In the first half of 2018, the Kaunas market was offered 35 thousand sq. m of modern office space, which is almost the same as was offered to tenants throughout the year 2017. Despite the scale of rapid development of offices, the indicator of unleased office space remains stable, and Kaunas is barely able to keep pace with the demand of tenants for modern offices, claims Kaunas Office Outlook, a review on the office market of Kaunas for the first half of 2018 drawn up by the international real estate advisory company Newsec.
Seven office centres have been opened in Kaunas this year, and it is planned to open another 4 business centres by the end of the year; therefore the area of modern offices in Kaunas will increase to 188 thousand sq. m by the end of 2018. The growing modern office area shows the potential for development and heightens the interest of investors.
Newsec experts predict that the modern office vacancy rate will remain stable until the end of the year: at the end of the first half of 2018, the vacancy rate in the Kaunas office market amounted to 10.7%, which was 0.3% lower than at the end of 2017. A similar value of the rate is recorded in other European cities as well.
The market has demanded Class A business centres
Up until 2018, the Kaunas office market was composed of Class B business centres only, but the growth of local companies, coupled with the entry of international companies setting high requirements for the quality, has prompted the development of Class A office centres. According to Jurgita Šilaikytė, the Head of the Intermediation Group at Newsec, the market has also gained positive momentum from the positive example of the Vilnius office market.
“Major real estate developers and banks were sceptical about the potential of the Kaunas real estate market and the needs of companies in office space; therefore they did not show initiative in developing business centres. The situation, however, changed when Imlitex Holdings, a company trading in raw materials, being unable to find an office in Kaunas that would meet its needs, decided to develop a Class A business centre on its own – it set off a domino effect, and today several dozen companies from Kaunas want to have a modern office. The development of office centres in Kaunas has also been heavily influenced by the successful development of the office market in Vilnius, showing that the demand for modern space is high,” said Ms Šilaikytė.
Currently, there are two Class A business centres in Kaunas – Arka and Nemuno 3, and it is planned to complete two more Class A offices – BLC2 and Magnum in 2019.
The last year’s office lease performance has been achieved in half a year
Last year, 35 thousand sq. m of modern office space were leased in Kaunas, while almost 30 thousand sq. m or 80% of the office space area offered to the market throughout the year 2017, were leased in the first half of 2018.
“This year, tenants have been actively moving into both Class A and Class B offices. The most popular are offices in the central part of the city, but companies are also interested in offices located near arterial streets of the city, e.g. Jonavos Street. Almost 30 thousand square metres leased in 6 months in the city with the population of about 292 thousand people is an impressive figure. Newsec advised in leasing as many as half of these spaces,” said the company’s Head of the Intermediation Group.
The largest transactions on the lease of business centres in Kaunas were executed in the first half of 2018 – Intermedix, a U.S. medical technology company, leased 7,300 sq. m in the under-construction Class A business centre Business Leaders Center II, which is more than half of the total leasable area of the business centre. It is planned that the first tenants will be able to settle in this business centre in the first half of 2019.
Luminor bank has signed an agreement on lease of the 1,160 sq. m area in the under-construction office building Magnum, and an engineering solutions company has leased 1,690 sq. m – a quarter of the leasable area of the business centre Konversus opened this year.
Class A business centres Arka, Nemuno 3, and Class B business centres Konversus, Kalantos 49, River Hall, Cube, A43 have been opened in 2018.
Kaunas surpasses Vilnius by the activity of investment transactions
The Head of the Intermediation Group of Newsec points out that the good quality of offices, the attention of tenants, stable vacancy rates and the future potential have also attracted to Kaunas institutional investors looking for secure investments – today Kaunas is already able to offer attractive rates of return on investment that are generated by the rent paid by stable tenants.
The transaction on purchase and sale of the business centre Arka that took place in the middle of July is the first transaction of a Class A office located in the central business district and the third transaction on the sale of offices in Kaunas – investors have also acquired Class B business centres Baršausko 66 and Kauno Dokas. An interesting tendency has been emerging – Kaunas starts to surpass Vilnius by the activity of investment transactions, and the advance interest of investors in the object, even while at the stage of its development, showed that market players positively assess the office market in Kaunas,” Ms Šilaikytė summarised.