In 2021, the country's economy grew by 5.1%, achieving one of the best results in Europe. People bought a record amount of housing, and developers introduced a record number of projects to the market. The supply of new housing decreased and prices increased. Whereas the business centre market has been hit harder by the pandemic, with the vacancy rate rising and lease prices remaining at similar levels as at the end of 2020. Changes in logistics chains enabled to expand storage facilities, by mostly using new areas exclusively for own needs.
"Last year the Lithuanian economy has demonstrated top class. It has handled the challenges of the pandemic, growing by 5.1% and achieving one of the best results in Europe. In H1 of the year, Lithuania used its export opportunities very successfully and reached record volumes, and in H2 of the year, the country's economy was awakened by the activity of consumers as they were breaking out of the grip of the pandemic. Industry growth has exceeded 20%. The rise in prices, which has reached its highest level since 2009, has become a big surprise. It was mainly caused by the energy resource price shock and disruptions in the supply chain of goods and materials due to pandemic restrictions. Salaries, which have increased by 10% for the fourth year in a row, are becoming a headache for businesses, and there is already a shortage of employees. The outbreak of war in Ukraine will restrict the export markets significant to Lithuania, and uncontrolled inflation may change domestic consumption habits. This is likely to hamper the country’s further development," says Tomas Kipišas, Savings and Investment Product Manager at Šiaulių Bankas.
"The situation in Ukraine at the end of 2021 was not as significant as it became at the time this overview was written. The Russian invasion will undoubtedly affect resource prices and the population's attitude towards real estate (RE). In 2021, the most important aim of investment in real estate was to protect funds from inflation. In 2022, one of the main needs will be to ensure the liquidity of one's assets," says Tomas Sovijus Kvainickas, Chief Investment and Analytics Officer at Inreal Group. The most important events in 2021 and the factors that affected the real estate sector were the infrastructure tax and the resolution on compensation for development on state-owned land, the A++ energy efficiency class requirement, rising prices of construction works and materials, high employment of contractors, particularly high demand for housing, its dangerously shrinking supply, and increasing attractiveness of commercial real estate. "The fast primary market train has somewhat slowed down due to the end of the spring effect, the significantly shrinking supply, and the increased housing prices. In 2021, particular attention was paid to commercial housing lease, and developers have undertaken both to develop such projects, and to sell apartment buildings specifically for lease purposes," says T.S. Kvainickas.
2021 was a record year for the primary housing market of Vilnius. According to the data published by RE developers, people purchased 7,069 new homes (excluding townhouses), which is 48% more than in 2020. Developers have introduced a record number of projects to the market – 5,320 homes (excluding townhouses), which is 22% more than in 2020. The supply of new housing has been steadily declining since mid-2020. The liquidity index is also declining and was 0.5 at the end of 2021, meaning that the entire current supply can be sold within 6 months. The annual growth of prices in the primary housing market of the capital, depending on the housing class, amounted to 26-28%. "A rapid decline in supply could lead to two radically different trends. On the one hand, if there is a perception that buyers will buy "anything" or will buy homes "from drawings", the final product can be very disappointing. On the other hand, with market activity still at a particularly high level, developers may undertake riskier, non-standard projects in less urbanized or less attractive parts of the city, as well as offer non-standard solutions based on the current remote work and changed lifestyle trends. Migration of new projects from the south to the north of Žirmūnai and from the north to the south of Naujamiestis is accelerating, and adjacent areas such as Vilkpėdė, Lazdynai, Visoriai and Burbiškės are also being developed," says T.S. Kvainickas.
A total of 977 homes (excluding townhouses) were sold in Kaunas in 2021, i.e. 34% more than a year ago. 1,274 homes (excluding townhouses) were offered on the market – 68% more than a year ago, i.e. developers offered significantly more housing than was purchased during the year. The liquidity index reached 1.23 at the end of the year, meaning that the current supply of new housing can be realized within 15 months. The annual change in prices in the economy and middle-class housing segment was 8-10%, accordingly. It was about 20% in the prestigious-class housing segment, which has nearly disappeared in 2021. "The supply of prestigious housing in Kaunas is very limited. This does not mean that there are no exclusive housing options in Kaunas, however the projects themselves are classified as middle-class, because although their architecture, interior spaces, technical solutions, and well-being are of a high standard, they are being developed in newly developed areas where existing objects are not considered prestigious. With continuing development, the example of Vilnius Paupys may be reproduced with the creation of new, attractive and completed parts of the city," says T.S. Kvainickas.
In 2021, 368 homes (excluding townhouses) were sold in the primary housing market of Klaipėda, which is 4% more than a year ago. Developers offered 398 new homes (excluding townhouses), which is three times more than in 2020. The liquidity index of the primary housing market in Klaipėda has reached 0.8 at the end of 2021 (realization would take about 10 months). The annual change in the prices of new housing in the port city reached 23 – 24%. "A number of projects are planned in Klaipėda, but due to their scope planning, design and obtaining of permits, it will take a long to complete all the works, therefore their impact on the market will be visible only after a year or even later. However, it is almost certain that housing prices in Klaipėda will increase further, reaching the level of housing prices in Kaunas," says T.S. Kvainickas.
In Palanga and Šventoji, 2021 resulted in 466 new housing contracts, which is 12% more than in 2020. Developers offered 391 homes in the second half of the year. This was enough to restore the supply at the end of the year to its usual level. At the end of 2021, the prices of projects with publicly announced prices ranged from 1,500 to 4,000 EUR/sq.m. Almost all publicly available new construction housing units were purchased in Neringa, leaving only a few unsold objects. The average price was about 4,300 EUR/sq.m. According to the data of Inreal, virtually all new construction (reconstruction) objects which are currently on offer are partially finished, which is unusual in Neringa.
2021 was a relatively easier year for the commercial real estate market than the first year of the pandemic. There were no significant work culture changes, companies did not give up their offices, however the changed approach to work organization gave employees and employers the opportunity to choose the best business model for them, whether it be remote, standard, or mixed type of work. "Lessors and lessees welcomed 2022 with different moods. The low-inflation environment that lasted for many years provided a surprise in the second half of 2021 and revived the need to read leases carefully, and to assess the need to limit the indexation of rental prices," says T.S. Kvainickas. 7 business centres were opened in Vilnius in 2021. The total annual increase in leased area was about 94,000 sq.m. According to the data of Inreal, more than 15 business centres are currently being developed (with total leased area of about 200,000 sq.m), and almost the same area amount is in the planning or construction stages that have not yet started. Some developers have reconsidered the development plans of certain business centres, especially in Naujamiestis, deciding to build residential buildings instead of offices. Due to higher development in Class B segments and migration of clients to new business centres, higher vacancy rates were recorded in Class B1 and B2 offices. There were no significant price changes. The Drovės Fabrikas business centre with an area of 22,000 sq.m was opened in Kaunas in 2021. It is expected that there will be more new business centres in 2022–2023 when the market will be supplemented by offices with an area of about 35,000 sq.m, which will also be developed in newly formed apartment building blocks. Improved demographic indicators and higher-quality housing projects provide Kaunas with an even greater stimulus for development, as well as increase the competitiveness of the city both in Lithuania and internationally, by attracting not only local but also foreign companies. With the slowdown in development, vacancy rates in Kaunas have improved. Similarly to the situation in the capital, there were no significant lease price changes in 2021 H2. Development of small administrative buildings with an area of several thousand sq.m, including co-working spaces, is being observed in Klaipėda. The vacancy rate in Class A business centres remains at about 25%. The number of vacant B1 premises has decreased to 3%, and of B2 to 6.5%.
The situation in the logistics sector in 2021 H2 has changed little compared to the beginning of the year. Lease offers for logistics centres that have not yet been built continues to dominate the supply. There are currently virtually no larger vacant areas in modern logistics facilities. Vacancy rate in Vilnius region remains at about 2%. In Kaunas it has increased to 5%, and in Klaipėda it has decreased to 4%. There were no significant changes in lease prices. The logistics sector is experiencing growth in the stock-office segment, with more and more mixed-purpose facilities being offered to tenants for product storage, administration and retail.
"2021 was a year of active development in various real estate segments, with an abundance of investment transactions. It was also a year of further active law-making processes, greater clarity and adaptation to the COVID-19 virus. This is how 2021 could be described in the assessment of the situation in the real estate market and in the summary of the abundance of adopted rules of law and their impact on the market. However, just like any other sector, the entire real estate sector is currently holding its breath while observing the events in Ukraine. Therefore, any predictions and insights are highly affected by the ongoing war," says Artūras Kojala, Partner at Law Firm COBALT at Real Estate and Infrastructure Practice Group.
About INREAL group
INREAL is a brand of an idea, which gives spark to unique projects, basis for professional services, and added value to businesses, clients, and partners. INREAL positions creativity as a core value in the dynamic business world. INREAL Group, which consists of UAB "Inreal", UAB "Inreal GEO" , UAB "Inreal valdymas" and its managed companies, develops unique real estate (RE) projects and provides probably the widest range of real estate services in 11 cities in Lithuania. The company has engaged in business operations for more than 25 years and implemented more than 70 real estate projects of various purposes, which received recognition and awards at contests not only in Lithuania but on an international scale as well.
More information:
Rūta Merčaitienė Head of Marketing and Communication at INREAL group +370 611 29 779 ruta.mercaitiene@inreal.lt