A slower second quarter lays strong foundation for the second half-year of the Vilnius office market | Newsec

A slower second quarter lays strong foundation for the second half-year of the Vilnius office market

A slower second quarter lays strong foundation for the second half-year of the Vilnius office market

The QII 2021 overview of the Vilnius office market by specialists at Newsec, an international real estate (RE) advisory firm, says that the second quarter of the year was dominated by lease deals for smaller floor space areas inbuilt modern business centers with the general area of lease transactions standing at 14 thousand square metres. The total floor space area of offices leased over the first quarter of the year was 45 thousand square metres, which is in line with the average of the transactions for the most recent five half-year periods. 

The second quarter was not market by any record-setting or significant deals on the office market, with new lease or development deals for properties of over 500 sq. m accounting for two-thirds of the transactions, in addition to some more minor agreements regarding 200-300 sq. m properties. In the words of Indrė Narauskaitė, Newsec’s Head of Office Solutions, QII 2021 saw a decline in the number of future lease agreements, with companies preferring business centres that they can move into without having to wait.

At the beginning of the pandemic, some market players had suspended any decision-making activity, with the pandemic persisting and businesses adapting to the new reality, the office market has recovered: even though agreements are not very large in number, offices are sought by new entrants and companies that want to expand or move to a better or more convenient location, not to mention that some companies need to optimise or merge their offices.

Second half-year kicks off with the largest lease deal this year

The second half-year of 2021 kicked off with the largest office lease deal this year. Girteka Logistics and Galio Group signed a lease agreement for 14 thousand square metres of office space in the Girteka Park business centre at Laisvės pr. 36 in Vilnius.

‘Even though the second quarter did not see many transactions, the second half of the year started on a positive note: transactions of the size of Girteka Logistics’ deal only occur once or twice a year in the Vilnius office market. We predict that at least 90 thousand square metres of office space will be leased this year, which is comparable to the indicators of the past few years,’ Newsec’s Head of Office Solutions says.

Choice of class A offices in downtown Vilnius has declined

The overall market vacancy rate went down from 7.1% to 6.6% in QII, while the vacancy rate in the class A office decreased even further: from 5.9% to 4.9%. Ms Narauskaitė points that the vacancy rate for class A properties at the year-end should be about 5-6%, while the overall vacancy rate will grow quicker and will reach 10-12% by the close of the year.

‘Even though recently there has been some surge on the construction market driven by the growing costs construction and installation and materials, we so far have not been able to observe any effect on office rental rates, which remain stable and stand at EUR 16-17 in class A business centres and EUR 10-14 in class B+ facilities,’ Newsec’s expert says.

In her words, with vacant state-of-the-art offices in the capital city quickly finding occupants, the area of available class A offices shrank in QII this year, which means that companies that were unable to find office space may have to wait for up to two years: we can only expect any significant increase in the supply after the office buildings that are currently under construction or in plans have been inaugurated.

Of the annual office supply slated for the first half of 2021, only 25% has been commissioned; therefore, several new projects are expected to be completed later this summer and in fall – these include two class A business centres, Core and Saltoniškų 7, in the central district of the capital city, and class B+ business centres Business Garden Vilnius, Office 100, Naujasis Skansenas, Cloud Offices, and Girteka Park.

‘Delayed construction launch dates and changes in development timeframes have narrowed the floor space of the supply scheduled for 2022. Nearly 30,000 sq. m of office space currently under construction will be commissioned later, in 2023. As a result, the total supply in 2022-2023 may go as high as 200,000 sq. m,’ Ms Narauskaitė notes.

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