Impressive continuous growth of Lithuania’s economy (in 2005 GDP grew by 7.3%), increasing consumer spending power, and attractive interest rates combined with high expectations upon accession to the EU initiated steady growth in real estate market.

Office Market

While Lithuanian commercial property market development in 2004 seemed to be very active, market growth in 2005 did not lower in speed. The Vilnius office market increased by almost 40,000 sq. m of modern office space during 2005 and almost 50,000 sq. m of office space projects are in the pipeline for the coming years. Other Lithuanian cities are not seeing big developments in the office segment; this may be explained by the lower interest of local companies in having modern offices due to relatively high rent levels.

AVERAGE OFFICE RENT PRICES, €/SQ.M PER MONTH

	Vilnius	Kaunas	Klaip?da	Panev?žys	Šiauliai
A class	15.0	11.0	13.0	-	-
B class	12.0	7.25	7.5	6.5	6

Source: KOBA data 2006.

Despite the concerns of commercial real estate experts, the Vilnius office space market is still actively developing. Due to newly opened business centres, office space increased nearly 40,000 sq. m in 2005 and total modern office space in Vilnius in the beginning of 2006 constituted approximately 300,000 sq. m. Some of the recently opened business centres are being built further from the city centre. The main reasons for this are as follows:

- the demand for A class office premises is increasing slower compared to a few years ago due to partly covered supply and high rent levels;
- the parking problem for employees and clients makes potential tenants choose other locations with better access and more convenient parking;

- land plots in the city centre are becoming more and more expensive. 

Modern business centres located further from the city centre are attractive due to lower rents than business centres located in the city centre. Moreover, the quality differences are not that noticeable and the standard services are offered: parking for company employees and clients, modern engineering systems, 24-hour security, equipment of the office according to the tenant’s needs, etc.

Being the most developed commercial market segment in Vilnius (and in Lithuania), office market development is not slowing down. While the main projects are still in the capital city, there is also significant development of office space in Klaipeda, and some new office buildings have been built in previous years in Kaunas.

The market structure in Kaunas is not the same as in Vilnius. Here it is not as popular to rent an office in a prestigious location as businesses prefer to own premises rather than to rent with other successful rivals. In Kaunas, the greatest demand for small premises is up to 50 sq. m in size, as there are not  many large enterprises; mainly branches of large companies are located here. There were several new buildings added to the market in 2004 and it seems that for the moment demand for modern space is fully covered. For this reason there are no plans to offer new products to the market for the next year; demand for modern space is very limited in the market.

In Klaipeda, as in other Lithuanian cities, potential clients for office space may be divided into two main groups: one type of client seeks exclusive, well-equipped office space in the city centre or easy-to-find and park locations ranging from 40 to 100 sq. m, whereas the other type is interested in cheaper office premises further from city centre with lower rent. Based on the existing demand, supply of the premises varies accordingly. As in Vilnius, there is a tendency to move from the Old Town to newly built premises with high-standard office equipment and better parking facilities. Currently, the greater part of the office market is represented by old construction premises renovated and converted into modern office space, but there are several projects of new modern office space in various stages of development. When finished they will significantly increase the modern office area in Klaipeda.

No A class office buildings exist in Siauliai. The needs of the few existing tenants are satisfied with B class premises remodeled into offices on the first and second floors of the buildings. Manufacturing companies have their own administrative buildings.
The current situation in Panevezys is similar to that in Siauliai. No A class office space is offered to the market and B class is quite slow in terms of take-up and the supply of new redeveloped premises. The major tendency is for the occupier to own the premises rather than to rent them. 

Retail Market

While the office market is developing fastest in Vilnius, the retail market is growing in all major Lithuanian cities. In 2005, modern retail space in Vilnius reached 450,000 sq. m. In other Lithuanian cities the space is increasing significantly too. Despite this impressive growth, vacancy is almost zero. In general, the retail market may be divided into three segments: shops in the central part of the cities or on high streets, super/hypermarkets, and shopping centres. It should be noted that currently shopping centre developments are not solely concentrated in the capital, but are also soaring in the other cities, whereas in some of those, plans are to double or more the gross area of retail space.

Being the capital of Lithuania, Vilnius is the most attractive place for both foreign and local retailers. Major driving forces for growth of the retail market in Vilnius are:

-increasing consumer spending power;
-one of the lowest unemployment rates in the country;
-higher average income of buyers compared with other Lithuanian cities;
-increasing number of local and foreign visitors. 

The main shopping street in Vilnius is Gedimino Avenue. Entertainment and leisure, as well as shopping areas, are all available on Gedimino Avenue, but the main point of attraction is the ability to ‘breathe the history’. Retail space on Gedimino Ave is especially limited, with tenants usually staying in the leased premises for 10 years or longer, whereas new shops usually open only as a result of replacement of the tenant or change of ownership. Due to limited possibilities of constructing new buildings on Gedimino Ave, the only way to increase the shopping area is to transform the existing premises into retail units. The new Grand Duke Palace Shopping Centre is one example of successful re-adjustment of existing buildings. The centre was opened at the end of 2005 in a former hotel and provided 4,600 sq. m of retail space. Another significant influx of retail space is going to be made in 2007, when the former municipality building with a total area of 18,000 sq. m opens as the modern high class Gedimino 9 Shopping Centre in the choicest part of Gedimino Ave. Vilnius Old Town streets (Pilies, Vokieciu, and Didzioji) are becoming mostly leisure and tourist-oriented areas, except for Didzioji St, where major boutique brands (Hugo Boss, Escada, Armani, etc.) can be found.

Another retail segment is super/hypermarkets. One of the main characteristics of this market segment is the continued dominance of the domestic players in the grocery sector. The local chain VP Market is the leader in this segment, however, Rimi Baltic, Iki and Norfa chains are developing at full speed as well. While the small-shop concept retailers are opening their shops in the shopping centres and supermarkets, the grocery chains are building them themselves. 

In terms of shopping centres, they have existed in the market for only a few years and a lot of developments are needed just to bring Lithuania’s provision up to the level of the Baltics given the comparatively larger size of the Lithuanian market. Successful pre-lease of new premises shows huge interest from the retailers’ side and encourages developers to think about new projects. On the other hand, increasing interest from investors (especially during the past few years, with Lithuania’s entrance into the EU and the resulting decrease in general country risks) also puts certain pressure on developers to react quickly to the existing demand. 

MAJOR SHOPPIN CENTRES IN VILNIUS

Shopping Centre	Total area, sq. m
Akropolis	109,000
Banginis	28,000
Europa	21,500
VCUP	19,700
Mada	19,000
Rimi Hypermarket (p. Lukscio St.)	19,000
Domus Galerija	10,000
Mandarinas	8,000
Flagmann	6,500
Total	240,700

Source: KOBA data 2006.

A speciality of Vilnius and in general the Lithuanian retail market is that the major developers often are related to the anchor tenants of the shopping centres (VP Market, Senukai, Rivona (Norfa grocery)).

Pipeline Projects in the Vilnius Retail Market

Easy pre-lease and low or zero vacancy in existing retail premises encourages developers and investors to think about new projects. In the coming years developers plan to build approximately 170,000 sq. m of modern shopping space in Vilnius.

Being the second largest city in Lithuania, Kaunas is well known among retailers for its pedestrian street – Laisves Avenue. Full of shops, restaurants and major company offices, Laisves Ave connects the city centre with the Old Town. Brand names, number of retail units and flow of people can easily compete with Vilnius’ high street Gedimino Ave; therefore, rent levels are stable and comparable to the levels of Vilnius. Kaunas, like other Lithuanian cities, has experienced retail area development in two main directions: on one hand, shops on Laisves Ave have been renovated and occupied by well-known local and foreign brands; on the other hand, construction of super/hypermarkets and shopping centres has started as well. 

MAJOR SHOPPING CENTRES IN KAUNAS