Expansion by multinational companies boosted the office market
By the end of 2017 the stock of modern offices in Vilnius stood at around 595,500 m², which remains low relatively to the employment base. Given the good pace of net absorption over the last 5 years, it is evident that there is still huge room for sustainable office stock growth in the city. The most important factor in the office segment over the last 8-10 years is undoubtedly the expansion of SSC (shared service centers), R&D and IT support centres of the multinational companies. Companies such as Lindorff, Barclays, AIG, Nasdaq, Western Union, Danske Bank and many others have chosen to centralize not only their back office/ support functions, but also their complex/ front office functions such as sales, IT development/engineering, digital marketing, customer service in Vilnius.
In 2017, the total take-up of modern offices amounted to more than 80,000 m² signalling an all-time record for the Vilnius office market. Around 85% of transactions in 2017 were either relocations or expansions of companies already existing in Lithuania, some of them surprisingly large. Telia signed for 15,000 m² at the beginning of the year, whereas in Q3 Danske Bank signed for premises of the same size. The remaining 15% of transactions were performed by new companies opening offices in Vilnius. Booking.com signed for 4,000 m², while Harbortouch signed for nearly 1,000 m².
Advance lease deals remained typical in the Vilnius office market, with prelets often being signed 6 to 18 months prior to handing over the space.
New development plus good investment activity are pushing yields down
2017 was a year of office transactions with nearly half of the total volume taken by this segment. There were five large office transactions made in Vilnius with more than 45,000 m² of leasable office space acquired for more than EUR 100m. The average yields for prime and office assets in 2017 were in the range of 6.5% to 7.25%, with a few prime properties in the pipeline that are currently testing sub 6.0-6.5% .