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Lithuanian economy and RE market overcame the challenges of the pandemic in 2020, but the challenges of 2021 are still to come

2021-02-09

9 February 2021. Vilnius, Kaunas, Klaipėda. In 2020, the country’s economy and real estate (RE) market were particularly dynamic. The sales records of 2019 in the new housing segment have not been improved in Vilnius, Kaunas and Klaipėda, however the result still exceeded or at least reached the 2017–2019 average. New supply in Vilnius and Klaipėda was lower than the number of concluded sales, while the housing supply in Kaunas was slightly higher than the number of sales. The absolute winner of the housing market in 2020 was the Lithuanian seaside region where sales, compared to the previous year, grew not only by a percentage, but also by several times. Leased out premises in business centres decreased in all the three major cities. The logistics and warehousing sector has coped well with the challenges of the pandemic and has good prospects. The issuance of RE legal norms in 2020 was followed by active amendment of territorial planning, construction and other related laws and secondary legislation.

LITHUANIAN ECONOMY AND REAL ESTATE MARKET REPORT 2020 – 2021 (PDF) [soon]

"The Lithuanian economy has shown great resilience to the pandemic. The 1.3 percent annual decline in GDP was one of the best results among all the EU Member States and surprised many analysts in the country. This shrinkage was merely segmental, since only certain sectors of the economy sensitive to social distancing experienced difficulties. The country's economy was pushed forward by the good financial situation of households, the flexibility of exporters, and effective state support. However, it is too early to loosen the reins since there is still a lot of uncertainty. At the beginning of this year, the development of the country's economy will be significantly limited by the strict quarantine, but favourable economic growth trends are expected in the second half of the year, after we approach mass immunity," said Tomas Kipišas, Head of Saving and Investment Products of Šiaulių Bankas.

"The year 2020 has undoubtedly been marked by extraordinary events that have dictated changes across the world. The global pandemic of COVID-19 and the measures taken by governments to curb the spread of the virus have affected the business environment as well. And Lithuania is no exception. The introduction of quarantine and the approval of its regime in March 2020 have heightened the feelings of instability and uncertainty. Later on, when it became clear that the situation was under control and that the measures taken by the governments had slowed down the spread of the virus, life returned back to normal, at least partially," said Artūras Kojala, a partner at the law firm COBALT.

"The year 2020 began with new supply and sales records in the Vilnius primary housing market, which were replaced in March by a market freeze due to the COVID-19 pandemic. Nevertheless, market participants waited out the quarantine period in a low-start position, and the number of housing transactions began to grow rapidly as early as in June. In the fourth quarter of the year, sales in the capital's new housing market broke not only the records of the beginning of 2020, but also the records of the entire decade," said Tomas Sovijus Kvainickas, Chief Investment and Analytics Officer at INREAL Group. Although the overall annual result of sales (4,773 new housing transactions in the capital) was 14% less compared to 2019 (5,540), it improved by 8% compared to the average of 2017-2019. This was also influenced by the continuous growth of the population in the capital. However the situation in terms of new supply was somewhat different. RE development is a highly inert process, thus the reaction of developers to the pandemic was similar to that of the buyers, but with a shift of a couple of months. In 2020, Vilnius RE developers offered a total of 4,344 new housing units, which was 18% less than in 2019 (5,305), and 7% less than in 2018 (4,680). The supply in Vilnius shrank from approximately 5,000 to 4,550 per year. The 2020 liquidity ratio of the primary housing market calculated by Inreal fluctuated between 1.2 and 0.9, meaning that new housing units were sold on the market within 14 – 11 months. At the end of 2020, economy-class housing in Vilnius cost about 1,648 EUR/sq. m, i.e. 4% more than by the end of 2019, middle-class housing – 2,179 EUR/sq. m or 11% more, prestigious-class housing – 3,313 EUR /sq. m or 7% more.

730 housing units were sold in Kaunas within the year, which is 13% less than in 2019 (835), but 22% more than the average of 2017-201. The total annual result of the new housing supply in the primary housing market of Kaunas was 758 new housing units, i.e. 8% less than in 2019 (824) and 8% more than in 2018 (701). "Kaunas welcomed the year 2020 with 790 apartments offered in the primary market. Slower introduction of projects to the market as well as their division into stages enabled to keep the supply volume unchanged, therefore the year ended with only a 4% increase in the supply of housing (820) in the primary market," said T.S. Kvainickas. The liquidity ratio of the primary housing market in Kaunas fluctuated between 0.95 (12 months) and 1.3 (15 months). In terms of price changes in 2020, only the economy-class segment experienced significant change in Kaunas, since the apartments of the said segment became more expensive by almost 14% (to 1,325 EUR/ sq. m). The prices of middle-class housing changed only symbolically, decreasing by about 3% (up to 1,704 EUR/sq. m). The prestigious-class segment remained unchanged (2,378 EUR/sq. m).

In 2020, there were 354 sales of new housing units offered in the primary apartment market of Klaipėda city. This number is 9% lower than the number in 2019 (389), but is not far from the 2017-2019 average. The port city's RE developers have been more affected by the pandemic and the quarantine than the buyers. During 2020, only 122 new housing units were put on the market. This number is two-thirds lower than the 2017-2019 average. Due to the lack of new supply in Klaipėda, the value of the liquidity ratio is constantly decreasing and is currently approximately 1.0 (12 months). The main reason for the price increase in the slow market was individual projects, which raised the housing prices of the economy-class segment by 11% in 2020 (to 1,318 EUR/sq. m). Over the year, the prices of middle-class and prestigious-class housing decreased by 3% (to 1,429 EUR/sq. m) and 5% (to 2,074 EUR/sq. m), respectively. "It should be noted that the prices of "leftovers" in older middle-class projects are approaching the limits of economy-class prices in new projects. On the other hand, due to increased construction costs and technical requirements, there is almost no doubt that housing prices in new projects will grow in both the middle-class and prestigious segments," said T.S. Kvainickas.

An increase in the number of housing sales in Palanga and Šventoji has been recorded throughout the year. The total result of 2020 (416) was better by 73% compared to 2019 (240) and 57% higher than the 2017–2019 average. However, there was no significant increase in supply in the primary housing market of the seaside region. By the end of 2020, buyers were able to choose from just over 200 new housing units, i.e. 3 times less than during the same period in 2019. Such interest of buyers has encouraged more RE developers to try to enter the primary housing market of Palanga and Šventoji, therefore active development of new projects is expected in 2021. New housing prices in the primary market of Palanga and Šventoji fluctuated between 1,900 - 2,000 EUR/sq. m by mid-2020. However, due to the sudden activity in the market, prices jumped to about 2,250 EUR/sq. m by the end of the year. The RE market in Neringa is exceptional, characterized by the most limited housing development and supply in Lithuania. RE developers announced that they have sold a total of 106 housing units in Neringa in 2020 – 19% more than in 2019 (89) and twice more than the 2017–2019 average. In 2020, the new supply of housing in Neringa amounted to about 130 new housing units, and currently there are about 70 to choose from, which is one and a half times less than the 2017–2019 average. However, both the sales and supply numbers do not reveal the full picture, since not all housing projects are presented to the public. And, due to the small market, even individual projects can significantly change the general trend. Publicly announced prices in Neringa ranged at an average of 3,200 EUR/sq. m to almost 3,400 EUR/sq. m over the last couple of years. And prices also jumped to about 3,600 EUR/sq. m by the end of 2020. It is important to take into account that almost all the housing units offered in the primary market of Neringa are fully finished.

The land plot market in 2020 can be perfectly described with the word "more". Although this market was also affected by COVID-19 during the first half of the year, the impact of the pandemic was significantly smaller than in other RE segments. Meanwhile, in the second half of the year, the impact of the pandemic on the land plot market can be assessed as positive due to a record number of sales observed in the country's major cities and their surrounding areas. This was likely influenced by the fact that people were feeling trapped in a "concrete jungle" and felt the need for more space in their homes. In Vilnius city and district, the number of transactions grew by 16% and 21%, respectively, in Kaunas city and district – by 12% and 10%, in Klaipėda city and district – by 1% and 18%. In the residential building segment, buyers were particularly interested in new construction residential buildings. Meanwhile, compared to 2019, the sales of old construction individual houses increased only in the Vilnius region.

The year 2020 was the most difficult for the commercial real estate market. 11 business centres were opened in Vilnius in 2020, with a total area of over 120 thousand square meters. There are over 200 thousand sq. m of facilities in the active development stage and the same number in the early development stage. "It is not yet entirely clear whether all the planned projects will reach the market in the next couple of years, since the pandemic may have significantly changed the future plans of business centre managers. On the other hand, these objects are located in attractive areas, enabling to use part of the built spaces as residential facilities instead of offices, which would likely be received positively buy buyers," said T.S. Kvainickas. Currently, the area of vacant premises in Class A business centres is about 3.5%, and in Class B1 and B2 – 5.0%-5.5%. There were no significant changes in rental prices in 2020. The price of Class A office premises reached 14–17 EUR/sq. m, Class B1 – 11–14 EUR/sq. m, Class B2 – 7–10 EUR/sq. m.

In 2020, the area of Kaunas business centres has increased by almost 70 thousand sq. m, and there are plans to add around 40 thousand sq. m of office space in the future. "Development has been so rapid that tenants are not able to keep up with the supply, at least for the time being. This trend has led to a significant increase in the amount of vacant premises, which at the end of 2020 exceeded 10% in all of the segments," said T.S. Kvainickas. Although the vacancy rate remains relatively high, there are so far no significant changes in office rental prices. The price range for newly concluded contracts in Class A business centres is 12–13 EUR/sq. m, Class B1 – 9–11 EUR/sq. m, Class B2 – 6-9 EUR/sq. m.

No new business centres were registered in Klaipėda in 2020. The number of vacant premises in the port city has increased from over 9 thousand sq. m at the beginning of the year to 10 thousand sq. m in the middle of the year, and to approximately 12 thousand sq. m by the end of 2020. More than half of this area is comprised of Class A business centres, where about a quarter of the premises are not leased. The conditions for renting premises in the port city essentially have not changed. Class A premises are currently still available for rent for 9-12 EUR/sq. m, Class B1 premises – for 7–11 EUR/sq. m, and Class B2 premises – for 5-7 EUR/sq. m. "It is doubtful that the situation in the port city will change substantially in the near future. On the other hand, with stabilizing population and preconditions for its growth, as well as accelerating development of residential housing, it is possible that Klaipėda will break free from stagnation and repeat the success of Kaunas in commercial real estate development and attraction of businesses," said T.S. Kvainickas.

The total area of vacant facilities in logistics centres and warehouses in Vilnius comprised about 5.5% (about 40 thousand sq. m), 2% in Kaunas (slightly less than 10 thousand sq. m.), and 4.5% in Klaipėda (slightly less than 20 thousand sq. m.) by the end of 2020. "In view of the consequences of the pandemic, supply chain schemes for localizing production have been revised. Industry representatives announced that they have received more orders, which their clients have moved from the East, thus the need for storage facilities may increase significantly in the near future and have an additional positive impact on investments in this area. Increased e-commerce may also contribute to new development, if existing redistribution objects will not be geographically suitable or physically able to service new clients. On the other hand, an increased interest in storage facilities does not mean that investors will seek to buy them and tenants will seek to rent any product offered to the market solely for its intended purpose," said T.S. Kvainickas. The rental prices of new construction logistics centres in the capital region ranges from 3.9 EUR/sq. m to 5.3 EUR/sq. m, in Kaunas and its surroundings – about 3.7–5.2 EUR/sq. m, in the seaside region – 3.5–4.8 EUR/sq. m. Old construction warehouses currently cost 2.5-4.0 EUR/sq. m in Vilnius and about 1.5–3.0 EUR/sq. m in Kaunas and Klaipėda.

About INREAL group

INREAL is a trademark 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 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. Four years in a row INREAL Group was named as the National Winner during the prestigious European Business Awards.

More information:

Rūta Merčaitienė Head of Marketing and Communication at INREAL group +370 611 29 779 ruta.mercaitiene@inreal.lt

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