Low point passed? Profitability rates in the commercial space market increased last year – Economy, finance

Although the year 2023 has been relatively active in the commercial space market, the consistently high interbank rates and the vague rhetoric of the geopolitical situation have left an impression on investors, naturally affecting the transactions that have taken place. Last year, the confidence index of both businessmen and investors decreased. Greater activity was observed in the second half of the year, when several large-scale transactions were carried out by retail store chains, but at the beginning of the year, the most significant transaction with a commercial sector object was the purchase of land and buildings at E. Birznieka-Upīša street 21. The transaction was conducted through Latio, the total amount of the transaction exceeding four million euros . The most important market trends of the past year are summarized in the latest Latio Commercial Space Market Report.

Compared to 2022, the profitability rates of commercial objects have gradually increased by 3%. The highest rate of return – an average of 8.25% – was registered last year for industrial objects. The rate for retail premises is 7.7%, and for offices 7%.

Based on Sentix according to the data of the investor confidence index, investor sentiment was volatile last year. If at the beginning of the year the mark reached -8, in January of this year the index dropped to -15.8, indicating changes in investor confidence and reflecting the changing reaction to economic developments. The indicator of the business confidence index also decreased slightly. The year 2023 started with approximately 0.1 above the OECD average, followed by a short-term decrease, but already at the end of the year Latvia’s indicator was 0.37 above the average. At the same time, the export volumes of goods and services fell by 11.8%, while the import of goods and services decreased by 8.3%.

The construction of new office buildings continues actively. Last year, several complexes were put into operation – the building on Perses street 2A, Elemental Business Centre on Skanstes Street and V118 Krišjāņa Valdemāra street, as well as Zeiss offices Mūkusala street. In autumn, the new office center opened its doors to tenants on Mihaila Tāla street New Hansa. Co-working office spaces are also becoming more popular: the market has been supplemented Regus Business Garden complex on five floors, as well as Hamann Coworing Sloka Street and Spark Coworking Skanste.

The monthly rent for class A office space in the central business districts (Skanste, Klusais centrs, tuvais centrs, Ķīpsala, Āgenskalnas bay) reached an average of 13.5-22 EUR/m², and for B1 class offices from 12-14 EUR/m². The rent for B2 category offices ranges from 9-12 EUR/m², and for C-class offices from 5-9 EUR per square meter. Compared to 2022, office rents have not changed last year.

“The demand for new office spaces is mainly created by companies in Latvia that want to realize their goals – for example, expansion from co-working spaces or optimization by moving from class B office buildings to more energy-efficient office centers. There were no office rental requests from international companies last year,” tells Latio Solvita Gulbe, business manager of the commercial property department. She also adds about a new trend that has appeared this year, namely the subleasing of class A office space in new office centers. Tenants who signed long-term leases a year or two ago are currently subletting part of their office space. The reason – due to the introduced hybrid work model or the narrowed field of commercial activity, the previously rented premises have become redundant.

Last year, the dynamics of growth of industrial premises decreased by 5%. Compared to a year ago, the monthly rental fees for industrial premises have slightly decreased for class B warehouses, fluctuating at 3-4 EUR/m² (-14%). On the other hand, the price for class A warehouses remained within the range of 4.3-6.5 EUR per square meter. Several large-scale industrial projects, including storage facilities, are expected in the near future Self Storage the development of a complex network in which the company Merito Partners plans to invest 80 million EUR, former Go Planet reconstruction of the building, of the company Dotnuva Seeds a seed preparation plant in Iecava and a high-class industrial park Rumbula creation by attracting more than 10 million EUR financing.

No significant changes were observed in the retail segment last year. The monthly rental fee for premises in the most active commercial locations remains 10-40 EUR per square meter, outside the active streets 5-10 EUR/m², in the areas of anchor tenants of supermarkets 6-18 EUR/m² and in the areas of supermarkets and other tenants, the range of rents varies from 4 to 50 EUR / m². Market activity is mainly maintained by store chains: SIA Firma Madara 89associated with a local retailer Top, for a total amount of more than 5 million EUR has acquired several shopping centers in Riga, Kuldīga, Skrunda and Ventspils. On the other hand Rimi Latvia next to the mall Acropolis Alpha bought a plot of land with an area of ​​3.6 ha at 382 Brīvības gatve for EUR 8 million. He also bought several properties for the construction of new stores Lidl New stores will be opened in K. Ulmani Street 2A/ Mūkusalas Street 72 (transaction amount EUR 7.6 million) and Zaļaja Street 3B, Bauska (transaction amounts EUR 450,000 and EUR 100,000). Attracting a loan of 21.8 million in the amount of EUR, a new one is being built in Kārļas Ulmaņas gatė Depot store. The store is expected to open within a year.

“In addition to the well-known negative factors currently affecting the global and local real estate markets, investors feel more social and institutional pressures, subordinating new investments and the management of existing investments to ESG (sustainability strategy) requirements, which are gently but convincingly requested to be followed by the European Green Course, as well as cooperation partners and stakeholders. In the near future, many entrepreneurs will have to count on additional investments in improving energy efficiency in the objects they manage. In general, investors are forced to focus on improving the value of existing assets and capital investments in them, as the purchase of cash flow objects is significantly hampered by high financing rates, as well as uncertainty in the market for the development and construction of new objects. It is expected that many will focus on renovations, reconstructions and repositioning of existing facilities,” concludes Latio Igors Terehovs, investment object specialist of the commercial property department.

With the full We invite you to familiarize yourself with the commercial space market report for 2023 Latio Homepage.

Latio | Market Analyst