The “Riga Office Outlook” report for the third quarter of 2021 prepared by the analysts at the real estate consultancy Newsec in the Baltics shows that more and more new space is being developed in the Latvian capital. Rising along with the new properties is the number of prelease agreements.
Activity on the office lease market in the third quarter was supported by small and medium-sized deals and one large prelease agreement that SEB Bank signed for 11,000 sqm of office space at a business centre being developed by the Galio Group, which will open its doors in 2023. Take-up in Riga during the third quarter totalled 24,000 sqm.
“As the impact of the pandemic has subsided, the office lease market has picked up. Companies in Riga now have two options – to choose from existing vacant space or wait for new projects and make prelease agreements. We see those big companies that can wait and plan their relocation in advance are most interested in newly developed, modern and sustainable projects, with many of them aiming to move out of older office buildings,” said Dace Priede, the Office lease advisor in Latvia.
Priede notes that in 2022 more than 40,000 sqm of new office space will be offered to the market in Riga. Some of it will be leased out with prelease agreements, which will increase the offer of free space in existing projects. The new high-quality, sustainable projects that enter the market will be attractive to companies that are ripe for relocation.
However, with the supply of new office space not yet flowing into the Riga office market, the level of vacancy is gradually decreasing and during the quarter fell from 13.2 percent to 12.5 percent. Demand for both class A and class B offices has been similar recently, and prices have been stable: class A office rents are roughly €14-18 per sqm, and class B rents about €9-16.
New space will bring the market unprecedented quality
The Galio Group signed a deal with Merks during the third quarter of 2021 on the construction of an office complex on G. Zemgala Street. One of the three business centres in the project will be leased to SEB Bank. Like many of the business centres now going up, the buildings in the complex are being built in accordance with the requirements for “BREEAM Excellent” certification and will also offer space for entertainment and leisure.
Active development continues in the Skanste Street district. Real estate developer Pillar Capital has begun construction of the New Hanza office building. It is planned that this class A property with a leasable area of more than 12,000 sqm will be carbon neutral. Meanwhile, Kapital, one of the largest real estate companies in the Baltic countries, signed an agreement with the construction company Merks on the development of the Elemental Skanste property, completion of which is planned for H1 2023. The business centre will meet the requirements for “BREEAM Excellent” certification and offer the market over 20,000 sqm of class A offices.
“The space that is being newly developed will bring unprecedented quality to the office market in the Latvian capital, inspired by developers tied to the office expansion in Vilnius. Thanks to the active development of offices, tenants have recently gained more opportunities in the city – they can choose more modern spaces and negotiate more favourable lease terms. At the same time, tenants’ changing needs are becoming more apparent, with companies focusing more on safety and health. They are looking for offices with larger meeting rooms, lounge areas and quality food-service venues and other services,” said Dace Priede.