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In some cases the office prices have increased even by 20%.
Commercial property market survey
Office space
Autumn has started with relatively stable demand for offices, which compared to the summer months has remained unchanged. Although GDP growth in Q2 was 5.6%, carefulness in the rental market is still associated with uncertainty about future economic growth opportunities.
Most frequently, the office space is changed by service provider companies. The most common reasons for office space change are: the existing office space and the desire to improve employees' comfort with the amenities, such as car parking, catering, active fresh air circulation in the premises. Demand for areas located in office buildings is growing, while offices located in mixed type buildings are often searched for due to relatively lower rental fees. A typical feature is that the design of office space for rent located in residential buildings, in many cases is not very successful - sometimes with abnormally large kitchen or bathroom, which may seem irrational to a potential office space lessee. Office space offered for rent and located in mixed type buildings offers is more attractive, if the landlord has improved the office space with high quality interior decoration or free-of-charge car parking in the central part of Riga. At the start of heating season, tenants more carefully evaluate their heating costs, by requiring presentation of bills for the previous winter months. In the case of change of premises, tenants usually very carefully evaluate not only the rent level, but also the maintenance and utility costs. During heating season, the total cost of lessees usually increases even up to 35%. Exceptions are those cases where the landlord provides equalized payment, or when during the summer months an air conditioning and ventilation system is used in the office, which also consumes huge resources.
Office rents have a tendency to grow by an average of 7-12% per year, reaching the maximum growth limit in the so-called "Near Centre" and the Old Town.. In some cases, in the so-called "Quiet Centre" or the Old Town the office prices have increased even by 20%. Despite the relatively low profitability of the property being purchased, the investor interest is growing.
Retail space
Retail space demand level is considered as medium high. In the central part of Riga, retail space for shoe and clothing chains is of greatest interest now. Also bar and restaurant facilities located in the Old Town are still highly demanded. Most tenants are willing to rent space located in the Old Town at the price of 5-8 EUR/sqm for non-renovated rooms and at the price of 15-25 EUR/sqm for retail space requiring small capital investment. The demanded size of the premises depends on the business concept - ranging from 80m² to 300m². Majority of potential tenants want that capital investments were made by landlords. Most of the shopping centres offer already prepared space for rent at the price of 20-35 EUR/sqm. The most demanded size of the premises is approximately 150m². Rent amount relevance much depends on the technical condition and configuration of the premises.
Retail space rent level increase is different, depending on the location. More pronounced increase is observed in the Old Town and buildings located in the city centre on the main shopping streets. Growth is estimated to have an average of 10-15%. The greatest demand is for space located in the Old Town. Investor demand by location and yield of the property to be bought in most cases does not meet the market situation. For example, in the Old Town, the yield of most commercial premises would not exceed 5%, if purchasing premises at the offer price. In comparison, for example, the yield of a beauty salon situated in a residential house located in a housing estate would be 10-12% or more. Most investors want to buy a renovated and presentable property in the city centre or the Old Town, despite the fact that the yield will be lower. Prices of space offered in the Old Town are up to 8000 EUR/sqm. In the central part of the city, average sales price of retail space is from 2300 to 3500 EUR/sqm. The main factors affecting the space price level are: existence of customer flow, technical condition of the building, building rating.
Warehouse and industrial premises
There is observed an increased interest in acquisition of industrial space or construction on land plots located close to municipal networks of relevant capacity. Most of the stakeholders are investors just from Russia, who have adequate resources to be able to immediately invest both in purchase of premises and in working capital, without any financing provided by banks. At a time when banks evaluate customers with particular caution, the industrial sector is in fact capable to attract the necessary investments if there are long-term cooperation agreements with the state or high-reputation clients or financially stable clients. The current uncertainty about the future that prevails in most European countries significantly reduces the likelihood of a transparent long-term cooperation.
There is observed a high demand for good quality small warehouse and industrial lease premises with an area of 200 to 500m². Demand exists for premises with various heating options, with rent levels from 1.5 to 3 €/m², depending on existence of heat insulation and a heating system.
Additional information:
Head of commercial department
25.10.2011.