«Rental has turned into office ’chess’, and some companies have lost the game» The experts of the Capital Commercial real estate agency share their opinion on the commercial property rental market in Lithuania
The commercial real estate market has experienced many shocks and changes over the past two years — due to the pandemic, the situation has been changing rapidly and unpredictably. Today, the situation in this segment has relatively stabilized, but both tenants and landlords still face certain difficulties. Three experts at the Capital Commercial real estate agency, Yulia Tislenko, Lina Ivanauske and Mark Savicki, told ys what problems they face in the process of renting commercial real estate and why clients have become a headache for some landlords after the pandemic.
«Finding 80-150 squares meters of multifunctional space is now a daunting task»
In Lithuania, as in many European countries, we now see a completely new commercial real estate market that does not accept the old ways of working. During the pandemic, all segments were transformed, but most of all it affected the hospitality business, shopping centers and restaurants. For example, some of the hotels that were profitable before the pandemic are now rapidly reorganizing into small hotel apartment projects. It would seem that this should have freed up a lot of commercial premises, but contrary to expectations, there is currently no large supply of small retail space in Vilnius.
— The most frequent request from our clients today is to find 80-150 square meters of multifunctional space in a demanded location with a separate entrance from a busy street, where they can equip a shopping area, an office and a small warehouse. And finding such a property is a daunting task, — said Yulia Tislenko, head of the Capital Commercial real estate agency.
It should be emphasized that an essential criterion for renting this type of premises is the flow of passing customers. However, due to the significantly lower number of tourists and the restrictions imposed during the pandemic, the flows in the center and the Old Town of Vilnius have changed. Also, new places of interest have appeared (such as the multifunctional neighborhood «Paupys»), which are increasingly gaining the favor of the townspeople. In order to offer our clients premises in popular locations, we have to flow with the current, anticipating new directions.
«Those who did not particularly want to understand the plight of their tenant lost customer loyalty.»
— Today, the office space market resembles a game of chess, where each piece has changed its position, and now it is difficult to predict which move to make. During the pandemic, many companies conducted difficult negotiations with the landlords: about changing contracts, easing conditions, and providing discounts. However, not all landlords responded equally flexibly. Today we see that those who did not particularly want to take the tenant’s point of view into account have lost their loyalty. As soon as the terms of the contract allowed, the tenants moved to a new office. Some companies that until recently worked «remotely» are now again intensively looking for offices, — Y. Tislenko notes.
According to her, there is an especially noticeable trend: the transition from old office buildings to modern centers of new construction. Commercial real estate experts at Capital Commercial say this is a big blow for owners of old-style commercial premises, but at the same time it is a great opportunity to invest in the retrofitting of vacant premises.
— Modernization is a real opportunity to successfully return to the market and compete with new business centers. We see that a significant number of landlords understand this, and they only have two solutions: either to reduce the cost of rent, or to carry out the pertinent repairs and modernization of the premises. But modernization means not only repainting the walls in a trendy color, but also organizing air conditioning and humidification, redistributing rooms at optimal sizes, creating additional added value in the same building for the convenience of employees, — Yulia Tislenko assures.
There are three types of tenants, but only one wins in the modern world
Capital Commercial experts currently identify three most common types of tenants:
- The client intends to find premises in a prestigious part of the city and, therefore, sacrifice some amenities (for example, parking spaces, office size);
- The client considers the most favorable price per square meter as a mandatory criterion. Most often, such premises are located on the outskirts of the city or in old-style business buildings;
- The client strives for maximum comfort for their employees.
According to experts, it is the third kind of tenants that win in the modern world. They choose the option of business centers, created according to the principle of a «city within a city», which are attracting more and more interest in the market. These are most often large multifunctional business centers or parks, where there are not only office premises, but also cafes, restaurants, beauty salons, grocery stores, convenience stores and even kindergartens.
— Although this type of premises cannot be called economical, such a choice still testifies to the progressive and far-sighted thinking of their tenants. Every employer wins only if the employee can organize all their affairs and tasks in one place, without distraction, — notes the real estate expert and broker Lina Ivanauske.
Although some segments of commercial rental seem «scarce», real estate experts at Capital Commercial admit that the terms are now largely tenant dictated. The total supply of office space is quite large, both in new business centers and in the cheaper segment of old buildings.
— Thus, we see that tenants are not in a hurry to conclude contracts. The selection process takes longer, the client considers various offers, requires additional services, — says real estate expert and broker Mark Sawicki. — Additional bonuses are exactly what very often leads to successful trades. Landlords usually offer additional parking spaces, a free period for moving in, a lower deposit, and more flexible terms of termination of the contract (for example, the ability to terminate the contract with three to four months’ notice to the landlord).
In the end, this approach is paying off, because renters who were held hostage to contracts during the pandemic no longer want to fulfill the same strict obligations. For example, we see that more and more often, instead of five years, leases are negotiated for two or three years. But it is interesting that this satisfies both sides, because no one dares to predict what will happen in these five years.
However, experts warn that tenants should not feel omnipotent even in a more favorable situation for them.
— The old rule remains the same: the size of the rented space is still important! The landlord always strives to rent large areas, sometimes even sacrificing the price, so tenants who want a smaller area and even agree to pay more are left behind when a larger player appears, — experts from Capital Commercial warn.
Commercial real estate that can be rented or bought in Lithuania right now
Experts at Capital Commercial believe that businesses should take a closer look at the most profitable commercial properties for sale. Firstly, it is an excellent investment; secondly, it grants you the ability to manage properties completely.
Below is a selection of several commercial properties that you can buy right now.
A land plot of 2.12 hectares with brick buildings built in 1979 and 1987 is for sale in an industrial area of Vilnius near the airport. One building is a mechanical workshop with an area of 1513 sq. m.; the second is an administrative building of 1664 sq. m.
The most important advantage of this property is its magnificent strategic location, which allows using the premises for almost any purpose. It also has a convenient access with a large transport interchange and public transport stops.
The site has a flat terrain. The territory is fenced, in addition to a large parking lot for cars, there is another, spacious parking lot for heavy vehicles. All engineering networks are connected to the buildings, connecting to natural gas is also possible.
In the old town, not far from the Cathedral, there is a commercial property for sale (originally intended for catering) with a total area of 682 sq. m. It consists of two parts, which are 405 sq. m. m. and 276.67 sq. m respectively.
The premises are decorated in a modern style, perfect for the restaurant business, as well as for various events and exhibitions. Please note that furniture, kitchen and equipment are not included in the sale price and can be purchased for an additional fee.
Another advantage is a well-developed infrastructure, which includes good transport connections with all parts of the city. There are cafes and shops nearby. Public transport stops are about 250 meters away.
In the town of Vevis (about 11 kilometers from the town of Elektrinai), three land plots are being sold at once with a total area of 5.319 hectares: 2.99 hectares, 0.636 hectares, and 1.69 hectares respectively. This is an area of industrial and storage facilities where you can build buildings up to 15 meters tall.
The advantage of this property is its excellent location near the Vilnius-Kaunas-Klaipeda highway. Vilnius is about 40 km away.
In the second most populous city of Lithuania, Kaunas, on the ground floor of a four-storey building, a commercial space is being sold. It is easy to get anywhere in Kaunas from this part of the city. This building is located in one of the busiest places in the city near the Acropolis shopping center. The beautiful Liberty Alley and the Cathedral are also within walking distance.
The four-storey building has two entrances: one from the street, and another from the yard. The total area of the commercial premises is 660 sq. m., which includes a room on the basement floor (184.2 sq. m.) and another on the ground floor (474.9 sq. m.).
Previously, this room used to house a bank branch, so a high-quality modern renovation was made. All communications are active: city central heating, a refrigeration ventilation system, as well and fire and burglar alarms. According to the experts at Capital Commercial, this is an excellent place to place almost any type of business focused on the constant flow of people (it can be used for sales, services, or training seminars of any type).