High demand expected to continue in 2003

  • 2002-12-19
  • Vytas Zabilius

The outgoing real estate year in Lithuania has been marked by a great deal of activity both in office and retail space. Several factors - better sponsorship conditions, an expanding economy, rise of living standards, an improving attitude toward borrowing - have helped spark demand for property. And although the days of easy credits is nearly finished, a redistribution of municipal funds has slightly prolonged market activity in major cities around the country. Still, the relatively low interest rates should keep demand for housing on high levels.

Vilnius. Most major projects which have been implemented in the capital this year have been successful. A majority of newly built apartments have sold out. The market for new-style apartments not exceeding 2,000 lits per square meter was particularly dynamic, with state-sponsored individuals snapping up these residential spaces with easy credits.

Generally, however, there is marked lack of smaller, cheaper (1 or 2 rooms, 1,700 – 2,000 lits. per square meter) being built nowadays in Vilnius.

The sale of more upscale apartments (including partial interior decoration and priced at over 2,000 lits. per sq. m.) went well, with a majority (save a few in the Antakalnis district) having been sold. Luxury apartments - including such things as picturesque views, glazed balconies, top-of-the-line security systems - have also enjoyed a high level of demand.

Large apartments with three to four rooms have been difficult to sell, and developers may be forced to reduce their offering price.

In the near to mid-term the prospects for a flood of new apartments are dim. The suspended sale of land by the government will have a negative impact on supply. However, there is hope that in the start of 2003 the stagnation will end, and the sale of land will give rise to new opportunities.

Also, the new law on income tax will have an affect on the market by stunting demand for new loans. On the other hand, high-income individuals may take on more loans in order to reduce total tax payments. A 15-percent real estate tax for individuals is also bound to reduce speculative transactions on the market by non-organizations but could increase speculative deals in real estate companies themselves.

The market for office space has also improved. The grandiose mega-mall Akropolis (total area 53,000 square meters) was successfully realized and is now leased at full capacity. The leasing of other office buildings, for example, MG Valda and Eika in the so-called "business triangle" on the juncture of Goötauto and Jasinskio streets, which together offer a total of 12,000 square meters of space, are leased only at 80 percent capacity.

In 2003 the Ogmios Group is planning to put on the market about 30,000 square meters of modern administrative and retail complexes with warehouses.

Speaking of warehouses, 2003 has been a distinct turning point. In the last 11 months alone the market has seen approximately 15,000 new square meters of modern warehouse space built in accordance with contemporary requirements. Although rental prices for these premises is double that of older warehouses situated in the same areas, the market has responded favorably to the new supply. All the new space has successfully been leased.

Admittedly, risk in this segment of the market is much higher than in office, retail or residential space, therefore profitability is expected to be higher. For this reason investors rarely decide to build warehouses (or industrial premises) without assurances from possible tenants.

Kaunas. In Lithuania's second city, the market for commercial real estate is characterized by high demand for high-end retail and office space. But since there is a shortage of new buildings (due to a severe shortage of commercial land lots for new construction) developers have been forced to reconstruct old administrative and retail buildings.

Klaipeda. Demand for office premises has considerably increased. A new "A-class" office complex, Javin, opened in November, and representatives of the major companies that participated in the opening of the complex said that the increase in supply of high-end office space has spurred demand.