Institutional investors have returned to the Baltic region

Institutional investors have returned to the Baltic region

The investment transaction market in the Baltics shows no signs of slowing – the total volume of transactions in 2019 was EUR 758 million, on par with the previous year. The region retains a clear price premium as properties can be acquired more cheaply, leasing rates are lower, and yields are better than in most other European countries. That is also recognized by foreign investors, who were responsible for most of the big investments in the region, international real estate advisory firm Newsec notes.

During 2019, 27 commercial real estate investment transactions were concluded in the Baltics. Of the total amount invested, 35 per cent came from local investors, while German and Swedish funds provided the biggest foreign investments, together accounting for nearly 44 per cent of the total volume.

“The biggest market events in 2019 included two deals that exceeded 100 million euros and a more active role by foreign institutional investors. Last year showed that the Baltic region is now seen as a safe and mature market,” stresses Neringa Rastenytė-Jančiūnienė, Newsec’s Head of Capital Markets in the Baltics.

Biggest transactions in Vilnius

Last year’s biggest real estate deals were in the office building segment in the Lithuanian capital Vilnius. They were German property manager Deka Immobilien’s acquisition of the Quadrum business centre for EUR 156.1 million and Swedish investment company Eastnine’s purchase of the S7 business centre for EUR 128 million.

“Transactions of that size show properties were offered in Vilnius that were of interest to international investors. They’re offices in the best location, the central business district, built no later than 2016, that can boast of international tenants’ names and international building-quality certifications,” Ms Rastenytė-Jančiūnienė notes.

She specifies that both the properties which attracted the region’s biggest investments are class A+, designed and built according to international sustainable building standards, enjoying full occupancy with long-term lease agreements. The S7 business complex, built in 2016-2019, has earned “BREEAM New Construction Excellent” certification, while Quadrum was recognized at the Baltic Real Estate Investment Forum Awards as the best office building in the Baltics.

Conservative investors also interested

In the near future, transactions of similar value can be expected in Riga, where ambitious real estate projects are being actively developed – there are plans for 235,000 sqm, of which the majority is office space. Already in late 2019, Riga’s property market saw an investment by Austria’s Vienna Insurance Group. A real estate investment company the group owns, VIG Fund, acquired three 20,000-sqm office buildings.

Newsec’s Head of Capital Markets in the Baltics says investments by the conservative institutional investors Deka Immobilien and Vienna Insurance Group have brought the international community’s attention to the Baltic real estate market. So this year even more active involvement by international investors can be expected if properties that meet their quality requirements are offered.

According to Ms Rastenytė-Jančiūnienė, when investors see names of well-known tenants and long-term lease agreements and have assurances that a property’s location is attractive, they feel safe and are willing to pay a price premium that local investors cannot afford. The latter rely on bank financing, which is currently not very favourable.

Local players focused on alternatives

“Banks’ changed financing policy made local investors less active in the real estate sector. Despite the situation, they remained active, but looked for alternative sectors and yields of no less than 6 per cent. That’s why in 2019 transactions were rather active in the logistics, retail and older construction office segments, and new development projects were begun,” Newsec’s Head of Capital Markets in the Baltics details.

She says office yields this year should stay at the same level as in 2019. While most foreign funds admit they find the price level in the Baltic region highly attractive, they are not rushing to “overpay”. Local investors are incapable of posing significant competition to buyers from Western Europe and the Nordics, but the critical mass of the latter is still to small to make Baltic yields converge with the lower yields in their home markets. Moreover, there is no indication that banks’ financing policy will change, which means there is no basis for interest rates to decrease.

Contacts
Neringa Rastenyte-Janciuniene
Head of Capital Markets, Newsec Advisory in the Baltics
Phone: +370 686 17 468
E-mail: n.rastenyte@newsecbaltics.com

Andrius Švolka
Head of Transactions in the Baltics
Phone: +370 622 23305 +370 687 12793
E-mail: a.svolka@newsecbaltics.com