Riga office market is awakening after a long winter’s sleep
Increased activity can be felt on the Riga office market, where 85,000 sqm of new office space were offered in 2020 and investment transactions were more active than in the last 3 years, according to the “Riga Office Outlook” market report for the second half of 2020 published by the international real estate consulting firm Newsec.
Two large bank deals shook up the Riga office market in the second half of the year. Citadele, seeking to focus on its core activities, sold its head office to the investment management company Lords LB Asset Management. The investor for SEB’s headquarters also changed – it was acquired by the Grinvest fund which invests in renewable energy and real estate. Major transactions also included the acquisition of AirBaltic’s 6,500-sqm headquarters by a fund of EfTEN Capital.
“These investment transactions are a good sign, showing that Riga’s long dormant office market is waking up. But in order for deals to continue happening, growth in the supply of new A class offices is needed. For some time now, Lithuanian developers have been trying to take advantage of that gap in the market, planning and starting construction on this type of properties in Riga which are attractive to investors,” notes Mindaugas Kulbokas, the Head of Strategic Analysis at Newsec in the Baltics.
Hanner in Riga is developing the Jauna Teika apartment and office block, Lords LB Asset Management the Preses Nama campus, Galio Group the Daugavgrivas business centre, and Capitalica Asset Management the Verge office complex, while Urban Inventors plans to build a hi-tech campus.
According to Kulbokas, until now modern office buildings in Riga have been built mainly for a single tenant, a bank for example, but with the advent of new investors, properties will come to market in the Latvian capital that are open to more than one tenant.
The Z-Towers and Origo One business centres, among the largest new office projects of 2020, offered tenants 25,000 sqm and 11,500 sqm of A class office space, respectively. Vacancy of office space had surged suddenly in 2020, but at year-end the amount of space available decreased, both in A class and B class. The vacancy level at the end of the year was 15.8%. The market for modern office space at the end of 2020 totaled approximately 756,000 sqm.
While no new office space will be offered in 2021, supply is forecast to grow in 2022, with more than 128,000 sqm of space offered by newly completed projects like the Verde, ELEMENTAL, Office Building Complex and Salas Biroji. Supply will grow slightly less than expected as some projects are being pushed back to 2023.
Riga’s central business district is still taking shape
“Riga’s office market differs from Vilnius’s or Tallinn’s in that business centres are scattered across different parts of the Latvian capital while in the city centre there’s a lack of high-quality offices of 10,000 sqm or more. Reacting to that, developers are choosing to build office centres in the heart of the city, so it is planned that in the near future the Skanstes Street area will become a central business district,” Mindaugas Kulbokas says.
He notes that construction started on two significant projects in the second half of 2020 – the Preses Nama Kvartāls and the Verde business centre. The latter will add 30,000 sqm of modern office space to the Skanstes Street area in 2023.
According to fund manager Giedrius Bernotas of the Lords LB Special Fund V, the developer of the Preses Nama Kvartāls, a modern business campus with distinctive office buildings will arise on the territory of Riga’s former Press Palace.
“This nearly 6-hectare project is also one of the most modern and ecological business developments in Riga. Besides office buildings that meet the BREEAM Excellent standards, we also envisage green spaces and leisure zones in the project, with infrastructure specially adapted for pedestrians and cyclists. A multifunctional centre with retail premises, food spaces and green terraces is also already under construction and will include the first roof-top football field in the Baltics – all of this will ensure that the employees who work in the offices will be able to refresh their strength and relax in green areas and obtain key services within a minute from their office door. Our goal is to create a central business district that will remain a centre of attraction for the residents of Riga not just on business days but also during evenings and weekends,” Bernotas says.
Growing supply of modern office space is catching the eye of foreign companies
As the supply of modern office space grows, foreign companies are increasingly turning their gaze on Riga, since office rents here are more attractive than in Western Europe. As an example, rents for A class office space in Riga are EUR 14-16. Meanwhile, for B class offices further from the city centre, rents start at just EUR 9. Foreign companies are also interested in the abundance of qualified IT professionals in Riga.
Last year two large foreign companies opened offices in Riga: airline Norwegian set up an international service centre in Riga and the Swiss telecommunications company Swisscom opened its second European DevOps centre in Riga.