| SUMMARY OF LITHUANIAN ECONOMIC AND RE MARKET REPORT 2014 - 2015|
The RE market of 2014 was variable in Lithuania. The year started from a great optimism, but due to the military conflict between Russia and Ukraine the activity and optimism in the market started fading in the second half-year. It affected the segment of apartments the most, where in the second half-year of 2014 the amount of purchase-sale transactions has decreased by 4.8 percent, in comparison with the first one. It was the first time in the period of several years when a semi-annual decrease in the amount of transactions was registered in Lithuania. The highest decrease was observed in the major cities (Vilnius, Klaipeda, Siauliai and Panevezys) – from 8 to 18 percent. In this context, there was an exception in Kaunas, because the amount of transactions has remained stable over the second half-year. On the other hand, not all segments responded to the gloom. Opposite trends were developing in the segment of private houses, where, as predicted previously, the amount of purchase-sale transactions has been growing in the second half-year of 2014 – in comparison with the first half-year, the change reached 8.7 percent. It is forecasted that if such trends remain, the amount of apartment purchase-sale transactions will decrease by 10-12 percent in 2015 in comparison with 2014. Meanwhile, the demand in the segment of private houses will remain very strong. The statistics of land plot purchase-sale transactions also shows that the amount of purchase-sale transactions in the latter segment should not fall in 2015. During the second half-year of 2014 if compared with the first one, the increase in land-plot purchase-sale transactions, was reaching 7.5 percent; and 4.7 percent in residential land plot purchase-sale transactions. It shows that the residents intend to invest into private houses. Thus the future of this segment remains much more optimistic than that of apartments, where the broadening scissors of supply and demand may cut off the expected growth. Regardless of euro adoption and growing economics in the country, the developers will have to be ready for a fierce competition and look for the ways to promote the sales, etc. at least for one year, until the market recovers the balance between supply and demand. It is likely that the average prices of new construction apartments will decrease by up to 4 percent within this period.
The trends in the commercial segment have remained positive. Regardless of the new modern business centres opened in Vilnius in 2014, which added 13,600 sq.m of rentable area to the market, vacancy rates in the segment of business centres has decreased from 5.1 to 4.0 percent. Active construction works of business centres are still going on in Vilnius; in 2015 they should supply the market with approx. 29,200 sq.m of Class A premises and 9,000 sq.m of Class B premises, however the majority of these premises should be occupied prior to the opening. Therefore the total vacancy rate in Vilnius should increase insignificantly in 2015. Since Class A business centres apply higher level of prices, it is expected that the average rent of Class A offices will increase by 6-9 percent; meanwhile as a result of increased migration of lessors the rents should remain stable in Class B business centres. Decreasing vacancies from 5.8 to 4.9 percent within a year and the growing demand of modern business centres in Kaunas allowed launching the construction works of new objects for lease after a several-year break – 2 new business centres are being developed. They will supply the market with approx. 4,500 sq.m of rentable area. Klaipeda was the only city, where 2 new modern Class A business centres made the vacancy rate rise from 11.7 to 13.1 percent.
After a several-year break, in 2014 there were five shopping centres (with the area exceeding 5,000 sq.m each) opened in Vilnius, Kaunas and Klaipeda – they supplied the market with 35,100 sq.m. Currently, there are 3 shopping centres being developed or planned and one shopping centre is planned to be expanded; it will result in additional 40,600 sq.m in the market of shopping centres in Lithuania. The conditions for the development of new shopping centres are resulted by the consistent growth of consumption in the country, as well as the expected further economic growth and increase in personal income in the country. A new trend is observed – the development of retail parks is becoming more active. This is a new concept popular in Western Europe, which focuses on a fast and convenient shopping. Currently, 3 projects of this kind are being developed – Parkas Outlet is expanding, what will result in additional 3,000 sq.m area in the retail park; moreover, retail premises covering about 40,000 sq.m are planned to be opened near IKEA.
Somewhat inconsistent moods were observed in the segment of warehousing and industry premises. The major challenges are related to the sanctions applicable by Russia, which made some Lithuanian carriers and manufacturers change their plans. The demand of new logistics premises, which was very high in the capital city in early 2014, subsided, thus new projects are being developed much more carefully. In 2014 there were two logistics centres built in Vilnius, which supplied the market with approx. 18,500 sq.m of rentable area. In 2015, the logistics centre “Arvydo Paslaugos II” with an area reaching 8,500 sq.m will be finished in the capital city. Large logistics centres are also being built in Kaunas, but they will be built to suit, while significant projects for lease have not been developed in the end of 2014. In 2014 two logistics centres were opened in Klaipeda, which supplied the market with approx. 33,800 sq.m of modern area for warehousing. One more logistics centre covering about 13,000 sq m. area is expected to be built in 2015. Rents in the segment of logistics centres have remained stable over 2014.
Regardless of the decrease in tourist flows from Russia, the occupancy rates of Lithuanian airports and hotels continued to grow in 2014. The three international airports in Vilnius, Kaunas and Palanga altogether serviced 3.8 million passengers over 2014 – i.e. by 10.2 percent more than in 2013, and the average occupancy rate of hotels has been record-breaking and reached 48 percent. The improving tourism rates allowed the segment of hotels to grow in Lithuania – in 2014, at least 6 new hotels were opened in Lithuania, which offered about 260 rooms in total. There are no intentions to stop the progress in 2015 – it is expected to supply the market with up to 10 new hotels.
Current issues of law
2014 was the year of changes - significant, systematic territorial planning and construction regulatory amendments entered into force. Other issues, important to the RE market and related to land and taxes, have not been left aside as well. 2015 was welcomed by legal regulation with further novelties – amendments related to the partnerships between the public and private sectors entered into force, and new requirements for transactions in shares were established.
The significant changes in legal regulation, relevant for the RE market, which have entered into force and were adopted last year, affected the most important issues in the RE market: territorial planning and construction, land acquisition, RE transaction, and tax environment. Although the legislator sought to facilitate the burden to the RE market participants, and to ensure greater transparency of transactions and construction works of territorial planning as well as the simplicity of procedures, however it has brought confusion and legal uncertainty for a short period as well – i.e. how the newly adopted provisions should be assessed and applied. In the upcoming period, one should expect that the above mentioned legal uncertainty will be dissipating – work experience will occur, which, along with the regulation of the partnership between the public and private sectors applicable from 2015, will create wider opportunities of investing into RE market and will promote the development of this market.