2019 Q3 - Commercial Property Market
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Commercial Property Market REPORT 2019 Q3
There is still uncertainty in the global market, which has also affected the
market of commercial real estate. Everyone is waiting - what's next? How
will the UK's withdrawal from the EU be resolved? How will the trade
conflict between China and the U.S. develop? And how will this affect the
global economy? The figures are not encouraging at the moment. In
Germany, the manufacturing recession is deepening and is already
beginning to affect the service industry, with various countries and
organizations downgrading their GDP forecasts for this year. Although
indicators of the Latvian economy do not yet give evidence of the
inevitable - recession or crisis - no changes have been observed in the
commercial real estate market since the beginning of the year. IGORS
TEREHOVS
Latio Commercial
Property Market Expert
2
MACROECONOMICS 3
Key Indicators in EU and Euro Area
GDP increase (%) Inflation (% to the previous year)
4
4,0
MACROECONOMICS
3,5 3,1
3,0
3 2,6
2,0 2,5
2,7
1,0 2 2,5
1,4
0,0 1,5
-1,0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1
0,5 1,0
-2,0
0
-3,0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019M01
2019M02
2019M03
2019M04
2019M05
2019M06
2019M07
2019M08
-4,0
-5,0
ES Eiro zona
ES Eiro zona
Unemployment, % of economically active
• The unemployment rate continues to drop in the European Union (6.3% in the
population (seasonally adjusted)
second quarter of 2019, 6.9% a year ago), low inflation (below 2% since 2012), low 14,0
growth (GDP growth has not been above 2.6% (2017) since the financial crisis). 12,0
10,0 7,8
• The unemployment rates In the Euro area are higher than the European Union 7,3 7,6
average, and inflation rates have started to diverge more from the EU average since 8,0
early this year. 6,0
6,8 6,3
4,0
• Latvia's GDP growth is higher than average in the EU and Euro area, reaching 4.6%
2,0
in 2018, compared with 3.8% in 2017. The value added of construction increased by
17% in 2018 (2015 at constant prices) and by 14% in the year before. 0,0
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
2019Q1
4
ES Eiro zona
Data:
Eurostat
• With the increasing political risks associated with
Russia and other CIS countries, there is a shift from
the eastern market to the western market at
national level.
Share of loans and deposits to non-residents (%) • Due to suspected irregularities, the liquidation
proceedings of ABLV Bank were opened in 2018
and the Corruption Prevention and Combating
Bureau of Latvia (KNAB) detained the Governor of
the Bank of Latvia. The Committee of Experts of the
MACROECONOMICS
Council of Europe on Evaluation of Anti-Money
Laundering Measures and the Financing of
Terrorism (“Moneyval”) developed
recommendations to be implemented by Latvia in
74%
order to organise the financial system and improve
70% the image of the country, eliminating risks related
to money laundering, financing of terrorism and
60% weapons of mass destruction. As a result of these
events, the bank financing arrangements and
50% funding requirements changed.
• According to the data of the Bank of Latvia, the
40% 32% amount of bank loans granted to resident and non-
30% resident non-financial corporations and households
23% 22% has decreased between 2015 and April 2019.
20% • Between April and September 2015, banks had
15% provided 23% of total loans to non-resident private
10% 6% non-financial corporations, compared to 15% since
September 2018. In May 2015, a total of EUR 1.7
0% billion was issued to non-residents, while the
residents received 5.7 billion euro, whereas in May
2019, the numbers were, respectively, EUR 0.9
billion and EUR 5.0 billion.
• The proportion of loans to non-resident households
Nerezidentu privāto nefinanšu sabiedrību kredīti Nerezidentu mājsaimniecību kredīti in total loans to households also decreased.
• More pronounced changes can be observed in the
Nerezidentu privāto nefinanšu sabiedrību noguldījumi Nerezidentu mājsaimniecību noguldījumi structure of deposits. In January 2015, the non-
resident non-financial corporations amounted to
74% or EUR 9.4 billion while resident finance
companies - 26% or EUR 3.3 billion. Whereas in May
2019, deposits of non-resident finance companies
accounted for 22% or EUR 1.2 billion, while the
deposits of residents made up 78% or EUR 4.2
5
billion.
Data: Bank of Latvia
Business confidence index for Germany • The Business Climate Index of the German Ifo
Institute measures the current and future
business situation assessment of directors in
Germany.
60,0
47,4
50,0 • The assessment of the current situation has been
MACROECONOMICS
40,0 29,7 falling since January 2018, when it reached 47.4
30,0 24,5 points, whereas now it is almost twice lower -
24.5 points.
20,0
6,7
10,0 • The outlook for the future has been negative
0,0 since January this year. In September it was -9.6
-10,0 points, though in January 2018 it had been at
13.4 points and in November 2017 - as much as
-20,0
16.8 points.
-30,0
-40,0 • Manufacturing and trading companies are
feeling the most negative. At the same time,
01/2005
06/2005
11/2005
04/2006
09/2006
02/2007
07/2007
12/2007
05/2008
10/2008
03/2009
08/2009
01/2010
06/2010
11/2010
04/2011
09/2011
02/2012
07/2012
12/2012
05/2013
10/2013
03/2014
08/2014
01/2015
06/2015
11/2015
04/2016
09/2016
02/2017
07/2017
12/2017
05/2018
10/2018
03/2019
08/2019
servicing companies and the construction
industry representatives are more satisfied with
the current business situation and their forecasts
Business Climate Business Situation Business Expectations are more optimistic.
September 2019
50,0
40,0
30,0
20,0
10,0
0,0
-10,0
-20,0
-30,0
Ražošana Pakalpojumi Tirdzniecība Vairumtirdzniecība Mazumtirdzniecība Būvniecība
6 Esošā situācija Gaidas
Data: ifo Institute
CURRENT
SITUATION
7
• Printful Latvia reported that it has purchased land in Pardaugava for 530 thousand euro,
where it plans to build larger premises for the central office in Riga. The purchased area of
6.8 thousand square meters is located next to the Printful office at 6b Ojara Vācieša Street.
Office Space, Latvia • Lithuanian company M.M.M. Projektai informed that it has purchased land (2.3 and 5.6 ha)
in the VEF district (73 Gustava Zemgala gatve and 201 Brivibas gatve), where it plans to
build offices and apartments of the total area of 50,000 square meters. This neighborhood
Class A and B office space (thsd m²) and growth is planned to be developed by 2026. The total planned investment is more than EUR 200
CURRENT SITUATION
million.
dynamics (%)
• The Riverside Office representatives reported that the renovated B+ class office complex
1 200 80% will be commissioned in autumn. The total area of the complex is 9 thousand square
70% meters and it is based on the building of the institute "Agroprojekts" built in 1970.
1 000
60% • The construction of Z Towers – two 30-story buildings – was completed in July. One of the
800 50% buildings houses apartments, the other - office spaces.
• The Red Line, a Class B+ office building, has also been commissioned. The total area of the
600 40%
six-storey building is 6 thousand square meters, of which 2.8 thousand square meters are
400 30% available for rent.
20% • Vastint Latvia commissioned two office buildings of the first phase of the project Business
200 10% Garden Riga. The total leasable area available is 14 thousand square meters.
0 0% • SWH biroju centrs (office centre) has been commissioned, which has obtained the A1
energy efficiency certificate.
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019(p)
2020(p)
2021(p)
2022+ (p)
• Real estate fund Capitalica issued bonds to raise funds to be invested in the complex Verde
of two class A business centers with a total area of 45 thousand square meters. It is
planned to be opened in 2021.
Platība gada sākumā Jaunās platības Pieauguma dinamika (%) • AI Studio's detailed plan for the construction of an office building of 18,000 square meters
near the Skonto Stadium was approved.
Monthly Rental Rate (EUR/m²) Office Space Sales Price(EUR/m²)
19 3500
15-17 1800-3000
17
3000
15
13 2500
13 9-12 9-12
1500-2000
11 10 2000
7-9 1400-1600 1000-1500
9
1500 900-1300
7 600-1000
5 1000
CDR ārpus CDR CDR ārpus CDR CDR ārpus CDR 500
8
A B1 B2 C CDR ārpus CDR CDR ārpus CDR CDR ārpus CDR
A B1 B2 C
Data: Latio
CURRENT SITUATION Industrial Areas, Latvia
Industrial premises (thsd m²) and growth • In July, LSEZ Jensen Metal opened a 11.4 thousand square meter
dynamics (%) production unit in the Karaosta Industrial Park area in Liepaja and
announced its plans to expand.
1600 80%
1400 70%
• The company Catals announced plans to build an exhausted catalyst
1200 60% plant in Grobina County, leading to a public consultation in July.
1000 50% • Piche has announced the acquisition of 10 ha of land to build a new
800 40% multifunctional commercial complex, Green Park, near Riga Airport. The
600 30%
400 20% complex will consist of warehouse and production spaces of 50
200 10% thousand square meters and office spaces of 7 thousand square meters.
0 0% • Jelgava city municipality tenders a 2.6 ha plot of land on 72 Garoza
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019(p)
2020(p)
2021(p)
2022+ (p)
Street on which industrial buildings and warehouses will have to be
built. The facility will have to be commissioned by the end of 2022.
Building rights will be granted for a period of 30 years.
Platība gada sākumā Jauna platība Pieauguma dinamika (%)
Monthly Rent Rate (EUR/m²) Sales Price (EUR/m²)
6 900
4,5-5,0 800
5 3,0-4,5 650-800
700
4 600
3
500 400-600
1,5-2,5 400
2 300
1
200 100-300
100
0 0
A klases noliktavas Mūsdienu prasībām Padomju laiku noliktavas A klases noliktavas Mūsdienu prasībām Padomju laiku noliktavas
9
atbilstošas noliktavas atbilstošas noliktavas
Data: LatioCURRENT SITUATION Retail space, Latvia
Retail space (thsd m²) and growth dynamics (%) • Spice plans to invest more than EUR 7 million in the health, medical and
+ Lidl
1200 50% wellness complex Spice Wellness which wil offer 5,000 square meters of
45% leasable area and be connected to the existing building of the Spice
1000 40% shopping center.
800 35%
• The former site of TC Galerija Azur now houses the newly-opened TC
30%
600 25% Ozols, where such businesses as Rimi, Hesburger and a pharmacy have
20% begun their work already. K-Senukai is scheduled to open in the fall.
• The first Lidl store on 77 Anninmuizas bulvāris was commissioned.
400 15%
200 10%
• The shopping center Alfa completed the construction of its annex,
5%
0 0% becoming the largest shopping center in Latvia. The number of tenants
increased from 170 to 210 and the leased area increased by 20
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019(p)
2020(p)
2021+ (p)
thousand square meters, reaching 71 thousand square meters.
Platības gada sākumā Jaunās platības Pieauguma dinamika (%)
Monthly rent rate of retail space (EUR/m²) Retail space sales prices (EUR/m²)
60 10000
50
8000
40 30-50
30 4000-9000
6000
20
10-20 4000
10 7-11 6-10 7-10
0 2000
1000-1500 1300-2000
Centrs, Telpas ārpus Lielveikali, Lielveikali, DIY
aktīvākās aktīvajām enkurnomnieki pārējie 0
tirdzniecības tirdzniecības nomnieki Centrs, aktīvākās Telpas ārpus aktīvajām Lielveikali, DIY
10
ielas ielām tirdzniecības ielas tirdzniecības ielām
Data: LatioCURRENT SITUATION Dynamics of yield rates
9,5
9
8,5
8
After several years of decline,
7,5
yields in early 2019 have shown
signs of moderate growth
7 pointing to short-term financial
access risks.
6,5
6
2014 2015 2016 2017 2018 2019.H1
Biroji Industriālās telpas Mazumtirdzniecība
11 Data: LatioREAL ESTATE
TRENDS IN THE
WORLD
12Real estate trends in the world
Warehouses
Time is an increasingly important factor and e-commerce is on the
rise. As a result of these factors, delivery speed is also having an
increasingly bigger role. Underground warehouses are mentioned as
one of the solutions for faster deliveries because it is practically
impossible to build a large industrial park in the city center.
Offices
According to the Savills study, when potential employees are looking
for a job, the most important factors for them are: a clean,
comfortable, safe working environment as well as the location of the
office. The time spent traveling from home to work and the
convenience of getting there is increasingly important.
The number of self-employed people is steadily growing in Europe
while the amount of full-time employees is reducing. For these
reasons, flexible office spaces are gaining popularity.
Retail trade
As retail loses its topicality and is no longer as appealing to investors, some are beginning to combine several types of real estate in one shopping centre, creating a
whole new type of real estate. In addition to live-work homes, live-work-play properties are now available on the market.
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