Office space in doldrums

  • 2003-10-30
  • By Elizabeth Celms
RIGA - For the first time in five years, the volume of available office space in the Latvian capital has dropped below 10 percent, according to a September market overview conducted by Latio Real Estate. This diminishing availability of office space, coupled with Riga's current lack of parking, is forcing companies to invest beyond the downtown area. What's more, once Latvia joins the European Union in May, this trend is predicted to grow with the influx of foreign companies interested in investing in Riga.

"After Latvia joins the EU, there will be a great number of companies looking for investment opportunities in Riga," said Sirta Real Estate director Anita Kaleja. "Soon there won't be that much [office space] left, and they will have to build outside Riga."
Despite the development of large office complexes, called office parks, in Riga's outskirts, there is still high demand for locations in the heart of the city – especially for local companies. Law firms, financial institutions and advertising agencies require locations downtown with accessibility to Riga's ministries, banks and the majority of clients.
For large and expanding companies it makes more sense to invest in office parks that offer more workspace and ample parking.
According to Eline Velmere, a real estate agent for Latio, companies also tend to buy rather than rent downtown offices.
Over the past few years, Riga's realtors have had increasing difficulty selling office space. In fact, almost 80 percent of investors, the majority consisting of foreign companies, rent rather than buy office spaces, according to Kaleja.
"The tendencies are the same for most companies," Velmere said. "Most companies don't know how long they will last. Plus they're expanding, so they might need to move and enlarge offices. For foreign companies it's just too expensive and not practical to buy."
Anno Real Estate, which represents one of the largest and oldest agencies in Riga, currently offers only three Riga office spaces for sale on its Web site, while advertising 109 offices for rent. The lowest selling price is for a 47.5 square meter office at 2,400 lats (3,700 euros), where as downtown office rental prices ranged from 190 lats per month to 500 lats per month.
According to Kaleja, these numbers are similar to rental and sale prices in Tallinn. Prices in Vilnius are somewhat lower than Riga and Tallinn.
Sirta's market overview shows that in September there was an increased demand for office space not exceeding 5 lats per square meter and that 400- to 800-square-meter offices were the most in demand.
In general, the market for office property in Riga has been going down over the past few years, said Viesturs Dimants, director of Domuss Real Estate. Domuss has recorded a loss of between 15 percent and 20 percent of rental prices in the last year. Dimants accounts this loss to the increasing number of companies investing in office complexes outside the city.
Outside Riga, the most popular office spaces are in Pardaugava, mainly because companies from western regions such as Ventspils and Liepaja prefer easier road access home. Another benefit is that Pardaugava offers better parking space and vehicle accessibility, according to Sirta.
Dimants supports Sirta's observation that companies rarely buy office spaces. He even considers this the most significant problem for Riga's real estate agencies right now. Nevertheless, he is confident the situation will improve upon EU accession.
"Five to six years ago more companies bought buildings in Riga," Dimants said. "If you want to buy now it's not reasonable, because the profit time for investments is longer than in previous years. The profit time now takes between seven and 10 years, where it used to take only five."
Representatives of all three real estate companies are optimistic that after EU membership, the country's economic development and the influx of investing foreign companies will boost all areas of real estate in Riga.