Riga Real Estate Market Overview, first half of 2005

TABLE OF CONTENTS Introduction Riga and Greater Riga in numbers General characteristics of political and economic situation Crediting HOUSING MARKET Standard type apartments New projects Apartments in the centre Detached houses Residential development land Jurmala COMMERCIAL SPACE MARKET Office space Retail space Industrial space Outlook About LATIO Ltd. in brief Contacts page 2 page 3 page 5 page 7 page 9 page 10 page 15 page 21 page 22 page 25 page 28 page 31 page 31 page 37 page 40 page 45 page 46 page 47 Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 2 of 48 INTRODUCTION The real estate market report prepared by LATIO Ltd. offers an insight into the trends and dynamics of Riga and Greater Riga real estate market development during the first half of the year 2005. This report is based on the monthly overviews prepared by LATIO Ltd. and publicly available in our website (www.latio.lv), on the information provided by our specialists, LATIO data basis, the information provided by our co-operation partners, as well as the data provided by the Central Statistical Bureau (CSP), the Financial and Capital Market Commission (FKTK), “Eurostat”. Besides, LATIO Ltd. market overview is based on the data given by the Central Bank of Latvia, the State Land Service of the Republic of Latvia (VZD), Riga City and Riga Region Land Book registers, Riga Region Development Agency as well as the data of Jurmala City Council, Riga Region Council. The report covering the first half of the year 2005 is designed to provide a general overview on major property sectors of Riga and Greater Riga. The scope and scale of this report means that it is general in style and content. LATIO Ltd. does not assume any legal liability for any losses that might arise by using the contents of this material or the facts and forecasts mentioned herein. We are looking forward to working with our clients and offer research services on any issue of interest in the real estate market area. Requests, suggestions, questions or comments shall be addressed to LATIO Ltd.: latio@latio.lv. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 3 of 48 Riga and Greater Riga Riga and Greater Riga in numbers In general, a tendency of decreasing number of the inhabitants is witnessed in Latvia. One of the reasons is the constantly low birth rate and the high mortality rate. Emigration should be taken into account, which is related to job hunting by the Latvian inhabitants in other countries. NUMBER OF PERMANENT RESIDENTS IN THE BEGINNING OF THE YEAR, thousand 1999 2000 2001 2002 2003 2004 2005 LATVIA 2,399.3 2,377.4 2,364.3 2,345.8 2,331.5 2,319.2 2,306.4 Riga 776.0 764.4 756.7 747.2 739.2 735.2 731.8 Jurmala 55.89 55.72 55.71 55.33 55.16 55.45 55.60 Riga region 143.2 144.4 144.9 145.3 146.0 150.1 153.2 Decrease of the number of inhabitants does not apply to Riga region and Jurmala where the number of residents in the first half of 2005 has slightly increased: a part of wealthier residents of Riga prefer living in detached houses near the capital and working in Riga. NUMBER OF HOUSEHOLDS, thousand LATVIA 1999 943.3 2000 928.6 2001 925.0 2002 917.4 2003 915.4 2004 910.5 2005 No data CHANGES IN THE NUMBER OF PERMANENT RESIDENTS compared with the respective period of the previous year, % 3% 2% 1% 0% 2000 -1% 2001 2002 2003 2004 2005 -2% Latvia Riga Jurmala Riga region Source: Central Statistical Bureau Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 4 of 48 CHANGES IN THE DENSITY OF THE POPULATION compared with the respective period of the previous year, % 3% 2% 1% 0% 2001 -1% 2002 2003 2004 2005 -2% Latvia Riga Jurmala Riga region Source: Central Statistical Bureau Area, km² LATVIA Riga Jurmala Riga region 2005 64,589 307 100 3,132 Density of the population (persons per 1 km² of the territory), in the beginning of the year 2000 36.9 2,496.4 556.7 47.1 2001 36.6 2,464.6 557.1 47.4 2002 36.3 2,433.7 553.3 47.7 2003 36.1 2,406.4 552.1 48 2004 35.9 2,393.4 555.1 47.9 2005 35.7 2,383.6 556.0 48.9 HOUSING FUND AT THE END OF THE YEAR Totally, thousand m² Average per capita, m² 2000 2001 2002 2003 2000 2001 2002 2003 LATVIA Riga Jurmala Riga region 53,450.1 16,231.5 1,220.1 3,078.6 53,494.1 16,237.5 1,228.2 3,099.6 54,981.5 16,469.2 1,284.1 3,642.3 55,420.1 16,517.2 12,98.8 3,766.3 22.6 21.4 21.9 21.3 22.8 21.7 22.2 21.3 23.6 22.3 23.3 25 23.9 22.5 23.4 25.1 Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 5 of 48 GENERAL CHARACTERISTICS OF ECONOMIC AND POLITICAL SITUATION The first 6 months of 2005 in Latvia are characterized by a high growth of GDP: above 6%, similarly as in 2004, and with a high inflation. Changes in consumption prices, comparing with the respective period of the previous year, exceed 6%. Latvia is one of the poorest countries of the European Union and is also a country with one of the highest showing of the society polarization and income inequality. Thus the high inflation level has various impacts on the sections of the population in Latvia. GDP per capita in Purchasing Power Standards (PPS), (EU-25 = 100) Turkey Romania Bulgaria Latvia Croatia Lithuania Poland Estonia Slovakia Hungary Czech Republic Malta Portugal Slovenia Greece Cyprus Spain EU (25 countr.) Italy Euro-zone Germany EU (15 countr.) France Finland Japan Sweden Iceland Belgium United Kingdom Netherlands Austria Denmark Canada Ireland Norway United States Luxembourg 20 40 60 80 100 120 140 160 2003 2004 2005 180 200 220 Source: Eurostat Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 6 of 48 0 1 2 3 4 5 6 7 8 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2001 1Q Source: Eurostat 2001 2Q 2001 3Q 2004 2001 4Q 2002 1Q 2005 Source: Central Statistical Bureau Real GDP growth rate 2002 2Q 2002 3Q 2002 4Q 2003 1Q 2003 2Q 2003 3Q 2003 4Q 2004 1Q Changes in consumer prices, compared with the respective period a year before, % 2004 2Q Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 7 of 48 2004 3Q 2004 4Q 2005 1Q 2005 2Q Lithuania Latvia Estonia Romania Bulgaria Turkey Poland United States Slovakia Greece Iceland Ireland Cyprus Japan Slovenia Hungary United Kingdom Norway Czech Republic Spain Finland Luxembourg Switzerland Sweden Canada Denmark Belgium EU (25 countries) EU (15 countries) Austria France Euro-zone Euro-zone (12 countries) Germany Malta Italy Netherlands Portugal CREDITING The first 6 months of 2005 in the world financial markets were characterized by an increase of US dollar interest rates and stability of euro interest rates. 6m LIBOR USD index in the first 6 months has changed from 2.5% to 3.7%, however 6m LIBOR EUR has remained practically without any changes and is approximately 2.2% to 2.0%, with a slight trend of decrease. Interest rates for credits issued by the Latvian commercial banks have remained practically unchanged and are within the limits from 4.5% to 5 %. LIBOR, credit interest rates for credits granted in EUR & USD at variable rate 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Apr-2000 Apr-2001 Apr-2002 Apr-2003 Apr-2004 Apr-2005 Oct-2000 Oct-2001 Oct-2002 Oct-2003 Oct-2004 Oct-2005 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jul-2000 Jul-2001 Jul-2002 Jul-2003 Jul-2004 Jul-2005 cre di t i n te re st for cre di ts at variabl e rate , EUR cre di t i n te re st for cre di ts at variabl e rate , US D LIB O R EUR 6M LIB O R US D 6M Source: British Bankers’ Association Starting from 1 January 2005, the lat was pegged to the euro. Due to the said reason as well as due to the instability of the US dollar rate, credits are mostly taken in euros. Due to this reason, previous credits that have been taken in the US dollars are refinanced by credits in euros. Liberal crediting and a demand for dwellings facilitate the demand for credits. In the first quarter of 2005, the average increase of a credit portfolio for purchasing of dwellings was 40 million LVL monthly, which is by 80% more than in the respective period of the previous year. Credits issued to private individuals for purchasing of a dwelling equal to approximately 70% of the amount of credits issued to private individuals. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 8 of 48 mil. LVL 2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 Structure of the sum total of the cre dits grante d by comme rcial banks to private individuals Mar-02 Mar-03 Mar-04 Mar-05 Mar-05 41.5 Jun-01 Jun-02 Jun-03 Jun-04 purchase of housing consumption other non-residents Source: Finance and Capital Market Commission mil. LVL 110 100 90 80 70 60 50 30 40 Change s in the s tructure of the s um total of the cre dits grante d by comme rcial banks to private individuals (on monthly bas is) 25.5 11.2 11.7 10.1 0 -10 Mar-02 Jun-02 4.8 Sep-01 3.0 11.7 Mar-03 12.3 10 21.4 22.6 Mar-04 Jun-03 22.8 Jun-04 32.8 35.7 20 40.5 purchase of housing consumption other non-residents Source: Finance and Capital Market Commission Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 9 of 48 Jun-05 Dec-01 Dec-02 Dec-03 Dec-04 Sep-02 Sep-03 Sep-04 67.3 Jun-05 Dec-01 Dec-02 Dec-03 Dec-04 Sep-01 Sep-02 Sep-03 Sep-04 HOUSING MARKET Pegging of lat to euro, starting as from 1 January 2005, had a certain influence on market prices: in many cases, apartment prices expressed in figures remained on the previous level however the currency was changed from USD to EUR. Transition to euro in the market of standard type apartments has started in 2004, but apartment prices in the US dollars, starting from January this year, are not indicated at all anymore. Market of standard type apartments was the segment of real estates where prices were set in the US dollars for the longest period. Polarization of apartment prices or the increase of the price range among one type apartments of various quality is expanding considerably. The following factors influence the said price polarization: 1. Location of the house in a residential district; 2. Neighbourhood of the particular house, or objects nearby that have positive or negative impact on the dwelling; 3. Contingent of residents of the particular house, technical condition and order in the house; 4. Good or bad technical condition of the apartment, which follows from the abovementioned factors and even intensifies it. A gap of prices between the new projects and standard type apartments has vanished during the first half a year of 2005. The most expensive standard type apartments have reached prices of the new projects. The following trends can be observed in the apartment market currently: • • • • • • • If compared with the respective period of the previous year, prices of the standard type apartments have almost doubled. As a result, the gap between prices of apartments in the old and in the new projects has been eliminated. New apartments are built intensively, sold out intensively and quickly, however such apartments enter the consumption market in small numbers. Transactions with standard type apartments are still prevailing in the market. The greatest share of buyers will still prefer purchasing of apartments in the old projects for some time. Attitude criteria will change: instead of the old and the new apartments, the housing market will be divided into good and not-so-good apartments. Long-term tendency: there will be a corresponding supply for each social group. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 10 of 48 STANDARD TYPE APARTMENTS Cre dits grante d to private individuals by comme rcial banks , ave rage price s of total space 2 000 1 800 1 600 Credit portfolio, increase of credit portfolio x 10 mil. LVL 1 400 1 200 1 000 800 600 400 200 0 2000.Dec 2001.Dec 2002.Dec 2003.Dec 2004.Dec credit portfolio of commercial banks credit portfolio changes (approximate amount of the credits granted) (x10) average price of square meter in a standard type block house, US D average price of square meter in a standard type block house, EUR 1500 1350 1200 1050 900 750 600 450 300 150 0 2005.Dec Average price, USD, EUR In 2005, polarization of standard type apartment prices or the increase of the price range among apartments of various quality is increasing considerably. As a result, the price range for apartments in one residential district area, of the same standard and the same size increases. Due to the increasing polarization of apartment prices, it is more difficult to characterize the market of standard type apartments by one indicator only: the average price of one square meter in an apartment of the respective standard in a residential district. While the average price index increases, no conclusions can be made yet, whether the price increases in the whole group of apartments that have been included in the index. Prices of apartments of each standard and residential district grow in different ways. The average price index characterizes the average price of one square meter in standard type apartments, which is the average arithmetic value of apartments of various standards, in various residential districts, with various numbers of rooms, and a price of such apartments is determined on the basis of transactions in the market as well as on the basis of opinions of LATIO experts about the most credible price of a transaction. Increase of the range can be explained by the fact that the secondary market becomes more active as well due to new projects in the market. By moving to new housings: either apartments in new projects, or detached houses, buyers of new projects sell their apartments Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 11 of 48 in residential districts. In many cases, such apartments have been renovated recently, they are in good technical condition in good location that increase their value. In the first 6 months of 2005 and by comparing to 2004, the number of transactions in purchasing of apartments has dropped by approximately 10%. It can be explained with the fact that the purchasing stir, which could be observed in 2004 prior to the accession of Latvia to the European Union, does not exist anymore. Dynamics of apartment transactions in Riga number per month 1 800 1 600 1 400 1 200 1 000 800 600 400 200 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 0 Dynamics of apartment transactions in Riga semi-annum 10 000 9 000 8 005 8 000 7 000 7 552 7 944 8 739 6 445 5 000 4 000 3 000 2 000 1 000 0 06.2001 12.2001 06.2002 12.2002 06.2003 6 206 6 000 6 691 6 884 12.2003 06.2004 12.2004 Source: Land Book, and State Revenue Service Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 12 of 48 06.2005 7 181 Increase of the average price of standard type apartments (by comparing prices in June and January) District/ series 1-room Series 119 2-rooms 3-rooms 4-rooms 1-room Series 602 2-rooms 3-rooms 4-rooms 1-room Series 103 2-rooms 3-rooms 1-room Series 104 2-rooms 3-rooms “Lithuanian” proj. 1-room 2-rooms 3-rooms 1-room 2-rooms 3-rooms Purvciems 28% Ziepniek -kalns 14% Agenskalns - Imanta - Zolitude 23% Plavnieki 18% Mezciems - Jugla - Kengarags - Bolderaja - 22% 22% - - 31% 20% - - - - 34% 19% - - 23% 32% - - - - 29% 21% - - 27% 28% - - - - 26% 16% - 30% - 4% 24% - - - 30% 44% - 31% - 22% 41% - - - 15% 36% - 32% - 18% 36% - - - 13% 47% - 25% - 17% 17% - - - 15% - 31% - - 17% - - - 30% 41% - 20% - - 35% - - - 29% 40% - 6% - - 33% - - - 37% 16% 21% - 17% 16% 17% 26% - - - 23% 44% - 23% 23% 27% 46% - - - 17% 40% - 43% 39% 20% 21% - - - 23% 28% 19% 32% - - 22% - 17% 31% 23% 22% 17% 29% - - 35% - 29% 24% 32% 34% 23% 35% - - 24% - 30% 20% “Hruschov” type houses 20% 31% 23% - - - - 44% 19% - 31% 32% 44% - - - - 40% 37% - 21% 29% 33% - - - - 36% 46% - Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 13 of 48 Prices of standard type apartments in the residential areas of Riga in January, EUR Region/ series 1-room Series 119 2-rooms 3-rooms 4-rooms 1-room Series 602 2-rooms 3-rooms 4-rooms 1-room Series 103 2-rooms 3-rooms 1-room Series 104 2-rooms 3-rooms “Lithuanian” proj. 1-room 2-rooms 3-rooms 1-room 2-rooms 3-rooms Purvciems 29000 37000 40000 45000 46000 55000 48000 62000 22000 28000 30000 40000 38000 47000 42000 56000 23000 33000 34000 40000 40000 47000 29000 40000 35000 48000 45000 57000 22000 26000 30000 36000 38000 45000 21000 25000 28000 35000 32000 40000 Ziepniek -kalns 24000 23000 33000 40000 39000 46000 45000 52000 21000 28000 28000 37000 36000 42000 39000 50000 - Agenskalns - Imanta - Zolitude 29000 35000 37000 41000 42000 46000 50000 55000 - Plavnieki 28000 36000 36000 43000 42000 54000 49000 61000 21000 30000 31000 42000 38000 46000 40000 55000 23000 29000 33000 36000 38000 46000 27000 36000 35000 42000 42000 56000 - Mezciems - Jugla - Kengarags - Bolderaja - - - - - - - - - - - - - - 21000 26000 30000 34000 36000 42000 40000 50000 - 24000 25000 32000 40000 42000 45000 48000 55000 - - - - - - - - - - - - - - - - - - 22000 30000 29000 40000 35000 50000 - - - - 18000 19000 21000 23000 27000 27000 - - - - - - - - - - 24000 34000 32000 42000 36000 52000 18000 23000 27000 30000 32000 40000 18000 21000 25000 31000 29000 37000 24000 35000 33000 40000 38000 50000 21000 24000 28000 32000 32000 45000 - 25000 35000 37000 41000 42000 50000 - 29000 35000 36000 37000 44000 55000 20000 25000 30000 35000 36000 43000 - - - - - - - - - 20000 25000 27000 33000 33000 43000 19000 25000 26000 30000 31000 45000 - 18000 25000 26000 28000 32000 35000 20000 22000 24000 27000 28000 33000 16000 18000 21000 25000 25000 30000 - - - - - 24000 - - 21000 23000 27000 30000 30000 38000 “Hruschov” type houses - - - - - - - - - - - - Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 14 of 48 Prices of standard type apartments in the residential areas of Riga in June, EUR Region/ series 1-room Series 119 2-rooms 3-rooms 4-rooms 1-room Series 602 2-rooms 3-rooms 4-rooms 1-room Series 103 2-rooms 3-rooms 1-room Series 104 2-rooms 3-rooms “Lithuanian” proj. 1-room 2-rooms 3-rooms 1-room 2-rooms 3-rooms Purvciems 29000 56000 43000 68000 53000 90000 62000 95000 28000 42000 25000 58000 45000 75000 51000 88000 30000 45000 42500 65000 58000 78000 29000 56000 48000 68000 59000 88500 25000 38000 34000 58000 40000 69000 25000 35000 34000 52000 42000 63000 Ziepniek -kalns 29000 55000 35000 63000 45000 75000 52000 86000 23000 38000 34000 55000 40000 69000 50000 84000 - Agenskalns - Imanta - Zolitude 30000 54000 36000 70000 45000 79000 50000 90000 - Plavnieki 35000 56000 44000 65000 54000 85000 59000 94000 28000 41000 35000 58000 44000 75000 50000 85000 30000 45000 44000 63000 57000 76000 38000 54000 48000 64000 57000 84000 - Mezciems - Jugla - Kengarags - Bolderaja - - - - - - - - - - - - - - 23000 40000 31000 50000 35000 69000 46000 88000 - 28000 42000 35000 58000 43000 75000 49000 90000 - - - - - - - - - - - - - - - - - - 27000 42000 37000 60000 45000 80000 - - - - 21000 35000 30000 42000 37000 50000 - - - - - - - - - - 30000 48000 37000 63000 46000 75000 20000 32000 30000 45000 39000 53000 20000 36000 30000 43000 38000 52000 26000 48000 35000 58000 44000 70000 20000 42000 30000 55000 38000 65000 - 31000 47000 37000 59000 45000 73000 - 38000 50000 48000 65000 53000 85000 24000 38000 33000 56000 38000 67000 - - - - - - - - - 22000 35000 29000 50000 37000 55000 23000 33000 30000 47000 37000 55000 - 20000 33000 28000 48000 35000 54000 20000 32000 29000 43000 36000 55000 18000 30000 25000 37000 33000 45000 - - - - - - - 22000 35000 30000 46000 38000 50000 “Hruschov” type houses - - - - - - - - - - - - Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 15 of 48 NEW PROJECTS Active construction works for new multi-apartment houses are carried out in Riga at the moment, and the biggest share of such projects is situated in the central part of Riga, in Purvciems and Pardaugava. The number of newly constructed projects in the historical centre of Riga is not great: five projects. Capital renovation of the houses that have been built at the turn of the 19th and the 20th centuries is mostly carried out in the centre. Based on the number of the issued building permits and based on an assumption that, on average, a construction period is one year, about 3.5 thousand new apartments in newly built houses and 2.5 thousand apartments in renovated houses could enter the market in Riga and Riga region during 2005, which is approximately by 30% more than in the previous year. In spite of the fast growth in the supply of housings, the average residential space per capita is increasing quite slowly: comparing with the year 2003, it has increased in 2004 by one percent or 0,4 square meters only. At the moment, there are 24.3 m² of residential space per capita in Latvia while this rate in the most developed European countries is about 40 m² per capita. However, the considerable difference in the level of income in Latvia and in the developed countries must be taken into account, just the same as the fact that only a comparatively small share of inhabitants is able to purchase an apartment in Latvia. There is a high demand in land for construction of multi-storied apartments in the residential districts of Riga. Project developers are ready to pay up to 500 EUR/m² for a suitable land plot. Changes in the field of project development and construction have become distinct in 2005. Some time ago, a developer organized tenders and chose the most suitable constructor who even made the first installments in many cases for the right to construct a particular object. Now, constructors can choose a developer to work with and a project to construct. Thus construction of the new projects planned for this spring has not been started yet. It is expected that construction costs will continue to increase, and the requirements concerning the quality of ready objects are becoming higher too. Construction costs have increased on average by 3.9% in the 2nd quarter of this year comparing with the 1st quarter. It is the fastest rise of the costs in one quarter since the boosting increase in the 2nd quarter of 1999. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 16 of 48 CHANGES IN THE CONSTRUCTION COSTS compare d with the re s pe ctive pe riod of the pre vious ye ar, % 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Jan .98 -2.0 -4.0 -6.0 Jan .99 Jan .00 Jan .01 Jan .02 Jan .03 Jan .04 Jan .05 Source: Central Statistical Bureau Number of apartments granted construction permits either for construction or renovation, Riga region 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 new single-family detached houses apartments in the new houses renovated single-family detached houses apartments in renovated houses Demand for apartments in new projects is high, and the average price for apartments with white finish range from 1 500 to 3 000 EUR/m². To a great extent, apartments in the new projects as well as apartments in the centre or the Old Town of Riga have been purchased as investment objects. Such housings are bought out quickly however they enter the consumption market in comparatively small numbers. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 17 of 48 Total residential space launched in Latvia thsd. sqm 180 160 140 120 100 80 60 40 20 0 Mar-1996 Jun-1996 Sep-1996 Dec-1996 Mar-1997 Jun-1997 Sep-1997 Dec-1997 Mar-1998 Jun-1998 Sep-1998 Dec-1998 Mar-1999 Jun-1999 Sep-1999 Dec-1999 Mar-2000 Jun-2000 Sep-2000 Dec-2000 Mar-2001 Jun-2001 Sep-2001 Dec-2001 Mar-2002 Jun-2002 Sep-2002 Dec-2002 Mar-2003 Jun-2003 Sep-2003 Dec-2003 Mar-2004 Jun-2004 Sep-2004 Dec-2004 Mar-2005 Source: Central Statistical Bureau Biggest housing projects in Riga and Greater Riga, the construction of what has been started in the first six months of 2005 Number of dwellings (totally in the project) Number of dwellings (in the 1st stage) Sold in the 1st stage, % Characteristic price of space, EUR/m² 55 70 95 80 100 50 40 1292 778 1053 1096 1185 999 953 Name Address Panorama Plaza Podnieki Brīvības gatve 386 Duntes Ozoli Lauras Zolitūdes vārti Vienības nami Riga, Ventspils street 60/68 Adazi, Podnieki Riga, Brivibas gatve 386 Riga, Duntes street 28 Riga, Stirnu street 34 / Upenu street Riga, Anninmuizas street, Priedaines street Riga, Vienibas gatve 111 full partial full full full full partial 636 500 240 217 199 181 152 141 140 101 217 78 107 152 Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 18 of 48 Most typical space 100 72.55 63.9 56 72 67 64 Finish Jāņogu ielas ciemats (row houses) Ozolnieki (twin houses) Sēļi (detached houses, row houses, twin houses) Riga region, Darzini territory, near Daugava River Marupe partial partial 100 60 58 14 168.6 170 40 40 1252 754 Marupe full 43 43 194.2 20 1113 In order to maintain the price level upon starting the construction of a project, the project developers try to sell apartments of a lower rating, i.e. apartments on the ground floor, without a terrace, balcony, etc. However, by preparing a project for commissioning, better and more expensive apartments are offered for sale. Apartment prices increase according to a general trend of increase of apartment prices. Buyers’ interest in apartments in separate new housing projects in February was so high that, by taking into account the total market trends, project developers increased prices of the last offered apartments even by 30%. A part of apartments in new projects are usually purchased with a purpose to sell them more expensively later. However such investments do not pay off in planned amounts in all cases. Gradually, the new projects are sold out, and a part of the apartments enter the secondary market. The following main features determine fluctuations in a price of a square meter of apartments within the framework of one project: floor, view out of the window (incl. direction), existence of a terrace, a balcony, and their sizes. Depending on the number of floors in a building and exclusiveness of the view, an apartment on the ground floor and on the top floor or, for example, with a view to the Daugava river, and an apartment with a view to a yard and disordered environment can have even a double price difference. Of course, the most expensive are the apartments in the sunny side of the house, as well as with a view to a park, forest, water reservoir, etc. Apartments with balconies, terraces are always more expensive than apartments without them. In individual projects, project developers charge for a terrace one half of a price for a square meter in an apartment. In other projects, existence of a terrace is evaluated as an additional value of a housing and, depending on the size of a balcony, a terrace and the view from it, a price of such a dwelling increases (from few per cent of the value of the dwelling up to an undefined value). Clients have become better informed and fastidious, and a greater importance is given to the quality as well as to the previous experience of a project developer in construction works. In Latvia, those companies can be deemed as experienced project developers that have successfully implemented several projects of new housings. The following project developers in the segment of exclusive housings have gained confidence by their clients: Pro Kapital Ltd., Māris Gailis Ltd., R.Evolution Ltd., and in the segment of medium-level dwellings: Dzimtā Sēta Ltd., Saules Dzīve Ltd., Remarks Ltd. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 19 of 48 The most expensive multi-apartment projects of dwelling houses and detached houses in Riga and Greater Riga, offered in the market in the first half a year of 2005 Price, EUR/m² 1300 3000 2000 2200 4000 4700 2600 3400 3000 3500 Name Address Finish Project description Kuģu iela 26 Riga, Kugu street 26 full View to Daugava River and the Old Town of Riga House with unique architecture and interior, panorama windows, terraces, air conditioning system, underground parking place, and security for twenty-four hours. Fireplace can be built in some apartments. Height of ceiling: 3 m. Residential house in the Old Town, built in 1780. Tile stoves from the 18th century have been preserved in the residential house; height of ceiling is 3.9 m. This house project is located in the vicinity of the sand dunes. Apartments are with panorama windows, terraces, air condition system; it is possible to build fireplaces in all apartments. Underground parking place for 112 cars, 4 lifts, and security for twenty-four hours. Height of ceiling: 3 m. This building is situated in 200 m distance from the beach. Apartments are with panorama windows, terraces; it is possible to install an air conditioning system, to build fireplaces in the apartments of the top floors. There is an underground parking place for 48 cars in the house, as well as a lift for 10 persons, and security for twenty-four hours. Height of ceiling: 2.85 m. 120 Shokolad Riga, Hospitalu street full 22 Grēcinieku iela 28 Riga, Grecinieku street 28 partial 17 79,3 256,7 Jūras Pils Jurmala, Bulduru prospect 33 partial 41 Dzintara projekti Jurmala, Dzintaru prospect 64 partial 33 63,1 155,2 Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 20 of 48 Space from – to, m² 42 250 50 170 75 153 Number of dwellings Number of dwellings Space from – to, m² 10 90 189 48 235 370 Name Address Finish Project description This 10-apartment house is situated in a quiet area at the old valley of Gauja River. Exterior finishing of the house has been made according to a specially developed project reminding Swiss type houses. There is an underground parking place and small storehouse premises in the base floor. A fireplace has been built in each apartment. This village of detached houses and row houses is situated at Bozi water reservoir, at a pine forest It has been developed as a club type village: the houses have been designed according to the openhause conception. The houses have panorama windows with optical glass, terraces, an air condition system, and it is possible to build fireplaces there. Height of ceiling: from 3.00 to 4.00 metres. The territory is guarded; fountains and garden-houses have been planned. Laurenči 1 Sigulda, Laurenci 1 full Taureņi Riga region, Babite civil parish partial 1150 1800 A new trend started to appear this spring, i.e. a part of the apartments in the new projects are offered for rent. Apartments purchased by brokers are offered in the secondary market. Only a small part of apartments from the first offer become a direct property of an end user. Part of the buyers has purchased two apartments: one apartment for living and another one for renting with a purpose to gain profit. However, the demand for renting expensive apartments in residential districts, even in the new projects, is small, and high maintenance costs are characteristic to the new projects. Thus, it is impossible to let an apartment for a requested price, for example, LVL 550 (EUR 780) + public utilities, but it is possible to find tenants for EUR 500. Actually rents cover credit and interest payments but the cash flow does not give any profit. A great part of the buyers still prefers purchasing of apartments in the previously constructed standard type houses in dwelling houses rather than in the new projects. One of the main reasons is the price difference however it is not so manifest during the last months. It is riskier to purchase an apartment in the new housing projects due to several reasons. First, apartments in the new projects are offered for sales even before finishing construction of a house and, in some cases, when construction works have not been started yet, thus the result, i.e. quality of an apartment and the exact time of moving in are unknown. Besides, the offered price often differs from the actual transaction price. In order to book an apartment, a security installment is made. Due to the rapid growth of apartment prices in the market, a project developer quite often increases the initially set apartment prices upon the finishing of the project. If a client is not ready to pay more than the initial price, the project developer Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 21 of 48 Price, EUR/m² 1200 reimburses the paid security and penal interest because his profit is bigger by selling the same apartment to another client for a higher price. Second, one must take into account the high costs for maintenance of real estates. Monthly maintenance costs of the new dwellings in Riga City, on average, are as high as 0.30 to 0.40 LVL/m², in some cases 0.50 and even 0.90 to 1.10 LVL/m². Thus a buyer, in addition to a monthly credit repayment, pays another and almost the same amount for maintenance. Third, in many cases, a client becomes the owner of an apartment, but the land remains a property of the project developer, which is unsatisfactory for the client. APARTMENTS IN THE CENTRE Supply of apartments in the city centre remains high, and average apartment prices are from 1 500 to 3 000 EUR/m². Average price of apartments in the Old Town of Riga has reached 2 600 to 3 500 EUR/m² but a price of separate apartments is even higher. However transactions for amounts exceeding 4 000 EUR/m² are very rare in spite of the big supply. The most notable deal during the last 6 months in the segment of the apartments in the city centre could be deemed a purchase transaction when an exclusive apartment of approximately 350m² in a new house in the Old Town with a view to the Daugava river was purchased for 4 800 EUR/m². The expensive apartments in the Old Town for the average price of 4 000 to 4 500 EUR/m² are not in demand lately. Selling prices are still stable however the interest of buyers has considerably decreased even if the supply has been sufficient. A trend has been marked that non-residents offer in the market their previously purchased apartments in the near centre. Partially it is related to the expiry of employment contracts when they wish to sell their apartments because of leaving Latvia. Furthermore, those sellers are of the opinion that prices will not climb so fast anymore and that they have gained a sufficient profit during a couple of years, i.e., have gained some 80% of net profit. In general, sellers of the apartments in the centre and the Old Town can be divided into two categories. The first category has acquired apartments in the Old Town and in the centre previously as profitable investment projects and they are of an opinion this year, that the right moment has come to sell their apartments for advantageous prices. If some time ago, apartments purchased in the exclusive centre with a purpose to re-sell them were launched in the second sale not earlier than one year from purchase, then apartments that have been purchased relatively recently – at the end of 2004, are offered for sale this spring. The second category is tenants of apartments who, by taking into account the specifics of the renting business and by comparing revenues from letting of apartments, i.e. on average 11 EUR/m² monthly for long-term renting of a quality, furnished apartment in the Old Town or in the quiet centre, with the current apartment selling prices, conclude that sale at the present moment is the most profitable. In such cases, a capitalization rate is only 3 – 4%. To a wider extent, apartment renting prices in the centre of Riga City are 5 - 6 EUR/m² on average but in the near centre: 9 EUR/m². Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 22 of 48 A trend was marked in the segment of apartments in the centre during the month of June that, due to the low profitability rates and the unchanging renting prices as well as keeping the rent ‘ceiling’, the house owners want to sell their house property, including inherited estates. Owners carefully assess their own estates and, if a yield does not correspond with the planned yield, the estate is offered in the market. It is difficult to track the changes in real owners of a house property since the ownership right in many cases is registered on behalf of specially established companies. As a result, company shares are sold formally rather than a particular property. DETACHED HOUSES The market of detached houses became more active at the end of the comparatively quiet winter period. Stable demand for small detached houses near Riga is witnessed: in Babite, Garkalne, Jaunolaine. Mostly, detached houses are purchased either as much suited as possible for the specific needs for living or because of the location of such a house. The most typical purchased detached houses are approximately 200 – 250 m², in good condition with full interior finish for 1 000 EUR/m² on average. A house must be functional with maximum useful space, in a tidy territory. The biggest demand is for detached houses in Marupe, Bergi, Langstini, Titurga. For the time being, houses in Ulbroka, Ikskile, and Ogre have the lowest rating. There is practically no supply in the places with the highest rating. However the most demanded houses are the so-called “budget” detached houses for EUR 150 000 but the supply of newly built houses is limited. High demand in previously constructed detached houses with adjacent land plots is witnessed in Riga, in areas of detached houses. Since the area of residential development land within the borders of Riga has become smaller and is expensive, customers buy old houses with a purpose to rebuild them. Area of the most demand houses: from 60 to 100 m², land area – approximately 600 m², price up to LVL 90 000 (approximately EUR 130 000). Buyers have become more demanding regarding the quality of houses, however the so-called “slow-moving” houses were bought out during this spring and in the beginning of summer. Since the price of land increases as well as construction costs grow due to the rise in prices of construction materials and salaries of construction workers, there is a trend of increased prices of detached houses. According to the data of the Central Statistical Bureau of the 2nd quarter of this year, construction costs in the field of building of detached houses have climbed by 2.8%. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 23 of 48 Number of transactions with detached houses in Riga number per month 350 300 250 200 150 100 50 0 Number of purchasing transactions with detached houses in Riga has remained at about the level as of the previous year. Similar situation prevails in Riga region parishes. semi-annum 1 600 1 505 1 400 1 200 1 000 800 600 400 200 0 06.2001 12.2001 06.2002 12.2002 06.2003 12.2003 06.2004 12.2004 06.2005 918 963 1 113 1 320 1 337 1 494 1 380 Source: Land Book Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 24 of 48 1 368 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Number of transactions with detached houses in Riga Number of transactions with detached houses in Riga region parishes number per month 120 100 80 60 40 20 0 The above charts include the following Riga region parishes: Allazi, Adazi, Babite, Carnikava, Daugmale, Garkalne, Incukalns, Krimulda, Kekava, Malpils, Marupe, Olaine, Ropazi, Sala, Seja, Sigulda, Stopini. Number of transactions with detached houses in Riga region parishes semi-annum 700 600 500 400 606 602 496 481 537 377 300 200 100 0 06.2001 350 12.2001 06.2002 362 12.2002 06.2003 12.2003 06.2004 12.2004 Source: Land Book Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 25 of 48 06.2005 481 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 RESIDENTIAL DEVELOPMENT LAND Seasonality is characteristic to this market segment the same as to the market of detached houses when a peak in transactions is witnessed from the beginning of spring till the Midsummer Day. The price range for residential development land is very broad depending on the location of a land plot, infrastructure and communications supply in a particular place. For instance, the price range of land in Garkalne parish is from 15 to 73 EUR/m². Maximum price in Marupe parish has already reached 70 EUR/m², but in Saulkrasti and Carnikava 45 EUR/m². At the same time, it is possible to buy land in parcelled meadows in Kekava and Stopini parishes also for 10 EUR/m², but the cheapest land for residential development in Adazi costs 18 EUR/m². Development can be observed in the area of Bullusala and Kleisti. Extensive building is not planned on the left bank of Bullupe River and in Bullusala in general where there are Vakarbulli and Daugavgriva natural protected areas with very strict rules of use, as well as Piejura natural park. In June, a land plot practically without any communications and without an access road was purchased in Bullusala for 36 EUR/m². Total transaction amount: EUR 135 000. Land on the banks of Bullupe River is twice as cheap as in Vecaki and five times cheaper than in Jurmala in spite of the fact that it is near Riga City or by the sea. Parceled and sold (registered with the Land book register) residential development land plots in Riga region parishes number per month 220 200 180 160 140 120 100 80 60 40 20 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 0 Source: Land Book Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 26 of 48 semi-annum 900 800 700 600 500 Parceled and sold (registered with the Land book register) residential development land plots in Riga region parishes 836 548 424 300 0 06.2001 12.2001 06.2002 12.2002 138 100 172 207 200 255 06.2003 12.2003 06.2004 12.2004 Source: Land Book During the first six months of 2005, the biggest area of land has been parceled in Kekava and Marupe parishes. About 150 land plots for residential development have been purchased in Olaine during the last six months. Residential development land plots in Marupe, Pinki, Langstini, Darzini, Bergi have been bought out for 30 EUR/m² quite quickly while land for 40 – 50 EUR/m² is purchased with lower activity. Number of transactions in parceled land for residential development during the first six months of 2005, comparing with the respective period of the previous year, has decreased by approximately 25% and is at the level of 2003. It can be explained by the fact that the second half of the year 2003 and the first half of the year 2004 to a certain extent were a period of stir before the accession to the European Union, and land was purchased as an investment object. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 27 of 48 06.2005 420 400 463 Land prices in Greater Riga parishes Garkalne parish Marupe parish Saulkrasti Adazhi parish Carnikava parish Balozhi Babite parish Sigulda Ikshkile rural ter. Stopini parish Kekava parish Salaspils Olaine parish Olaine Inchukalns parish Daugmale parish Salas parish Vangazhi Ropazhi parish Baldone Krimulda parish Malpils parish Saulkrasti rural ter. Salaspils rural ter. Sigulda parish Allazhi parish Sejas parish S al as pari sh Van gaz h i Ropaz h i pari sh B al don e Kri m u l da pari sh Mal pi l s pari sh S au l k rasti ru ral te r. S al aspi l s ru ral te r. S i gu l da pari sh Al l az h i pari sh S e jas pari sh 0 1 2 3 4 5 6 7 8 9 10 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 EUR / s qm the most typical maximum minimum Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 28 of 48 JURMALA In 2004, the number of purchase transactions with detached houses in Jurmala returned to the previous level after the rapid growth. Comparing with the year 2003, decrease by 20% was witnessed. Total transaction number in the first six months of 2005 decreased even more. Number of transactions with detached houses in Jurmala number per month 80 70 60 50 40 30 20 10 0 semi-annum 450 400 350 300 370 331 424 318 255 200 150 100 50 0 06.2001 12.2001 06.2002 239 12.2002 06.2003 12.2003 06.2004 12.2004 Source: Land Book Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 29 of 48 06.2005 260 250 283 309 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Number of transactions with detached houses in Jurmala There are various detached houses offered in Jurmala: for EUR 100 000 as well as for 1 million EUR. Houses are demanded and have been bought however, if a detached house in this side of the railway by the sea is bought within a few days, then a house across the railway in Asari, Vaivari stays in offer in the market for more than half a year. A house built during the 90ties and of space of 250 m², on a land plot of 2 500 square meters in Bulduri, Rotas street was bought within 2 weeks for a price exceeding the asking price by LVL 150 000 (EUR 200 000), i.e. for LVL 850 000 (EUR 1 200 000). Besides the said house needs renovation. Residents of Latvia buy their real estates with careful consideration however the main aspect for newcomers is to like a house, and a price is not important. Detached houses of about 200 m², without interior finish are under construction in Asari, Vaivari across the railway and are offered for sale for LVL 150 000 to 200 000 (EUR 200 000 to 280 000), with land area of 800 to 1 200 m² on average. However it is not so profitable anymore to build exclusive detached houses with a purpose to sell them, since the price of land in the prime cost of an apartment square meter has reached a considerable proportion, and construction costs are increasing as well. The biggest supply of standard type apartments in Jurmala area is in Kauguri. Market activities are steady during the whole year, and prices are constantly increasing. Especially demanded are one-room and two-room apartments, the average price of what in Kauguri is approximately 500 – 550 EUR/m². It should be noted that the highest rise in prices of standard type apartments in June was observed exactly in Kauguri, which is becoming even more demanded residential district recently. Price of a non-renovated apartment in Bulduri and Lielupe, where there is a deficit of apartments, has reached 1 200 EUR/m². Medium-size apartments, i.e. space of 60 m², are less demanded but there is a high interest in 100 m² apartments that are offered in new dwelling projects, as well as in small apartments. Active construction works of new multi-apartment houses are carried out in Jurmala. New projects are developed in Kauguri, two four-floor new housing projects are under construction in the exclusive Bulduri prospect, one house is under construction in each location of Dzintari prospect and in Melluzi, as well as a row house in Asari. Demand in land for construction of multi-apartment houses in Jurmala is high. Starting of construction works for several new projects more is planned this year, and the number of such projects together with the current ones exceeds ten already. Average price of an apartment with the white finish in a new multi-apartment house in Jurmala is from 1 200 to 3 500 EUR/m². Price of the apartments is determined by a location of a dwelling where the decisive factor shall be: location by the sea, in the direction away from the railway, as well as exclusivity of a project. To a certain extent, a price of the apartments in Jurmala is determined by the cost of land. Since the housing market in Jurmala is more or less oriented to wealthy non-residents, the new projects are rather exclusive: provided with air treatment and conditioning devices, terraces, underground parking lots, places intended for the installation of fireplaces etc. It should be taken into account that fewstoried residential development of about 2 to 3-floor houses is permitted in Jurmala recreation residential and business territory. The biggest number of floors, i.e. eight floors is in hotels and recreation houses that have been built during the Soviet times. The new projects that have been implemented until now are nearby the sea and also in about 10 minutes’ walking distance from railway stations. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 30 of 48 One of the topical issues in the real estate market of this summer is the decision made by the extraordinary meeting of Jurmala City Council to harmonize the market correction coefficients applicable for the calculation of the cadastral value of houses and that have been elaborated by the Greater Riga Regional Division of the State Land Service (VZD), for the next year. At the moment, the annual real estate tax rate is 1.5% of cadastral value of land and the balance of houses or their inventory value. But it has been envisaged to fix a cadastral value for houses as well until 2007, and the tax will be calculated from this value. Value coefficients from 0.6 to 1.7 have been stated for 85 zones, according to 30 various types of houses and 8 purposes of utilization of real estate (land), that have been determined in the city Development Plan and have been calculated on the basis of the market prices of 2003 and 2004. It has been planned to use the said coefficients in the next year in order to state the cadastral value of houses, following to which a size of the state duty for transactions with real estates will be calculated. It should be taken into account that the State Land Service uses old data of the official transactions for calculation of the base values, and thus the calculated cadastral values could be at least twice as low as market prices of the estates. It will be taken into account in the calculation formulae, whether an object of valuation is a winter or a summer house, its physical depreciation, and other aspects. The increasing property tax will have the biggest influence on the low-income group of the residents of Jurmala who, possibly, will be forced to consider a possibility to sell their estates in Jurmala. It will also concern the real estate dealers who are awaiting a price rise with an intention to gain profit. Residents of Kemeri, Kauguri will have to pay a smaller tax than the residents of Lielupe. Positive aspect of increasing the taxes could be launching of some wreck houses, that are situated on expensive land in the zone of sand dunes, in the market and putting of the same into order after the change of owners. In case, if sizes of a real estate tax would increase considerably, an increase in the market supply can be expected within the next couple of years. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 31 of 48 COMMERCIAL SPACE MARKET OFFICE SPACE Market practice Term of lease Payment conditions Public utilities First installment Review of a lease payment Repairs Payment for services of a real estate agent Premises of common use VAT Registration of contracts 1 to 3 years Monthly payment in lats according to an invoice issued in lats or in euros Water, electricity according to consumption, other costs proportionally to a leased space In an amount of 2 monthly lease payments Once in two years To be paid by the owner To the amount of 1 month lease payment to be paid by the owner Usually, a payment for staircase and entrance area is not included in a lease payment 18% In most cases, contracts are not registered in the Land Book The situation in the office space market has been without any considerable changes during the first six months of this year: there are still only two Class A or the most advanced and the best city offices in Riga that comply with the criteria of Class A buildings approved world-wide: Valdemāra centrs, and the central office building of JSC Hansabanka Saules akmens. Both buildings cannot satisfy the requirements of clients for quality office premises in the city centre. The main reasons: great restrictions for free client flow, inflexible market policy. There are approximately 15% vacant premises that have not been leased during a long term in the central office building of JSC Hansabanka, and the premises are on the 15th, the 16th and the 17th floors of the building. Market of Class A offices is conservative: stable prices, vacancy rate remains unchanged for several months – about 16%. Fluctuations of the values in the charts do not show the market fluctuations, rather the change in classification. There is a high demand for office premises, and as a result, take-up of Class B and C office premises increases. Experts of LATIO Ltd. have analyzed office buildings in Riga and established their class gradation, total space, lease areas and respective payments. Therefore, the target group in all the charts of office premises and, consequently, the obtained indicators have changed. Class A B Total space, m² 31,330 219,436 Lease area, m² 26,130 170,110 Vacancy rate 16.5 % 11.5 % Average lease payment 19.8 EUR/m² 10.5 EUR/m² Prime rent 22 EUR/m² 20 EUR/m² Capitalization rate, % 6-7 8 - 10 Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 32 of 48 A and B class office buildings in Riga Total area of building, m² 23000 8330 11200 10597 7000 6860 8000 8000 10000 16000 7400 4800 4757 4000 3988 6300 4370 4300 4400 3604 3000 2800 2720 3600 3016 2755 2700 4655 3000 2500 3000 2400 2320 2200 3000 3500 2450 2978 3000 2458 3530 2000 Lease area, m² 19000 7130 10800 8592 7000 6860 6000 5600 5500 5400 5000 4800 4257 4000 3742 3700 3690 3550 3200 3126 3000 2800 2720 2700 2680 2555 2530 2500 2500 2500 2500 2400 2290 2200 2160 2150 2100 2000 2000 1769 1752 1600 Name Central office of Hansabanka Valdemāra centrs Valdo office complex RD centrs SWH Kronvalda bulvāris Office building Daugava Jēkaba kazarmas Office building World Trade Centre Office building Remarks centrs Office building Helio centrs Mūkusala business centre Centre Mūkusala Felix Business Centre Dominante Valters un Rapa office building Office building MID Baltic SWH Domina biroji Office building Office building Citadele Ziemeļu vārti Basteja pasāža Office building Teikas nami Office building Office building Office building Office building Office building Ģertrūdes centrs Ģertrūdes centrs Rudzīša nams Biznesa centrs B39 Tērbatas centrs RD centrs RD centrs Office building Address Balasta dambis 1a Kr. Valdemara street Bauskas street 58a Maskavas street 240 Skanstes street 13/2 Kronvalda bulv. 3 Ganibu dambis 24a Torna street 4 Jeruzalemes street 1 Elizabetes street 2 Brivibas street 137 Zemitana street 2b Kalku street 15 Riga Airport Mukusalas street 41 Biekensalas street 6 J. Alunana street 2 Dzirnavu street 57 Aspazijas bulv. 24 Mukusalas street 41 Mednieku street 4 Skanstes street 13 Ieriku street 3 Pils street 23 Smilsu street 8 Citadeles street 12 Brivibas street 149 Basteja bulv. 16 Brivibas gatve 221/223 Terezes street 5 Kr.Valdemara street Balasta dambis 80a Antonijas street 8 Palasta street 7 Gertrudes street 10/12 Baznicas street 20/22 Elizabetes street 65 Brivibas street 39 Terbatas street 30 Krasta street 105 Krasta street 105a Aspazijas bulv. 28 Class A A B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 33 of 48 Name Kamarina nams Office building Office building Kalnciema office centre Office building Office building Atgāzenes muižas parks Office building Baltijas Apdrošināšanas Nams Office building Office building Office building Latina Office building Skonto Office building Office building Office building Office building Office building Office building Office building Office building Office building Office building Office building Office building Office building Address Kungu street 1 Meza street 4 Brivibas street 47 Kalnciema street 88a/3 Merkela street 1 Pernavas street 43 Vienibas gatve 87 Antonijas street 23 Palasta street 10 K.Ulmana gatve 2a Kurzemes prospect 23 Starku street 9 Elizabetes street 75 Vecpilsetas street 19 Smilsu street 18 Pernavas street 2 Skunu street 19 Tirgonu street 8 Teatra street 3 Citadeles street 7 Apes street 3a Brivibas gatve 222 Audeju street 2 Dzirnavu street 41 Maza Pils street 5 Bikernieku street 18 Total area of building, m² 2400 2000 3371 1467 2400 1600 1335 1300 1500 1240 1000 1000 1230 1100 1030 1000 1000 720 760 540 390 380 540 540 275 160 Lease area, m² 1600 1600 1560 1467 1460 1350 1335 1300 1300 1240 1000 1000 900 900 825 750 720 600 570 540 390 380 360 360 220 160 Class B B B B B B B B B B B B B B B B B B B B B B B B B B After the accession of Latvia to the EU, new institutions are established, state institutions are expanded, and the old as well as the new lessees have even higher requirements regarding the quality of the premises leased. The main demand drivers: state establishments, international institutions, commercial companies and, just like in many other European countries, IT companies. State institutions are expanding, work processes are optimized thus quite large office spaces are searched for either for acquisition, or for lease. Institutions need premises within the range of 400 – 6 000 m². Most often, state institutions lease Class B office premises for 9 EUR/m² on average. The demand exceeds the supply, and due to the decreasing vacancy rate of Class B office premises, there is a trend of rising the office lease prices witnessed in some cases reaching the lease level of Class A office premises: about 20 EUR/m². Supply of such premises is not big. The highest office space lease prices in Riga are in Felix Business Centre where the asking lease for quality, furnished, fully equipped premises is from 20 to 25 EUR/m². Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 34 of 48 Average office space rent Price (USD) EUR/sqm per month 25 20 15 10 5 0 2003.Jan 2003.Jul 2004.Jan Class A (US D) Class A (EUR) 2004.Jul Class B (US D) Class B (EUR) 2005.Jan 2005.Jul 2006.Jan Class C (US D) Class C (EUR) Office space vacancy rate vacant space/total space, % 30% 25% 20% 15% 10% 5% 0% 2003.Jan 2003.Jul 2004.Jan 2004.Jul 2005.Jan 2005.Jul 2006.Jan Class A Class B For comparison we would like to refer to the highest lease payments for Class A office space in some of the biggest European cities. It should be admitted that office space lease in most of the markets of the European countries have stabilized during the last year, and a considerable rise in prices is not expected. Concerning the group of the cities included in the report, Class A office space lease payments have increased in Paris, Frankfurt, Warsaw, but have decreased in Dublin, Hague and in London business centre City during the last six months. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 35 of 48 Class A prime office rents in European cities, EUR/m per month Rotterdam Utrecht The Hague Budapes t Hamburg Wars aw Prague Riga, class B Dus seldorf Berlin Riga, class A Barcelona Brus sels Madrid Ams terdam Rome Stockholm Frankfurt Milan Dublin Moscow Paris London City London Wes t End 0 10 20 30 40 50 60 70 80 90 100 2 Source: King Sturge, Jones Lang LaSalle, Latio During the last six months, an increased demand is witnessed for office premises in office buildings that are built-to-suit or reconstructed for administrative needs and are managed professionally. Lessees are interested in the flexibility of leased spaces, i.e. an opportunity to change the office space according to a need without changing a legal address of a company. For the time being, such a possibility is offered by Valdemāra centrs, Valdo centrs. Investors have responded to the rapidly growing demand for quality office space. In 2005, the market of Class B offices will be increased by approximately one third: 14 new office buildings with total space of 84 740 m² will be commissioned. Lease contracts for 74% of the new premises have been concluded already until July. Lessees will start their work in the new premises from July till December depending on commissioning of the building, the lease payments are from 9 to 15 EUR/m². One of the reasons, why the new office centres belong to Class B is their location. The other reason is that the most of them are mixed type buildings where the first two floors are leased out as two-level retail space that does not correspond with Class A standards. The new office buildings are either owner occupied, or built for lease. Part of the unnecessary premises also in the owner occupied office buildings are leased, at least initially, to other companies for 13 EUR/m² on average. In such cases, the lessor must take into account that the newly launched office buildings must be properly managed. Since professional property managers are not invited, usually because of the costs, the firms establish their subsidiary companies, but lease of the vacant space in such buildings is usually delayed because the new companies need some time to start their activities and acquire the specifics of this business. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 36 of 48 It should be noted that in case no new office buildings would have entered the market, lease for quality Class B offices located in the centre would have increased even more. New Class B office buildings planned for 2005 Name Barons kvartāls Ziemeļu vārti, the 2nd stage Marine biznesa centrs Astras biroji Mūkusalas biznesa centrs, the 2nd stage Baltais vējš, the 2nd stage Address Cesu street 31 Brivibas gatve 151 Duntes street 17a Astras street Mukusalas street 41b K.Ulmana gatve 119 Commissioning 2005 October 2005 November 2005 November 2005 June 2005 August 2005 December 2005 2005 June 2005 September 2005 December 2005 August 2005 2005 2005. gads Totally: Total area, m² 30 000 m² 10 000 m² 7 200 m² 6 700 m² 4 900 m² 4 400 m² 6 090 m² 2 700 m² 2 700 m² 2 600 m² 2 400 m² 2 100 m² 1 900 m² 1 050 m² 84 740 m² Leased 0% 0% 75 % 50 % 95 % 40 % 80 % 0% 25 % 20 % 20 % 35 % 0% 40 % 74.1% Tērbatas biznesa centrs Lacplesa street 20a Office building Office building Ravus Office building Office building AFC business centre Office building Gertrudes street 39 Sadovnikova street 39 Pakalninu street 4 Valnu street 3 Tvaika street 64 Ieriku street 15 Brivibas street 43 A trend is witnessed lately that lessees leave either buildings owned by the state, for example, Riga television tower in Zakusala, the offices leased in the building of the Ministry of Agriculture, or private estates, for example, Preses nams, because they are not satisfied with the quality of the said buildings. Those buildings are not managed properly, their condition is worsening. Thus several Class B office buildings gradually become Class C buildings. But lessees do not wish to lose the quality of their offices and prefer searching for new lease premises instead. Number of transactions in the market of Class C offices increases as well. The highest demand is for spaces of 100 to 400 m² for 4 to 7 EUR/m². In the beginning of the spring/summer season, the biggest demand in Class C premises is formed by hostels or cheap Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 37 of 48 hotel chains looking for 300 m² or larger premises in facade buildings only and exclusively in the near centre for accommodation of tourists; besides they are ready to pay 10 EUR/m² or more for premises that correspond with their requirements, even on the top floors without a lift. RETAIL SPACE Market practice Term of lease Payment conditions First instalment Review of a lease payment Repairs Increasing of a lease payment Payment for services of a real estate agent Premises of common use VAT 2 to 5 years Monthly payment in lats To the amount of 2 monthly lease payments Once in two years Usually repair is made by a lessee, by receiving a discount of a lease payment Reviewed once in two year In an amount of 1 monthly lease payment Usually, not included in a lease payment 18% Market of retail space is one of the most stable segments of the real property: the price level is constant since the beginning of 2005. Besides, new notable retail spaces have not been launched in the market of Riga and Greater Riga during the last six months. Retail sales amounts continue to increase in Latvia. Thus, the demand for good retail spaces is stable and high, however the relevant supply is low. Constantly high demand is witnessed for lease premises in the shopping streets popular with pedestrians: Terbata and Kr.Barona streets where the monthly lease of retail space up to 50m² is 25 to 35 EUR/m², but the lease for premises from 50 to 150 m² is from 18 to 55 EUR/m². It is difficult to lease larger retail premises, for example, 800 m². Demand for such premises is small, and the average lease is from 15 to 25 EUR/m². The low demand is cost related: only few, well-known brands or the so-called “special purchaser” can afford leasing of large and, consequently, expensive retail spaces. A new trend has been marked: interest by lessees in cheaper retail space on the first floors of buildings in streets with an active pedestrian flow. Since the premises on the ground floor are too expensive for many small clothing shops, the said lessees are looking for premises on the first floors of facade buildings for 10 EUR/m². At the same time, small retail premises of 20 to 30 square meters become vacant in places without pedestrian flow, for example, in Briviba street starting from Tallina street. The average lease payments in shopping centres are from 30 to 40 EUR/m². Besides, shopping centres are unwilling to lease their premises to offices, i.e. to banks, insurance companies etc. since such lessees do not create flow of new customers, but use the existing one instead. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 38 of 48 Lease payment for retail space in shopping centres is formed as follows: payment for the leased space (on average, 20 EUR/m²) + payment for marketing services (on average, 4EUR/m²) + payment for premises of common use proportionally to the space of the leased retail area (on average, to the amount of 10%) + payment for public utilities either for retail space, or for premises of common use, proportionally to the space, + 3 to 6 % of annual trade turnover + VAT. Largest retail spaces in Riga Name Alfa Domina Shopping Celtniecības pasaule Mols Origo Olympia SPICE mc2 Maxima Imanta Centrs Maxima Deglava Maxima Saharova Barona centrs TOTAL: Address Brivibas gatve 372 Ieriku street 3 Mukusalas street 47 Krasta street 46 Stacijas laukums 2 Azenes street 5 Lielirbes street 29 Krasta street 68a Slokas street 115 Audeju street 16 A.Deglava street 67 Saharova street 20a Kr.Barona street 46 Total space of building, m² 70,000 67,500 65,000 33,000 35,000 23,000 24,000 13,300 13,000 10,200 9,000 9,000 7,531 379,531 Lease area, m² 48,900 44,000 32,500 29,400 25,200 20,887 17,760 9,709 9,500 9,000 7,200 4,500 4,100 262,656 2001 Year of construction 2001 2003 1993 1998 2003 2002 2001 2002 2003 1936 This market is gradually stabilizing and, due to the increasing competitiveness, shops that are not accordingly located become non-competitive. Several grocery supermarkets have closed during the last years in Krasta street where it is possible to come by car only: Citymarket, Krasta centrs, and in May this year Mego Mix. Grocery supermarkets in the said area of the city are not profitable but shops of automotive goods and trade centres do not complain about the lack of customers. Shops of Rimi chain are reducing their retail space to 5,000 m² instead of the previous standard of 15,000 square meters, by leasing the not needed space to other lessees. However, several small shop chains, for example, Dona Jimena vacate their previous retail areas in the city centre and are showing interest in the lease of space in supermarkets. Until now, shopping centres were built for owner occupancy and, partially, for lease. A trend is witnessed lately that more and more investors wish to re-purchase the already existing and successfully functioning shopping centres, for example, Olimpija. During the first 6 months of 2005, one of the most important demand drivers are the so-called low price shop chains that are mostly interested in shop premises in dwelling areas near multiData publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 39 of 48 apartment houses either in Riga or in other Latvian cities. Prices in residential districts are increasing according to the growing demand. Part of the companies – demand drivers are foreign companies, i.e., from Lithuania (IKI), Germany (Lidl), retail chains. Moreover, interest in purchasing suitable objects has appeared in this segment as well. Average retail space rent (in streets with active pedestrian flow, space up to 100 sqm) Price (USD) EUR/sqm per month 45 40 35 30 25 20 15 10 5 0 2003.Jan 2003.Jul 2004.Jan 2004.Jul 2005.Jan 2005.Jul 2006.Jan O ld Town (US D) O utside the centre (resid.distr.) (US D) O ld Town (EUR) O utside the centre (resid.distr.) (EUR) City centre (US D) Retail centres (US D) City centre (EUR) Retail centres (EUR) A stable trend has been marked after the accession to the EU that, in accordance with EU requirements, pharmacies as well as several other retailers of other groups of goods require premises with two entries and an access for persons with special needs in wheelchairs. From the beginning of the spring/summer season, the demand for cafe and restaurant lease premises in the centre of Riga and in the Old Town has become more active. Usually, separate premises are not sold in such exclusive places, but the whole house property is offered. In case separate premises are offered for sale, that happens very rarely, the price is high. For example, premises in Gertrudes street cost 2 800 EUR/m² a year ago, 3 500 EUR/m² in March this year, and approximately 4 000 EUR/m² in June. Lease payment for retail space remains at the previous level, the selling prices increases, i.e. capitalization rates decrease. The biggest demand is witnessed for small premises of 60 to 70 m² that are leased within a few days only, provided the asking lease has not been stated inadequately high. One of the main preconditions for successful retail activity of any type are parking possibilities for both - goods transportation vehicles and customers. Besides, customer requirements become higher also in this segment thus the future perspective will be better for multi-functional shopping and leisure centres that will offer not only wide possibilities of shopping, children play rooms, cafes, but also various entertainment: bowling, cinema, iceskating, etc. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 40 of 48 INDUSTRIAL SPACE Market practice 3 to 5 years Monthly payment in lats To the amount of 2 monthly lease payments Review of a lease payment Once in two years Repairs Paid by an owner Increasing of a lease payment Reviewed once in two years Payment for services of a real estate agent In an amount of 1 monthly lease payment Premises of common use Usually, is not included in a lease payment VAT 18% The market of industrial space in Latvia on the whole is not big, therefore no radical changes are witnessed there. The main characteristics of the industrial space market is the long-term stable demand for medium-size, i.e. 400 to 2 000 m² warehouses of Class B. There any many vacant premises on the top floors of warehouses that do not satisfy requirements of potential lessees. There is almost no supply of ready premises, however clients do not wish to conclude contracts on non yet constructed space. Supply of modern warehouses and industrial objects is very low. Industrial parks where clients could lease either office, warehouse and manufacturing premises, receive full range of services are not well developed. Currently there are the following industrial parks in Latvia: 9 in Riga, 1 in Ogre, 1 in Olaine, 1 in Jelgava, 1 in Valmiera, 2 in Ventspils, 3 in Liepaja, 1 in Madona, and 2 in Daugavpils. Term of lease Payment conditions First installment Industrial parks in Riga and the Greater Riga, general information Name and location Vega Riga Nordic Technology Park Riga Korporācija Magnāts Riga, Daugavgrivas 83/89 Korporācija Magnāts Riga, Meldru 3 Rīgas industriālais parks Riga Granīta ielas industriālais parks, Riga Nordic Industrial Park Olaine BIWC Olaine SIVA Ogre Totally: Land area, ha 9 ha 7,5 ha 10 ha 10 ha 20 ha 13,5 ha 14 ha 17 ha 3.1 ha 104,1 Nr. of buildings 6 6 9 8 6 3 16 16 8 78 Total space of build-s, m² 50 000 44 000 40 000 30 000 12 000 9 567 80 000 35 532 7 397 308 496 Total vacant space, m² 12 500 6 400 18 700 6 100 0 1 000 22 000 35 532 1 563 103 795 Office lease prices, EUR/m² 10,00 8 to 10 6.40 4.30 8 to 9.5 6.00 7 to 9 6,00 5,80 7,12 Industrial space lease prices, EUR/m² 2,20 2,00 to 3,00 1,70 to 3,60 1,40 to 2,80 6,00 to 7,00 5,70 1,50 to 3,00 1,00 to 3,00 1,90 to 2,40 3,12 Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 41 of 48 Industrial parks in Riga and Greater Riga, office and industrial space Name and location Vega Riga Nordic Technology Park Riga Korporācija Magnāts Riga, Daugavgrīvas 83/89 Korporācija Magnāts Riga, Meldru 3 Rīgas industriālais parks Riga Granīta ielas industriālais parks, Riga Nordic Industrial Park Olaine BIWC Olaine SIVA Ogre Totally: Total office space, m² 2 000 9 000 1 000 300 6 000 2 394 5 000 592 1 003 27 289 Total industrial space, m² 30 000 36 000 35 000 15 000 6 000 7 173 75 000 34 940 6 394 245 507 Vacant office space, m² 500 6 400 200 100 0 1 000 2 000 592 227 11 019 Vacant industrial space, m² 12 000 0 18 500 6 000 0 0 20 000 34 940 1 336 92 776 Capitalization rate of industrial objects is high: 13 to 16 %, and reaches 24 % in some cases. Mostly, quality of the supply of industrial parks is not high, lease areas are not repaired, and infrastructure is not developed in many places. As a result, average lease prices are approximately 3,12 EUR/m², but the total vacant space is 103 795 m², constituting almost a half of all the total space of the industrial and office lease space total. Vacancy is mainly in the industrial space outside Riga as well as on the top floors. There is a high demand for quality space. Development of the industrial space market is determined by the following factors: production capacities start to increase gradually and, by changing the formulae of stating a cadastral value, real estate tax increases; after accession to the EU requirements for the quality of premises have become higher, more and more international companies enter the market. As a result, two main trends have stabilized in the market of industrial space: construction of new logistics centres and moving of industrial objects outside the city centre. In reply to the increasing demand, it has been planned to built the 1st stage of a new logistics centre in Salaspils in 2006. Meanwhile one lease contract has been concluded for about 2 000m². Monthly lease price has been stated to the amount of 7 EUR/m² + public utilities + VAT. Total territory of the said logistics centre will be 62 734 m², and it is planned to build two hangars of 12 380 m² and 11 190 m² there, space of the inner yard has been planned 15 000 m², parking lot has been planned for 78 cars. Minimum lease space for a potential lessee: 1 000 m². Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 42 of 48 Several warehouse complexes with offices for own needs are under construction near Riga City. Such complexes are mostly constructed by firms for their own needs, the offices of what are situated in one place but warehouses are situated in another place. Besides enterprises from Saldus, Liepaja and other places in Latvia are constructing logistics centres for their own needs in Greater Riga. Thus the prices of land in the transaction territory increase by reaching already 30 EUR/m² near Marupe, Tiraine, Salaspils. Riga industrial park is the first and the most advanced industrial park in Latvia, which complies with the requirements of the international standards and its total development area is about 200 000 m². It is offered in the park territory to build warehouses, offices and production plants on the vacant land plot of 0,3 to 0,4 ha within 1 year from concluding the lease contract, or to provide logistics services. An opportunity to lease a land plot is offered (3 000 to 50 000 m²). Newly built warehouse premises for 6 EUR/m² and office space for 9 EUR/m² were commissioned in spring of 2005. It is offered to build an autonomous office building with a total area up to 5 000 m². Several industrial park development projects have been started, including the territory of Riga International Airport where the Latvian Post office is situated; a new printing house of Preses nams is planned, and development of a high-speed public transportation has been envisaged. High demand in purchasing of large warehouse premises as well as land in the industrial territory of area of 6 000 to 10 000 m² has been witnessed for the construction of industrial objects. Areas of 10 to 20 ha are demanded near the main roads: in Ogre, at Tallinn by-pass highway, in Salaspils rural territory. The main requirements are: nearness of main roads, railway access roads, and possibilities to load goods in vessels. Manufacturers are looking for land plots for industrial development for about 15 EUR/m². The trend, which has started in 2003, is continuing in Riga characterized by moving of production plants outside the city centre to Greater Riga. Due to an increase of a real estate tax, manufacturing becomes even more unreasonable utilization of land and of buildings in the centre of Riga. Such buildings can be used more rationally, with a bigger profit by changing the way of the utilization, i.e. by renovating and transforming them into office, retail space, etc. More and more new industrial objects enter the market and their current utilization of place and building becomes uneconomical. In many cases, industrial equipment is dismounted and moved to another place, production buildings are broken down and another buildings are constructed instead. Buyers of production plants in the city centre are either real estate project developers who buy such plants with a purpose to transform them into offices or apartments, or real estate dealers who wait for a price increase in order to sell them for a higher price. The said process is related to the new Law on the Completion of the Use of Privatization Certificates for the State and Municipal Property, which stipulates that land owned by the state and municipality shall be privatized only for a market value instead of a cadastral value on condition that the price will not be lower than a cadastral value, as well as the expiry of the privatization term: 31 December 2005. It should be admitted that, in most cases, a cadastral value is many times lower than a market value. It is planned to state a cadastral value of land anew by “maximum adjusting it to a market value”. As an example, a transaction in February should be noted when the previous land of the warehouse territory at Hanzas street in the territory of freight station Rīgas – Krasta ganību parks was sold for 50 times higher price than its cadastral value, i.e. the transaction or the market price was 140 LVL/m² (200 EUR/m²) while the cadastral value was stated in the amount of 2,7 LVL/m² (3,85 EUR/m²). Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 43 of 48 Production capacities have increased in Latvia lately. Food producers have received EU quotas, which guarantee market for a particular amount of products. Due to the increase in production capacities, the demand for warehouses that comply with the EU requirements either for loading, or for storage of imported goods, increases. Furthermore production premises are often demanded together with warehouses. A high demand can be observed for small offices of 30 to 60 m², with a warehouse space of 100 to 200 m². Market for leasing foodstuff production space gradually ceases to exist since a lease payment of 0,70 to 2,5 EUR/m² does not cover the costs of production premises. Furthermore big production plants are acquired and sold out in parts by forming industrial parks. As a result, producers want to purchase production premises. A price is determined according to the purpose of use: sales price of a food production plant, which complies with the EU standards, reaches 280 EUR/m², however price of a metal processing unit is lower by a half. Market of leasing other type production premises exists, and there is either the demand, or the supply. The main demand drivers in the lease market are new enterprises that do not take a risk in investing their assets in industrial space. Requirements regarding quality of warehouses increase, i.e. dust-free floor and wall covering, heated warehouses, convenient access to both - customers and employees, light vehicles and trucks; anti-fire systems must comply with the requirements provided for in the EU standards, optional racking systems and loading docks, changing rooms and showers for workers. Even higher quality is required for food and pharmacy warehouses where it is necessary to have easily washable wall and floor coverings. There is an increasing demand for small office space near warehouses. The biggest issue in this market segment is nonconformity of warehouses with the quality requirements while the prices exceed the average lease prices of quality warehouses in Europe equaling to 4 EUR/m², i.e., to the highest lease payments in Europe. Lease payment for quality warehouses is 4 to 6 EUR/m², but lease payment of non-repaired warehouses still ranges from 1,5 to 5 EUR/m². Besides the most expensive warehouses, i.e. for 6 EUR/m² are not in demand. However big warehouses of 2 000 m² are divided into smaller ones, i.e. in spaces of about 500 m² and leased for 2 to 4,5 EUR/m². After the accession of Latvia to the EU, the demand for customs warehouses has decreased rapidly and such warehouses are mainly used by importers from Russia, America. But there is a high demand for warehouses in the special economic zone with tax relief. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 44 of 48 Industrial (warehouse) prime rents in European cities Berlin Paris Warsaw Milan Prague Budapest Riga Brussels Madrid Munich Amsterdam Stockholm 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 EUR/sqm per month Source: Jones Lang LaSalle, King Sturge, Latio During the first six months of 2005, the main demand drivers in the industrial space market are: food production industry, timber industry, metal industry, pharmacy, plastic production, as well as enterprises engaged in trade of construction materials and in construction business. By analyzing the market of industrial space, a conclusion can be made that trade and construction are developing in Latvia however there is a small increase in the industrial development. Besides industrial objects lately are searched for purchase, thus such objects also serve as investment objects. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 45 of 48 OUTLOOK Although the average prices of the new projects will be higher than the average prices of standard type apartments, the market of the new and the old apartments in terms of prices will be overlapping even more. Standard type apartments in blockhouses in good location will be in demand also in the future, general overhaul will be carried out in some buildings and their value will increase. Many new projects will turn out to be unsuccessful due to their location; furthermore, sometimes construction quality of such projects will be doubtful. Buyers of the new projects will become more competent, assessment of the possible risks will become more important and will include the construction quality, fulfillment of obligations by a project developer against their customer. Price increase in various segments of the housing market will differ, and the expected increase of capital will become more ambiguous thus promoting development of the renting market. The high inflation will have an impact on the housing market as well because it will reduce the possible amount of money that could flow in the housing market. Impact of inflation will differ in various rating categories of dwellings since there are different increases of income within social groups: income of the more wealthy residents grows faster than the income of the less wealthy, besides the said increase of income exceeds inflation. Notwithstanding the fact that the space launched in the office space market during 2005 will exceed the currently offered vacant space considerably, it will be filled in quickly due to the high demand because many lessees are using unsuitable premises for their offices, for example, reconstructed apartments. Investors will have continuous interest in long-term investment projects with a long-term cash flow however this year will face deficit of such projects as the project developers have not designed new projects yet. Project developers will focus more on the development of commercial objects and as a result, the business land market will become more active as well as reconstruction and modernization of the present industrial objects. Hotel construction and hotel project development will increase due to the development of tourism and the remaining situation when the supply of hotels in Riga cannot meet the growing the demand. Moreover, the demand generated by the Hockey World Championship in spring 2006 has to be taken into account. Due to the same reason, a high demand in shortterm apartment renting will remain. Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 46 of 48 ABOUT “LATIO” LTD. IN BRIEF One of the first and largest real estate companies in Latvia - LATIO Ltd. was established in 1991. The number of company’s employees has reached 200. LATIO purposefully expands by opening branch offices in all Riga residential regions, as well as in the other Latvian cities and towns – Cesis, Jurmala, Ventspils, Jelgava, Liepaja, Talsi, Valmiera, Jekabpils, Daugavpils, Rezekne, Sigulda, Saulkrasti, Kauguri, also the Estonian capital Tallinn. Thus the well developed structure permits the company to work professionally with the clients covering the whole territory of the country. Basing on the practical experience and the expertise gained by the company during its operation, LATIO guarantees professional and efficient services complying with the requirements of legislation, international standards and ethical norms. LATIO Ltd. offers the widest range of the real estate related services - consultancy, property appraisal and assistance in crediting issues, as well as sales, lease and rent, property management and administration. Moreover, LATIO is an associate member of the associations LANIDA (Latvian Real estate transaction brokers association) and LIVA (Latvian property surveyors association). Central office: 11 Raina blvd., Riga, LV-1050 Tel.: + 371 7 03 23 00 Fax: + 371 7 03 23 02 E-mail: latio@latio.lv Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 47 of 48 CONTACTS Centre office: Riga, Raiņa blvd. 11 Tel.: 7032300 Fax: 7032302 e-mail: latio@latio.lv Imantas branch office: Riga, Anniņmuižas blvd. 88 Tel.: 7440000 e-mail: imanta@latio.lv Sarkandaugavas branch office: Riga, Tilta street 2/4 Tel.: 7389181 e-mail: latio@latio.lv Kauguru branch office: Jurmala, Nometņu street 4 Tel.: 7740777 Fax: 7741000 E-mail: latio@latio.lv Cesu branch office: Cēsis, Raunas street 15 Tel.: 41 27447 Fax: 41 27447 e-mail: cesis@lvkv.sia.lv Jekabpils branch office: Jēkabpils, Viestura aleja 9 Tel.: 52 30152 e-mail: latio@latio.lv ivars@latio.lv Rezeknes branch office: Rēzekne, 18. novembra street 16 Tel.: 46 28277 Fax: 46 28276 e-mail: rezekne@latio.lv Valmieras branch office: Valmiera, Riga street 39 Tel.: 42 81810 Fax: 42 81811 e-mail: lvkv@lvkv.sia.lv Elizabetes branch office: Riga, Elizabetes street 20 Tel.: 7201929 Fax: 7201936 e-mail: latio@latio.lv Āgenskalna branch office: Riga, Kalnciema street 41 Tel.: 7618090 Fax: 7032300 e- mail: latio@latio.lv Branch office "Esplanāde": Riga, Brīvība street 40 Tel.: 7142610 Fax: 7142612 Saulkrastu branch office: Saulkrasti, Ainažu street 6 Tel.: 7952565 Fax: 7952570 E-mail: latio@latio.lv Daugavpils branch office: Daugavpils, Riga street 24, 2-nd floor Tel.: 54 29515 Fax: 54 29512 e-mail: daugavpils@latio.lv Jurmalas branch office: Jūrmala, Jomas street 30, 2-nd floor Tel.: 7755505, 7755506 Fax: 7755700 e-mail: jurmala@latio.lv Siguldas branch office: Sigulda, Raina street 2 Tel.: 7972782, 797085 e-mail: sigulda@latio.lv Ventspils branch office: Ventspils, Kuldiga street 11 Tel.: 36 28612 Fax: 36 28613 e-mail: ventspils@latio.lv Purvciema branch office: Riga, Madonas street 27 Tel.: 7549355 e-mail: purvciems@latio.lv Ķengaraga branch office: Riga, Maskavas street 250/2 Tel.: 7317870 Fax: 7317877 e-mail: latio@latio.lv Teikas branch office: Riga, Brīvības street 306 Tel.: 7541636, 7541787 Fax: 7541617 e-mail: teika@latio.lv Ogres branch office: Ogre, Briviba srteet 13 Tel. 5035730 Fax: 5035734 e-mail: latio@latio.lv Jelgavas branch office: Jelgava, Pasta street 43 Tel.: 30 46480 e-mail: latio@latio.lv Liepajas branch office: Liepāja, Peldu street 11, 2-nd floor Tel.: 34 22190 e-mail: latio@latio.lv Talsu branch office: Talsi, Kr. Valdemara street 17 Tel.: 32 21922 e-mail: talsi@latio.lv Tallinn branch office: Latio Eesti OÜ Tallinn, Kaarli pst. 7-2 Tel.: +372 6410010 Fax: +372 6410010 e-mail: latio@latio.ee Data publishing without reference to the source is prohibited! Real estate market report - Riga and Greater Riga, page 48 of 48