2018 01 29
In 2017, Kaunas has modernised its forefront by introducing 11 new office buildings. The opening of some of the first class A business centres in 2018 means that Kaunas is joining the four most attractive cities of the office sector in the Baltic States that attract large foreign capital investments.
The offices opened in Kaunas last year have offered an additional 44 thousand sqm of modern space to the market, with another 17 office buildings expected to be commissioned before the end of 2019, which will increase the modern office space to the total of 99 thousand sqm. Even though all office buildings currently available in Kaunas are classified as being a class B, the situation is about to change: the market will be supplemented by the modern class A business centres Arka, Magnum and others.
Jurgita Šilaikytė, the head of the Mediation Group of Newsec, the international real estate consulting services company, which for the first time this year issued the review of offices in Kaunas, has emphasised a notable development spurt of the modern offices in Kaunas.
“44 thousand sq m of modernised space has been delivered to the market in 2017 alone, which resulted in a 44 per cent growth in demand. The significant changes are to be expected both this and the coming year where the Kaunas office market will be supplemented by the modern class A business centres and business districts rising around the city centre,” said Šilaikytė.
According to the Newsec representative, the average annual growth rate of modern office space in 2017 amounted to 10 thousand sqm, while between 2009 and 2013, the growth rate of new projects was very limited. The situation has changed when following the financial crisis the foreign companies started creating workplaces in Kaunas.
“The current development of the office market in Kaunas reminds of the 2010 boost in Vilnius when the UK bank Barclays came to town. The rise of economy in Kaunas started in 2014, after Intermedix, the US health care and services company, launched its operations. This caused a snowball effect which demonstrated that Kaunas is a viable western city with availability of competent personnel resources. The western capital companies were looking for modern offices therefore as the demand started to grow the developers plunged into planning of the projects that will be released to the market in the course of this year,” added the head of the Mediation Group.
Kaunas alongside the capitals of the Baltic States
This year, Kaunas will be just as attractive for the investors as Vilnius, Riga and Tallinn. With its available modern space area, Kaunas is catching up with the capital cities of the Baltic States – this year’s office area per capita in Kaunas totals 0.49 sqm.
Šilaikytė explained that the growing office area demonstrates the potential for further development and triggers interest of the investors.
“By 2019, the office market in Kaunas will plummet by nearly 70 per cent. These facts not only stimulate the foreign undertakings to build offices in Kaunas but also attract the institutional investors to invest, aside from Vilnius, in Kaunas, through acquisition of the high quality and cash flow generating objects available for sale. Today, Kaunas is clearly visible on the real estate map of the Baltics, competing alongside the most attractive cities in this region, now counting four,” stated she.
Foreign investors continue settling down
In 2017, the total absorption of modern offices in Kaunas amounted to nearly 35 thousand sqm, a record-breaking figure in the history of the city’s office market.
The majority of transactions executed last year were related to relocation of the existing companies to the new premises and expansion of enterprises. The most prominent contract for acquisition of new premises concluded with one of the large companies was a deal involving an area of 5,600 sq m in the Krėvės 129 complex closed by Festo, the German automation solutions giant, intended for the expansion of its service centre. Among other events of equal importance on the Kaunas real estate market were the Swedbank lease agreement for the 2,600 sq m office premises in the business centre Arka, which is about to open its doors, and the decision of the SEB Bank to move its financial services centre from the corner of Laisvės alley and Mairionio street to the modern 2,000 sq m premises in Nemuno 3.
Kaunas has also become the home ground for new foreign companies. Confidential IT company has rented almost 500 sqm premises at Kaunas Dokas, while TGW, the logistics automation system developer, signed a tenancy contract for the 380 sq m office premises in the class A business centre River Hall.
“More tenancy contracts are expected to be concluded shortly with the foreign enterprises on the Kaunas real estate market. The forward tenancy contracts are becoming noticeably more frequent both in Kaunas and Vilnius, where the contract is concluded six or sometimes even twelve months prior to moving into the new space,” said Šilaikytė.
Growing free space
At the end of 2017, the vacancy rate of offices amounted to 11 per cent while this indicator in Vilnius totalled 3.4 per cent. “Despite the fact that the vacancy rate in Kaunas is somewhat higher than that in Vilnius, it is perfectly normal if compared to other European cities as the companies tend to abandon their old offices and move to the new buildings,” emphasised the Newsec representative.
In 2017, the average rental cost on the class B modern building market in Kaunas varied between EUR 8 and EUR 11 per sqm per month while the prices of class A premises which will be ready for moving in this year amounted to EUR 12-14 per sqm per month. The forecasts anticipate a drop in the rental price of the old office buildings as the competition on the real estate marking is expected to intensify this year.