Investment still rising in the Baltics

Deals in Latvia made up 32 pct of the total, while Lithuania accounted for a 49 pct share and Estonia 19 pct. The most active players were the Baltic region’s biggest commercial real estate fund managers including Northern Horizon Capital and EfTEN Capital, as well as the Swedish companies Eastnine and East Capital, all of which are long-time players in the market. The majority of the deals were for prime office and retail properties and a larger proportion of the investment than in previous years was from global market players.

The largest deal over the year was South-African based NEPI Rockcastle’s purchase of the Ozas shopping centre in Vilnius for EUR 124.6 mln.

“The acquisition of Ozas marks the entrance of a major international investor to the Baltic market. The Baltic countries definitely have space for players like this, given the development here of exclusive and innovative business and shopping centres with architecture and innovative that surpass the standard of other countries in Europe. Investment decisions are heavily influenced by the number of international tenants of such properties, which is confirmed by the actual transactions. It can be said that the Baltic market has matured to the level that meets the expectations of global market players. These are the investors who are most likely to expand their portfolios in the Baltics,” claims Andrius Švolka, the head of transactions at Newsec in the Baltics.

“Three phases can be made out in the development of the Baltic investment market. In the first stage, prior to 2008, more than 45 pct of the investors came from Nordic countries. In the second phase, up to 2014, capital from the Baltic countries accounted for over 55 pct of the investment in the region. And in the third, starting in 2015, more than half the market – 55pct – has been taken by international investors including from Western Europe, the Nordics, the USA and other regions,” he adds.

“The value of investment deals this year is forecast to be even bigger – EUR 1 bln. That expectation is grounded in the growing transaction volumes of recent years, with the total value of investment deals in 2018 up by 19 pct on 2017. The impressive start to 2019 shows the market is still active: Eastnine from Sweden has acquired a business centre in Vilnius for EUR 128.3 mln and agreed on the purchase of two other buildings in the S7 project in a transaction that could end up being the biggest ever in the Baltic office segment,” says Newsec’s head of transactions.

Prime market deals are being made with yields of less than 6 pct. By comparison, in 2013 the investment return on such projects was closer to 7.5 pct. While rental incomes have remained stable, a reduction of capitalisation alone has led to an increase of more than 25 pct in the value of commercial property in the region’s capitals.

“The reason yields are falling is simple – confidence in the real estate market. The two notions of ‘low risk’ and ‘project sustainability’ are leading investors today to accept distinctly bigger risks in buying new generation real estate projects in the Baltic countries,” claims Andrius Švolka.