Investment in commercial real estate in the Baltic countries grew by 11%

Investor appetite for commercial property in the Baltic states continues to grow rapidly. The first half of 2016 was particularly successful for both the buyers and sellers of modern commercial property. A total of 22 investment transactions were concluded during this period in Lithuania, Latvia and Estonia, as a result of which 423,000 sqm of modern commercial property (offices, retail, warehousing and industrial buildings and premises) was purchased. The total value of the acquired properties amounted to EUR 436 million, which was 11% more than during the first half of 2015.

Latvia, which was for a long time lagging behind Estonia and Lithuania, is in the lead this year. The total investment in commercial real estate in Latvia over the period reached EUR 220 million or almost 51% of all investment in the Baltic states. In the main this is due to two large investment transactions in Riga involving acquisition of the shopping centres Domina and Riga Plaza totalling EUR 168 million. In Estonia, investment transactions amounted to EUR 126 million or almost 29% of all investment in the Baltic states. The largest investment transactions in Estonia were recorded in the retail premises sector involving the purchase of two shopping centres Mustamae Keskus and Magistral in Tallinn. With the total value of acquisitions amounting to EUR 90 million, investment amounts in Lithuania during the first half of this year were the smallest. The largest single transaction in Lithuania was the acquisition of the remaining part of the shares from the developer of Nordika shopping centre in mid-2016. At the end of 2015, the Estonian company Zenith Capital Management already acquired half of the shares of management company of Nordika. One of the most interesting transactions in the Baltic states was reported in March 2016 where Laurus, a joint venture of Partners Group and Northern Horizon Capital, acquired 40 different commercial units across the Baltic countries (mainly current or former units of SEB bank) from the Dutch company Geneba. In 2014, Geneba took over the major portion of the real estate portfolio in the Baltic states managed since 2007 by Homburg Invest.

The scope of investment in the Baltic states per real estate segments shows that retail property has been most popular this year. According to data from Ober-Haus, out of EUR 436 million invested in Lithuania, Latvia and Estonia, 59% was investment into the retail property sector. Investment in offices accounted for 31% of total investment and investment in warehousing and industrial traditionally accounted for the smallest (10%) portion of total investment. The largest transaction in the latter sector was reported in June where the Estonian EfTEN Real Estate Fund III acquired three logistics centres in Vilnius, Riga and Tallinn from DSV, the international transport and logistics services group.

“Evaluation of investment in this year and previous years shows that the commercial real estate in the Baltic states continues to be of interest only to local and Scandinavian capital investors. Investors from other regions are mostly companies, which are not directly related to real estate, or larger investment funds, which acquire large international real estate portfolios and as a result sometimes take over properties in the Baltic states,” said Saulius Vagonis, head of the Valuation & Analysis Department at Ober-Haus. For example, in 2015, the fund of the US asset management company Blackstone acquired a high value real estate portfolio in Scandinavian countries, including three shopping centres in Riga. Despite individual larger investors arriving directly to the markets of the Baltic states, statistics has for a long time shown a steady trend. According to calculations from Ober-Haus, over the first half of 2016, it was mostly funds of the Baltic states and private investors who invested in modern commercial real estate (47% of total investment). Scandinavian capital investors accounted for 19% of total investment and investors from other countries (Switzerland, Russia, Malta and etc.) accounted for the remaining 34% of total investment.

“It is likely that the second half of the year will remain sufficiently active in the investment transaction market. Despite growing expectations of property owners concerning the value of the property, buyers continue to be actively interested in and negotiate acquisition of different types of commercial property. The pending transactions, which, it seems, will be completed by the end of this year, are likely to yield most positive annual results in the Baltic states,” said S. Vagonis.

Lithuania Commercial Market Commentary Q2 2016