Development activity driven by Built-to-Suit schemes. Rents and yields remain stable.

Transcription

1 Photo credit: YIT Latvia Industrial Market, H1 218 Development activity driven by Built-to-Suit schemes. Rents and yields remain stable. Industrial Stock 922, sq m Vacancy 4.2 % Average Rent 4 EUR/sq m/month Completions 4,4 sq m Prime yield 7.8% Picture: VGP Park Kekava by VGP *Arrows indicate change from the corresponding quarter in the previous year KEY POINTS The GDP growth for Latvia during Q2 218 reached.3% y/y. The rate of economic expansion was among the top 3 in the EU. In August 218, the average level of consumer prices increased by 2.8% y/y. In August 218 the prices of products sold on the domestic market went up by 1.3 % y/y and the prices of exported products rose by.% y/y. In June, foreign trade turnover in goods was 9.1% higher year on year. In July 218, industrial production output grew by 3.6%. The largest y/y increases were in the manufacture of motor vechicles (36.3%) and chemical products (26.2%). The largest y/y declines were recorded in the manufacture of paper and paper products (9.1%) and of non-metallic mineral products (%). During the H1 218 the volume of freight carried by land and pipelines increased by 3 million tonnes or.3%, but freight turnover reduced by 1.4 %. A drop in the amount of rail freight and an increase in road freight was observed. Current modern industrial and logistics stock in Latvia is ca. 922, sq m. During H1 218, industrial and logistics stock in Latvia increased by ca. 4,4 sq m with Balt Cargo Solutions delivering their latest stage in Q Around 17, sq m (19% of supply) of space is under construction or in the latter stages of planning. 77,6 sq m is set to be delivered in H Q2 218, the average gross salary in Riga was 1,128 EUR/mth (+7.4% y/y), employment at 64.4% (+1.8% y/y) During H1 218 the total investment volume in the Latvia industrial and logistics sector was EUR 12.1 mln, showing an increase of EUR.3 mln when compared with H The largest transaction in H1 218 was an acquisition of Industrial Park «P» by East Capital for a reported amount of EUR 1.6 mln. The leading Industrial investment position during H1 218 was held by Estonia with EUR 2.6 mln (61.%), followed by Latvia with EUR 12.1 mln (29.1%), leaving Lithuania in third place with EUR 3.9 mln (9.4%). H1 218 CBRE Research 218 CBRE 218 1

2 Sq m Figure 1: Latvia Modern Industrial and Logistics Stock, Existing Supply and New Supply, per annum 1,2, 1,, 8, 6, 4, 2, Supply, sq m (beginning of year) New supply, sq m Source: CBRE 218; Q3 218 SUP P LY The total modern industrial and warehousing stock in H1 218 amounted to ca. 921, sq m. During the period, there was only one notable completion in the market, Balt Cargo Solutions amounting to ca. 4,4 sq m. Figure 2: Modern Stock, Latvia, Composition Built-to-suit 28% Currently, the modern industrial and logistics stock in Latvia consists of 72% speculative and 28% build-to-suit or owner occupied schemes on a sq m basis. 1% of the current stock was delivered to the market in 2-28, indicating that some of the current premises will need to undergo renovation in the coming years to remain competitive or be subject to reclassification and downwards rental pressure coming from newly developed industrial projects. P I P ELI NE P R OJ ECTS Currently there is ca. 17, sq m of industrial and logistics supply (~19% of current supply) under construction or in the latter stages of planning. Around 77,6 sq m (~8.4% of current supply) is likely to be delivered by the end of 218. The largest projects expected to be completed in 218 are the RIMI Logistics Centre expansion, located in Riga and amounting to ca. 43, sq m, as well as the 2, sq m VGP Park Kekava, where the entire facility has been preleased. Other notable expected additions to stock include the 2nd phase of VGP Park Kekava with an indicative area of 2, sq m to be delivered in 219, Lidostas Parks with 2, sq m in 219 and LIDL logistics Centre in Riga with an area of ca. 47, sq m in 22. Currently the market is driven by the expansion of existing premises. There are few large-scale speculative schemes and generally large additions to stock are builtto-suit projects for new market entrants. Source: CBRE 218; Q3 218 Figure 3: The Latest Indicators for Job Growth, Unemployment and Average Salaries in the Private Sector Indicator Q2 218 Q2 217 Unemployment Overall (seasonally adjusted) Source: Central Statistics Bureau; Q3 218 Figure 4: Total Modern Stock, Vacancy, % Source: CBRE 218; Q % 8.9% Employment rate 64.4% 62.6% Average Gross Salary in Riga 1,128 EUR/mth 1,4 EUR/mth Average Gross Salary in Latvia 1,4 EUR/mth 926 EUR/mth 4% 3% 2% 1% % Speculative 72% f Lithuania Latvia Estonia H1 218 CBRE Research 218 CBRE 218 2

3 DEM AND & TAK E UP The Riga industrial and logistics market has been driven by expansions and built-to-suit projects. New entrants to the market such as LIDL and existing enterprises such as RIMI have been the driving force behind increased development activity in the market. However, excluding non-speculative schemes, demand for large premises remains low in comparison with comparative countries such as Estonia and Lithuania, generally requiring new entrants to the market. In terms of the overall market condition, production and warehousing premises of around 1sq m are most in demand. During H1 218, take-up activity (excl. renegotiations) was ca. 4, sq m mostly on account of nonspeculative schemes. V ACANCY The overall vacancy rate declined y/y from close to % in Q2 217 to 4.2% in Q We anticipate an uptake in activity during 219 on account of expected increases in leasing within the speculative segment of the market driven by the improving macroeconomic environment and an appetite for relocation; however the overall vacancy rate is unlikely to change significantly due to additional supply. R ENT R ATES During H1 218, the average asking rent rates for modern industrial and logistics premises ranged between a minimum of 3.2 and a maximum of 4.7 EUR/sq m/month for speculative schemes. Rents have risen slightly year on year on account of shortages of A class warehousing supply, with some listings somewhat exceeding the EUR/sq m/month mark. The newer premises attract tenants at an increasing rate and can command prime rental levels. However, there are very few factors pushing rents upwards in older properties, which in turn impacts the sustainability of the overall warehousing market and limits development activity. Anticipated significant additions to the modern industrial and logistics stock are unlikely to impact asking rents as most large upcoming schemes are built-to-suit. Aging B class stock is likely to experience supply-side competitive pressure and maintain the lowest-viable rent for the the forseeable future. I NV ESTM ENT ACTI V I TY During H1 218 investment activity in the industrial and logistics segement of the market accounted for 8% of total transaction volume or EUR 41.6 mln, which is a decline of EUR 21.7 mln or 34.3% y/y when compared to H During H1 218 the total investment volume in the Latvia Industrial sector was EUR 12.1 mln, showing an increase of EUR.3 mln when compared with H The largest industrial transaction was the acquisition of Industrial Park «P» by East Capital for a reported amount of EUR 1.6 mln. Currently, the average yield is ca. 7.8%, with significant variance depending on length of leases and strength of covenant. 1 Figure : GDP Growth, y/y, % - Source: Eurostat, CBRE 218; Q3 218 Figure 6: HICP, y/y, % Source: Eurostat, CBRE 218; Q3 218 Figure 7: Unemployment, % Source: Eurostat, CBRE 218; Q3 218 Figure 8: Share of Industrial / Logistics in Total Investment Lithuania Euro area Estonia Latvia Lithuania Euro Area Estonia Latvia Lithuania Euro area Estonia Latvia H1 21 H2 21 H1 216 H2 216 H1 217 H2 217 H1 218 Other Industrial Source: CBRE 218; Q3 218 H1 218 CBRE Research 218 CBRE 218 3

4 EUR/sq. m/month Figure 9: Modern Industrial and Logistics Stock, Average Rent and Yield, f 11 14% 12% % 8% 6% 4% 2% f Rental rate Min Rental rate Max Rental rate Avg Prime yield, % % Source: CBRE 218; Q3 218 Figure 1: Modern Industrial and Logistics Stock, Largest Schemes Under Construction or in the Latter Stages of Planning, Latvia PROPERTY NAME / ADDRESS CATEGORY GROSS LEASABLE AREA EXPECTED DELIVERY RIMI Logistics Centre (Expansion) Built-to Suit 43, sq m 218 Elipse BLC (Expansion) Speculative 8,4 sq m 218 VGP Park (Stage II) Built-to Suit 2, sq m 219 Balt Cargo Solutions (Expansion) Speculative 6,6 sq m 219 Lidostas Parks Speculative 2, sq m 219 LIDL Logistics Centre Built-to Suit 47, sq m 22 Figure 11: Modern Industrial and Logistics Stock, Notable Investment Transactions, PROPERTY NAME / ADDRESS COUNTRY GROSS LEASABLE AREA PRICE, EUR TRANSACTION TIME P Latvia 14, sq m 1,6, Q1 218 Punane tn 24 Estonia 1, sq m 7,, Q2 218 Telliskivi 62 Estonia,2 sq m 3,8, Q2 218 Tammi tee 71 Estonia, sq m 2,7, Q1 218 Tule 24 Estonia 3,8 sq m 2,4, Q2 218 H1 218 CBRE Research 218 CBRE 218 4

5 DEFINITIONS Total Modern Stock represents the total completed class A and B space (occupied or vacant) in the private and public sector at the survey date. Includes owner occupied (OO) space. Vacancy Rate - represents the percentage ratio of total Vacant Space to Modern Total Stock. Take-Up Represents the total net floor space, not including renewals, known to have been let or pre-let, sold or pre-sold to tenants or owner-occupiers during the survey period. A property is deemed to be taken-up only when a binding agreement exists. Prime Rent Represents the top open-market tier of rent that could be expected for a unit of standard size (commensurate with demand in each location), of the highest quality and specification and the best location in a market at the survey date. The Prime Rent should reflect the level of which relevant transactions are being completed in the market at the time. If there are no relevant transactions during the survey period, the quoted figure will be more hypothetical, based on an expert opinion of market conditions. Absorption represents the change in occupied stock within a market during the survey period. Net Effective Rent represents a rent that would be achieved, less the incentives paid by the owner. The average net effective rent for a market is the market net base rent less incentives which are amortised over the term of lease. A B OUT CPB R EA L ESTATE SER VI CES: Part of the CBRE Affiliate Network Offices in Riga, Vilnius and Tallinn Providing services in: Valuation, Consulting & Research, Property Sales, Property & Asset Management, Building consultancy, Tenant Representation, Agency Services Retail, Offices, Industrial & Logistics. CONTACTS Reinis Lauskis Arturs Lezdins Senior Consultant Advisory & Transactions Head of Research & Valuation M M reinis.lauskis@cbre.lv arturs.lezdins@cbre.lv OFFI CES Riga Plaza Green Hall 2 METRO Plaza Mukusalas street 71, Upes Street 23, 3.korrus, Viru valjak 2, Riga, Latvia, LV-14 Vilnius, Lithuania, LT-8128 Tallinn, Estonia, EE-1111 To learn more about CBRE Research, or to access the additional research reports, please visit the Global Research Gateway at: Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CPB Real Estate Services.