The pandemic has not lessened interest about investments into commercial properties

Upon the end of the last year’s first half, investors were rather cautious about all areas, including the commercial property market, however, the investment activity up to the end of the year surpassed the results of 2019. Despite the still present uncertainty about future development of the pandemic, the frame of mind of investors can be rated as positive.

If in the beginning of last year it was difficult to foresee how the economy and investments will proceed due to impact of the pandemic, then now there are no grounds to think that investments into commercial properties could decrease in the coming years. In spite of the conditions of uncertainty, investment volumes into commercial properties in Latvia last year even slightly exceeded those of 2019. The total investment volume in the Baltic last year reached one billion euro, out of which about 330 million euro was made up by investments into the Latvian commercial property market, and about 82% of the investments into commercial properties were made by foreign investors. 

“We observe that investors are currently looking for potential investment objects in the commercial property market in the Baltic States. Rates of return on investment in our region are still higher than in other European markets. During the last ten years, both the residential building fund and construction of office buildings in Latvia has developed more slowly than for our neighbours — Lithuania and Estonia, hence investors see a high potential for investments into new objects rather than purchasing the existing properties as observed to date. The ever outstanding sustainability and energy efficiency requirements will be one of the main guides in the investment market. The commenced and planned projects will provide extra added value to both the urban environment and the economy overall,” says Uģis Počs, Luminor expert in real estate funding. 

Distribution of investments into different commercial property segments is likely to change in the future — with more investments being raised for construction of office and logistics objects and the scope of development of shopping centres narrowing. There are also known uncertainties as to how the pandemic will affect the habits of tenants of commercial properties in the office and trade segments. Yet one thing is clear — the winners will be the shop owners who will be the first ones able to find a strategy that produces return when it comes to further usage of the space of shopping centres. 

With regard to offices, there is a potential scenario that, in light of popularity of remote working, companies will revise the necessary amount of workplaces, which in future might be lower than the actual number of employees of a company. A large part of Scandinavian companies have already gone through such process, thus reducing the expensive rent costs even before the pandemic. Nevertheless, employees who work at the office will still be an integral part of shaping business culture and ensuring effective communication. It is possible that, in order to provide a comfortable, epidemiologically safe and attractive working environment, companies will have to keep their office space in the existing size or even expand it.  

“Despite the challenges and what commercial property owners are facing currently, majority definitely sees this as a time for development and opportunities. Real estate market players are used to looking at the market in the long-term, which is why we observed great development in 2020 in land, office and even shopping centre transactions. At the same time, owners are working like never before to improve and adapt their premises as much as possible for the new needs of tenants and visitors, drawing new ideas from the world’s best examples. Practice shows that along with better supply of premises, it is a matter of time that the activity in the investment segment and interest from new foreign investors also grows. If we are speaking about rent apartment buildings, which has been one of the popular types of commercial property investments for a long time, with new legislation passed we will definitely see new projects and transactions also in this segment,” comments Anžela Koļesņikova, 

Higher investment volumes in comparison with previous years will also be in the residential real estate segment. Data collected by the investment management company Colliers show that the highest demand in Latvia can be observed in the apartment segment, which has also been promoted by construction of new apartment buildings in 2020. There has also been a rise in people’s interest in possibilities of purchasing and getting a bank loan to acquire a home in a new project, for example, last year 42% of all loans at Luminor were granted to acquire a home in exactly such projects. Data of Colliers also show that 1720 first-time transactions with apartments in the new projects were made throughout 2020. The total number of apartments sold was exceeded by 16% and the total transaction sum has grown by 23%. A slight fall was experienced in the segment of renovated apartments but, at the same time, a rise can be observed for apartment transactions close to Riga.