Occupier demand was driven by the relocation of international corporate service centres to Vilnius
Speculative developments are underway
At the end of 2015, modern office supply in Vilnius reached 442,000 m² and is expected to exceed 600,000 m² by 2017/2018. This booming development was mainly driven by low vacancy and large international companies such as Danske Bank, AIG and others relocating shared-service centres to Vilnius. Demand was influenced by economic growth, favourable labour market performance and attractive leasing conditions. New projects are mostly built on a speculative base and pre-let deals often occur only when construction starts, 6 to 12 months prior to physical move. Vast speculative developments are likely to reverse the market and bargaining power is expected to gradually shift from landlords to tenants. Since 2010, office supply has been decreasing steadily. At the end of 2015 the vacancy rate in Vilnius CBD bottomed at 1% for grade A properties, while the total market vacancy rate remained very low below 3%. Rents in Vilnius have been slightly increasing as new projects offer higher quality standards. At the end of 2015 the average market rent for prime office space in Vilnius CBD ranged €14.5 to €16/m²/month and reached €17/m²/month in some individual cases. In other central areas, rents ranged €10 to €15/m²/month.
Investment growth in Lithuania, stability in Vilnius
2015 was a record-breaking year for the Baltics: for the first time the commercial real estate investment volume of all three countries reached over €1.1 billion. It exceeded € 290 million in Lithuania and it totalled almost €190 million in Vilnius, with an office share of 52%. Investment activity in 2016 is expected to remain stable, similar to 2015. Average yields for prime office assets in Vilnius remained at around 7.00%, with the most attractive properties being bought at yields up to 50 basis points lower. Yields for secondary locations stand at around 8.00%.