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Interest in small-scale offices in Riga, with the area of up to 50m², increased in particular in the summer months of 2012.
Office building owners are faced with a choice - to renovate the building or not
Interest in small-scale offices in Riga, with the area of up to 50m², increased in particular in the summer months of 2012. This increase of interest was caused by the country's economic improvement, as well as improvement of sentiment of new entrepreneurs. If many entrepreneurs as recently as in 2011 tried to carry out customer service remotely from home or conduct negotiations in a cafe, at this moment there are many entrepreneurs who opt for a small office which is sufficiently economical to use and improves the quality of customer service.
Trends show that not only the offer of small-sized office spaces is rapidly shrinking in the office buildings located in the Riga City centre, but also the demand for medium-sized offices with an area of up to 200m² in newly erected office complexes has significantly increased. The most striking example is the office space offered by the developers of Duntes Street and Skanstes Street. Along with the growth of the demand, office space with an area of 30 to 200m² in new office buildings with good energy efficiency and rational public utilities charges and management fees is not actually available.
Often, just in the heating season, many tenants want to change the office due to problems with maintenance and service of the premises. It was obviously seen during the last couple of years, when occupants of buildings with low energy efficiency or maintenance disturbances often had problems with frozen heating elements due to low outdoor temperatures. The following or similar unforeseen circumstances at the time when a relatively large number of different size offices were available, caused the reaction of demanding tenants – to find a new office space in a building complying with higher quality standards. Many of the current requirements of tenants can be satisfied only in renovated or newly built office buildings, which, probably, may initially seem more expensive to tenants, but taking into account the potential discomfort or loss during operation of the building where the previous office was located, tenants may save substantial or sudden additional expenses.
The initiative of the municipal authorities to adjust the real estate tax, depending on the energy efficiency of buildings is a very positive step. Possible tax cost differences depending on the energy efficiency class could reach as much as 40%.
Although energy efficiency solutions could contribute to improving the quality of office buildings, it could also cause a general increase in rents in the future. If the average office rent in non-renovated buildings in Riga is from 4 to 6 EUR/m², then in renovated and newly built buildings the rent, on average, is from 8 to 14 EUR/m².
In non-renovated buildings with heating supplied by A/S “Rīgas siltums", average heating costs for an office with area of 100m² is amounting to 120 - 180 LVL per month during the heating season. While in a renovated or newly built office building with a self-heating solution, the heating costs for the same office space can be 60 - 100 LVL per month.
It should be noted that in many of the newly built buildings there are relatively larger maintenance costs, mainly due to availability of advanced engineering systems and telecommunications, or, for example, well-maintained territory. Management costs in buildings satisfying modern requirements and located in Riga with an area of 100m2 are amounting to 170-210 LVL/month for an office with area of 100 m².
Even though the demand for office space in renovated buildings is higher, the owners of the buildings are recommended not to exceed the renovation expenses in amount of 150 - 200 LVL per one square meter of leasable area. Exceptions may be buildings in the historic centre of the city, where restoration work is required, or buildings of convenient location where additional infrastructure solutions could be offered to tenants, such as a wider and guarded parking, landscaped and planted area, additional power source, dining opportunities, dry cleaning services, etc.
After the observations and discussions with investors, demand price for renovated and new office buildings, situated outside the historic centre of Riga City, reaches 1100 EUR per leased square metre, while in the historical centre of Riga City the demand price is 1,450 EUR on average, but in the Old Town and the so-called "Embassy District" – up to 1850 EUR.
Additional information:
ARCO REAL ESTATE Commercial Department Head
Tel. No. 2863 2211
26.11.2012.