2017 10 06
The real estate market is growing steadily with positive key economic indicators, however, uncertainty prevails as a sudden change – the black swan effect – is expected in the market and may have a strong impact with long-lasting consequences. Still real estate experts emphasize that these changes may be positive and useful to the Baltic countries.
Experts, participating at the presentation organized by Newsec, an international real estate consulting company, and dedicated to the overview of the commercial real estate market, claimed that lessons from the 2008 financial crisis have been learnt and safety measures implemented to protect the market from overheating have been working efficiently.
Considerable growth of GDP and other indices had been observed prior to previous financial crises, in some regions the percentage of economic growth was measured in double figures. Today, such figures are no longer recorded and the GDP growth is much more stable, amounting to 2-3 per cents.
According to Newsec analyst Gintaras Toločka, commercial banks have been increasingly tightening their requirement for real estate project funding and introducing additional conditions, thus making it harder for inexperienced market players to take credits and finance their projects.
“There are no signs of any bubble in the commercial real estate market”, claims G. Toločka. “All indices suggest that we are in the growth phase which is strictly monitored by central and commercial banks as well as other regulatory agencies. The uncertainty in the market is instigated by unpredictable political factors, such as the planned increase in the interest rate.”
In addition, G. Toločka points out that Vilnius, as compared to the rest of Europe, is still among the cities with the lowest rentable office space indicators, therefore there is space for the development of new office buildings.
The Newsec analyst explains that “in the capitals of Western Europe the estimated modern office space amounts to at least 3 sq. m per capita. Even the neighbouring countries with 1.5-2 sq. m per capita are way ahead of us. In Vilnius this index is as low as 1 sq. m per capita and this leaves us trailing behind not only the capitals of the remaining Baltic countries but also some bigger cities of Poland. So, no need to talk about overheating market as there is still a lot of space to grow.”
G. Toločka also notes that lately Lithuania has increasingly managed to draw attention of investors from countries that had never invested in the Baltic region before.
“In the last few years Lithuania has attracted several large investors from non-traditional countries”, claims the Newsec analyst. “Earlier the market of commercial real estate was dominated by Scandinavian, Russian and local investors, this year we have American W.P. Carey, French Corum, and recently it has been announced that the former headquarters of Snoras bank was purchased by Chinese investors. We can predict an increase in such examples in the future.”
Offices and retail trade related property have retained the status of the most attractive segment of commercial real estate. It is still considered the safest investment in the market, though the return on investment has been decreasing and a halt in investment scale has been observed. As a matter of fact, G. Toločka points out that investors have been increasingly seeking new possibilities that would produce better return on investment. Among such sectors is that of logistics which has been in rapid growth lately.
The Newsec analyst explains that “the annual growth of the logistics sector in Europe is more than 10 per cent. In the Baltic region the overall value of transactions in the industrial segment of logistics will exceed 100 million euros for the second year in a row. The annual return on investments into the logistics sector may be by 1.5-2 percentage points higher. With the large amount of spare money in the market at the moment, investors are apt to direct their attention to more risky but also more profitable sectors.”