects that entered the market in recent years 's the Europa, Victoria, Akropolis, Eika Business Center and the Vilnius Gates.
But these buildings weren't enough to meet the market's needs. Due to full occupancy, rent prices for premium office space in the city increased 10 to 15 percent from 2006 to today according to Jurate Kavaliauskaite, Co-Managing Director of Marketing and Public Relations at Colliers International in Vilnius.
Even for companies willing to pay higher rental prices, it seems, the challenge can be simply finding a premises that fits their list of requirements.
At Gaumina, an Internet technology company, the staff has grown to 95. The outfit is looking for a new home. Gaumina's web design project manager Vytautas Tumas said it's difficult to find an office in the central part of the city with the all-important parking lot.
"Parking is hard and making underground parking is expensive," he said.
Though different developers use different criteria for defining what makes up a Class A office space, most factor in quality of construction, interior furnishings, the presence of air conditioning, elevators, location and parking.
Riga faces a supply problem similar to that in Vilnius.
RBS Skals, one of the leading construction companies in Riga, just handed over a new Kipsala office building to its client in July. It's already 90 percent occupied.
"There is still reasonable interest for Class A office space lease possibilities. The market is still waiting for new completed projects," said company representative Ilze Latisenoka.
The worst situation may be in Tallinn, where both the Ober-Haus real estate company and Colliers reported that the vacancy rate for Class A is lower than 1 percent.
A & A Kinnisvara Sales Manager Martin Fillandi said he thinks the figure is in fact higher, but agrees that this is a tight part of the market, one where activity is concentrated.
"Estonians don't build anything but Class A. ...There's not enough construction plots to build more in the city center," he said.
Relief on the way
The good news for companies looking for Class A space is that the situation is set to improve in 2008 when three new office buildings in Vilnius, seven in Riga, and five in Tallinn are expected to come on line.
Among the most ambitious of these new projects is Ulemiste City, a business and industry district near Tallinn Airport. The project entails 30 buildings and a total of 160,000 square meters of office space, 45,000 square meters of which will be Class A.
"In general, there is a shortage of quality office space in Tallinn," said Andre Veskimeister, Chief Innovation Officer at Ulemiste City AS, the company behind the project. "We are looking for clients for our next buildings that we are renting out in the spring."
Ulemiste City is an example of the trend to build office space on the outskirts of town, thereby avoiding high rent, traffic and insufficient parking that plague the city centers.
"The rent levels have stayed the same for years in the city. It's more of an advantage to look at the city border because buildings are up for sale, not rent only," said A & A's Fillandi. He explained that while developers in the outskirts tend to sell their properties bit by bit when the project is complete, the tendency in the city centers is to hang onto them and rent them out.
The commercial director of the 101 Procentas real estate company in Vilnius said, while his company is still focusing on the city center, it's looking into residential districts Pasilaciai, Uzupis, Naujamiestis, Snipskes, and riverfront properties.
As these developments on the cities' periphery take off, there's a chance that they'll also relieve some of the pressure in the city centers once businesses move out to the larger, cheaper and newer facilities. For now though, companies looking for Class A office space still face a tough road.
Average prices for Class A office space, quoted by international property/real estate firms:
Ober-Haus
Vilnius: 16 - 19 euros/sqm/month + service charges (3 - 4 euros/sqm/month)
Riga: 18 - 23 euros/sqm/month + service charges (2 - 3 euros/sqm/month)
Tallinn: 15 - 18.5 euros/sqm/month + service charges (2.5 - 3.5 euros/sqm/month)
Colliers International
Vilnius: 16 - 19 euros/sqm
Riga: 18 - 20 euros/sqm
Tallinn: 16 - 26 euros/sqm
