Exceptionally high demand for large and quality office space
Large new and well-arranged offices were in huge demand in 2017. Units that are fully furnished and meet the international standards of energy and efficiency met are so sought after that pre-lease at early construction stages became is a market feature of 2017. Place Eleven (15,000 m²), for instance, was completely leased before its completion in 2017.
Typical medium sized tenants such as service centre operators, financial sector and IT companies, who are in search of new locations, must lower their expectations due to the lack of suitable supply. New occupiers must now wait for appropriate large vacant premises (typically above 3,000 m²) to come onto the market. Prime rents increased from €180 to €186/ m²/year in 2017 due to the slow stock growth, which provides landlords with a greater advantage in lease negotiations with tenants.
A number of big premium offices will come onto the market within the next few years, including Z Towers, Business Garden Riga, Jaunā Teika Teodors & Henrihs offices and others, totalling more than 150,000 m². The exact impact of this large volume of newly available offices is still unpredictable, although a slight increase in the vacancy rate may be expected in the upcoming years.
Good investment activity reduced Riga’s office yield premium
Total transaction volume in Riga exceeded €100m in 2017, with office sales accounting for more than 30% of all investments. Even though yields decreased significantly over the recent years, the gap with Western European levels remains attractive. Average yields for prime office assets remain at around 6.5-6.75%. With vast growth of office supply, office sales should constitute a major part of the investment market in the near future.