Small and mid-sized projects continue

According to the recent “Real Estate Market Report 2015 – Baltic States” by Ober-Haus, two larger retail projects were opened in Vilnius in 2014: the DomusPro shopping center in the Pasilaiciai district at the beginning of the year and the Prisma supermarket just off Pilaite Avenue. The Prisma supermarket is the chain’s largest project so far in the city. The useful area of these malls is about 16,500 sq m. At the end of 2014, there were the 24 malls in Vilnius (counting those over 5,000 sq m in GLA with over 10 tenants) with a total leasable area of 425,100 sq m. The Lithuanian capital currently has 0.79 sq m of shopping area per capita. The German supermarket chain Lidl is continuing the construction of its first stores in the country. Lidl plans to expand in all Lithuanian cities with a population of over 20,000 people. At least the first several stores could be opened at the same time in 2015. To ensure the distribution of goods, the company is constructing a 41,000-sq-m logistics center in the Kaunas district.

Although no major shopping centers were opened in Vilnius during the past five years, developers are trying to exploit attractive locations by offering medium-size malls or a different concept of malls to the market. In 2015, at least two projects will be built in the city: the 5,500-sq-m Rimi shopping center in Linkmenu Street and Nordika Shopping Valley in Vikingu Street next to Ikea. The 40,000-sq-m Nordika Shopping Valley will be developed in two stages and total investment will reach €50 million. The first stage should be completed in Q3 2015.

Demand

Retail property developers and tenants are trying to exploit the growing consumption and leave no vacancies in strategically convenient locations. The vacancy rate of shopping centers in Vilnius decreased from 2.3% to 1.0% in 2014. The biggest factor in the decrease was the opening of the commercially improved and reshaped shopping center GO9 (previously Gedimino 9), which has new tenants following its renovation that have significantly reduced the previously vacant spaces. This means that there is very little free space available in the existing shopping centers and projects in attractive locations attract a lot of attention from tenants.

Newly arriving brands further limit the availability of premises because the managers of the buildings are primarily interested in strong, well known brands. The first H&M brand store was opened in 2013 and by the end of 2014, the chain had seven stores in the best malls of Lithuania’s major cities. This helped overall retail turnover in Lithuania to grow by 5.6% in 2014. The biggest increase in turnover was registered by companies selling clothes, textile, footwear, audio and video equipment, recordings, hardware, paints and glass, electrical household appliances, and furniture and lighting equipment, which increased by 9-12%.

The main shopping streets (Gedimino Avenue, Pilies Street, Didzioji Street, Vokieciu Street) are also enjoying almost full occupancy. The dominance of malls has changed the face of shopping streets and clothes, shoes, and other accessories are now seldom seen in shop windows. Instead, small new food shops, cafes, and cocktail bars popular in the evenings are being opened in the central part of the city.

Rents

As had been forecast, no significant price changes have been recorded in the malls, but the overall price trend remained positive. In 2014, rents increased by another 5% in Vilnius shopping centers. Rents for medium-sized (150 to 300 sq m) units in a major malls run from €13.00 to €35.00 per sq m and up to €50.00-€70.00 for small sized units. Rents for anchor tenants are €8.50 to €13.00 per sq m.

Rents for retail premises in the Vilnius high streets (such as Gedimino Avenue, Didzioji Street, Vokieciu Street and Pilies Street) went up by another 5% in 2014, after a 15% increase in rents in 2012 and 5% increase in 2013. At the end of 2014, rents for medium-sized retail premises (100 to 300 sq m) in such streets were €16.00 to €40.00 per sq m. Ober-Haus believes that retail rents will rise slightly in 2015.

Investment

As forecast, the total volume of investment through purchasing already developed commercial property has been growing rapidly, the experts at Ober-Haus explain in their market report. An investment breakthrough was recorded back in 2013, but the 2014 indicators are even more impressive. In total, 18 investment transactions (modern office, retail, and industrial property worth over €1.5 million) were concluded in Lithuania, with a total value of €204 million, an increase of 30% compared with 2013. In total, 99,200 sq m of offices, 55,600 sq m of retail premises, and 22,200 sq m of warehousing/industrial premises have been purchased this year.

According to the value of purchased property, Swedish capital companies were the leading investors (45% of all investments). The remaining investments attracted buyers from Estonian, Dutch, Finnish, Danish, Russian, American, and Lithuanian capital companies. Falling commercial property yields and the expanding geographical sphere of investors activity signals the attractiveness of the Lithuanian real estate market. During the year, office and retail yields declined by 25 basis points in Vilnius to 7.0 to 8.0%. Theoretically, the best properties could be sold under the 7.0% mark, while warehousing/industrial premises provide no less than 8.5%.

Seeing the stable economic and political situation of the country and the growing prospects in this sector, investors have made decisions to channel some of their available funds from less risky, yet less lucrative markets (e. g. Western Europe). Foreign investors, not counting those from Latvia and Estonia, carefully select projects and see priorities in investing in property in the country’s major cities – Vilnius and Kaunas. Only the retail property sector (the most popular shopping centers), are of any interest in the remaining cities in the country. However, realistic assessment of the completed transactions shows that the majority of investment goes to Vilnius and only then are prospects of channeling investment to other cities considered. Over the past five years, over 80% of all investment was made in Vilnius (according to the value of investments), and it is likely that this will remain the case in the near future.

Deals

Ogmios Centras, a real estate development and management company, sold the 19,000 sq m retail and office complex Domus Centras to Westerwijk Investments, registered in the Netherlands. The complex built in 2003 accommodates Domus Galerija, a 10,600 sq m interior finish and fitting out material center, and 4,400 sq m of offices. Details of the transaction have not been disclosed. The local developer Eika completed the sale of the Hyper Norfa shopping center, which opened in April 2014. The shopping center in Pilaite district, with a total area of 5,000 sq m, was sold to a foreign investor for an undisclosed amount. A forward investment deal was finished when the first stage of the shopping center next to Ukmerges Street was completed by TK Development. After successful completion of the first stage (7,500 sq m), it was sold to Northern Horizon Capital for its latest Baltic fund (Baltic Opportunity Fund). The value of the investment deal was established based on the required initial yield of 8.5%. At the end of 2014, the Finnish real estate investment company Citycon sold Mandarinas in the Fabijoniskes district. The shopping center, with total area of over 9,000 sq m, was sold to the local investment fund Lords LB Baltic Fund III for €12.5 million. The mall was acquired from its developer ELL Real Estate for €14.6 million in 2006.