Vilnius office market: Take-up exceeded forecasts at the start of the year with large deals in the central business district
The year began positively in the Vilnius office market, with leases for 31,000 sqm of space signed in the first quarter. As international real estate advisors Newsec’s review of the Vilnius office market for the first quarter of 2021 reports, companies that were delaying office lease decisions due to uncertainty over the pandemic are again planning expansion and their office lease and occupancy strategy.
Newsec’s experts note that the first quarter of this year shows the office market remains active and sustainable, even showing notable growth of take-up. Expectations are that the Vilnius office market may see more than 90,000 sqm of space leased out in full-year 2021, thus maintaining the 5-year average for office take-up.
Need for offices remains consistently sustainable
“The first-quarter market was active, with deals taking place, and that shows offices remain relevant and companies are planning to return to their offices, aiming to create spaces maximally suited to today’s realities. Many of the contracts are being signed for the standard 5-year period, while some companies are choosing to lock in favourable leasing terms for even longer. We notice that flexibility is becoming more and more important for many tenants in terms of the ability to increase or reduce space during the lease if needed,” says Martynas Babilas, Newsec’s Head of Tenant Representation in the Baltics.
The expert notes that while working remotely has become the new daily norm, most companies continue to view the office as the main place for work and creativity, a place where the company’s culture and values are nurtured and where collaboration and team effort are encouraged. Only a small minority of companies is moving to totally remote work and significantly reducing space – the market is dominated by a need to work remotely several times a week but to spend most working time at the office.
“That is also shown by major deals of the first quarter. The service centres and IT firms settling in Vilnius could, by their nature, work from anywhere, but they continue choosing to invest in setting up quality offices. The long-term need for offices is also reflected in the multifunctional office campuses that major companies of the country are building, looking to attract employees by offering them a unique and engaging space. Solutions and projects like that help bring a company’s employees together, strengthening the company’s identity and brand and its positioning as an employer,” Martynas Babilas explains.
A new modern office is a competitive advantage
Activity levels on the Vilnius office market are getting a big boost from newly arriving international companies, which continue to establish branches and service centres in Vilnius. This year’s largest lease transaction to date was signed by the U.S. medical technology company Dexcom, which leased out 6,000 sqm in the Business Stadium business quarter. Among other new foreign companies, leasing deals were also signed by a Belarussian IT firm and a new international service centre. Newsec advised on all three of these transactions, which were the biggest of the first quarter of 2021 and all in the central business district.
“IT companies today are one of the engines of the office market, since in competing for talent they’re trying to offer a variety of benefits, of which one of the most important is a modern, ergonomic and healthy work environment. A new, contemporary office is seen as an effective and relatively inexpensive measure to help an employer attract and retain talent by providing a pleasant and engaging space,” Mr Babilas says.
Vacancy rates do not exceed the European average
In the first quarter of 2021, free office space increased slightly in class B buildings, as the rate of vacancy rose from 7.4% to 8.1%. The main reason was delivery for use of the first building of the Business Garden. In the class A segment, vacancy was unchanged at 5.9% even with the addition of the Lvovo Business Centre’s premises. Overall vacancy on the Vilnius office market is 7.1%, in line with the average in European capitals.
While construction prices are rising significantly, rents on the Vilnius office market are stable, changing only at the pace of the CPI index. With the modest but growing level of vacancy on the office market and increased selection, it can be said that the market favours tenants in the class B segment. But in class A, supply is set to shrink significantly this year and in 2022. Rents at class A buildings are EUR 16-17.5, compared to EUR 10-14 in class B offices.
Newsec’s Head of Tenant Representation in the Baltics stresses that in choosing an office it is important to consider not just the price but the entire lease package, which is where the real competition between new modern buildings and second-generation offices is taking place.