The Compressed Demand Spring Effect: A Major Challenge in the 2024 Real Estate Market


In 2023, the Lithuanian economy experienced a contraction of 0.3%, but a growth of 1.5% is anticipated for 2024. Notably, in 2023, completed construction works saw a positive surprise. At constant prices, there was an 11.9% increase in Lithuania compared to 2022. The real estate market remains resilient and is expected to benefit from factors such as population growth, declining interest rates, and improved affordability. However, one of the major challenges facing the housing market may be the compressed demand spring effect. Once released, the market may lose its balance once again. In the commercial real estate sector, development activity was concentrated in the capital. Vacancies and prices changed slightly. Changes are anticipated in construction, architecture, and territorial planning laws.

“Last year presented significant challenges for the Lithuanian economy. The country experienced a 0.3% decline in GDP at constant prices, marking the most significant contraction since 2009. While this downturn wasn’t entirely unexpected, the economy faced considerable decline, particularly at the beginning of the year. As the months progressed, however, the situation gradually stabilised. Factors such as soaring interest rates, reduced demand for certain exported goods, and the ongoing war in Ukraine left lasting scars on Lithuania’s economic landscape. In 2023, the GDP decline in Lithuania was the same as in Latvia, but significantly lower than in Estonia. In 2024, we anticipate a modest recovery with a forecasted growth of 1.5% in Lithuania’s real GDP. This growth is expected to be primarily driven by the recovery in household consumption. We believe that exports are likely to remain stable due to the expected minimal recovery in key export markets. However, geopolitical events continue to pose significant threats to our growth projections,” explained Tadas Poviliauskas, SEB bank economist.

The construction sector experienced notable growth, with a 20.5% increase in the construction volume of engineering structures, driven by investments in transportation and electricity network infrastructure. Additionally, the construction of non-residential buildings saw significant growth, up by 8.7%. The volume of construction of residential buildings fell by only 0.4% due to the completion of ongoing projects initiated in 2021 and 2022. This year, the construction volume of engineering structures is expected to remain relatively stable, while less construction activity is projected for non-residential and residential buildings. However, there may be a positive shift if demand for housing in the primary market rebounds sooner than expected. Such a scenario may be expected in the second half of the year.

Tadas Povilauskas, SEB bank economist

Demographics play a crucial role in shaping the real estate (RE) market. According to preliminary data from the State Data Agency, the number of permanent residents in the country increased by 1% to reach 2,886,515 in 2023. A notable portion of this growth can be attributed to war refugees from Ukraine. In Vilnius, the population experienced an increase of 2% over the year.

In 2023, INREAL recorded 2,189 new housing sales in Vilnius (1,018 in the first half, 1,171 in the second half), which was 2% less than in 2022 (2,234 in total: 1,611 in the first half, 623 in the second half). However, both quarterly and semi-annual data indicate a moderate market recovery, which is expected to continue in 2024, stimulated by lower housing loan interest rates and increasing wages. Throughout the year, developers introduced 2,924 new housing units to the market, nearly matching the figure from 2022 (2,946). The faster pace of supply growth compared to demand resulted in an increase in the overall housing supply to 4,587 units by year-end, with approximately one-fifth of these units already reserved for buyers.

“When analysing the correlation between market activity and population growth, it is evident that a compressed demand spring phenomenon may be emerging, for which the market may not be adequately prepared. A sluggish market fails to encourage the initiation of new projects, resulting in a persistently negative ratio of housing units under construction or approved for development. Furthermore, with the addition of several thousand soldiers and their families from Germany, the prospect of a housing shortage becomes increasingly possible. While a shortage in supply may not drastically drive up prices, the limited availability of new housing stock will continue to prevent residents from homeownership,” states Tomas Sovijus Kvainickas, Head of Investment and Analysis at INREAL Group.

In 2023, the Vilnius office market saw the addition of approximately 100,000 sq. m. of leasable area, with expectations of a significant increase of 150,000 sq. m. in the coming years. While Kaunas and Klaipėda experienced slower office market development, plans are in motion to introduce around 40,000 sq. m. of new office space in Kaunas and approximately 25,000 sq. m. in Klaipėda. Office rental prices remained relatively stable. In the segment of storage facilities, there was an increase in vacancy rates, reaching about 3% in the Vilnius region and approximately 4% in Kaunas and Klaipėda. This indicates that tenants now have more options without having to wait for the construction of new premises. While no significant price changes have been observed, tenants have gained slightly more bargaining power in negotiations with landlords looking to fill vacant warehouse space.

Tomas Sovijus Kvainickas, Head of Investment and Analysis at INREAL Group

“In the context of high-interest rates, the latter half of 2023 witnessed a relatively subdued activity in the residential development sector. Larger projects commenced in established, sought-after areas, unfolding gradually in such micro districts as Pilaitė and Naujamiestis. However, buyers demonstrated a keen awareness of market dynamics, showing an inclination towards novel concepts and locations where options were previously limited. Developers with diverse project portfolios are now better positioned to cater to the evolving preferences of discerning buyers,” noted Vilius Visockas, Head and Developer of CityNow. According to him, the most prominent new projects in 2023 were within the commercial sector. Given prevailing market conditions, there’s a demand for sustainable, contemporary structures, prompting developers to allocate their resources towards long-term ventures that yield consistent returns. Consequently, there’s a trend where some smaller residential projects are either brought to market or temporarily postponed. The year 2024 should be exceptional due to the wide selection of luxury-class housing in the planning stages or already underway. On the other hand, we believe that if interest rates reach a tipping point, we will see more middle/economy-class housing projects.

Vilius Visockas, head and developer of CityNow

“As usual, the legislative landscape remained active throughout 2023, particularly in the latter half of the year. Once again, the Law on Construction was a popular target for revisions. Notable changes, which will come into effect on 1 November, promise to bring about a significant shift in the design process. Under the proposed amendments, the design process will be strengthened, reducing the previous three stages to two: project proposals and technical design. How will this work in practice? While this aims to simplify procedures, concerns exist regarding potential complications in practice. The clarification of essential structural requirements through reference to the Law on Architecture offers a more optimistic outlook, promising greater transparency compared to the previous wording of the law. This shift ensures that coordinating authorities no longer have subjective discretion in determining the compatibility of technical design solutions with the landscape. However, it’s inevitable that changes, some of questionable benefit, will occur. For instance, granting the chief architect of the municipality the authority to decide on the necessity of additional public consultations and extend deadlines for issuing special architectural requirements is a notable change. Furthermore, the Law on Territorial Planning is again directed at the director of municipal administration: amendments to the Law, which came into effect on 2 January, formalise the practice of delegating a significant portion of mayoral functions to the director of municipal administration. As these legislative changes unfold, their impact on daily practices remains to be seen,” says Artūras Kojala, COBALT Partner in the Real Estate and Infrastructure Department.

Artūras Kojala, COBALT Partner in the Real Estate and Infrastructure Department



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.

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COBALT is one of the largest law firms in the Baltics. More than 200 lawyers provide comprehensive services to local, regional and international corporations, funds, credit institutions and companies, as well as private individuals in all areas of business law. The firm has won the title of "BestLaw Firm in the Baltic States" seven times. The most prestigious law firm directories "Chambers Global", "Chambers Europe", "Legal 500", "IFLR 1000" and others annually include COBALT in the list of the best law firms in the region.

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CityNow is a tool for tracking new real estate projects. Upcoming and currently developed projects are displayed in the interactive map together with the most important information about the projects. Currently, a database of over 2,500 residential projects is available for projects in the major cities of Lithuania, Latvia, Estonia and Poland.

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