Council move puts prime property up for sale

  • 2003-06-21
  • Michael West

The Vilnius City Council has been looking to privatize its two most valuable properties for some time. The prolonged sale of these buildings, both situated on Gedimino Avenue, Vilnius' central thoroughfare, signals the council's determination to achieve the goals laid out in its 10-year development strategy.
The council plans to relocate its administrative hub to Constitution Avenue, situated in Snipiskes, on the opposite side of the river from Vilnius' Old Town to reduce overhead and increase efficiency.
The new purpose-built headquarters, which should be ready for May 2004, will house all the council's 600 employees and is expected to cost approximately 80 million litas (23.19 million euros).
By combining operations in one location, the council calculates it will halve operating costs.
The two properties for sale - 9 and 35 Gedimino - are the largest buildings on the council's list of properties for sale, with a total area of approximately 10,000 square meters.
The combined sale is expected to raise an estimated 40 million-50 million litas. This is substantially lower than the 75 million litas originally hoped for.
According to Vytas Zabilius, director of Ober Haus, the largest real estate agency in Lithuania, these sales, along with other large private offerings on the same avenue, will put too much capacity onto the market at the same time, endangering the success of the privatization.
"I would estimate that, very soon, approximately 50,000 square meters of new space will be available on Gedimino Avenue," Zabilius explained, "The council would do well to get 40 million to 45 million [litas] for those two properties."
This reflects the mood of the council itself which also warned that its initial assumptions was not realistic. Vygintas Jakas, director of the council's economics department, is responsible for the sale.
"Our original expectations were too optimistic, while there has been some interest, we would rather wait than allow the price to fall to unacceptable levels."
Much of the reported interest in the privatization has so far emanated from the U.K.-based investment group Rhymer Investments Ltd, which expressed an interest in the larger of the properties, at 9 Gedimino.
Rhymer's investments are spread widely across a number of business sectors: property development, specialist manufacturing and engineering, aviation and construction to name a few.
Their first inquiries about 9 Gedimino were made in March at the MIPIM property fair in Cannes, France, a top real estate exhibition. Since then they have held a series of meetings with representatives of the council including, last week, former Mayor Arturas Zuokas.
Verslos Zinios, a local business paper, reported that Rhymer's confidential offer depends largely upon their finding a suitable local partner. Their decision should be taken by July 9.
In some ways, a failure to privatize now may prove beneficial as it may result in a lowering of price that encourages more tenders in the future. Such increased competition should improve the quality and viability of the successful proposal.
The acceptance that the sale may need to be delayed is indicative of the council's long-term thinking, which characterizes its development strategy. This encompasses bold proposals to develop a modern commercial district in Snipiskes, of which the council's new building forms a major part.
The central focus of these plans is the partition of Vilnius into two sections divided by the river, with one part, mostly the Old Town and Naujamiestis, being promoted as a leisure and residential center.
The planned construction of new hotels, conference centers and office blocks will promote the area as a prestigious commercial center, seeking to lure trade away from the overcrowded Old Town.
In total, the council aims to attract some 6.5 billion litas in investment into the city's infrastructure over the tenure of the strategy.
It was clear from his enthusiasm that Jakas wants to progress quickly, but he made it plain that his main focus was upon the welfare of the city, ensuring the council obtains the best deal possible for its citizens.
How would the council's strategy affect the market for commercial property in the Old Town? Zabilius didn't see much cause for concern.
"The residential market is very healthy and many of the commercial properties originally converted from apartments into small offices 10 years ago are being turned back into apartments," he added, "There is a guaranteed market for residential space, pubs, services, hotels, shops and leisure activities in the Old Town."
It is clear that any new developments will attract medium-to-large size companies which need to display a prestigious address. However, smaller firms, such as lawyers and estate agents will not be so ready to move.