On the Riga office market, developers are shifting into higher gear and preleasing is picking up
Take-up on the Riga office market in the first half of 2021 reached pre-pandemic levels. Seeing the market’s potential, investors are moving ahead with office development projects focused on modern, high-quality solutions. Tenants, meanwhile, are gradually changing their habits and starting to make prelease agreements, analysts at international real estate consultancy Newsec in the Baltics note in their new “Riga Office Outlook” report for the first half of 2021.
According to Mindaugas Kulbokas, the Head of Strategic Analysis at Newsec in the Baltics, only about 9,000 square meters of new office space will be offered in Riga in 2021, but in 2022 the figure will be 10 times bigger. It is forecast that over the next 4 years, 240,000 sqm of modern space will be added to the Riga office market.
“Developers are moving away from standard projects to more creative solutions that will be relevant for modern, contemporary companies – things like ecology, office campuses that offer a balance of work and leisure, and conversion projects that preserve ties to the Riga of the past,” Kulbokas says.
Next-generation offices are on the rise in Riga
In March, Lords LB Special Fund V began construction of the Preses Nams Quarter, which it plans to complete by 2023. The property, with offices able to accommodate 2,500 people, will offer the market a convenient, comfortable and healthy work environment. Certified as “BREEAM Excellent” and with an energy class of A++, the campus will include co-working, dining, leisure and entertainment spaces, along with the first rooftop football field in the Baltics.
Eastnine is working on another distinctive project. Its Kimmel development, where a former brewery is being transformed into public spaces and offices, has already won architectural recognition for Riga. The total area of the project will be about 38,000 sqm, including some 4,000 sqm with heritage protection. It will feature multifunctional urban spaces, with historical details and traditions preserved in a square beside the workplace.
About 40 percent of all new supply next year is planned on Skanste Street, with more still coming. Linstow Baltic has acquired the Sporta 2 complex, which is not far from Riga’s emerging central business district, for EUR 10.5 million from NP Properties Group. The developer’s vision for this conversion project is a modern, high-quality, multifunctional urban space with offices, stores, a variety of services, and leisure spaces.
With many people returning from their homes to their normal workplaces, the need for offices has grown and as a result vacancy has decreased 2 percentage points to 13.2 percent. But compared to the average free office space in European capitals, which stands at 6.8 percent, vacancy in Riga remains rather high and gives tenants more opportunities to choose and to seek more flexible terms.
Office tenants’ changed needs are shaping the market
“As the pandemic slowly recedes, leasing is picking up on Riga’s office market. International and IT companies newly entering the market are contributing greatly to the activity level. They are dictating the trends to developers, choosing only top-class modern offices, which they see as necessary in the competitive battle for talent. For example, Amber Beverage Group, the leading international distributor of alcoholic beverages in the Baltic region, moved to the Z-Towers, one of the newest business centres in Riga, hoping a more modern work setting will motivate and attract the employees the company needs to succeed,” the Newsec expert says.
Big companies are planning where they want to be located in a few years and are making prelease agreements at properties which are still being built. Thus, SEB group’s business services centre in the capital city has signed a contract with real estate developer GALIO Group and as of the first half of 2023 will move into the newly built 12,000-sqm GUSTAVS business centre. SEB says it is a long-anticipated move which will let them bring their teams in Riga together under one roof and strengthen the company’s internal culture.
The pandemic has also spurred the rapid growth of some companies. An example is the Draugiem Group, which over the last 2 years has nearly doubled its number of employees, leading it to open another 3,000 sqm office on Raiņa Avenue.