10 August 2021, Vilnius, Kaunas, Klaipėda. In the first half of 2021, the country's economy and the real estate (RE) market have disproven all pessimistic and even slightly more moderate forecasts. The sales of new housing have shot to record highs. Due to the supply that was unable to keep up with the demand, the market became unbalanced, creating favourable conditions for an increase in prices by an average of 20% within half a year. Business centre occupancy and lease prices remained at similar levels as at the end of 2020. The development of new office buildings in Kaunas and Klaipėda has stopped. In the field of real estate law, the hottest topic continues to be real estate development on state land.
"The economy of Lithuania continues to demonstrate high class. Our country was one of the first in the world to return to pre-pandemic levels. Lithuania's annual GDP growth in Q1 was 1.2%, and, when comparing the data of the last quarters, it surpassed even the strongest economies in the world – the USA, Sweden and others. The improving financial situation of the population and the epidemiological environment have stimulated domestic consumption, and businesses have been actively investing in labour productivity. The industry that made the largest contribution to GDP growth has been growing in all sectors, and the most active development was carried out by manufacturers of transport, equipment, furniture, and pharmaceutical products. While there is no shortage of risks in terms of pandemic management and other possible variants of the virus, it is likely that the darkest phase of the pandemic is now in the past. The improving pandemic situation in the country, a more favourable external environment, and the billions of funds poured into the economic transformation allow us to expect much faster growth of the economy of Lithuania both this year and in the coming years," said Tomas Kipišas, Head of Saving and Investment Products of Šiaulių Bankas.
The impact of the pandemic has created a real "roller coaster" in the real estate market – a sharp fall, a relatively short period of stabilization, and a rise to unprecedented heights, all of which took place within just a year and a half. "During the pandemic, people were forced to accept a number of restrictions, get used to new forms of work as well as rethink their housing needs. It is currently difficult to answer which changes will be short-term and which will outline new directions for the development and use of real estate in the long run, however it is obvious that some of the changes will remain. Another period of change is possible in the near future as the citizens of our neighbouring country are increasingly considering the possibilities of emigration and are choosing Lithuania as one of their destinations. Belarusians who are historically close to our country can help solve some of the demographic problems of the real estate market by not only reducing the vacancy of business centres, but also by encouraging their further development," said Tomas Sovijus Kvainickas, Chief Investment and Analytics Officer at INREAL Group.
The results of the last six months were especially favourable for the developers of new housing in Vilnius with the sale of 4,432 apartments (including suites and lofts), which is 2.5 times more than in the same period last year (1,711) and 1.5 times more than in 2019 (2,858). Such market activity is comparable not only with analogous periods, but also with the results of the entire year. For example, in 2020, only 8% more housing units were sold over a twice longer period (4,773), and only 25% more were sold in 2019 (5,540). It is obvious that if the activity of sales does not decrease, the annual result could exceed the previous record by 1.5 times. In the first half of this year, developers offered 3,251 new homes – 1.5-2.5 times more than in any previous half-year since 2012. However, even such record-breaking activity among developers was not enough to protect the market from a shortage of supply. In the last 6 months alone, buyers have bought 1,181 more apartments than were offered by developers. An imbalance in the market led to a decrease in the supply to 3,370 apartments, compared to the supply of 2019-2020 which exceeded the symbolic threshold of 5,000 apartments. This is 35% less than in 2020 (5,216) over the same period and 32% less than in 2019 (4,925). INREAL's housing liquidity ratio fell to 0.45 in the middle of this year, meaning that the supply can be realized in less than 6 months. This is the greatest shortage of new housing supply that we have seen over the past decade. "The activity of buyers, the formation of a shortage of supply, the rising prices of construction works and materials, new infrastructure taxes, and new state land taxation procedures – all of these factors are unequivocally unfavourable to buyers. But, in certain cases, they were also unfavourable to developers. In the early project development stage, apartments sold "from drawings" at lower prices, especially in the economy class, had the risk of becoming unprofitable for developers," said T. S. Kvainickas. Prices in the Vilnius primary housing market have increased by about 20%. This year the price of prestigious-class housing in the capital has already reached 4,000 EUR/sq. m, the price of middle-class housing has exceeded the 2,500 EUR/sq. m, and the price of economy-class housing has already reached 2,000 EUR/sq. m.
In Q1 of this year, agreements were made for 495 apartments in the primary housing market of Kaunas. This result is 94% better than in the first half of 2020 (255), 22% better than in the same period in 2019 (407), and 4% better than in the second half of 2020 (475). Unlike in Vilnius, this year there were 26% more new construction housing units offered in Kaunas compared to the number that was bought (625). Compared to the corresponding periods of the previous year, this is twice as much as in 2020 (299) and a third more than in 2019 (473). A number of interesting projects have appeared in the supply market, many of which are being developed on the banks of the Neris and the Nemunas River, which shows not only a quantitative but also a qualitative jump in the supply of housing in the city. Housing supply was also affected by rapid development and buyers who were unable to keep up with it. In the last few years, the supply of Kaunas primary housing market has been about 700–850 new construction apartments. In mid-2021, this number jumped to 950. Changes in the supply are also reflected in the calculation of the Kaunas housing liquidity ratio, which cannot be describes as stable. In the middle of the year, the value of the liquidity index in Kaunas has reached 0.98. Prices in the Kaunas primary housing market segments were changing unevenly. The prices of economy-class housing have increased by around 1% (to 1,343 EUR/sq. m), the prices of middle-class housing have increased by 22% (to 2,075 EUR/sq. m), and the prices of prestigious housing have increased by around 12% (to 2,467 EUR/sq. m).
The primary housing market of Klaipėda did not show a rapid growth of activity, but this could have been significantly influenced by the extremely limited supply of apartments, although the last four quarters have seen an increase in new supply, which is likely to also boost the activity of buyers. In the first half of 2021, 259 apartments were sold in Klaipėda – 35% more than in the second half of 2020 (192) and 22% more than in the same period last year (212). In the first six months of this year, 223 new apartments were offered to the market which is five times more than in the second half of 2020 (42) and 19% more than in the same period last year (187). Nevertheless, in mid-2021, buyers were able to choose from only 314 apartments which is 32% less than a year ago (462) and 10% less than at the end of 2020 (350). The slowly growing demand for housing and the steadily declining supply led to a drop in the value of the housing liquidity index to 0.70. This is the lowest value that was recorded in the port city since the beginning of the value observations in 2012. In the middle of 2020, the value of this index was almost twice as high (1.36), and at the beginning of the year it was one and a half times higher (0.99). Rising construction costs and energy efficiency requirements, and increased interest in housing in Klaipėda have also formed changes in prices observed in other cities as well. The prices of economy-class housing have increased at the end of last year and have not changed too much this year (average price – 1,283 EUR/sq. m). The prestigious-class housing segment offered only a few individual objects (average price – 2,057 EUR/sq. m). Meanwhile, in the middle-class segment, prices jumped by 21% – from 1,429 EUR/sq. m to 1,726 EUR/sq. m within half a year.
In the first half of 2021, Palanga and Šventoji maintained and even strengthened their positions in the second home market. 269 apartments were sold in the first half of the year. The supply of housing in Palanga which has been decreasing for some time received more attention from buyers and attracted more developers – in the middle of the year the number of vacant and reserved housing units has jumped to 416 and was the highest since mid-2020. In the middle of this year, the prices have reached about 2,678 EUR/sq. m. This was mainly due to the pricing of newly launched, more expensive projects. In the first half of this year, 52 housing units were sold publically in Neringa. No new projects were presented to the public this year. "The number of new projects is expected to increase in the second half of the year – intensive preparations are already underway, but it is not yet clear whether the sales of these projects will be made public. With a record increase in the interest of buyers in buying a second home, housing units in Neringa are sold publicly only in a few projects. Other sellers secure the flow of buyers without any mass marketing measures by informing potential buyers directly or passing on information about homes for sale by word of mouth," said T.S. Kvainickas. The growth in prices in Neringa was slightly more moderate than in Palanga.
The land plot market remains extremely active. In relative terms, Q2 of this year has been standing out in all three regions (Vilnius, Kaunas, Klaipėda) with a 70-90% increase in activity, however this results from the comparison with the market stagnation at the beginning of the pandemic. The potential of individual houses and townhouses has been intensively discussed during the pandemic. This group of housing is characterized by both a lower cost per area unit as well as proximity to nature. Greater distance to the city centre is becoming less important with the increased popularity of working from home. It is likely that the segment of individual houses will experience another jump in popularity, especially considering the rapidly growing land plot market.
This year, business centre development in Vilnius will likely be supplemented with approximately 110 thousand sq. m added to the current supply. Further development also has no intention of slowing down with new offices of around 100 thousand sq. m to be opened in the new centre of Vilnius in the next few years. This is excluding the new projects that are currently being developed on Krokuvos and Lvovo streets. The development of offices is not limited to Šnipiškės, new projects are also being planned in Naujamiestis, Pilaitė, Pašilaičiai and Lazdynai. The pandemic is likely to eliminate the need for some of the area leased by businesses, although it is too early to see what the future business model will look like, since new strains of the virus and relatively slow vaccination are continuing to deter businesses from returning back to offices. Due to the pandemic, it is likely that significant development of new business centres will not take place in Kaunas this year, and any project openings will be postponed to 2022 or 2023. This year the vacancy rate of business centres in Kaunas has slightly decreased. The most significant changes were seen in Class A with a vacancy rate of about 8%. Although these rates are higher than those currently in the capital, they are sufficient to ensure the willingness of developers to develop their projects further. Lease prices in Kaunas did not experience any significant changes. In terms of Klaipėda, there are many commercial RE projects in the drawers of developers, and some of them are definitely likely to be implemented. "A new supply would enable to answer the question of whether the port city really has no need for the development of business centres, or whether the existing supply simply does not meet the needs of the market. Among the three major cities, the demographic situation in Klaipėda is the worst, thus it is possible that the first version may be true. On the other hand, even in this case, new development could accelerate the city’s recovery," said T.S. Kvainickas. The number of vacant premises in Klaipėda is gradually decreasing, but the prices remain the same.
Based on the data of INREAL, there are currently virtually no larger vacant areas in modern logistics facilities. The vacancy rate in Vilnius region is about 2%, in Kaunas – about 1%, and in Klaipėda – a little over 5%. It consists mainly of newly built objects. An imbalance in the market creates favourable conditions for the growth of prices of modern logistics facilities. Currently, the lease prices of modern logistics centres reach 4.0–5.5 EUR/sq. m in Vilnius region, 4.0–5.0 EUR/sq. m in Kaunas, and 3.5–4.5 EUR/sq. m in Klaipėda. It is also possible to find older facilities for a lease price of 2.5–4.5 EUR/sq. m, 1.5–3.5 EUR/sq. m and 1.5–3.5 EUR/sq. m, respectively.
"The number of meetings held in notary offices in the first half of 2021, which is higher than in the second half of 2020, shows that the real estate market remains active. And the legislative process is also moving forward. Amendments to the Law on Territorial Planning have entered into force, partially restoring the obligation to prepare detailed plans. We will have to see how this will be applied in practice. The practice of applying the Law on Municipal Infrastructure Development also shows that changes in this legal standard are also likely. Real estate development on state land continues to be a hot and relevant topic. As long as the necessary amendments to the Law on Land are delayed, any issues between business owners and the National Land Service are left to be handled by the courts. These and other news show that it certainly has not been boring in the real estate market during the said period, and it is unlikely that this will change in the second half of the year," said Artūras Kojala, a partner at the law firm COBALT.
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.
Rūta Merčaitienė Head of Marketing and Communication at INREAL group +370 611 29 779 firstname.lastname@example.org