Latvia : Riga office market2015 Overview
- Supply is likely to decrease in 2016 but the high level of future completions could push vacancy up in 2017
Shortage of new offices in prime locations
Riga office stock extends over approximately 590,000 m². New deliveries of speculative modern offices were insignificant during the last five years; they comprised mainly built-to-suit projects for govern- mental institutions. Financially stable tenants are making long term decisions, choosing built-to-suit offices or buying existing buildings outright and vacating leased premises thereafter.
This will cause a short term increase in vacancy for existing modern office buildings in 2016. Overall, vacancy level for prime offices is close to zero, whereas the vacancy of grade B offices stood at 7.5% at the end of 2015. Given the insufficient new sup- ply, the vacancy rate is expected to de- crease slightly in 2016, as space is absorbed by office demand.
A number of prime office buildings are currently under construction, including Z-Towers and office centre in the Skanstes Business district.
The construction of several projects, including Business Garden Riga, Ulmana Office Park, New Hanza City, a grade A Skanstes office building and others are expected to begin soon. In this case, supply could potentially increase sharply in 2017 and 2018.
Near record breaking investment
2015 was nearly a record breaking year for the Latvian investment market with a total transaction volume of €338 million, representing 31% of the total Baltic investment volume. Riga captured 97% of all the investment volume in Latvia.
Retail was the most active sector in 2015 while the office segment accounted for 24% of total investment. In 2016, at least the same level of investment is expected to be recorded in the Latvian market.
The average yield for prime office assets in Riga remained at around 7.25% and is not expected to change in 2016.