The measures to
contain the Covid-19 pandemic have had a significant impact on the <a target="_blank" href="http://www.ober-haus.lv/en/services/investment-advisory/">commercial
property</a> market in Riga, with hotel and catering providers as well as retailers
being the ones affected the most.

<h2>OFFICE SPACE</h2>

In the first
half of 2020, four office buildings were commissioned, adding additional 50,600
square metres to the market of <a target="_blank" href="http://www.ober-haus.lv/en/services/investment-advisory/">office space</a>.

The most exclusive 97,500 square metre wide apartment and
office concept in the Baltics, the multifunctional Z-Towers complex, has been
put into service. It consists of 2 circular 30 storey high towers. The
underlying podium is connected to these towers. The Z-Towers Class A office space accounts for 10,000
square meters, and it is the highest project in Riga.

The office
building Henrihs in Jaunā Teika has also been put into service, which has thus
become the largest modern office complex in the city. This building is the
latest addition to the most influential innovation and technology neighbourhood
in Riga. Henrihs is a Class A office
building with an area of​23,600 square meters and more than 2,000 workplaces on
16 floors. The building houses office space, a modern conference and event
centre, an authentic indoor street food area, a kindergarten, a roof terrace
and a multi-storey car park.

The first phase of the expanded
part of the Origo shopping centre has been opened in the new Origo
building, as well as the Origo One business centre, where 11,000 square
meters have been allocated for offices and business premises. The modern Origo One
business centre, which houses Class A offices, is located in the heart of Riga. Its priorities are great location,
advanced technology and engineering solutions.

Following the reconstruction, the
post-modern building, designed by architect Juris Skalbergs in the late 1970s,
houses modern and spacious Class B+ office and retail premises. Zones for
networking have been created on the uppermost floors, each floor has a small
balcony overlooking river Daugava. The office spaces comprise 6,000 square
meters.

The pandemic has certainly changed
the opinion of many companies on the usefulness of office space, as it made
them realize that a fairly decent and efficient work organization is possible
remotely as well, without sacrificing communication and productivity. At the
same time, however, word has it that people lack a sense of community with
their team, and many have been uncomfortable working from home due to
insufficient space to isolate themselves from other family members and focus on
work.

At present, a strong tendency to
change offices is not observed. Everyone seems to be on a standby mode, as no
one can be certain about what awaits in the second half of this year. During
the quarantine, there were more negotiations between landlords and tenants
about the possibility of not paying the rent for some time or at least
receiving a partial reduction, as most employees carried out their work duties
remotely, leaving the offices practically empty. However, a large proportion of
office tenants admit that they have not felt the support of landlords.

In the long run, some companies
are expected to move to smaller or lower class offices. It depends on the
overall expectations and capabilities of the companies. This will lead to an
increase in vacant office space, forcing landlords to reconsider rents. The
situation could be more difficult in older office buildings, as tenants are now
paying more and more importance to various engineering solutions that ensure a
better air flow in office premises.

However, despite
the current situation, work has begun on the construction of the first phase of
the new Press House quarter. The first stage of the project development
foresees the construction of a modern Class A office centre, retail premises
with the first football field in the Baltic States located on the roof of the
building, as well as the Holiday Inn hotel, which will be the first
InterContinental Hotels Group (IHG) hotel in Latvia. In the first phase of the
project, 25,000 square meters will be used for Class A offices, 7,000 square
meters for retail premises, 40,000 square meters for multifunctional premises,
and a hotel with 307 rooms will be built in the former Press House building.

The rent for
Class A offices is from € 13.00 to € 16.00 per square meter and from € 8.00 to
€ 13.00 per square meter for Class B offices. In some exclusive office
buildings, the rent is € 17.00 - € 18.00 per square meter, excluding management
fees. Management fees in Class A offices start from € 2.50 to € 4.00per square
meter per month, while in Class B buildings from € 2.00 to € 3.50 per square
meter per month. 

<h2>RETAIL SPACE</h2>

The first half
of 2020 has had a significant impact on the <a target="_blank" href="http://www.ober-haus.lv/en/services/investment-advisory/">retail space</a> segment. With the onset of quarantine in the country
and the severe restrictions, many households switched to ordering products and
daily household items on-line with home delivery or delivery to designated
points of receipt at supermarkets. Only grocery stores, pharmacies and pet
stores were allowed to continue operating in the shopping centres, prohibiting
the operation of other tenants. Several supermarket tenants were unable to
reach an agreement on rent pay “holidays”, which forced them to terminate their
contracts and vacate their premises, as the financial burden turned out to be
too great.

This time was
also a major test for caterers. The winners were certainly those who responded
quickly and managed to restructure their business and deliver food to people at
their homes. 

However, the
difficult global situation did not stop activity in the retail segment, and
some developers are currently modernising existing premises and even developing
new projects. Several new clothing stores have opened in Riga, and the shopping
and lifestyle centre SĀGA, located opposite the IKEA home
supermarket, is planned to open in autumn. With the completion of the SĀGA
project, a new stage of development will begin in the shopping centre segment
throughout the Baltic States. The traditional practice of developing centres
will be replaced by a new concept of shopping centres, and SĀGA will become the
current flagship of shopping and lifestyle centres in the Baltics. 

The catering
chain brands Burger King and KFC also have significant development
plans for the Baltic market.

Rimi Hyper opened its retail store in the shopping centre Aleja in
Ziepniekkalns, occupying an area of almost 4,300 square meters, while Rimi
Express was opened on Aspazijas Boulevard and Rimi Mini on Tallinas
Street.

Significant
investments in the reconstruction of the stores have been made by Maxima – the Maxima XX format store on Saharova Street has been expanded
and now prides itself as the eighth large format Maxima XXX store in Riga, and a completely new Maxima XX store has been built
in Mežaparks, Rusova Street. 

The rent for
retail space for small premises up to 100 square meters in the city centre has
not changed much in 2020, ranging from € 10.00 to € 33.00 per square meter per
month.

In the Old Town,
in locations with high flow of pedestrians, rents range from € 20.00 to € 40.00
per square meter per month, reaching up to € 55.00 per square meter for
exclusive premises. As regards smaller alleys in the city centre and in the Old
Town, the rent charges range between € 10.00 and € 20.00 per square meter per
month.

Rent in shopping
centres range from € 8.00 per square meter per month (for premises with an area
of more than 1000 square meters), from € 15.00 to € 35.00 for medium-sized
premises (150-300 square meters) and from € 25.00 to € 50.00 (for premises up
to 100 square meters). Anchor tenants have to pay an average of € 6.00 to €
10.00 per month per square meter.

<h2>INDUSTRIAL SPACE</h2>

The <a target="_blank" href="http://www.ober-haus.lv/en/services/investment-advisory/">industrial
segment</a> currently seems to have suffered the least from the pandemic. With the growth of on-line sales, parcel
delivery and e-commerce companies interested in professional, modern warehouses
are showing increased activity. 

Construction of Class
A warehouse and logistics park A6 in Riga, Maskavas Street has started. The
construction was begun by Pillar Capital. Currently, warehouse buildings have
been erected on the plot of land, most of which were built approximately 10
years ago. Now, a single logistics and warehousing park is being developed,
which will allow for full use of the potential of the property and land area.
It is planned that the total area of the buildings will exceed 50,000 square
meters. Thus the new logistics park will become one of the largest within the
territory of Riga.

In Q2 of 2020,
the new LIDL logistics centre in Dreiliņi was commissioned, which will
ensure the operation of LIDL stores throughout Latvia and Estonia. The newly built
51,000-square-meter logistics centre will also house the company's
headquarters.

There is a
demand for modern warehouse space in the vicinity of Riga. The greatest demand
is for premises from 1000 to 2000 square meters, but demand is also growing for
smaller premises with an area below 1000 square meters. 

In the first
half of 2020, the rent for new warehouses in the city of Riga and the
surrounding region ranged from € 3.50 to € 4.80 per square meter per month.
Rents for older warehouses were from € 1.50 to € 3.20 per square meter per
month. Utility fees average between € 0.50 and € 1.00 per square meter per
month.

Most companies
still choose to rent rather than purchase premises for their operations, thus
directing the company's financial resources to business development. Renting
premises means that companies can work in premises that are managed
professionally and meet the needs of our times, and it allows for a more
flexible response to any economic and market changes.

"Ober Haus Real Estate Latvia" SIA

Ober Haus Real Estate Latvia SIA, Daugavpils birojs

Real Estate

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