Compressed-spring effect in the Vilnius office market – upward surge expected in second half of year
While nobody rushed to predict what 2020 would bring for the office market, the year ended better than expected. Take-up of office space exceeded the five-year average and surpassed 100,000 sqm. At present, a compressed-spring effect is still felt in the office market, as decisions on office leasing needs which were delayed during the pandemic should resume in the second half of the year, the international real estate advisory firm Newsec notes.
Office take-up in 2020 outpaced the five-year average
The total of premises leased in 2020 was a full 16% more than the average for the last five years and exceeded 100,000 sqm. High-value lease transactions were concluded in 2020 by international service companies like Western Union, Telia Global Services Lithuania, Devbridge, Metso and others, which sought bigger spaces for expansion.
“In late 2020, owners signed lease agreements for a quarter of the year’s take-up. The biggest deal of the fourth quarter was for the 10,000-sqm Ignitis Group office at Vastint Lietuva’s Busines Garden Vilnius project. But the market was dominated in the fourth quarter by smaller tenants, whose large number made it possible to end the year on a high note,” says Jurgita Ragaišė, Newsec’s Head of Brokerage in the Baltics.
There were no sharp price changes on the Vilnius office market. In class A, rents grew slightly, from EUR 16-17 to EUR 16-17.50, while in class B they are now EUR 10-14 versus EUR 9-14 in June 2020. According to Ragaišė, office lease prices on the market will remain little changed. Given the rapidly growing supply of modern offices, managers of older office buildings have started offering more flexible leasing terms, but they are trying not to reduce prices.
Growth of vacancies is not causing concern
More than 46,000 sqm of leasable space was added to the Vilnius office market last quarter, and in the past year a total of 115,900 sqm of new space was brought to market. Ragaišė notes that with supply growing at a pace of 14-16% a year, growth in the vacancy level seems natural. The share of vacant space on the Vilnius office market rose in the fourth quarter from 4.9% to 6.7%, and over all of last year from 3.4% to 6.7%.
According to the specialist, most developers are not hitting the breaks but are continuing to implement planned projects. In the fourth quarter, construction of three business centres was successfully completed: Žalgirio 94, Business Stadium North and Technopolis NOVA. Meanwhile, the development of new projects like FLOW, HERO, Cyber City and UNUM was officially confirmed, with works set to accelerate.
Compressed office market spring set for release
“In 2020 the real estate industry was on a sort of roller coaster, where actors’ moods and actions were closely tied to the pandemic situation. We ended the year with an upsurge, achieving better than expected results. But with a certain uncertainty hanging over the market on account of the quarantine, the compressed-spring effect can still be felt – companies’ paused decision-making processes for office moves or expansion should resume in the second half of 2021, or maybe even sooner,” Ragaišė notes.
Experts speak cautiously about 2021, but it is believed tenant activity will not only not fade but will stay at a similar level. Newsec forecasts that about 90,000 sqm of modern office space will be leased out in 2021. Besides the already well-known tenants who plan to make decisions on offices, there will also always be others facing needs for bigger premises, a higher class, a more convenient location, and needs will arise to optimise, combine or even reduce offices. All those decisions will only drive the capital city’s office market forward.
Strong demand forces: Belarusian companies and businesses that have outgrown coworking spaces
Ragaišė points out that the largest tenants on the market are the still service centres and IT firms, which suffered least during the pandemic, and some even grew. IT companies from Belarus have also confirmed their plans to move: Epam Systems – the world’s largest maker of custom software, the international video game company Wargaming, and others will soon set up in Vilnius. This will be a segment keeping the pulse of the office market high and making large deals.
Financial technology companies are increasingly setting up in Vilnius and that is one of the fastest growing sectors in Lithuania. It typically takes about two years for a new Fintech company to move from a coworking space to separate premises. At present many Fintech companies, having outgrown their coworking-space “clothes”, can be seen to be becoming mature office tenants and filling up traditional office spaces.