After years of stagnation, Riga’s office market begins to catch up with Vilnius and Tallinn

Riga’s office market has been stagnating but now it is recovering – the Latvian capital begins to catch up with the neighbouring Vilnius and Tallinn markets, which increases the overall attractiveness of the Baltic region to international tenants. The latter tend to come to those cities where they have the greatest freedom to choose from the highest variety of modern offices.

Newsec analyst Gintaras Toločka has noticed that Riga has the potential to reach the same level the other Baltic capitals reached 3-5 years ago, when the increasing development of modern offices attracted the attention of international companies.

‘In the last five years the rapid growth of the modern office market in Baltic capitals Tallinn and Vilnius has overshadowed Riga, but as of 2018 a recovery can be felt in the Latvian capital as well. The modern office space of the business centres currently being built in Riga makes up 62,000 sqm. A third of this space will be occupied by A-class offices,’ told Mr Toločka.

Now the Latvian capital is number two in the Baltic states in terms of total supply of modern office space which totals 650,000 sqm after Tallinn with 770,000 sqm, while the total supply of modern offices in Vilnius is 635,000 sqm. Despite higher total modern office area than in Vilnius, Riga has the least modern office space per capita – 1.0 sqm. The per capita indicators in Vilnius and Tallinn are 1.2 sqm and 1.7 sqm respectively.

The vacancy indicator in Riga is 6 percent and is similar to that of Tallinn where the share of unoccupied modern office space is 5.5 percent. ‘The vacancy level is healthy, which is good news for office tenants who can expect the price of rent to remain at a similar level in the next few years,’ said the expert.

The market recovered in 2018

In 2018, Riga’s office market started to show the signs of recovery as local Latvian developers finally began more active investments into earlier-planned projects. They were also joined by RE developers from neighbouring Lithuania – the investment management company Lords LB Asset Management UAB, M.M.M. projektai, Capitalica Asset Management and others.

Having accumulated a lot of experience in the Lithuanian modern office market, the Lithuanian-owned RE developers decided to expand outside their country – they acquired large areas in Riga where they are planning to build thousands of sqm of modern office space in the near future.

The advantage of affordable rental prices

‘The increasing activity in the development of Riga’s modern offices also increases the attractiveness of the Baltic region to international tenants, since the companies will be able to choose not only from Tallinn or Vilnius, but also from Riga, which currently is attractive due to more competitive rental prices,’ noticed Mr Toločka.

The average rent price of the highest level A-class offices in Riga amounts to EUR 15.5 per square metre and is lower than in Vilnius where it is EUR 16.0. In Estonia the average price per square metre is currently the highest – EUR 17.0 and higher.

The Newsec analyst has underscored that the awakened Riga will follow the tested route of offering the newest projects for a competitive price, just like its neighbours: ‘International tenants have especially high requirements for office developers and managers, ensuring that the buildings are modern and environmentally friendly. Such expectations drive the RE developers to use the best practices in implementing the BREEAM or LEED international standards. As a result, the Baltic states see more and more RE projects certified under the highest standards.’

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