Lithuanian economic and real estate market report 2013-2014

The amount of transactions in the apartment market has been breaking the records of post-crisis. There were 2,430 new apartments sold in Vilnius (203 apartments per month, at an average), or even by 73 percent more than in 2012. There were 37 new multi-dwelling projects launched in Vilnius in 2013, which have added 2,280 apartments to the market – i.e. about 7.5 percent less than in 2012. A significant increase in sales resulted in the fact that in 2013 the demand has exceeded the new supply by 6.5 percent for the first time since the emergence of the crisis. The total rate of new construction apartment prices in Vilnius amounted to 5,050 LTL/sq. m with an annual increase of approx. 2.5 percent. In 2013, the prices of apartments have been increasing in 25 of the new projects, launched in Vilnius. The highest increase, 9.2 percent at an average, was noticed in the new economy-class projects. The increase in prices of the middle-class projects reached approx. 9 percent. The prices of new projects in the premium-class segment increased by approx. 11 percent. In addition, there were 10 projects at least, where, as a result of successful sales, the prices have increased averagely by 2.5-5 percent. It is expected that in 2014 the demand in Vilnius should be exceeding the supply by about 15 percent, consequently the trends of price increase should become even more intense – the forecasted average increase in prices of new construction apartments may reach 6-8 percent.

The recovery of the apartment market is also being observed in Kaunas. The total number of transactions on apartments sold in a year has increased by 24 percent, and the increase of transactions in new construction segment has reached even 53 percent – a monthly average was 22 units of new construction apartments. In 2013, the new construction multi-dwelling market in Kaunas was supplemented by 10 new projects with 355 apartments, i.e. even by 1.6 times more than in 2012. Regardless of the improving rates of liquidity, the prices of new construction apartments have been decreasing by approx. 4 percent in Kaunas over 2013, i.e. up to 3,680 LTL/sq. m. The major influence was made by new economy-class projects, launched in the market, where the prices were less by about 4 percent than the average price in this segment.

In contrast to the general trends, the number of transactions made in Klaipėda primary apartment market has been decreasing – about 215 new apartments were sold in a year (18 apartments per month, at an average) – i.e. by 13 percent less than in 2012. In 2013, the sales of 9 projects were launched or re-launched in Klaipėda market, that have supplemented the market with 280 apartments. In comparison with 2012, the new apartment supply decreased by about 32 percent. At the end of the year, the total rate of new construction apartment prices reached about 4,200 LTL/sq. m, i.e. the annual decrease was about 2.5 percent.

A significantly increasing activity of the second-home segment has been observed in the market – about 190 units of new construction apartments were sold in Palanga (16 apartments per month, at an average) and, in comparison with 2012, the increase in transactions was 30 percent. About 50 new apartments were sold in Neringa region (4 units per month, at an average), i.e. even by 2.9 times more than in 2012. In 2013, the sales of 5 projects were launched in Palanga, that have supplemented the market with about 230 units of new apartments – by a quarter more than in 2012. In 2013, the sales of 2 projects with 59 apartments were launched in Neringa – by 23 percent more than in 2012. The total rate of prices in Palanga decreased by 1.6 percent in 2013, up to 5,190 LTL/sq. m. As a result of growing demand and new projects in the market, the total rate of prices in Neringa was increasing by about 8 percent in 2013, up to 9,500 LTL/sq. m.

A record-breaking activity has also been observed in the land market. According to data of SE Centre of Registers, there were 38,281 land purchase-sale transactions registered throughout Lithuania in 2013 – by 18.6 percent more than in 2012. The majority of them were the transactions on agricultural land purchase-sale. The transactions in this segment made up 77 percent of all transactions conducted in 2013. The major activity was in the most productive regions of Lithuania. The average annual increase in prices of agricultural land increased by 10-15 percent. The average price of parcels in the most productive regions reached 10,000-15,000 LTL/ha.

The capital city was playing the major role in the land market. The majority of agricultural and residential land transactions were made in Vilnius city - 51 and 35 percent of all transactions, respectively. This significant hike of agricultural land in Vilnius city may be related to the amended law on territory planning, which entered into force since 2014. The law eliminated the necessity to draw up detailed plans in many cases. As a result of the recovering RE market in Vilnius, a relatively cheaper agricultural land has become attractive to investors.

In 2013, the trends of well-occupied premises and growing lease prices were prevailing in business centres in Lithuania. Active investments have been further continued in the business centre market of the capital city – 2 business centres (13,300 sq. m) were opened and 6 new business centres (73,500 sq. m) were being built. Despite the new projects, the vacancy rate in the capital city has been further decreasing – it has shrunk by more than a half over a year – from 7.1 to 3.5 percent. The total area of modern offices, occupied in a year, exceeded 26,000 sq. m. Considering the fact that the newly scheduled projects will be implemented in two years, the existing increase in supply should meet the need in the market. Vacancy rates in Kaunas and Klaipėda have also been decreasing, from 6.9 to 5.8 and from 18.1 to 14.0 percent, respectively. Lease prices of modern offices in Kaunas and Klaipėda have remained stable. Current market indicators do not promote investing in the construction of new modern projects. Currently the investors focus on the renewal or reconstruction of the existing buildings into offices in these cities.

The demand of premises has been further exceeding the supply in the shopping centres, which are attracting the major flows of people. It was influenced not only by the recovering consumption, but also by the powerful foreign brands, which entered the market in 2013; one of the leading ones – the global leader of retail clothing trading Hennes & Mauritz (H&M). The new powerful brands have significantly enlivened the market of shopping centres. As a result of the new powerful lessees, joining the market, the major shopping centres of the country, that are completely occupied almost permanently, decide to terminate the contracts with lessees, whose trading results are weaker. The latter, in turn, are moving to a more distant shopping centres, where vacancy rates are also decreasing significantly. In mid-2013, the first IKEA mall in the Baltic countries was opened in Vilnius (25,000 sq. m), the construction of the shopping centres Prisma (10,000 sq. m), Domus Pro I (7,500 sq. m) and the reconstruction of Gedimino 9 (16,500 sq. m) was launched. The construction of the shopping centre Luizė, 6,500 sq. m, was launched in Klaipėda. The major part of premises in the shopping centres, which currently are under construction, are already reserved, although the opening dates of the shopping centres are expected no earlier than in the first half of 2014.

There was no lack of investments in supermarket sector in 2013 as well, but at this time the development in this sector has been made not only by the major supermarket chains, which open or reconstruct 10-20 supermarkets every year, i.e. Maxima, Norfa, or Iki. In 2013, several new objects in Lithuania were opened by Rimi (3) and Kubas (2), but the highest number of newly opened supermarkets belongs to the market newcomer FreshMarket (12). This network is planning even a more active development in 2014. The total amount of investments in the development of retail trade networks in Lithuania has exceeded 210 million Litas over the year.

The analysis of the vacancy rates of modern logistic centres in the major cities on the country in 2013 showed that it was particularly difficult to rent up modern warehouses, larger than 500 sq. m, in all three largest cities of the country. Thevacancy rate in Vilnius city decreased up to 0.9 percent (3,600 sq. m). The rate has also remained almost equal to 0 in Kaunas, while the vacancy rate in Klaipėda reached 0.5 percent (350 sq. m). In early 2013, the managers of logistic centres have increased lease prices for new lessees by 5-10 percent, and it seems that the balance, corresponding the expectations of both sides, was achieved. Therefore, the prices should remain stable in the nearest future. In late 2013, the lease prices of modern logistic centres in the capital city reached 12–17 LTL/ sq. m, and 11–15 LTL/ sq. m – in Kaunas and Klaipėda. The lease prices in old logistic centres in Vilnius reached 6–10 LTL/ sq. m, and 5–9 LTL/ sq. m – in Kaunas and Klaipėda.

The construction of logistic centres Transekspedicija II (17,000 sq. m) in Vilnius and Vlantana II (15,000 sq. m) in Klaipėda, launched in 2013, has gained momentum. In 2014, the development of existing centres in Vilnius should be started by Arvydo Paslaugos (8,500 sq. m), and Ad Rem Lez (8,200 sq. m) in Klaipėda. In 2013, the construction of the built-to-suit warehouses was launched by HormannLietuva (5,000 sq. m) and Wurth Lietuva (5,700 sq. m) near Vilnius, the trade company Osama (2,000 sq. m) and Gintarinė Vaistine (9,600 sq. m) – in Kaunas, and AB Klaipėdos Jūrų Krovinių Kompanija (KLASCO, 8,000 sq. m) – in Klaipėda.

In 2013, 7 new hotels were opened, which have supplemented the hotel market with more than 440 rooms. Such active investment in this segment market in Lithuania has not been seen for long, however the majority of new hotels were partially financed through EU support funds for Tourism development. Investments in the hotel market should not be missing this year as well – the opening of a 60-room, 4-star hotel Amberton Green in Palanga is expected in the first quarter of the year. Some more Lithuanian RE investors are considering the idea of investing in this segment, moreover, international hotel chains give more hints about their intentions to join or start development in the Lithuanian market.

From legal perspective, 2013 was important to the participants of the real estate market by the fact that following several years of discussions, nevertheless it was determined to implement the long-awaited territory planning reform. The approval of the new version of the Law on the Territorial Planning by the Seimas and the enforcement of amendments to the Law on Land on 1 January 2014 substantially changed the control of territorial planning and land management process, which has been applicable up to this date.

More important amendments were also adopted in the field of legislation, regulating agricultural land purchase. The Law on Construction has been amended and the new Law on State Supervision of Territory Planning and Construction was adopted.

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