13.4. Letting of Real Estate - Jurevičius, Bartkus ir partneriai

Transcription

Lithuania
2 0 0 7
THE LITHUANIAN COMMERCIAL
PROPERTY MARKET
2007
Lithuania
Vilnius City
Kaunas City
Klaipėda City
Šiauliai City
Panevėžys City
Contents
Chapter 1
Introduction
7
Chapter 2
Executive Summary
8
Chapter 3
Geography and Population
9
Chapter 4
Major Cities of Lithuania
10
Chapter 5
Economic Overview
11
Chapter 6
Office Market
15
Chapter 7
Retail Market
21
Chapter 8
Warehouse/Industrial Market
30
Chapter 9
Hotel Market
33
Chapter 10
Investment Market
35
Chapter 11
SWOT Analysis of the Current Commercial Property Market
38
Chapter 12
KOBA Market Expectations
39
Chapter 13
Legal Environment
41
Chapter 14
Taxation of Real Estate
47
KOBA Company Profile
57
Jurevičius, Balčiūnas & Bartkus Profile
58
Chapter 1 Introduction
The purpose of this report is to provide an overview of the current commercial property market in Lithuania.
The information has been prepared using external data obtained from official Lithuanian institutions (Lithuanian Statistics Department, Lithuanian Development Agency, National Tourism Department), that of
the leading commercial banks (Hansabankas, SEB Vilniaus bankas), the opinions of market participants,
as well as the information and data of the real estate company KOBA and Professional Law Partnership
Jurevičius, Balčiūnas & Bartkus.
The information provided in this report is correct to the best of our knowledge as of 1 February 2007.
The commercial property market in Lithuania continues to be in a dynamic phase and professional advice
should be sought whenever investment decisions are being taken on Lithuanian real estate.
The report is divided into 14 chapters, each of which can be read independently.
Chapter 2 describes the general market situation.
Chapter 3 gives an overview of the geography and population of Lithuania.
Chapter 4 presents information about Lithuania’s five major cities.
Chapter 5 describes Lithuania’s economic achievements and trends.
Chapters 6 – 9 give an overview of the developments and trends in the office, retail, warehouse and hotels
markets, as well as future movements in these segments.
Chapter 10 describes recent events in the investment market in all commercial property market segments.
Chapter 11 presents the strengths, weaknesses, opportunities and threats to the Lithuanian commercial
property market.
Chapter 12 gives an overview of KOBA’s expectations for the commercial property market segments.
Chapter 13 is an overview of the legal environment for investment in commercial property.
Chapter 14 presents an overview of taxation affecting the real estate sector.
The Lithuanian Commercial Property Market 2007 has been prepared by KOBA together with Professional
Law Partnership Jurevičius, Balčiūnas & Bartkus primarily for professional investors, leaseholders and developers taking an interest in the Lithuanian property market.
NB! Limitation of liability
The information contained in this overview is intended solely for general information purposes
and shall not be treated as professional advice or legal opinion.
Any copying, distribution or reprinting is allowed only with the written permission of real estate
company KOBA and Professional Law Partnership Jurevičius, Balčiūnas & Bartkus.
Copyright © 2007 KOBA
Copyright © 2007 Jurevičius, Balčiūnas & Bartkus
Chapter 2 Executive Summary
The Lithuanian Commercial Property Market 2007 describes the expectations for the property market in
economically promising Lithuania, a relatively small country with long-standing democratic traditions.
After regaining independence, Lithuania introduced radical economic reforms, the result being a successful
transition from a state-regulated to a market-based economy. Joining the EU and NATO even more added
credibility to Lithuania as a country, which now has a thriving market economy operating in a stable, wellregulated framework.
In 2006, GDP growth reached 7.4%. Relatively low interest rates combined with stable economic growth
and high expectations upon EU accession initiated steady growth in both the commercial and residential
real estate sectors. However, the time of numerous opportunities for low-risk development has already
passed. The market is showing more signs of being mature, and competition among property owners and
projects is increasing.
The main trend describing the retail market today is spreading of shopping centres into secondary cities.
Currently, in Vilnius, the Lithuanian capital city, total modern retail space has almost reached 500,000 sq.
m. Still, the retail market is developing at a full speed, while existing shopping centres and high-street retail
units continue to maintain zero or close to zero vacancy levels. This situation may change after three major
shopping centre projects are completed in 2007-2008.
Being the most developed commercial market segment in Vilnius and throughout Lithuania, the office market development has revived after a brief slowdown in 2005 and the first half of 2006. There is a significant
number of projects in the pipeline for the coming years, most of them in Vilnius. There has also been a significant expansion of modern office space in Klaipėda, although development in Kaunas is not yet so active.
At the beginning of 2007, vacancy levels are almost zero in existing business centres, indicating a shortage of
high quality office premises. Bearing in mind that the total space coming in with pipeline projects exceeds
180,000 sq. m, it is likely that the imbalance in the office market will decline by the end of 2007.
The industrial/warehouse market has seen relatively slower growth during the last few years, mainly because
of specific requirements for these properties, which oblige developers and investors to develop projects only
if they have pre-lease agreements, or purpose-built premises to order. There is also huge potential for older
premises to be renovated and modernised for current use.
Although the number of visitors arriving for both tourism and business purposes is growing, the supply of
hotel services is not increasing at the same rate which should encourage developers to consider new projects.
While this segment of the market is mainly under local ownership, more international hotel chains are expected to arrive on the Lithuanian hotel scene in the next few years.
The stable and strong economic and political environment, together with increasing numbers of commercial
property developments, makes this market interesting and promising for investors. A number of commercial
property acquisitions were performed in 2006 (not only in the capital city, but also in secondary cities) and
are foreseen for 2007. Moreover, 2006 showed that commercial property market has turned its attention to
sale and lease-back transactions.
Chapter 3 Geography and Population
3.1. Geography
Lithuania is the largest country in the Baltic States. With an area of 65,300 sq. km, Lithuania is larger than
Belgium, Denmark, the Netherlands and Switzerland. It borders Latvia in the north, Belarus in the southeast, Poland and Russia (Kaliningrad) in the southwest.
Arable land accounts for 70% of the country’s lowlands, plains and hilly uplands. About 28% of the territory is forested. Lithuania’s 722 rivers, more than 2,800 lakes and 99 km of the Baltic Sea coastline are
mostly devoted to recreation and the nature conservation.
Climate type falls between maritime and continental.
3.2. Population
The population of Lithuania is 3.39 million (4th quarter of 2006). This is 13,400 less than at the beginning
of the year. The declining number of residents is related to international migration and natural population
decrease. About 67% of the country’s people live in urban areas. A quarter of the population lives in the Vilnius County. Population density is 52 people/sq. km, the highest densities being in Vilnius (87 people/sq.
km), Kaunas (84 people/ sq. km) and Klaipėda (73 people/ sq. km).
The majority of the population (83.5%) is Lithuanian, with 6.7% Polish, 6.3% Russian and 3.5% others
(predominantly Belarusian, Ukrainian and Latvian). Some 79% of the population are Roman Catholics.
The official state language is Lithuanian which has its roots in Sanskrit and belongs to the Baltic family
of Indo-European languages. Most of the population also speaks Russian, although English is becoming
widespread.
Chapter 4 Major Cities of Lithuania
There are five major cities in Lithuania: Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys.
4.1. Vilnius
Being Lithuania’s capital and largest city, with a population of nearly 542,000, Vilnius is the centre of culture, politics and business, and attracts more than half of all foreign direct investment. All the main public
and governmental institutions are located in Vilnius, making it a desirable place to locate one’s headquarters.
The city has become the major engine of economic development in Lithuania, having the highest GDP level
per capita and the fastest growth, which in turn, boost Vilnius’s appeal for business and cultural tourism.
Unemployment levels in Vilnius are among the lowest in the country.
Vilnius is developing in line with the city council’s planned vision for its strategic development up to 2015.
This has been implemented to avoid some of the mistakes made in neighbouring capitals such as Riga and
Tallinn. Vilnius’ Old Town is on the UNESCO World Cultural Heritage list. The city attracts a large number of tourists every year.
4.2. Kaunas
Situated in a favourable strategic location in the central part of the country, with a population of almost
361,000 and well-developed infrastructure, Kaunas is a natural location for logistics facilities and industry.
Located close to the Via Baltica highway, it also has a large cargo and passenger airport, only utilised by
low-cost airlines. International interest in cheaper flights is very big and this may attract more tourists from
other countries to Kaunas as well. Several education institutions are located in the city. The Kaunas Free
Economic Zone has started operating and is expected to increase the number of development projects in
the near future.
4.3. Klaipėda
Situated on the west coast, Klaipėda is the ice-free port. Ferry lines link it with the other Baltic Sea cities.
With a population of over 187,000, Klaipėda is a large, multimodal transport junction of sea, road and
railway routes, connecting eastern and western industries and markets via the shortest possible means. The
Klaipėda Free Economic Zone is actively operating, developing and attracting numerous foreign investors.
4.4. Šiauliai
Šiauliai, with a population of 129,000, is a regional centre located in the northern part of Lithuania near the
river Venta. Šiauliai is an important cultural and economic centre of northern Lithuania, and concentrates
the region’s industry, with an actively developing services sector in parallel. The city’s largest exporters are
manufacturers of bicycles, television sets and communication equipment, plastic bottles, furniture, leather
and knitwear.
4.5. Panevėžys
This city, with a population of over 115,000, is situated near the Via Baltica international highway and on
the main rail route to Klaipėda. Panevėžys is famous for its electronics, glass, textile, furniture, construction
and food industries.
10
Chapter 5 Economic Overview
Lithuanian economic growth is stable and reached 7.4% over 2006, compared to the corresponding period
of 2005. The Ministry of Finance forecasts 6.3% GDP growth for 2007, which strengthens confidence
in the country’s continued strong and stable economic growth. Although inflation rates have risen above
expected rates, temporarily closing the door to the Euro adoption, the Lithuanian economy can be complimented for lower than forecast unemployment rates and significant increases in salaries. The main economic
indicators are examined in the sections below.
5.1. GDP
According to the Lithuanian Statistics Department first estimate, GDP totalled LTL 81,6 billion (EUR 23,6
billion; at comparable prices) in 2006. During three quarters of 2006 the most rapid growth in value added
was seen in construction (18.9%), financial services and real estate (9.4%), retail, hotels and restaurants,
transport and communications (8.4%).
During the third quarter of 2006, increasing income and borrowing (although interest rates have also risen)
resulted in the continued growth of consumption expenditure. Total household consumption demonstrated
a significant increase (14.0%), followed by the rise in gross fixed capital formation (10.2%). In the government sector, consumption expenditure rose by 7.9%.
The input of various regions into national performance varies significantly. During the latter years the largest
proportion of Lithuania’s GDP, more than one third, is produced in the Vilnius County, where the services
sector has considerable weight (70% of the county’s GDP, whereas the national average is 60%). Kaunas
County contributes about one fifth of the country’s GDP, while Klaipėda puts in one tenth.
Growth of Lithuanian Gross Domestic Product 2000-2007, %
12%
10.3
8%
4%
6.6
6.9
2001
2002
7.3
7.6
7.4
2004
2005
2006
6.3
4.1
0%
2000
2003
2007 F
Source: Lithuanian Statistics Department, Ministry of Finance, 2007
Stable GDP growth attests to the country’s attractiveness for investment, and validates the security and stability of the investment environment. This is very important for property market participants, as real estate
investment is generally the long-term.
5.2. Inflation
Inflation in 2005 and 2006 reached 3.0% and 3.8% respectively. Despite strong growth in wages and domestic
consumption, the inflation level in Lithuania has mainly been driven by external forces. Average annual inflation in 2006 rose mainly because of increased prices for food, utilities and fuel. Significant increases in gas,
electricity and fuel prices are expected at the beginning of 2007 and excise duties for tobacco products will be
raised in March.
Lithuania was planning to adopt the Euro from 1 January 2007, however, the inflation rate for 2006 was well
above the reference value established by the Maastricht Treaty and the date of Euro adoption was postponed until
2010, by which time it is expected that the impact of the main inflation-driving factors will have diminished.
Inflation in Lithuania, 2000-2007, %
5
4
3
2
1
0
-1
-2
2000
2001
2002
Source: Lithuanian Statistics Department, Ministry of Finance, 2007
2003
2004
2005
2006
2007 F
5.3. Unemployment
According to the Labour Force Survey, which is an interview of persons, selected from the Population register by random sample method, results, the unemployment rate in the third quarter of 2006 was 5.7% and
has come close to the structural unemployment rate. Since 2002, the overall trend in the unemployment
rate has been downward and there is no expectation that it will change direction in the next few years.
Unemployment Rate (Labour Force Survey Results), 2000-2006, %
20
15
10
5
0
2000
2001
Source: Lithuanian Statistics Department, 2007
2002
2003
2004
2005
2 0 0 6 III Q
The above mentioned unemployment rate can be compared to that provided by Labour Exchange, i.e. level
of registered unemployed persons, which as of 1 December 2006 was 3.3% of the population of working
age, whereas a year earlier, that figure was 3.9%.
As a result of increased emigration, the options for employers to hand-pick workers have decreased and the
labour market is now having to take on employees whose age and qualification would have excluded them
in earlier times. In some business sectors the lack of skilled employees has already reached a critical level.
Among skilled workers, the most in-demand are construction specialists (carpenters, painters, welders, etc.)
and dressmakers, also many vacancies have been registered in the manufacturing and transport sectors. The
services sector (especially supermarkets and restaurants) is experiencing a shortage of non-qualified employees. In consequence, business people are clamouring for the liberalisation of the labour market and the
simplification of procedures for issuing work-permits to non-Lithuanians.
Decreasing unemployment has also boosted consumer spending power which, in turn, has created potential
demand for more retail and leisure space. Combine this with attractive borrowing conditions, and it is not
difficult to extrapolate the significant effect on the demand for real estate.
12
5.4. Salaries and Wages
The average Lithuanian monthly salary increased from EUR 332.9 in 2004 to EUR 369.6 in 2005, or by
11%. As one would expect, the highest salaries are in Vilnius and the other major Lithuanian cities. Average
salaries in Vilnius County reached EUR 430.7, which is 16.5% higher than the national average.
In the third quarter of 2006, the average salary increased to EUR 478.9, an increase of 19.9% over the same
period last year. The main drivers for such impressive rises are increases in monthly salaries and decreased
income tax rates since July 2006. Proportional personal income tax was reduced from 33 to 27% and this
has directly increased employees’ disposable income. Current plans to cut income tax further from 27 to
24% from 1 January 2008 would increase disposable income even more.
Salary increases are particularly evident in those economic sectors where the labour deficit is the largest.
Salaries are expected to continue increasing in the future until the difference between the Lithuanian and
the EU averages diminishes. Of course, any growth in salaries is sustainable only as long as it is matched by
productivity growth.
SEB Vilnius Bank analysts forecast a 17% increase in salaries in 2006, followed by 15% and 13% in 2007
and 2008, respectively. Such optimistic prognoses for salary growth allow us to assume that consumer
spending power will grow accordingly, and the desire to spend more money will create additional demand
for retail and leisure space in particular.
5.5. FDI
Over the past few years Lithuania has become a leading location for foreign investors and one of the region’s
most competitive centres for sourcing manufacturing. The main reasons are a highly skilled, low-cost alternative to production in western Europe, along with a stable and strong production springboard to the
huge markets in the east. In addition, impressive economic growth, a stable currency and a business-friendly
legislative environment all combine to make Lithuania the premier investment location in the region.
The Lithuanian economy is the largest and most diversified of the three Baltic States. During the last 50
years, intensive industrialisation introduced enterprises specialising in electronics, chemicals, machine tools,
metal processing, wood products, construction materials and food processing. The light industry sector
includes production of textiles, ready-to-wear clothing, furniture and household appliances.
Cumulative FDI in Lithuania (EUR billion, beginning of year)
8%
6.9
7%
6%
4.7
5%
4%
3%
2.4
2.7
3.1
3.8
4
2003
2004
2%
1%
0%
2000
2001
2002
2005
2006
Source: Lithuanian Statistic Department, 2007
Accumulated foreign direct investment grew by 4.6% during 9 months of 2006 and according to preliminary estimates, as of 1 October 2006, foreign direct investment totalled EUR 7.2 billion, the per capita
value being EUR 2135. The largest proportion has been invested in manufacturing (34.5%), financial
services (17.7%), transport, storage and communications (11.9%), wholesale and retail trade (11.8%), and
utilities (11.5%). The real estate sector attracted 7.7%, or EUR 550 million of the accumulated FDI.
Cumulative FDI by Country as of 1 October, 2006 (% of total)
20%
16.3%
11.7%
10%
7%
7%
3.2%
2.8%
2.6%
2.5%
16.3%
Russia
Denmark
Sweden
Germany
Finland
Estonia
Luxemburg
United States
Netherlands
Austria
Other
5.6. Retail Trade
Retail trade growth has been impressive during the last four years, although the pace slowed down somewhat
in 2006. As classic economics suggests, retail trade growth largely depends on expectations, therefore it can
be concluded that expectations are still high for the future economic development.
As the Lithuanian Statistics Department states, retail turnover, excluding those enterprises trading in motor vehicles and motorcycles, increased by 7% in 2006 as compared to the same period of 2005. Turnover
of retailers of non-food items (excluding motor vehicles) in 2006 rose by 7.6% against the corresponding
period of the previous year. The growth in the turnover of this group was greatly influenced by large enterprises, whose revenue rose by 27.2%. The most significant increase in turnover was that of enterprises
trading in textiles, clothing and footwear (by 35.6%), and food, beverages and tobacco in specialised stores
(by 12.2%).
Domestic Trade Growth (motor vehicles excluded, compared to corresponding period of the previous year, %)
2000
2001
2002
2003
2004
2005
2006
14.4
2.3
7.9
11.1
10.7
12.9
7.0
The impressive growth in domestic trade reflects the increased ability of consumers to spend more money
and encourages developers to provide more shopping area available to the market and makes retailers more
interested in it.
5.7. National Currency
Lithuania’s national currency is the Lithuanian Litas (LTL), which is pegged to the Euro at the rate of
EUR 1= LTL 3.4528. It was planned that from 1 January 2007 Lithuanian currency would be replaced by
the Euro, unfortunately, because of the slightly higher than permitted annual inflation rate, the Euro-adoption date was postponed. The new projected date for the Euro adoption is 2010.
14
Chapter 6 Office Market
Being the most developed commercial market segment in Vilnius and throughout Lithuania, the office
market development has revived after a brief slowdown in 2005 and the first half of 2006. While the main
projects are still initiated in the capital city, there has also been a significant expansion of modern office space
in Klaipėda, although development in Kaunas is not yet so active.
6.1. Vilnius
Contrary to steady economic growth and the improving financial situation of numerous businesses, the
pace of development of modern office space has slowed down after 2004, resulting in unsatisfied demand
for modern premises. In 2006, the supply of new modern premises was only 20,000 sq. m or around half
of what became available in 2005. Not surprisingly, rents have gone up in the second half of 2006, and are
expected to increase even more in 2007, albeit slightly. The total of modern office space in Vilnius at the
beginning of 2007 was approximately 320,000 sq. m.
The first offices in Vilnius were located in reconstructed residential premises in the city centre, the Old
Town, and Naujamiestis district. Later, new stand-alone office buildings were constructed, in line with
contemporary requirements for office environments, and new business districts began to develop. The most
intense development of the modern office building segment occurred during 2000-2004. In 2005, the market saw an oversupply of office space, but in 2006 companies wishing to move to new modern offices have
faced a shortage of such premises.
Business District Development
Vilnius has several clearly demarcated business districts displaying active and determined development,
though still in process. The main advantages of these business districts are:
•other service-provider companies in the vicinity (lawyers, auditors, IT specialists, travel agencies, etc.)
•existing commercial infrastructure, e.g. banks, restaurants, shops, hotels and other services.
The main business districts are:
1) The Business Triangle on Jasinskio/Goštauto Str., where modern office space exceeds 45,000 sq. m and
which can be considered an A-Class location. Unfortunately, this location has very limited or even non-existent expansion possibilities after the successful completion of the Eika Business Centre in the first quarter
of 2006;
2) New City Centre/Right Bank of the river Neris – the rapidly changing Šnipiškių district where the first
steps were taken in Konstitucijos Ave. with the opening of the new Vilnius Municipality building and the
Europa Shopping and Business centres. There are several major projects in the pipeline in this area: Hansabankas and TEO headquarters (20,000 and 10,000 sq. m respectively) and the Registrų Centras in Lvovo
Street with two towers of 16 and 24 floors to be available for leasehold (40,000 sq. m in total).
3) Saltoniškių/Geležinio Vilko Str. – an A-Class location undergoing very active development. The attractiveness of this location will increase after a new shopping centre Panorama is completed in spring 2008.
4) North Town, Žirmūnai – a B-Class location attractive for smaller businesses, back offices and activities
such as IT, engineering, various services, etc. mainly because of the concentration of commercial buildings
and vicinity of attractive residential areas (Žirmūnai and Antakalnis districts).
5) Ukmergės Street – a B-Class location also attractive for smaller businesses and back offices through its
vicinity to huge and still actively developing residential areas (Fabijoniškės, Pašilaičiai, etc.). The area is
developing in two main directions – retail (mainly DIY, household, furniture, etc.) and B-Class offices.
The described business districts are marked in the map below.
Main Business Districts in Vilnius
5
4
3
2
1
Source: KOBA, 2007
Average Rent in Main Business Districts (EUR/sq. m/month)
Rent EUR /sq. m
1) Business
Triangle
2) New City
Centre
3) Saltoniškių /
Geležinio Vilko Str.
4) North Town,
Žirmūnai
5) Ukmergės Str.
16
17
17
12
10
Source: KOBA, 2007
Supply
In 2006, the growth in supply of modern office space slowed down in comparison with previous years,
mainly as a result of very active development in the residential sector. The imbalance between supply and
demand was caused, firstly, by commercial real estate experts doubting the market’s capacity to absorb the
new supply. Secondly, development within the residential market is still active, and residential projects enjoy
shorter pay-back periods and higher profit margins. Lastly, the time-consuming legislative procedures for
obtaining construction permits have discouraged office project developers. In 2006, only a few new business
centres and some reconstructed buildings were opened, with a total rentable area of 20,000 sq. m added to
the pool of contemporary office space. In comparison, the increase in modern office space in Vilnius was
almost 40,000 sq. m in 2005.
The biggest multifunctional project due to be opened in 2006 is the Vilniaus Vartai commercial and residential centre, however, the office sections had not been opened by the end of the year. Totally, with Vilniaus
Vartai project, 15,000 sq. m of A-Class office premises will come on to the market for leasehold and purchase, which will noticeably influence the office market and partly cover the existing demand for A-Class
premises. Nevertheless, the demand for high quality product is expected to remain high, because of the
national economy’s continued growth.
16
Demand
The demand for modern office premises is most apparent in Vilnius; hence most office-market activity is
taking place there. Today, the main drivers for seeking change of office premises are the significant expansion of companies’ activities in line with the growing economy, and current landlords’ inability to fulfil
their tenant’s expanding office-space needs. In most cases, landlords simply have no additional office space
for rent, while the vacancy level is zero in almost all existing business centres. Often, lease agreements with
smaller-space tenants have early termination clauses so that their premises can be vacated in favour of bigger
tenants in the same building. The opportunities for new tenants to enter existing centres are very limited.
Currently, modern office premises of 100-200 sq. m size located either in the central part of the city with
convenient access and parking, or in the northern part of the city (Žirmūnai, Šnipiškės districts, or along
Ukmergės Street), are the most sought-after. There is a clear trend for companies to prefer moving to the
northern part of the city, where two thirds of the entire city population lives. People trying to avoid heavy
traffic during rush hours prefer locations with more convenient access, generally closer to their residential
area or along main transport arteries.
Not surprisingly, the demand for larger premises and headquarters (over 1,000 sq. m) increased in 2006;
however, large companies, requiring such areas of modern office space have no options available, and are
obliged to wait until such spaces are constructed. Consequently, negotiations regarding large-size spaces
should be started at very early project development stages.
It is worth noting that tenants are becoming more demanding in terms of the quality of premises and the
services provided. Although rental costs, location and size of the premises remain the main factors in choosing a site, other important aspects, such as plentiful parking for both clients and employees, the professional
presentation and image of the business centre, convenient layout and planning of work places, high quality
installations and fit-out materials, expansion opportunities and skilled property management also have a
great influence. Companies not only care about their image, but also about convenient and secure working
conditions for their employees.
Rent
During 2006, rental prices rose by 10% compared to 2005. The average monthly rent for A-Class office
premises in Vilnius is 15-17 EUR/sq. m and 12-14 EUR/sq. m for B-Class premises. Prices mainly vary with
location in the city, as the general technical and fit-out features of newly built A- and B-Class premises are
relatively comparable. Price differences are also influenced by the image of business centres, their neighbourhood, ease of access and parking facilities.
Pipeline Projects
As a result of the strong demand, many market players commenced the active development of modern office projects at the end of 2006, and according to their announcements, more than 80,000 sq. m of modern
office space will become available in 2007 alone. Nonetheless, as long as nearly all of the constructions are
delayed, these openings can be expected to be late too. Thus, it is unlikely that the current market situation
will improve in the short term. Over the next few years Vilnius will welcome some 188,000 sq. m of new
office space, which is a significant increase by 58% of modern offices supply; therefore, the developers who
are thinking of new projects should consider it very carefully.
In terms of quality, there is active development of both A- and B-Class premises, which is in line with
current demand. Developers are tending toward the construction of multifunctional centres to secure risk
diversification, synergic effects for their marketing activities, optimal use of limited parking facilities, a developed business infrastructure, and a business-to-business environment.
New Office Building Projects in the Pipeline
Project Developer
Scheduled Opening Date
Location
Class
Total Area,
sq. m
Ranga IV (Vilniaus Vartai)
2007 (I Q)
Gynėjų Str.
A
15,000
Anreka
2007 (I Q)
Kareivių Str.
B
6,500
Vilmesta
2007 (II Q)
A
8,000
Realtus
2007 (III Q)
Žirmūnų Str.
B
2,700
Skraidenis
2007 (IV Q)
Naugarduko Str.
B
7,000
Gepaga
2007 (IV Q)
Ukmergės Str.
B
3,800
Vetrūna
2007 (IV Q)
Lvovo Str.
A
40,000
Merko statyba
2007-2008
Gabijos Str.
B
8,000
Indeco
2008
Ukmergės Str.
A
10,500
E.L.L. Nekilnojamas Turtas
2008
Laisvės Ave.
B
8,200
Akropolis (Velga)
2009
B
30,000
Hansabankas
N/D
Konstitucijos Str.
A
20,000
TEO
N/D
Lvovo Str.
A
10,100
Domestas
N/D
Ozo Str.
B
6,800
SBA
N/D
Upės Str.
A
6,000
Lietkompexim
N/D
Viršuliškių Str.
B
Total
5,500
188,100
Source: KOBA, 2007
6.2. Kaunas
The office market structure in Kaunas is somewhat different from that in Vilnius and Klaipėda. It is quite
unusual to rent an office in a prestigious location as companies prefer to acquire their own premises rather
than rent them in the same business centre that their competitors also have offices. Thus, the supply of
modern office space is quite limited; it took some time to lease out even the few office buildings that were
constructed in 2003-2004. As a result, developers are quite cautious about instigating new projects. Nevertheless, there are signs in the market that the demand for A-Class offices is reviving.
Historically, as in other Lithuanian towns, when the commercial market evolved, the office market initially developed in the central part of the city and the Old Town. Even now, many offices are still found in
Kaunas’s main street – Laisvės Ave. – and in nearby streets: Kęstučio, K. Donelaičio, A. Mickevičiaus. However, only a few office buildings have undergone reconstruction and been adapted to contemporary office
premise requirements. In addition, car parking problems are yet to be solved.
The most sought-after premises in Kaunas are small, often not exceeding 50 sq. m, an outcome of the structure of business in the city. Small and medium businesses predominate, as do relatively small branches of
large companies whose head offices are in Lithuania’s capital city. Consequently, the premises offered for rent
in modern business centres are divided into smaller units of 30-40 sq. m, which is the main difference from
Vilnius business centres’ structure, where the needs of small tenants are rarely catered for.
Further from the city centre, in Savanorių Ave., a new business district is beginning to evolve, although not
as actively as the business districts developing in Vilnius. The location is active in terms of traffic and also
advancing commercially with its modern office buildings attracting blue-chip tenants, including banks and
insurance companies.
In 2006 the office market was not active and worth to mention is only the reconstructed Business Centre
32 in Vytauto Ave. with 3,600 sq. m of modern office space. Even now, only a few new office buildings are
being developed in Kaunas. One of them is a modern 9-storey business centre in Pramonės Ave. close to
Urmo bazė, the total size of which will be 3,650 sq. m. The building was scheduled to be opened at the end
18
of 2006, but the opening was postponed. There are also plans to develop a multifunctional project (hotel,
retail and offices) in Karaliaus Mindaugo Ave., close to the Akropolis.
The average monthly rent for A-Class office premises in Kaunas is 10-11 EUR /sq. m and 6-9 EUR / sq. m
for B-Class premises. As the city’s rental prices are quite low, there is no likelihood of them declining.
Average Rent (EUR / sq. m/month)
Kaunas
A-Class
10
B-Class
7.5
Source: KOBA, 2007
6.3. Klaipėda
Currently, the largest proportion of the Klaipėda office market is made up of older construction premises
renovated and converted into modern office space. As in Vilnius though, there is a trend to move away from
the Old Town to newly-built premises with high-standard office equipment and better parking facilities. At
present, there are several projects at different development stages, which will add a total of more than 50,000
sq. m of new modern office space to the market in 2007-2009.
In terms of demand, B-Class premises are currently more sought-after mainly due to the lower rents, whereas
the supply of A-Class office premises was increased by a number of new projects. Additionally, as in Kaunas,
it is mostly small and medium businesses that operate in Klaipėda, along with small branches of large companies whose head offices are in Vilnius.
By the end of 2006, one of the most modern office buildings, the 20-floor K-Centre (6,000 sq. m) was
completed in the very city centre, close to the hotel Klaipėda. Naujojo Uosto Str. and Taikos Ave. have the
most appeal for office developers and several new projects are currently being developed in different parts
of these streets. In July 2007, a new A-Class office building Neapolis will be opened at the corner of Taikos
and Agluonos Str. One section of the building will be a 16-storey tower, the other of only 4-storeys. The
latter will be occupied by the regional headquarters of Hansabankas and will be completed earlier than the
rest of the building.
New Office Building Projects in the Pipeline
Project Developer / Owner
Location
Total Area, sq. m
Vestrina (B1)
Minijos/Bijūnų Str.
21,000
Neapolis
Taikos/Agluonų Str.
10,500
Memelio miestas
Naujoji Uosto/Danės Str.
10,000
Kleta
Naujoji Uosto/Šerniaus Str.
6,500
Eika (B12)
Baltijos Ave.
2,300
Plienas (Gandrališkės)
Kuosų Str.
Total
1,900
52,200
Source: KOBA, 2007
There are also several projects being developed further away from the Klaipėda city centre, most of which
will be combined with warehouses and logistics facilities. The rent for such premises varies from 7 to 10
EUR /sq. m/month. In general, the average monthly rent for A-Class office premises in Klaipėda is 11-13
EUR /sq. m and 7-10 EUR /sq. m for B-Class premises.
Klaipėda
A-Class
12
B-Class
8
Source: KOBA, 2007
6.4. Šiauliai
No A-Class office buildings exist in Šiauliai. The needs of the few existing tenants are satisfied with converted B-Class premises on the first and second floors of existing buildings. Manufacturing companies have
their own administrative buildings. The first A-Class offices were planned by developer E.L.L. Nekilnojamas
Turtas as a part of the multifunctional commercial centre Saulės Miestas. However, the project featuring an
office and hotel building was postponed for distant future, as the market is not able to absorb such supply.
The most sought-after premises are in the size range of 40-60 sq. m. Currently, monthly rental prices vary
from 3 to 7 EUR/sq. m in residential and industrial districts, while premises in the central part of the city
can be leased for 6-8 EUR/sq. m.
Šiauliai
B-Class
6
Source: KOBA, 2007
6.5. Panevėžys
The current situation in Panevėžys is similar to that in Šiauliai. There are no A-Class office premises available, and most of the B-Class office space is in older buildings which have been reconstructed and modernised. Most companies prefer acquiring their own office premises rather than renting them. The situation
will change after the opening of the office building (app. 13,000 sq. m), with car parking on its roof, due
at end 2007/beginning 2008. This is the only announcement about A-Class office development. i.e. the
second stage of the Babilonas multifunctional centre by Ogmios Centras.
Panevėžys
B-Class
Source: KOBA, 2007
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6
Chapter 7 Retail Market
7.1. General Remarks
The Lithuanian retail market still lags behind those of the other Baltic States, consequently it is experiencing
very active development. Current shopping centre development is not limited to the capital, but has spread
to other cities, in some of which new projects anticipate dramatic increases to the gross area of retail space.
Successful pre-leasing of premises in new shopping centres and low or zero vacancy levels in existing retail
premises reflect huge interest on the part of retailers and have encouraged developers to consider new projects. Additionally, growing interest from investors resulting from the EU membership and the country’s
declining risk status, increases pressure on developers to react in line with existing demand.
In 2006, major Lithuanian retailers (Apranga, Lelija, Lėvuo, etc.) took their first steps beyond the country’s
five largest cities. In September, 2006 a new 3,700 sq. m shopping centre Aušra was opened in Utena. Other
shopping and entertainment centres are planned to be opened in Gargždai by Pamario Namas (around
20,000 sq. m), in Elektrėnai by Irlanda (around 7,000 sq. m), in Marijampolė by Artapolas (8,000 sq. m).
The interest of international retailers in the Lithuanian market is increasing. In 2006, several new brands
were introduced: Tommy Hilfiger, GANT, Cop.Copine, Pull&Bear, Pierre Cardin, New Yorker, Bershka and
Esprit; also several international retailers announced their intention to open shops in 2007, including
Marks&Spencer, Lindex and La Senza.
To date, most international retailers have licensed franchisees rather than entered the market themselves, for
example ZARA, Bata, Marc’O’Polo, Tommy Hilfiger, Mexx, Hugo Boss, Esprit and Mango. Of course, the three
Baltic States are often still treated as one small market in general, and some international brands (H&M,
IKEA, Stockman, etc) still wait for more appropriate time to enter the Lithuanian market.
Main Developers
The main developers working on shopping centre projects are Hanner (Europa SC in Vilnius, Arena SC
in Klaipėda, Savas SC in Kaunas), Senukai (Banginis in Vilnius, Mega SC in Kaunas and a numerous DIY
outlets throughout Lithuania), VP Market Group (Akropolis in Vilnius, Kaunas, Klaipėda and a number of
Maxima super/hypermarkets throughout Lithuania), Ogmios Centras (Domus Galerija, North Town project
in Vilnius, Bruklinas SC in Šiauliai, Babilonas SC in Panevėžys), E.L.L. Nekilnojamas Turtas (Panorama SC
in Vilnius, Saulės miestas SC in Šiauliai), and the Rubicon Group (Ozas SC in Vilnius).
Major Anchor Tenants
Major anchor tenants are: Maxima LT (Maxima, the largest grocery chain), Senukai (DIY), RIMI Baltic
(RIMI grocery chain), Rivona (Norfa grocery chain), Palink (IKI grocery chain), Apranga (fashion retailer),
Lėvuo (fashion retailer), Armitana and Danbalt (footwear and fashion retailers), Elektromarkt and Topo centras (home appliance retailers), Čilija (restaurants).
One of the main characteristics of this market segment is the continued dominance of the domestic players
in the grocery sector. Local chain Maxima is the leader in this segment, however, the RIMI, IKI and Norfa
chains are also rapidly increasing store numbers. This dominance is the likeliest explanation for the decision
of German grocery chain Lidl, which had announced ambitious plans to open discount stores all over the
country and had already acquired land, to suspend its activities in Lithuania.
Retail Chain Shops in Lithuania (end of year)
Number of Shops
2005
2006
Maxima
195
202
IKI
153
199
Norfa
124
111
RIMI
37
51
Source: KOBA, 2007
7.2. Vilnius
In general, foreign retailers want to open their first shops in the Lithuanian capital, whereas local retailers are
focussed on maximising their market share. This makes demand for retail space quite strong with high levels
of pre-leasing and almost zero vacancies in the main retail streets and shopping centres.
The major driving forces for the growth of the retail market in Vilnius are:
•increasing consumer spending power;
•one of the lowest unemployment rate in the country;
•higher average income than in other Lithuanian cities;
•increasing number of local and foreign visitors;
•changing shopping habits.
Today, Vilnius possesses up to 500,000 sq. m. of modern retail area which can be split into three specific
segments: high-street shops, super and hypermarkets, and shopping centres. In 2006, only one shopping
centre was added to the Vilnius retail market – BIG (19,000 sq. m).
Main Retail Streets in Vilnius
There are four main retail and leisure streets in the capital of Lithuania:
•Gedimino Avenue
•Pilies Street
•Vokiečių Street
•Didžioji Street.
Each of these streets has unique features in terms of location, attractiveness to consumers and retailers, and
potential for expansion of retail premises.
Gedimino Avenue
Gedimino Avenue is the most prestigious high street in Lithuania, especially after its reconstruction, although the least active section is still awaiting reconstruction. Entertainment, leisure, and shopping areas are
available on Gedimino Avenue, but its main point of attraction is the opportunity to breathe its history.
Retail space on Gedimino Avenue is particularly limited; most tenants stay in their leased premises for 10
years or longer, whereas new shops can only open by replacing current tenants or changes in ownership. Be-
22
cause of the limited new building construction opportunities on Gedimino Avenue, the only way to increase
its retailing area is to convert existing premises into retail outlets. While there are still many institutional
buildings, currently accommodating government bodies, Gedimino Avenue is still perceived to possess potential for further development as an attractive retail and leisure area.
There are two shopping centres in Gedimino Avenue, Flagman and Grand Duke Palace; one more, the contemporary high-class shopping centre Gedimino–9 with a total area of 18,000 sq. m, is due to open in the
street’s best section, in spring 2007.
Gedimino Avenue is particularly attractive for retailers to establish either a shop or a flagship store there, but
interest levels vary, depending on the exact location along Gedimino Avenue.
Segmentation of Gedimino Avenue
D
C
B
A
Compared to other streets in the city, pedestrian flows in Gedimino Ave. are easily the highest; to be more
precise, the most popular part of Gedimino Ave. is from the start of the street up to the ZARA department
store (marked as Section A in the map above). Further along, pedestrian flows decrease, and more gaps
appear between shops because of institutional buildings and city squares. This is clearly reflected in rental
levels (see below).
Average Rent (EUR/sq. m/month)
Rent
Section A
Section B
Section C
Section D
35 - 64
30 - 40
25 - 32
20 - 23
Source: KOBA, 2007
Old Town
Having been, historically, one of the city’s main shopping streets, Pilies Street is now a mainly tourist- (amber, jewellery and souvenirs shops) and leisure-oriented (cafes, restaurants, hotels) area.
Vokiečių Street was formerly quite attractive to both retailers and consumers, but the insufficient pedestrian
flow, difficult parking conditions, the rapid development of out-of-city shopping centres and consumer
preferences to shop in them have combined to turn it into a leisure space, which today features cafes, restaurants, casinos, but very few retail outlets.
In contrast, Didžioji Street has evolved into one of the most well-appointed shopping areas in Vilnius, where
all major high-end brands have their boutiques or shops (including Armani, Hugo Boss, Roberto Cavalli and
Escada). In 2006, the appeal of Didžioji Street was temporarily diminished due to the reconstruction of the
Town Hall Square, planned to be completed in spring 2007. The reconstruction will add value to Didžioji
Street both as retail, leisure and tourism area.
As a result of the differing characteristics described, Vilnius retail streets rental prices vary with location.
Average Rent (EUR/sq. m/month)
Street
Pilies
Vokiečių
Didžioji
Rent
35
30
42
Source: KOBA, 2007
Shopping Centres in Vilnius
Shopping centres have only been present in the Lithuanian market for a few years, and there are still many
opportunities for expansion, especially when equivalent retail space figures in the other Baltic States are
considered. Although the Lithuanian market is larger in size, rentable retail space per capita is smaller than
in Latvia and Estonia. One peculiarity of Vilnius and the Lithuanian retail market in general is that the
major developers are often associated with the anchor tenants of the shopping centres, for example Maxima,
Senukai, Norfa, RIMI.
Only one shopping centre was opened in Vilnius in 2006. In September, the two-storey district shopping
centre BIG (19,000 sq. m) was opened by local developer Baltijos Investicijų Grupė, who also developed a
centre to the same concept in Klaipėda in 2004.
Main Shopping Centres in Vilnius
Shopping Centre
Total Area, sq. m
Akropolis
109,000
BIG Vilnius
19,000
Europa
21,500
VCUP
19,700
Mada
19,000
Domus Galerija
10,000
Mandarinas
8,000
Flagman
7,000
Total
213,200
Source: KOBA, 2007
While all the shopping centres differ in their location, interior planning and mix of tenants, rental levels are
quite similar and are shown in the table:
Average Rent (EUR /sq. m/month)
Rent
Anchor Tenants
Medium Areas (>100 sq. m)
Small Areas (< 100 sq. m)
7-15
15-35
30-50
Source: KOBA, 2007
Pipeline Projects
The number and scope of projects in the pipeline show that Lithuanian retailers and property developers are seriously interested in the growth of the capital’s retail segment. The Vilnius shopping centre market is expecting
a substantial 80% increase in space over the next two years. The main pipeline shopping centres are described
in the table below, additionally, more modern retail space will come on to the market after the completion of
24
two projects: Helios City in Konarskio Str. (7,000 sq. m) and Vilniaus Vartai in Gynėjų Str. (over 7,000 sq. m),
which will offer retail units for luxury brands and premises for restaurants and a night club.
Pipeline Projects in Vilnius
Project Name
Opening Date
Location
Total Area, sq. m
Gedimino-9
2007
Gedimino Ave.
18,000
Panorama
2008
Saltoniškių Str.
65,000
Ozas
2008
Ozo Str.
93,000
Akropolis (Velga)
N/D
Total
100,000
276,000
Source: KOBA, 2007
Three new projects, currently under development, will significantly influence the Lithuanian capital’s shopping centre market. The Gedimino-9 SC on Gedimino Avenue will start operating in a former Vilnius municipal building in the spring of 2007. The Gedimino-9 project will feature five floors of modern shopping
area focused on middle- and upper-class customers. Several international brands have already announced
their intention to open their first shops in this centre, including Marks & Spencer, Lindex and PO.P. The
decision to open their first shops in Lithuania in Gedimino-9 attests to the high level of confidence in this
project.
Additionally, in 2006 Estonian developer E.L.L. started construction of a 65,000 sq. m shopping centre
named Panorama in one of the most prestigious districts in Vilnius, at the junction of T. Narbuto, Geležinio
Vilko and Saltoniškių streets, with the intention of opening it in spring 2008. The area is attractive because
of its vicinity to the city centre and the relatively commercial neighbourhood with one modern business
centre built in 2002 and several more planned for 2007-2008.
The three-storey Ozas of 93,000 sq. m is planned to be opened in 2008. The project is being developed by
local company Vilniaus Pramogų Parkas (part of the Rubicon Group) and Germany’s ECE Projektmanagement. The location of the shopping centre will give a central focus to a number of existing commercial and
leisure projects: the Siemens Arena, the Vichy water amusement park to be opened in the spring of 2007, and
existing and planned business centres.
In the pipeline, Vilniaus Akropolis is planning to develop 13 ha of the former Velga industrial territory in
Geležinio Vilko Street into a multifunctional centre with retail, office and residential premises. In total, the
project will exceed 200,000 sq. m and is scheduled for final completion in 2015.
7.3. Kaunas
For a long time the most attractive retail place in Kaunas has been the pedestrian Laisvės Avenue, where
shops and restaurants prevail. In terms of brand names, numbers of retail units and pedestrian flow, the location is on a par with Vilnius high street Gedimino Ave. However, the imminent arrival of Akropolis (83,000
sq. m) in the first quarter of 2007, has made some market players quite pessimistic about Laisvės Avenue’s
future appeal and its ability to compete with this huge new rival, given that rents have begun to fall, even
before the opening of Akropolis, and the fact that some of the location’s successful retailers have announced
they will close their shops and move to Akropolis.
There were no new shopping centres opened in Kaunas in 2006, but one, Molas, was reconstructed after the
Senukai hardware and home decoration centre moved out to Mega. After its reconstruction, Molas has succeeded in attracting several clothes, footwear, household goods and beauty brands, all of which were already
present in the Lithuanian market.
Main Shopping Centres in Kaunas
Shopping Centre
Total Area, sq. m
Mega
72,000
Molas
22,600
Merkurijus
14,000
Savas
13,500
Dainava
9,000
Total
131,100
Source: KOBA, 2007
The regional Mega SC (72,000 sq. m), located on the Vilnius – Kaunas – Klaipėda highway in Kaunas
is worth mentioning because it is positioning itself as the biggest shopping and leisure centre in central
Lithuania. The anchor tenants are a RIMI Hypermarket and a Senukai (DIY) shop. Other Kaunas shopping
centres (Molas, Savas, Dainava) mainly service their neighbouring residential districts.
Additionally, many people are still used to shopping in the Urmas retail park, a mixture of both retailers and
wholesalers. The total area of Urmas is 15 ha; with the total trading area exceeding 60,000 sq. m and more
than 1,200 tenants.
Kaunas
High Street
35
Shopping Centres
15
Source: KOBA, 2007
Pipeline Projects
Akropolis, with total space of more than 83,000 sq. m, is situated close to the main pedestrian street –
Laisvės Ave. and Karaliaus Mindaugo Ave. The anchor tenant Hyper Maxima will take up 6,800 sq. m and
the ice arena will account for 1,500 sq. m.
The main factors of Kauno Akropolis appeal are the popularity and success of its sister projects in Vilnius and
Klaipėda, its good location (close to Laisvės Ave., the main high street, and the island of the river Nemunas
on which a sports and leisure arena is to be built), a strong anchor tenant (Hyper Maxima), a large number
of tenants (around 200 shops), good parking (some 2,800 spaces) and its leisure attractions (ice arena, bowling, etc.).
There are no other new shopping centres in the pipeline: the development of new shopping centres has been
suspended for some time while the Kaunas municipality develops a special plan for allocating land for new
centres in the city. The Laisvės Ave. pedestrian street is also waiting for reconstruction plans to be finalised.
7.4. Klaipėda
The main retail street in Klaipėda is H. Manto Street, which is a continuation of Taikos Avenue – one of the
main thoroughfares, connecting the southern and northern parts of the city. H. Manto Street, with large
flows of both transport and pedestrians, concentrates public institutions, offices, hotels, restaurants and
retail outlets. There are a few shopping centres on the high-street section of H. Manto: Mega Plaza (5,000
sq. m), Kapitolijus (3,000 sq. m), Studlendas (3,500 sq. m); other projects, currently under development, are
Žemaitija (2,500 sq. m) and Manto namai (3,000 sq. m).
26
Unsurprisingly, 2006 was a quiet year after 2005, a big year for openings in Klaipėda, when Saturnas (5,700
sq. m), Arena (18,000 sq. m) and Grandus (12,000 sq. m) shopping centres were opened, and Hyper Maxima
conversion into Akropolis (75,000 sq. m) was completed at the end of the year. At the end of 2006, a new
Studlendas SC, combined with lecture halls and other public premises, was opened on the Klaipėda University campus.
Main Shopping Centres in Klaipėda
Shopping Centre
Total Area, sq. m
Akropolis
75,000
BIG
21,000
Arena
18,000
Grandus
12,000
Saturnas
5,700
Avitela
5,200
Mega Plaza
5,000
Studlendas
3,500
Kapitolijus
3,000
Total
148,400
Source: KOBA, 2007
Pipeline Projects
There are several retail projects in the pipeline. One of them is Manto namai, a new shopping centre (3,000
sq. m), which will open its doors at the junction of H. Manto high street and pedestrian M. Mažvydo Street
in the first quarter of 2008. Manto namai project, with a total area of 11,000 sq. m, combines a shopping
centre in the first two floors with prestigious apartments on the three upper ones.
In spring 2007, the construction of a major extension to the BIG Shopping Centre will commence. When
completed, the size of the centre will be doubled, as some 20,000 sq. m will be added to the existing 21,000
sq. m. The developer, Baltijos Investicijų Grupė, will also build two or three 20-25 storey residential buildings. The whole project is scheduled for completion in spring 2008.
A new specialised interior design and home decoration shopping centre Namo Inžinerijos ir Interjero Centras
(NIC, 4,500 sq. m) is under construction in Minijos Street. The opening is scheduled for April 2007. It
will be the second centre of this concept in Lithuania. The first NIC centre was opened in 2005 in Kaunas.
Another similar project, SBA Idėjos Namams (5,100 sq. m), will be developed in Baltijos Ave.
The most complicated project in terms of capacity and timeline is Jūros Vartai, the aim of which is to completely change the former Klaipėdos Laivų Remontas (shipyard) industrial area by expanding Klaipėda city
centre and opening up access from the city to the sea. The preliminary date for project completion is 2015.
As well as shopping galleries, restaurants and leisure centres, the project will also encompass office building
and hotel development. A similar project is anticipated for the other bank of the river Danė is called Memelio Miestas and due by the end of 2012. The project will include shopping galleries (11,500 sq. m), a night
club, casino and restaurants (3,300 sq. m) and other commercial and leisure space. The developer is called
by the name of the project and is a purposely launched company.
Other projects include Vaiva, a mixed commercial and residential project, and a 4-storey shopping centre
(9,100 sq. m) by Šiaulių titanas; both of them are in H. Manto Str.
Klaipėda
Source: KOBA, 2007
High Street
26
Shopping Centres
17
7.5. Šiauliai
As a result of the Lithuanian economy’s continuing expansion and consumers’ increasing purchasing
power, the commercial real estate market experienced significant growth in Šiauliai. A few new shopping
centre projects were started or continued construction in 2006, in both central and suburban locations.
A new shopping centre Saulės Miestas with rentable area of 20,000 sq. m and anchor tenant Hyper RIMI
(4,500 sq. m), integrated with the city’s bus station, was completed by international developer
E.L.L. Nekilnojamas Turtas.
The reconstruction and expansion of Norfa XXL was commenced in 2006. It will become the Bruklinas
Shopping Centre with up to 26,000 sq. m of retail space. A new hotel of almost 10,000 sq. m total area is
also planned by the same development company. The project is due for completion by spring of 2007.
Another local developer, Lukerta, has started the construction of shopping and entertainment centre Tilžė
in the central part of Šiauliai, in Tilžės Street, the city’s major transport artery, passing right through Šiauliai
and becoming the main road to Riga (Latvia). The centre, with an area of 31,000 sq. m, will be opened by
the end of 2007.
Pipeline Projects in Šiauliai
Project Name
Opening Date
Total Area, sq. m
Saulės miestas
2007
52,000
Bruklinas
2007
26,000
Tilžė
2007
31,000
Total
109,000
Source: KOBA, 2007
As to date, Šiauliai possessed no actual shopping centres, it is expected that all three new projects will attract
the interest of both retailers and customers. More points of attraction should also increase the number of
visitors to Šiauliai from neighbouring areas, as was the case with the Akropolis in Vilnius, when people from
other cities came for shopping and entertainment. The new shopping centres will certainly boost the appeal
of the pedestrians-only Vilniaus Str.
Monthly rental prices for retail premises located in the central part of the city, depending on location, the
allure of the district and pedestrian flow, can reach 20 EUR /sq. m, whereas average rental prices in other
districts are between 3-9 EUR /sq. m. For shopping centres, they reach 18 EUR /sq. m.
Šiauliai
High Street
20
Shopping Centres
18
Source: KOBA, 2007
7.6. Panevėžys
Similarly to other Lithuanian cities, Panevėžys main retail area is located in the city centre and the old town,
mainly occupying the ground floors of existing buildings. There are several supermarkets located further
from the city centre, mainly serving the population in their neighbouring districts.
28
The developer Ogmios Centras is continuing the construction of the Babilonas multifunctional centre in
the southern part of Panevėžys. The first phase of the development (a 27,000 sq. m shopping centre) was
completed in the autumn of 2005. The second phase will encompass two 3,000 and 5,000 sq. m buildings (trade in agricultural and construction equipment) to be completed in the first quarter of 2007, and a
15,000 sq. m DIY outlet due at the beginning of 2008, with an additional 19,000 sq. m area shopping and
entertainment centre, an office building and a hotel in the pipeline. Ogmios Centras is planning to continue
the construction of residential, industrial and additional entertainment and shopping space on this land
right through to 2009.
Panevėžys
High Street
20
Shopping Centres
9
Source: KOBA, 2007
In conclusion, the significant expansion of shopping centres (see the table below) might suggest doubts
whether the market is ready to absorb it, however, we believe that with continuing retail demand, rental
levels in shopping centres are to remain stable.
Future Supply of Shopping Centre Space (sq. m)
Shopping Centres
Source: KOBA, 2007
Vilnius
Kaunas
Klaipėda
Šiauliai
Panevėžys
276,000
83,000
59,000
109,000
34,000
Chapter 8 Warehouse/Industrial Market
Regardless of the fact that the Lithuanian market for modern warehouse and industrial premises is at the
initial stage of its development, the demand for logistics services is increasing and businesses require more
of them as goods’ traffic flows into and out of the EU have increased since Lithuania’s accession to the alliance. Despite this, high land prices, a lack of appropriate sites and leasing structures are major obstacles and
are holding back the market’s development. The leasing of industrial premises is expected to remain stable,
while the market has a lot of growth potential during the coming period.
The Lithuanian warehouse market mainly comprises older premises and only a few new buildings have been
constructed to date. Concrete block and brick warehouses and production facilities, built between 1962 and
1990, as well as large-area administrative buildings, dominate the warehouse markets of all major cities, with
a few exceptions of new, most often purpose-built, modern warehouse buildings or renovated old ones. Today, a large proportion of older warehouses and administrative buildings have been equipped for wholesale
and retail trade, and goods’ storage. New facilities are scarce and those developed earlier in almost all cases
are owner-occupied warehouses and industrial facilities.
New constructions of warehouses/logistics centres are being developed in stages, mostly close to three main
cities: around Vilnius, in the Kaunas Free Economic Zone (FEZ) and near the Via Baltica highway, and in
the Klaipėda FEZ. The most active industrial developments are being undertaken near the main international European transport corridors that cross Lithuania:
•The Via Baltica highway (route No. I) in a north-south direction and railway line Rail Baltica on the Tallinn-Riga-Panevėžys-Kaunas-Warsaw route,
•In an east-west direction: the Kiev-Minsk-Vilnius-Klaipėda road (route IXb) and the Kaunas-Kaliningrad
road (route IXd).
With the Lithuanian economy continuing to grow, the demand for modern warehouse and light manufacturing industrial units is increasing, driven mostly by the development of companies involved in logistics,
distribution and the wholesale sector, export-oriented local clothing manufacturers, companies in the electronics and food/catering industries, and information technology companies.
In the meantime, newly constructed or projected modern warehouses are oriented to large clients with tight
lease agreements. As a result, the rentable area of the premises offered to the market varies from 2,000 to
10,000 sq. m. On the demand side, however, the most sought-after are small premises within city boundaries, so finding suitable premises for both big and small customers takes time because of the specific requirements for warehouse premises. The overall increase in land prices, the huge growth in demand for residential
premises has caused developers be more active in the residential segment and be more conservative in the
warehouse segment. The recent boom in the residential market has also distorted market values of land.
Land for residential purposes is in short supply, therefore land prices across the board increased significantly,
as it is frequently possible to change the land-use purpose.
The establishment of public logistics centres in Lithuania will be partly funded by the EU, the total commitment during 2007-2013 amounting to EUR 63.4 million, mostly allocated to the Vilnius and Klaipėda
public logistics centres.
Monthly rental prices per square metre vary depending on location, lease conditions and size of the rented
premises. Modern industrial/warehouse properties are rented from 4 to 6 EUR/sq. m/month for warehouse
premises, and from 3.4 to 7.2 EUR/sq. m/month for office space in all major Lithuanian cities. Selling
prices start from 300 to 400 EUR/sq. m. for average quality premises.
30
8.2. Vilnius
In general, not just in Vilnius, warehousing and industrial facilities are moving out of city centres mainly
because of inner- city traffic problems, rising land prices, which are too high to maintain industrial or warehousing premises in the city, and as a result of the general supply of land, which is more available outside
cities (larger areas and variety of locations).
Because of its capital-city status, concentration of major retailers and developers, good location and accessibility, Vilnius has good opportunities for the development of logistics/warehouse properties. The most
suitable locations are the Vilnius-Kaunas highway, Minskas road and the new industrial-purpose area close
to Lentvaris.
As a result of the Vilnius market’s lack of new purpose-built and speculative warehouse developments and the
absence of major international developers with experience in the field, larger companies have commenced
building their own warehouses. The biggest warehouses in Vilnius are located in the Kirtimai, Paneriai and
Vilkpėdė districts, where historically, industrial businesses have operated, and near Minskas road. Currently,
Vilnius possesses several newly built warehouse/logistics buildings with space available for rent.
New Logistics Centres/Warehouses Opened in Vilnius in 2006
Project
Total Area, sq. m
Dobrovolės logistics centre
17,000
Žarijų logistics centre
14,000
Autoverslas warehouse
7,000
Girteka warehouse (II phase)
5,600
Total
43,600
Source: KOBA, 2007
Ogmios centras has started the development of a modern warehouse with office premises close to Vilnius
airport and the projected southern bypass. The project will make a total of more than 20,000 sq. m of modern warehousing space available to the market. The first tenant, DHL Lietuva, has already announced the
signing of a long-term lease and plans to open a new logistics terminal of 5,600 sq. m in the first quarter
of 2008.
The Vingės Logistikos Grupė (VLG) started the construction of a 18,000 sq. m logistics centre on the main
national highway between Vilnius and Klaipėda in 2006. VLG intends to build one more logistics centre
in the Klaipėda FEZ.
8.3. Kaunas
Most specialists agree that Kaunas, being the geographical centre, will become the country’s logistics and
warehouse centre too. However, only a few small projects have been finished to date, and three logistics
facilities are in the pipeline.
Developer YIT Kausta has commenced the construction of a warehouse and office space, Kaunas Terminal,
which will release a total of 30,000 sq. m of modern space in the Kaunas Free Economic Zone (FEZ) by
the second half of 2007, the first phase of development. Kaunas Terminal has already attracted two tenants
– Combifragt Lietuva (13,000 sq. m) and Alma Littera (5,000 sq. m). The Kaunas FEZ is located close to
the country’s main transportation corridors as well as the local Karmėlava airport, and offers a number of
tax incentives to developers.
A new logistics centre, Baltic Logistics City, is under development close to the Via Baltica highway. Over
three development stages, the market will receive a total of around 56,000 sq. m of modern warehousing
and administrative premises by the end of 2008. In addition, Baltreal Invest has announced an initiative to
create a retail, transport and logistics park close to the Mega Shopping Centre and Via Baltica highway.
8.4. Klaipėda
Klaipėda, being Lithuania’s main port city of the eastern cost of the Baltic Sea, is attractive for both industrial and logistics businesses. The warehouses that have been newly constructed are mainly directed towards
the goods which pass through the seaport.
The Klaipėda Free Economic Zone (Klaipėda FEZ) is the first free economic zone in Lithuania, offering
favourable conditions and benefits to various businesses. Its territory was increased from 205 ha to 305 ha in
2006, proving that the zone is working successfully. The Klaipėda FEZ has more than 20,000 sq. m of modern warehouse space available. Several infrastructure developments are anticipated to go ahead in the FEZ.
8.5. Šiauliai and Panevėžys
The industrial markets of Šiauliai and Panevėžys are dominated by reconstructed or older warehouse and
industrial facilities. Although Šiauliai has many large industrial companies, the market lacks modern industrial and warehousing premises with convenient access and parking. The Šiauliai city council initiated the
formation of a 165 ha Industrial Park in the Zokniai district. Under this initiative, industrial companies
will be encouraged to move out of the central part of Šiauliai into more industrial zones. The industrial
park is close to the Zokniai airport and a logistics centre is included in the plans. Similar industrial parks
will also be established in other regions: Panevėžys, Kėdainiai, Visaginas, Marijampolė, Alytus, Akmenė. It
is anticipated that companies will be able to commence operations in these parks by the middle of 2008.
Developer Ogmios Centras is planning to build logistics/warehouse facilities on its 46-hectare development
site in Panevėžys.
New Construction Rent (EUR /sq. m/month)
Warehouse/Logistics
Source: KOBA, 2007
32
Vilnius
Kaunas
Klaipėda
4.2-6
4 -5.5
4 -5
Chapter 9 Hotel Market
The number of guests staying at hotels in Lithuania is increasing continuously. In 2005, according to the
Lithuanian Statistics Department, hotels accommodated 22.6% more guests than in 2004. Foreigners made
up 65% of overnight stays. The major sources of international guests were Germany (20%), Poland (14%),
Estonia and Latvia (10%), and Russia (6%). The Lithuanian Statistics Department figures show that most
people visit Lithuania for holidays (43.9%) and business (38.6%). Additionally, the number of visitors travelling by air increased every month during the first eleven months of 2006, and Lithuanian airports handled
24.7% more passengers. During the first three quarters of 2006, Lithuanian hotels and motels accommodated more than 1.2 million guests or 13.6% more than during the same period in the previous year.
Activities of Accommodation Establishments
2002
2003
2004
2005
247
270
317
331
Hotels
225
243
278
290
Motels
22
27
39
41
Number of rooms in hotels and motels
6,179
7,384
9,465
10,134
Number of guests, thousands
498.8
559.8
788.1
969.3
Increase in number of guests, % (compared to previous period)
11.5
12.2
40.8
23.0
Total number of hotels and motels
Hotel occupancy rate, %
35.2
32.5
36.7
40.8
Total income for accommodation, LTL thousands
194,892
217,401
285,115
373,049
Total expenses, LTL thousands
172,495
193,347
252,102
306,026
During 2005, hotels in Vilnius accommodated 451,700 guests, which is 19.4% more than in 2004. The
occupancy rate for Vilnius hotel rooms was 51% (in 2004 – 45.2%). Hotel occupancy rates for the country
overall are lower (40.8% in 2005), the busiest month in 2005 being July (56.3%), the least busy – January
(25.9%).
Most of the hotels in Lithuania are small and privately owned. Among the larger ones, management contracts (e. g. Radisson SAS, Scandic, Reval) are dominated by private owners. As of September 2006, there
were 287 hotels (a quarter of them in Vilnius) with 10,307 rooms in Lithuania, and the number of beds
totalled 20,370.
Hotel and Motel Room Categories
Apartments
Lux
Single-rooms
Double
Other
2004
2005
2004
2005
2004
2005
2004
2005
2004
2005
204
199
944
988
1475
1579
5637
6646
679
722
Vilnius
58
61
229
247
558
687
2430
2486
199
202
Kaunas
4
4
64
63
115
121
412
461
29
36
Lithuania – total number of
rooms in hotels and motels
Klaipėda
Average rooms prices in
hotels, EUR
15
15
122
106
106
107
597
602
79
83
147.1
145.7
90.9
90.4
52.7
55.3
73.6
68.4
39.1
41.1
Qualification Categories of Hotels and Guests houses (2005)
5*
4*
3*
2*
1*
NonClassified
Total
7
49
101
55
18
60
290
Number of Rooms
560
2732
2880
1864
822
869
9722
Number of Beds
1106
4992
5812
3595
1737
1833
19075
Rooms Occupancy
Rate, %
41.5
50.4
39.0
35.7
34.5
27.5
40.8
Number of Hotels
The first Lithuanian hotel within the Kempinski chain will open its doors in Vilnius in the first half of
2007. The hotel, called AAA Kempinski Hotel Vilnius will be established in Vilnius Old Town, in the former
telegraph building at the crossroads of Universiteto and L. Stuokos-Gucevičiaus streets. The hotel will have
110 rooms, a conference centre, spa facilities and a restaurant. The Centrum hotel chain has acquired an
abandoned building in Liejyklos Street and announced plans to expand the hotel Artis by 36 rooms. Also,
the Best Western Naujasis Vilnius hotel in Vilnius is under reconstruction. Ogmios centras subsidiary City
Hotels, together with construction company Vyrokas, has started the construction of a four-star hotel in
Bokšto Street.
The Reval Hotels chain has stepped into the economy class hotels sector by acquiring two Baltpark hotels
in Vilnius and Klaipėda in 2006. The chain has also acquired the Takioji Neris hotel in Kaunas and commenced its reconstruction, with completion scheduled for spring 2008. After the reconstruction, the hotel
will be named the Reval Hotel Neris and will have 190 rooms, a new restaurant and a conference centre.
Reval Hotels plan to manage 12 hotels in the Baltics by the end of 2008.
In Kaunas, reconstruction of the Respublika hotel is scheduled to be finished by the end of 2007. Kauno
verslo rūmai, the developer of this project, expects that the hotel will be managed by an international chain,
whose name has not yet been disclosed. The new hotel will have around 300 rooms.
The expansion of hotels is ongoing in all major cities as well as in both seaside (Palanga, Neringa) and health
resorts (Druskininkai, Birštonas, Molėtai). Additionally, a significant expansion of rural tourism has been
seen during recent years and many international tourists were attracted.
34
Chapter 10 Investment Market
The number of investors coming into the Lithuanian market seeking large and small investment opportunities has increased as a consequence of the EU accession, impressive economy growth and the current
climate of relatively low rental prices; a combination adding up to comparatively low risk. On the other
hand, the Lithuanian investment market is comparatively small and very often large institutional investors
perceive the three Baltic States as one market without distinguishing separate countries. Therefore, when
making decisions to enter the market, they look for attractive investment opportunities within all three
Baltic countries.
Prime Yield Development, 2000-2007
14%
13%
12%
11%
10%
9%
8%
7%
6%
2000
2001
2002
2003
Retail
2004
Offices
2005
2006
2007 F
Warehouses
Source: KOBA, 2007
After a significant decline over the last 3-4 years, the pace of reduction in yields is expected to slow down in
2007. The main factors causing declining yields are the following:
•Rapid economic growth and development;
•The EU and NATO membership;
•Launching of new investment funds and increasing competition in investment market;
•Difficulties in finding investment opportunities in global markets;
•Fluctuations in stock markets causing increased investment in real estate.
Major Investment Transactions in 2006
Project
Seller
Buyer
Property Type
City
Total Area, sq. m
Babilonas
Gamarenta
Dawnay Day
Carpatian Plc
Shopping centre
Panevėžys
27,000
Deco
Baldų pasažas
Explorer Property
Fund
Shopping centre
Klaipėda
5,200
Dobrovolė
MEI Baltija
Heitman
Logistics centre
Vilnius
17,000
Kaunas Terminal
(Kaunas FEZ)
YIT Kausta
Genesta Property
Nordic
Logistics centre
Kaunas
28,000
Mandarinas
E.L.L. Nekilnojamas Turtas
Citycon
Shopping centre
Vilnius
8,000
Vilniaus Vartai
Ranga IV
investicijos
Baltic Property
Trust
Office building
Vilnius
9,400
Vingės Terminalas
Vingės terminalas
Verdispar
Logistics centre
Vilnius
18,300
Total
112,900
Source: KOBA, 2007
In the past, foreign investors have mostly focused on Vilnius. The consequent lack of appropriate investment
opportunities has lead to them extending their search to the country’s secondary cities. As a result of the
strong competition among investors secondary-city yields are unexpectedly similar to those in the capital. In
fact, they cannot differ significantly while the market remains relatively small, anchor tenants are the same,
and inter-city distances are quite short. A good example is an investment transaction in Panevėžys, where
the modern shopping and entertainment centre Babilonas (27,000 sq. m) was sold to British investment
fund Dawnay Day Carpatian Plc through an open tender with a net yield of 7.3%. As the commercial real
estate development sector (especially of shopping centres) is relatively active and the number of projects is
expected to increase, both in the capital and secondary cities, the number of investment transactions is also
expected to rise.
Office market
The main objects of interest for institutional investors are located in the capital, while the Vilnius office
market remains the most active and the largest in volume. However, almost none of the major office buildings owners are willing to sell their properties, because the majority of them are owned by construction and
development companies, which need continuing cash flows.
In 2006, only a very few investment transactions took place in the office market. A comparatively large office investment transaction was finalised in Vilnius: an office building (9,400 sq. m) in the Vilniaus Vartai
multifunctional centre was sold to the Baltic Property Trust investment fund prior to its opening. Other
transactions were much smaller.
Retail market
Having been active for the last several years, the retail market remains dynamic and still has potential for
future development. A few large investment deals, such as the acquisition of the Babilonas SC (27,000 sq.
m) in Panevėžys, Mandarinas SC (8,000 sq. m) in Vilnius, Deco (5,200 sq. m) in Klaipėda were transacted
last year. Several investment transactions were initiated at the end of 2006 and are planned to be completed
in 2007. One of them is the newly built and successfully operating Aušra Shopping Centre (5,000 sq. m) in
Utena which is proposed to be sold by open tender.
Warehouse market
The industrial/warehouse market has been gathering pace in recent years. This segment was relatively active
in 2006, also experiencing a number of investment transactions. In 2006, both the Dobrovolė logistics centre
near Vilnius and the Kaunas Terminal in the Kaunas FEZ were constructed and immediately sold to international investors. In addition to the logistics centres mentioned above, a sale and lease-back transaction was
concluded for the Vingės Terminalas (18,300 sq. m) on Minskas road. Several other sale and lease-back transactions were initiated and are planned to be completed in 2007. It is believed that the number of investment
transactions will increase in the future as a consequence of the increasing number of industrial/warehouse
properties being constructed or converted.
The sector saw a number of transactions for further development. These included the sale of older industrial facilities or central-city buildings, e.g. the Vilniaus Vingis industrial, warehousing and office premises
(81,000 sq.m) in Vilnius Savanorių Ave. (part of the deal involved a sale and lease-back transaction), the
Sanitas industrial complex (2.9 ha) in Kaunas.
Hotels
Hotels in Lithuania are mainly operated by local companies, which usually own no more than one or two
establishments. International hotel chains lease properties which are also mostly locally-owned. As a result of
the constantly increasing demand for hotel services and the increase in Lithuanians’ purchasing power, the
expansion of the existing international hotel chains as well as the arrival of new ones is an ongoing process
which is expected to continue for few years. Normally, international operators prefer to rent rather than buy,
and we therefore forecast that developers will build more hotels for leasing. This will naturally increase the
number of investment opportunities.
36
Among the major transactions in 2006 that are worth highlighting is the acquisition of two Baltpark hotels
(in Vilnius and Klaipėda) by the Reval Hotels chain, thus increasing the number of Reval hotels to 9 in the
Baltics. Mikotel acquired the Hotel Panorama, located close to the Vilnius bus station, from Mearias Investments Limited.
Sale and Lease-back
2006 showed that commercial property market has turned its attention to sale and lease-back transactions.
Sale and lease-back represents a relatively new financing form and is an economically alternative method
for raising capital. Such transactions enable a property to be sold and immediately leased back to the seller.
Completion of such a transaction enables the seller to utilise the capital in a more productive way.
Last year several transactions of this type, such as the Vingės Terminalas, were completed and two companies
announced their intention to offer opportunities in 2007. One of the four major grocery chains, Norfa, is
proposing to sell a portfolio of supermarkets (75,000 sq. m) with the intention to lease those properties. The
SEB Vilniaus Bankas has announced its intention to sell the major part of its properties in the Baltic States,
but will stay on as the tenant.
Sale and lease-back transactions will attract increasing attention in the future.
Chapter 11 SWOT Analysis of the Current
Commercial Property Market
SWOT analysis is the most common tool in analysing the expected performance of equities. It lists the strong and
weak aspects of an investment together with its opportunities and the threats to it. It does not pretend to give an
exact answer to the „invest or not invest“ question, but provides a basis to estimate expected yields and risks.
Strengths
•Demand for high quality properties in attractive locations
•Favourable investment environment
•The EU and NATO membership
•Attractive financing
•Well-educated and relatively low-cost labour force
Weaknesses
•Decreasing yields
•High expectations of future values from vendors’ side
•Shortage of land for development
•Land prices are quite high in Vilnius because of the boom in the residential market
•Increasing construction and labour costs
•Lack of parking spaces in city centres and close to office buildings
Opportunities
•Continuing growth of economy and consumer spending power
•Stable democratic political climate
•Development of western consumer habits
•Intensive commercial project development
•High potential for particular property development sectors
Threats
•Increasing inflation
•Overpricing of properties by vendors may shift investment flow to other countries with higher yields and
market liquidity
•Potential decreases in values of overpriced properties may make it difficult to exit the market in the future.
This SWOT analysis of the Lithuanian property market depicts the potentials and risks of a typical growing
market and compares favourably with other Central and Eastern European countries, which currently are at
a more developed stage (e. g. Poland, Hungary and the Czech Republic).
38
Chapter 12 KOBA Market Expectations
Although the Lithuanian commercial property market is still growing actively, it is also showing some signs
of maturity. However, the rapid pace of commercial real estate market development is not expected to slow
down in the nearest future. 2006 has again seen growth in the retail market, with a trend of developing
shopping centres in regional towns and smaller cities. Development in the office market was not so dynamic,
but a number of projects were announced for 2007-2008.
In terms of yield dynamics, after accession to the EU and NATO the final uncertainties about the future
direction of the country and its risk levels were dispelled. This news, in turn, had a very strong impact on the
fall of the yield curve from 12% to 7%, and even lower, on prime location properties in recent years.
12.2. Offices
Despite most real estate experts believing that the office market had reached its peak after the significant
increase in office supply in 2004, we now observe a shortage of modern office space with demand remaining
stable, but supply diminishing, especially in Vilnius. The capital of Lithuania is following the experience of
western European cities in terms of developing a CBD with modern office buildings, where the majority of
international and the larger local companies have their offices. Other Lithuanian cities are still far behind,
however, they could be perceived as having more development potential.
A number of new projects is due for completion in 2007-2008, and it is felt that there is likely to be a balance between supply and demand by the end of 2007, consequently making rental prices stop rising. We
believe that the largest office developments will take place in Vilnius, with some occurring in Klaipėda,
however, the other cities are not yet so promising. Market conditions are influenced by tenants’ preferences
to move into modern offices and improving working conditions, which become crucial to attract and keep
employees in the current labour market.
During the last few years, developers have been more interested in residential projects because of their
shorter pay-back periods and higher profits. However, in response to increased demand they have initiated office projects, expecting and already asking higher rental prices, mainly determined by the dramatic
increases in land prices.
12.3. Retail
The larger cities in Lithuania already possess quality shopping and entertainment facilities and many pipeline projects have been announced, which proves that the retail sector is the most progressive in terms of
growth and investment opportunities. Impressive growth is forecast for the shopping centre segment, especially in Vilnius and Šiauliai. Additionally, developers have also started a number of shopping centre projects
in smaller cities, indicating that the market is ready to absorb the projected supply. With continuing retail
demand, rental levels in shopping centres are expected to remain high.
However, increasing competition among shopping centres will compel the developers of new projects to
pay particular attention to the concept of a centre and its positioning in the market. Increasing consumers’
spending power, changing consumer preferences together with shopping and leisure-time spending habits
are encouraging developers to undertake even more new projects. Equally, the demand for attractive investment opportunities from local and international players remains high.
12.4. Warehouses
Although the market is experiencing demand for modern industrial/warehouse premises, the new project
development process is unfortunately slow, leading to fewer or delays in investment opportunities. A number of projects are awaiting anchor tenants, as this market is especially sensitive to pre-leasing. On the other
hand, if tenants are found, construction can be completed very quickly, usually lasting no more than a year.
In terms of industrial projects, Lithuania is still attractive for international companies seeking to relocate
production, especially in the country’s free economic zones. However, increasing labour costs are making
the country less competitive for international production relocation. Conversely, some industrial projects
will be developed by local manufacturers moving their production facilities away from central-city locations
to the suburbs or even rural areas.
Lithuania’s geographic position between the west and the east offers many opportunities for warehouse/
logistic projects, and we therefore believe that this sector has excellent potential. Moreover, the growing
retail sector will have an impact on warehouse development because of increased demand for retail goods
storage.
12.5. Hotels
Owing to the increasing numbers of incoming travellers and hotel guests, the demand for hotel services has
risen. Therefore, hotel chains are likely to continue pursuing a growth strategy, which may lead to the sale
of existing properties or increased leasing from developers. Market specifics suggest it is very important to
differentiate existing demand, which varies seasonally. Currently, seasonal demand for tourist-class hotels is
the segment requiring more attention than the business-class sector; therefore we expect the expansion of
economy-class hotels.
12.6. Conclusion
The active development of the Lithuanian commercial property market continues apace and the expectations
of real estate developers remain high. However, the market is becoming more competitive and mature. In
addition, the shortage of good investment opportunities is placing even more strain on market conditions.
As a result of shopping centre market growth spreading throughout Lithuania, both local and international
retailers are expanding their businesses and taking advantage of increasing consumer purchasing power.
Development trends for yields in Lithuania are similar to those in other CEE markets, where yields for
prime location investment products decreased to 6.5-7.0% or lower, and the Lithuanian commercial property market is following the same path. Lithuanian commercial real estate market yield, combined with the
liquidity this market can offer, is the kind of attractive product international investors are seeking, consequently, it is expected that the market will experience more deals in the near future.
40
Chapter 13 Legal Environment
Harmonisation of the legislative acts with those of the European Union and the reform of the administrative
system in Lithuania has contributed to the protection of ownership, legal occupancy and investments.
The transposition of the EU Acquis Communautaire into the Lithuanian legal system has started long before 1 May 2004, the formal day of membership. In the autumn of 2004, Lithuania was the number one
country in the entire EU by the scope of transposition of the EU directives. Thus Lithuania’s investment
law conforms to the European Union standards, with a new Company Law and the Civil Code that took
effect in 2001.
The real estate market in Lithuania is regulated following the generally accepted principles of ownership
immunity and protection of rights of a just acquirer (possessor). In addition, the principles of equal treatment and equal protection are the main principles of the investment law, meaning that both Lithuanian and
foreign investors are subject to equal business conditions, and their rights and lawful interests are equally
protected by law.
13.1. General Information
Any resident of Lithuania or a foreigner, either an individual or an enterprise, may acquire buildings, flats
and other premises in Lithuania. However, there are certain limitations for direct land ownership. On the
other hand, any individual or enterprise, either a Lithuanian national or a foreigner, may freely establish an
enterprise in Lithuania. Enterprises established in Lithuania notwithstanding who has their effective control
are entitled to acquire real estate without any specific restrictions.
13.2. Establishing a Lithuanian Property Company
Kinds of Enterprises
A company of limited liability is a common legal form in Lithuania (95% of all Lithuanian registered enterprises), particularly used for investment in real estate. Private limited companies with a minimum capital of
approx. EUR 2,900 and up to 250 stockholders as well as public limited companies with a minimum capital
amount of approx. EUR 43,443 are the two alternatives for companies.
The Lithuanian law designated to satisfy private interests has established a number of other legal forms for
private ownership and the use of real estate: a personal enterprise, a general partnership and a limited partnership. With the exception of limited partners in a limited partnership, personal enterprises and partnerships are regarded as enterprises with unlimited liability.
All registration differences of enterprises of so-called ‘local’ capital and of ‘foreign’ capital have been eliminated. A new integrated Register of Legal Persons has been established for the purpose of accumulating,
protecting and providing information on all Lithuanian enterprises and other legal persons. An enterprise
is considered to be established only when this enterprise is registered with the Register of Legal Persons.
Consequently, any changes of incorporation documents and data of the enterprise are effective only after
they are registered with the Register of Legal Persons. The basic information accumulated in the Register of
Legal Persons is available on the Internet.
Opening and Closing an Enterprise
The World Bank Report ‘Doing Business in 2007’ ranks Lithuania the 1st economy in the Eastern Europe
and the 16th economy in the world on the ease of doing business. Lithuania maintains uncomplicated
market entry procedures for enterprises.
Establishing an enterprise is quick and inexpensive. In principle, when the registration process goes smoothly, two weeks is the average time schedule for enterprise registration. The registration time and cost are,
naturally, higher for foreign owners, which have to provide certified translations of the paperwork.
As far as company exit is concerned, the system is in place and operates fairly well. Lithuanian laws allow
for a fairly easy exit of companies from the market through liquidation. An average bankruptcy case lasts for
about 1.7 years, which is among the shortest periods in the region.
Public Private Partnerships
Public Private Partnerships (PPP) projects are still a new practice in Lithuania though Lithuania has a
favourable legal environment for PPP projects. The new Civil Code, effective since 2001, introduced the
required legal regulations for PPP schemes. The new Concessions Law came into power on 1 October 2003
and improved significantly the possibilities to apply PPP structures for various projects in the public sector involving private capital. According to the law, the areas where PPP can be applied are broad enough,
including energy, healthcare, tourism, public services and other sectors.
The most popular areas where PPP structure is applied in Lithuania are: energy sector, public services, real
estate development, transport and environment. As the Lithuanian public sector is under constant need for
investments, and is moving towards the more efficient management of resources and achievement of greater
value for money over the longer period of time, the number of PPP projects in Lithuania is expected to
increase significantly in the nearest future.
13.3. Investment into Real Estate
Acquisition of Land and Buildings
Principally, there are no severe limitations to the direct acquisition of buildings and land for development by
foreigners. Foreign investors have the right to buy or lease buildings for their commercial activities as well as
lease or purchase land plots for the construction of buildings.
Rights of foreigners to acquire land in Lithuania are established in the Constitution of Lithuania and regulated by the special Constitutional Law on Implementation of Paragraph 3 of Article 47 of the Constitution. With certain exceptions of the entrails of earth (underground) and nationally significant land areas
exclusively belonging to the State, other land, inland waters and forests may be acquired into ownership by
foreigners as explained below.
The main requirement for foreigners wishing to acquire land in Lithuania is meeting the criteria of origin
– citizenship, permanent residency or establishment in a European Union Member State, or a member state
of the Organisation for Economic Co-operation and Development (OECD) or of the North Atlantic Treaty
Organisation (NATO), or a state which is a party to the European Economic Area Agreement. Certain limitations for acquisition of agricultural land and woodland apply during the seven-year transitional period.
During the transitional period only foreign individuals who have been permanently residing and engaged
in agricultural activities for at least three years as well as foreign legal persons and other organizations that
have established in Lithuania their representative offices or branches will be allowed to acquire agricultural
land and woodland.
In summary, currently foreigners that are residents in 39 countries around the world are eligible to directly
acquire land in Lithuania.
Foreigners that do not comply with the established criteria may lease the land plots or use them based on
other kinds of contracts.
As for buildings, flats, other premises and structures, there are no substantial restrictions imposed by Lithuanian law in relation to acquisition of these types of real estate by Lithuanians or foreigners.
42
It is noteworthy that for the sake of the acquirer, the Lithuanian law establishes the connection between the
land and buildings. Pursuant to the Civil Code of Lithuania, if a land plot is subject to acquisition, it is presumed that the buyer also obtains the ownership right to the buildings, constructions and facilities on this
plot of land, unless the sale-purchase agreement specifies otherwise. On the other hand, by an agreement on
sale-purchase of a building or other real estate, the seller has to transfer to the buyer the rights to the land,
on which the building is located. In case the seller of the building is also the owner of the land plot, the seller
has to transfer to the buyer either the ownership right to that plot of land or the right of the land lease or
development. If the seller does not own the land, on which the sold building is located, the buyer acquires
the right to use a respective part of the plot of land under the same conditions as the seller.
Privatisation
Real estate may also be acquired following the special procedures of privatisation of state and municipal
property. Usually, investors in state and municipal property are asked to assume certain contractual obligations, which are mainly contributing to preservation and development of such property.
Privatisation may take the form of any of the following: public sale of shares, public auction, public tender,
direct negotiations or transfer of control of state or municipality-controlled enterprises. Investors may negotiate settlement for privatised property in instalments and, depending on the form of privatisation and the
privatised property, payments may be allocated during the period of one to five years. Under certain conditions, for instance, in case of major investment in the leased state or municipal buildings or premises, such
premises may be later privatised according to an agreement on lease with an option to purchase allowing the
investor to settle for the real estate during the lease period up to ten years.
The latest information about privatisation objects may be found in the Information Bulletin on Privatisation (Informacinis privatizavimo biuletenis). Privatised property is sold by privatisation institutions such as
the State Property Fund (in case state property is privatised) or municipal administration (in case municipal
property is privatised).
Financing
Real estate financing is widely available. Foreign and domestic capital providers offer a wide range of real
estate financing products, including first and second mortgages, debt financing and other. As a result, longterm financing is generally available in litas, Euros, and US dollars.
The Lithuanian financial system has been adequate to support the recent strong economic growth and the
businesses have free access to finance. It is noteworthy that borrowing in Lithuania is rather inexpensive. The
average interest for bank loans is 5.5%.
European Structural Funds
European Structural Funds will be one of the main drivers of the Lithuanian economy over the coming
years. The funding is dedicated solely to the Lithuanian market; therefore there are certain strict requirements for eligible candidates for funding.
The first criterion is that the Structural Funds should be used for projects, which take place solely in Lithuania
and create added value for the Lithuanian economy. The applicant for the structural funds should have a legal
establishment in Lithuania. However, the origin of the capital of the Lithuanian enterprise, which is applying
for financing from the European Structural Funds, is not of a great importance during the evaluation process
of the application. This would actually allow foreign investors to establish their businesses and operations in
Lithuania and to apply for structural funds for projects, which would take place in Lithuania.
Mortgages
Real estate mortgages are common collateral on loans issued by Lithuanian banks for acquisition and development of real estate.
Real estate owners are free to mortgage their property in order to secure the existing or intended undertakings and obligations arising with respect to land transactions, commercial loans and other. It is noteworthy
that the mortgaged property remains with the owner and does not eliminate the owner’s rights to use and
dispose of the mortgaged property taking into account the rights of the creditor.
Like other real estate transactions, contractual mortgage has to be certified by a notary and registered. Divisions of Mortgages at the local courts are in charge of the registration of mortgages that come into effect
upon registration in the Register of Mortgages. It takes three days to register a real estate mortgage.
Sale-Purchase Agreements
For protection of owner interests, all real estate sale-purchase agreements have to be signed in the presence
of a Lithuanian notary public who verifies the agreement for its legality as well as notifies the Real Property
Register on the concluded sale-purchase agreement of a particular property. Nevertheless, the buyer for his
own sake is responsible for applying to the Real Property Register for registration of the ownership right to
the property after the transfer-acceptance of the property takes place. Even if the registration of the change
of the owner in the Real Property Register is not mandatory, no further real estate transactions would be
possible as long as the registration is not completed.
The notary fee depends on the transaction amount and counts as a 0.5 per cent of the price payable for the
purchased property.
Following the general principles of law, Lithuanian law is always applied to international transactions concerning real estate located in Lithuania. The transfer of real estate has to be documented by a statement of
transfer-acceptance that is signed by the buyer and the seller.
A notarised agreement on sale-purchase of real estate is binding on the seller and the buyer. However, the
sale and purchase of real estate may be invoked against third parties only in the event of being properly
registered with the Real Property Register.
Real Property Register
In the World Bank’s ‘Doing Business in 2007’ report, Lithuania ranks in the third place among the top 10
countries with the most efficient property registration procedures.
The Real Property Register contains all actual information on buildings and land plots, rights to real estate
and encumbrances thereof. One can receive information from the Real Property Register on changes in real
estate, mortgages on buildings or land plots including pledges of land lease rights, imposed attachments,
civil cases brought to the court regarding real estate as well as registered agreements or decisions made
regarding the legal status of real estate, such as concluded lease agreements and equivalent, regarding any
particular piece of property.
Real property registration fee depends on the kind of the real estate and its value and varies in a range of up
to EUR 2,900.
Planning and Development
For the purposes of the construction, a plot of land has to be formed according to a detailed plan. A detailed
plan should also be prepared in case of change of the purpose of the land, division or combination of the
land plots and in other cases specified by the legislative acts.
44
The organizers of the detailed planning are the directors of the municipal administrations. However, municipalities are allowed to transfer the rights and obligations of the organizer of the detailed planning to the
owners or users of the land plot.
In a detailed plan, the following requirements for usage and arrangement of the territory have to be established: the general and specific use of the land plot, the maximum height of the buildings, the allowed
density and intensity of construction on the land, the territory for construction, the conditions of arranging
engineering and communication network and the servitudes, if required.
The detailed plans of the territories that do not have engineering infrastructure might be prepared only upon
preparation of a special plan for development of the engineering infrastructure. However, the legal acts provide that such special plan might be prepared simultaneously with the detailed plan of the land plot.
There are no particular restrictions imposed on the construction activities of foreign enterprises. According
to the Law on Construction, both Lithuanian and foreign persons can benefit from construction rights to
the extent limited by law.
The principal legal requirements include possession of the land on which construction activities are to be
undertaken. Land developers thus have to own the land or use the land plot on other legal basis. The second
step is to obtain a planning permission for the building. The developer should also be in the possession of
a building permit that is issued based on complete architectural plans to comply with the general area development plans. The procedure for issuance of building permits has been simplified and is based on a onestop-shop principle. A building permit can be obtained from the local municipality if the developer submits
certain documentation. A building permit is normally granted for a period of ten years.
The owner is entitled to use the newly constructed or reconstructed building after it has been commissioned.
The next step is to register the building in the Real Property Register.
According to the laws, the user of a building has to supervise its condition and perform technical supervisions. The user of the building is obligated to timely repair, reconstruct the building and maintain the surroundings. The municipality is entitled to control how buildings are used.
13.4. Letting of Real Estate
Both Lithuanian and foreign nationals and enterprises and may let or lease land and buildings. Real estate
and land in particular may also be leased from the state or local municipalities.
Any agreement for the letting of real estate is to be concluded in a written form and no further approval by
a notary public is required. Such agreement may also be invoked in respect to third parties only upon its
registration with the Real Property Register. Upon a change of the landowner, the new owner takes over the
rights and obligations of the lessor in accordance with the lease agreement registered with the Real Property
Register.
With the exception of certain lease conditions specified by law, provisions of the lease of real estate are negotiable. One of the lease conditions regulated by law is that terms of state-owned land leases may not exceed
99 years (25 years for agricultural land) and other real estate may not exceed 100 years.
Commercial real estate leases typically have terms of three - five or more years. A lessee, who has duly
performed under the terms of a lease agreement, shall be entitled to a pre-emptive right to renew the lease
agreement and is entitled to restitution if the lessor has failed to comply. A land lease agreement may be
terminated with a two-month minimum notice if the land is not for agricultural purpose, or a three-month
notice if the agreement of the agricultural land lease is terminated. An agreement of building lease may be
terminated under certain circumstances as established by law and the contract.
Rent fee is often denominated in the litas by establishing a firm rate with Euro (LTL 3,4528 to EUR 1) or in
Euros if a foreigner is a party to the lease agreement. The quoted rent fee generally does not include utilities
and service charges and the value added tax (18%) that are added on the rent fee. Taxation rules provide for
cases when parties to a lease agreement may choose to apply the value added tax or not.
13.5. Investment Protection and Guarantees
The investor rights and lawful interests are secured by the Law on Investments and other regulations. An
investor has the right to manage, use and dispose of the assets he invested in and, upon payment of the
taxes prescribed by the laws of Lithuania, to convert the profit into foreign currency and transfer it abroad
without any restrictions. Damage inflicted upon the investor by unlawful actions of state or local authorities
is compensated according to the procedure established by law.
Property is protected from expropriation following the generally accepted principles, i.e. property may only
be expropriated in extraordinary circumstances with prompt compensation at the market value.
Foreign investors can defend their rights and lawful interests against Lithuania in the courts of Lithuania,
international arbitration institutions or other institutions. In case of investment disputes, foreign investors
also have the right to directly address the International Centre for Settlement of Investment Disputes.
Bilateral agreements on investor protection are already in place with Argentina, Australia, Austria, Belarus,
Bulgaria, Belgo-Luxemburg Economic Union, China, the Czech Republic, Denmark, Estonia, Finland,
France, Georgia, Germany, Greece, Hashemite Kingdom of Jordan, Hungary, Iceland, Israel, Italy, Kazakhstan, Korea, Kuwait, Latvia, Moldova, Mongolia, the Netherlands, Norway, Poland, Portugal, Romania, the
Russian Federation, Serbia and Montenegro, Slovenia, Spain, Sweden, Switzerland, Turkey, the Ukraine, the
United Kingdom, the USA, Uzbekistan, Venezuela and Vietnam.
The Agreement on Use of Local Currency and the Agreement on Legal Protection for Guaranteed Foreign
Investments between the Multilateral Investment Guarantee Agency (MIGA) and Lithuania are in force.
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Chapter 14 Taxation of Real Estate
Lithuania’s tax regime is generally business-friendly. The statutory corporate income tax rate is only 15%1
and is among the lowest in the EU, labour taxation is in line with the similar countries, and the overall tax
burden is one of the smallest among the EU countries.
The overview provided below focuses on the Lithuanian taxes and their aspects relevant to the real estate
owners, lessees and developers and is not aimed at providing a thorough coverage of the Lithuanian taxation
framework.
There are no taxes on investment in Lithuania.
14.1. General Information
In terms of taxation, there is no difference between investments in partnerships and limited liability companies because Lithuanian partnerships are not transparent for tax purposes and, like companies, are subject
to corporate income tax.
In addition, permanent establishments of foreign enterprises in Lithuania are normally subject to the same
tax requirements as other Lithuanian enterprises with certain exceptions (allowed deduction of administrative expenses of the head office, and etc.). A foreign enterprise has a permanent establishment in Lithuania
when such enterprise:
•Engages in business activity in Lithuania of a permanent nature either itself or via a dependent agent, or
•Uses a construction site, an assembly or installation object in Lithuania, or
•Operates a natural resource exploration or extraction site.
As mentioned previously, the most common enterprise used to invest in Lithuanian real estate is a private
limited company, hereinafter referred to as a Lithuanian Property Company. No capital duty is payable on
initial or subsequent capital contributions to the statutory capital of a limited liability company.
14.2. Financing of a Lithuanian Property Company
Acquisition of real estate in Lithuania might be financed by a mix of a loan and equity or by a loan from a
bank, or equity only.
In the event bank loans are chosen for financing the real estate acquisition, the interest incurred on the loan
financing is generally treated as tax deductible expense, unless subject to thin capitalisation and transfer
pricing rules (see below).
Since 1 January 2006 a temporary social tax was introduced. The taxable base of social tax is
the same as of corporate income tax. In 2006 taxable profit is subject to temporary social tax
at a rate of 4% and in 2007 – 3%.
1
Withholding Tax on Interest Payments
Interest income derived by the foreign entities is subject to a Lithuanian withholding tax of 10%. It should
be noted that under the amended provisions of the Interest & Royalties Directive (amended by the Council
Directive 2004/76/EC of 29 April 2004), Lithuania may not levy withholding taxes on payments of interest
as well as royalties to the associated EU entities higher than 10% in 2004-2008 and 5% in 2009-2010. In
case the international treaties provide for more beneficial tax rates, the latter apply. Lithuania has concluded
43 bilateral treaties on avoidance of double taxation. All the treaties are based on the OECD/UN model
agreement and are effective with the following countries:
Armenia
Georgia
Poland
Azerbaijan
Germany
Portugal
Austria
Great Britain
Romania
Belarus
Greece
Russia
Belgium
Hungary
Singapore
Bulgaria
Iceland
Slovakia
Canada
Ireland
Slovenia
China
Israel
Spain
Croatia
Italy
Sweden
Czech Republic
Kazakhstan
Switzerland
Denmark
Latvia
Turkey
Estonia
Malta
Ukraine
Finland
Moldova
USA
France
Netherlands
Uzbekistan
Norway
Source: Ernst & Young, 2006
Thin Capitalisation Rules
Starting from 1 January 2004, the principle of ‘thin capitalisation’ is applied under Lithuanian tax legislation. Following the Lithuanian thin capitalization rules, interest on shareholder and related party loans is
deductible, however, interest on controlled debt as well as currency exchange losses on controlled debt are
not deductible.
A controlled debt exists when there is debt to a controlling lender, and debt to equity ratio exceeds 4:1 (only
the exceeding part is treated as controlled debt). The ratio is computed as of the end of the relevant tax year,
but the equity does not include the result for that year.
A controlling lender is one that controls, directly or indirectly, either more than 50% of the shares of the
borrower alone, or more than 10% alone and more than 50% together with related persons. Members of
the group of a controlling lender are also controlling lenders.
If the borrower can prove that the borrowing occurred under arm’s length conditions, thin capitalisation
rules will not be applied.
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Transfer Pricing Rules
Lithuanian legislation provides for an arm’s length principle to be followed in all transactions. The State Tax
Authorities have the right to adjust transaction value between associated parties and/or to describe income
anew. The following methods are approved by the Ministry of Finance, and could be used for assessing the
market price in transaction between associated parties:
•Comparable independent prices;
•Resale price;
•Cost plus;
•Profit sharing;
•Net margin of the transaction.
Lithuanian entities, which (i) under the law submit annual financial accounts and (ii) the sales proceeds of
which exceed LTL 10,000,000 (approx. EUR 2,900,000) in the year prior to the year when the transaction with associated parties took place, are obliged to keep documentary evidence regarding the transaction
value. The procedures for documentary evidence are similar to OECD transfer pricing guidelines.
14.3. Investment into Real Estate
The acquisition of real estate in Lithuania is not subject to real estate transfer tax or any stamp duties. Only
ownership registration fees of a maximum of approx. EUR 2,900 are incurred.
Value Added Tax (VAT)
The transfer of real estate is generally exempt from VAT. In the event a property purchase is executed by
VAT-registered persons in Lithuania, the parties may agree that the seller would charge VAT of 18%, i.e. a
taxable person has a right of option. Once taken, this option requires to be applied for 24 months to all sales
of real estate to purchasers registered for VAT purposes.
The law provides for several exceptions when the seller has to charge VAT of 18% in all cases, i.e. sale of
buildings and structures before their commissioning or within two years following their commissioning or
material improvement (so called ‘new’ buildings). No VAT is payable for the transfer of land unless the land
plot is designated for the construction of buildings or is purchased along with ‘new’ buildings on it.
In case the Lithuanian Property Company is not a VAT payer at the moment when it is transferred the
right to dispose of the assets as owner but gets registered later, the special procedure for VAT deductibility
is available. The procedure allows deducting a portion of input VAT, which reduces as the time gap between
acquisition and registration extends.
However, if the Lithuanian Property Company intends performing both taxable and VAT exempt activities,
only a certain percentage of the input VAT incurred upon the acquisition is deductible based on the ratio of
taxable sales to all sales (VAT pro-rata computation).
The initial VAT deduction should be further adjusted for 10 consecutive years in case of real estate (5-years
period applies for movable property).
Therefore, a Lithuanian Property Company should consider registering for VAT purposes in Lithuania before acquisition of real estate in order not to trigger non-deductible VAT expenses. The procedures approved
by the State Tax Authorities provide for a 15 working days period after a registration request is submitted to
receive a VAT registration number.
Land Lease Tax
Land lease tax is paid by individuals and enterprises leasing land from the state and amounts to 1.5% - 4%
of its value per year. The council of the municipality on the territory where state plots of land are used determines the exact rate of the tax. It may also reduce the tax, or provide a relief from tax payment.
Land Tax
Land tax is paid by landowners. The annual tax rate amounts to 1.5% of the cadastral value of the land.
Real Estate Tax on Buildings
Since 1 January 2007 Lithuanian and foreign entities owning buildings and structures located in Lithuania
are obliged to pay real estate tax at a rate of 0.3% - 1% of the value of buildings and structures. The council
of the municipality on the territory where buildings and structures are located determines the exact rate of
the tax.
Individuals owning buildings and structures located in Lithuania who use them for business or individual
activities or have transferred such buildings to legal entities for use for a period longer than 1 month or for
an indefinite period are obliged to pay real estate tax, too, however with several exceptions.
A concept of the ‘mass assessment’ of the real estate has been introduced in 2006 for evaluation of the tax
base for the purposes of the real estate tax on buildings. Mass assessment of the real estate is a process of
assessment of the similar real estate, when the common methodology and technology of the data analysis
and assessment are used. Upon the completion of the mass assessment only a common assessment report is
presented. However, in certain cases a taxpayer can apply for the individual assessment. If the value of the
individually assessed real asset differs from the value defined in the course of mass assessment more than
10% the taxpayer is allowed to use the individually determined value for the real estate tax base.
Legal entities, as opposed to individuals, have to pay advance instalments on a quarterly basis. Both individuals and legal entities have to file annual real estate tax returns to the State Tax Authorities not later than
on 1 February of the next year.
14.4. Letting of Real Estate
Corporate Income Tax - Basic Aspects
Lithuanian Property Companies and permanent establishments of foreign companies are subject to Lithuanian corporate income tax at a rate of 15%. The tax rate of 13% is enjoyed by entities if their average number of employees does not exceed 10 and income during the financial year does not exceed LTL 500,000
(approximately EUR 145,000).
Under the Law on Corporate Income Tax, the taxable income is calculated by subtracting non-taxable
income (e.g. after-tax dividends, revenues from revaluation of fixed assets under certain circumstances, payments received from Lithuanian insurance companies within the amount of incurred losses, etc.) from the
accounting profit, taking into account disallowed and limited deductions.
50
Corporate income tax base calculation:
Profit before tax
- Non-taxable income
+ Non-deductible expenses
+ Expenses above the allowed limits
+ Other corporate tax increasing items
- Other corporate tax reducing items
= Tax base
- 15 percent corporate income tax
= Profit after tax
Deductions are allowed if they are incurred during the usual business activity, provided that documentary
evidence is presented. Limited deductions are allowed only if they do not exceed a certain limit and consist
of the following: depreciation and amortization, business trips, representation expenses, and similar. Sponsorship expenses reduce taxable profit twice, provided it does not exceed 40% of the taxable profit.
Non-deductible amounts include dividends, write-offs, revaluations, penalties, limited deductions in excess,
costs incurred outside of the usual business operations or inappropriately documented costs. Losses incurred
in transactions with related persons may not be deducted from taxable income if the market price was not
applied. Payments to tax havens may be deducted only in case the taxpayer can prove that certain conditions
evidencing the economic basis of the transaction were met.
Other taxes (e.g. real estate tax, etc.) are also deducted from taxable income.
The object of depreciation (amortization) may be a certain unit of assets or a group of identical units. Two
depreciation methods are applied for corporate income tax purposes: straight-line and accelerated (applicable only to certain types of assets). The selected depreciation method is applied to all the assets of the same
type and may not be changed. The depreciation rates depend on the useful life of the asset and may not
exceed the maximum rates. Below please find the table summarizing the depreciation rates of certain groups
of assets. Please be aware that the law does not restrict choosing a longer depreciation period for corporate
income tax purposes.
Depreciation
Groups of assets
Old (Used) buildings
New buildings (i.e. completed or renovated
after 1 January 2002)
Rate
Straight line or declining-balance
Rate
Straight line or declining-balance
Office buildings
15 years
Straight line
8 years
Straight line or
declining-balance
Retail industry
buildings
15 years
Straight line
8 years
Straight line or
declining-balance
Logistics and hotels
15 years
Straight line
8 years
Straight line or
declining-balance
Residential buildings
20 years
Straight line
20 years
Straight line
Source: Ernst & Young
Land is not depreciated for tax purposes.
Losses may only be claimed as tax deductible for Lithuanian corporate income tax. It is thus possible for
Lithuanian companies and permanent establishments of foreign investors to carry forward losses for five
years. The only exception to this rule is losses incurred as a result of disposal of securities or derivative financial instruments that are calculated separately and may be carried forward for three years by deducting them
from the future gains from disposals of securities and/or derivative financial instruments. It is not possible
to carry back losses in Lithuania.
Entities not resident and not constituting a permanent establishment in Lithuania are subject to Lithuanian
corporate income tax at a rate of 10% on rent and lease payments.
Temporary Social Tax
Since 1 January 2006 a temporary social tax was introduced. The taxable base of social tax is the same as
of corporate income tax. In 2006 taxable profit is subject to temporary social tax at the rate of 4% and in
2007 – 3%.
Individual Income Tax
Income from the lease of real estate located in Lithuania derived by either Lithuanian residents or non-resident individuals is treated as income sourced in Lithuania and taxed at a rate of 15%.
On the other hand, if a Lithuanian resident exercises individual activities of real estate lease, income derived
from lease is also taxed at a rate of 15%, or 27% if allowable deductions are made. It should be mentioned
that the rate of 27% from 1 January 2008 will be reduced to 24%.
VAT
Letting and leasing of real estate is generally VAT exempt. However, VAT is payable with regard to the provision of accommodation in hotels, motels, and camping sites or in sectors with a similar function and letting
or leasing of residential premises for two months or less. VAT also applies to letting of permanently installed
equipment as well as lots, garages or other sites for parking or keeping of any kind of vehicles.
However, a VAT-registered person has a right of option for charging 18% VAT on the letting or leasing of
real estate, which is generally exempt from VAT, but only in the case where the property is let or leased to
other VAT-registered persons. Once taken, this option applies for 24 months to all lettings or leases granted
by the same VAT payer to all tenants registered for VAT purposes. The VAT payer should inform the State
Tax Authorities on this option in accordance with the procedure approved by the State Tax Authorities.
Charging VAT on lease of real estate is a normal practice in Lithuania, if leased to a VAT-registered person,
and secures input VAT deduction.
On the other hand, in the case where the real estate is let or leased to a person, who is not registered for VAT
purposes (e.g. individuals), the VAT payer has no right to charge 18% of VAT.
Moreover, it should be noted that a Lithuanian Property Company registered as a VAT payer should document a supply of goods and services, including letting or leasing or real estate, with a VAT invoice.
A VAT invoice must be issued without delay upon the supply of goods or services; however, in cases of longterm services, i.e. services, which are supplied over a certain continuous period (letting, telecommunications,
etc.) as well as in cases of long-term supply of electricity, gas, heating and other types of energy, a VAT invoice
52
may be issued for the whole amount of services rendered or goods supplied throughout the month. A VAT
invoice should be issued not later than by the 10th day of the month following the month, during which the
services or goods were supplied. The taxable event shall be the moment when the invoice was issued.
Tax Incentives
Tax incentives are a normal practice in the countries of the Central Europe for attracting foreign investors.
Different forms of tax incentives are usually provided:
•Reduction of taxable income
•Reduction of tax rate
•Tax relief for a certain period
Activities of Accommodation Establishments
Country
General incentives
Free economic zones
Lithuania
Application of favourable depreciation methods
No land, real estate taxes
Municipality has a right to reduce / waive land and
real estate taxes
No corporate tax for the first 6 years1
50% reduction of corporate tax for the next
10 years1, 2
Extensive 0% VAT application
Latvia
Estonia
Double rate of depreciation of fixed assets with
regressive method is allowed for tax purposes
80% reduction of corporate tax or property tax for
companies in free economic zones1
Tax losses can be carried within the group
Extensive 0% VAT application
No special incentives applied
Extensive 0% VAT application in free zone and free
warehouse
Source: Ernst & Young, 2006
In Lithuania, there are two free economic zones – in Klaipėda and Kaunas, where tax incentives apply for
local and foreign investors.
Klaipėda Free Economic Zone is an area occupying 205 hectares located in a strategic position of the city
of Klaipėda (3 km from the port of Klaipėda). The first development stage covers 85 hectares and has all
essential infrastructure in place.
At present, Kaunas Free Economic Zone is in the process of implementation.
Corporate income tax incentives apply for the companies the capital investment of which
reached one million euros.
1
Total incentives received by a company may not exceed 65% for small and medium enterprises and 50% for large enterprises of investment capital.
2
14.5. Sale of Real Estate
Capital Gains
A non-resident company selling real estate in Lithuania is liable for corporate income tax at a rate of 10%.
The tax is levied on income without taking expenses into account. Afterwards a non-resident company may
apply to the Lithuanian State Tax Authorities for recalculation of tax on capital gains taking into account
the acquisition value of the real estate.
A Lithuanian Property Company and a permanent establishment of a foreign company are subject to a standard corporate income tax of 15% or 13% and temporary social tax (in 2006 - 4% and in 2007 - 3%) for
capital gains on the sale of real estate. Capital gains and losses are calculated by subtracting the acquisition
costs and related expenses from sales proceeds. Gain (loss) received from all sources other than transfer of
securities and derivative financial instruments are viewed as operating profit or loss. Gain (loss) from transfer
of securities and derivative financial instruments constitutes a different tax base, although the tax rate is the
same. Capital gains on the sale of shares of the company registered in an European Economic Area (EEA)
country or another tax treaty country, however, may be exempt from tax if all the following conditions have
been met:
•Shares have been held for at least 2 years;
•At least 25% of the company’s shares have been held throughout that period.
Individual Income Tax
In case a piece of real estate was held in ownership for three years after its acquisition, capital gains from the
real estate sale are not taxed at all, except in cases when a person engages in individual activities. In other
cases the capital gains derived by an individual, either resident or non-resident in Lithuania, from the disposal of the real estate are taxed at a rate of 15%.
In case a buyer of the real estate is a Lithuanian enterprise or a permanent establishment of a foreign enterprise, the buyer has to withhold the individual income tax from the total purchase price and transfer it to the
state budget. In such a case the seller has the right to apply to the State Tax Authorities for an adjustment of
income tax on the property sold, i.e. to have income tax adjusted by deducting the expenses from the proceeds
derived. Income tax is adjusted where supporting documents are produced in respect of such expenses.
VAT
The transfer of real estate is generally exempt from VAT. However, the Lithuanian Law on VAT provides that
the sale of ‘new’ buildings and structures or their sections is not exempt from VAT and is taxed at an 18%
VAT rate. It is considered that:
•A new building or structure is a building or structure prior to its commissioning, also a commissioned
building or structure for a period of 24 months following its commissioning or following its material improvement;
•A new section of a building or structure is a section of a new building or structure, as well as a newly built
section of an old building or structure - for a period of 24 months following its commissioning.
54
However, a VAT-registered person has a right of option for charging 18% VAT on sale of real estate, which is
generally exempt from VAT. This option can be enjoyed in the case the property is sold to a VAT-registered
person in Lithuania. Once taken, this option requires to be applied for 24 months to all sales of real estate
to purchasers registered for VAT purposes.
The transfer of land is also generally VAT exempt, unless the land is considered as a land under ‘new’ buildings or aimed for development. The land falling under the above exception is subject to 18% VAT.
In case real estate is sold without VAT, the obligation of adjusting the initial VAT deduction should be considered, i.e. VAT deduction must be adjusted in the VAT return by increasing the amount of the VAT payable into the budget accordingly or reducing the VAT amount refundable from the budget by the deducted
portion of the input VAT attributable to the period remaining until the end of the time set for adjustment
of VAT deduction (i.e. 10 years for real estate).
14.6. Profit Repatriation
Taxation of Dividends
According to the Law on Companies, dividends can be distributed within one month after the distribution
of profit by the General Shareholders’ Meeting. The General Shareholders’ Meeting should be convened
within 4 months after the end of a financial year. It is prohibited by the Law to pay dividends in advance.
Although cash funds accumulated at the Lithuanian Property Company could be sufficient to repatriate
profit to the holding company, under the Law on Companies, dividends can be distributed only if the profit
for distribution (after statutory reserves are formed) is positive.
Lithuania levies a 15% withholding tax on dividend distributions both to Lithuanian and foreign shareholders. Following participation exemption rules, withholding tax on dividend distributions does not apply if
the foreign shareholder holds an investment of more than 10% in the Lithuanian Property Company for
at least twelve consecutive months and the profit distributed is taxed at a standard rate of corporate income
tax.
Withholding tax at a rate of 15% also applies to the dividends received by individuals, residents or nonresidents of Lithuania. The tax should be calculated, withheld and paid to the budget by the Lithuanian
Property Company.
Liquidation and Return of Capital
In the event the enterprise in liquidation transfers assets to its shareholders, this type of distribution is
treated as a sale of assets at their market value. Therefore, the shareholder is taxed 15% on the capital gains,
which are calculated as the market value of assets less the acquisition value of shares.
On the other hand, cash transferred to the shareholders as a result of a decrease in authorised share capital
is treated as a distribution of profits, i.e. dividend payment, to the extent when such payment exceeds monetary and non-monetary contributions into a Lithuanian enterprise.
Sale of Shares in a Lithuanian Property Company
Any disposal of shares of a Lithuanian company by a non-resident individual or a foreign company does
not fall within the scope of income sourced in Lithuania and consequently is exempt from taxation under
Lithuanian tax legislation.
Income tax on a capital gain, derived from the sale of shares by an individual resident of Lithuania is taxed
at a rate of 15%, with the exception of (i) shares acquired before 1 January 1999, or (ii) shares held for more
than 366 days, if the individual was a minor shareholder (holding not more than 10 % of the corporation’s
shares) during three years prior to a tax year when the shares are sold.
Since 1 January 2007 capital gains on the transfer of the shares of the company subject to profit or similar
tax and established in a state of the European Economic Area or a state that concluded and applies a treaty
on the avoidance of double taxation with Lithuania are tax exempt provided that the Lithuanian company
transferring shares held more than 25% of shares for not less than 2 years. This amendment to the Lithuanian tax legislation is aimed at stimulating the establishment of holding companies in Lithuania.
14.7. Planning Investment
Numerous changes in important areas for commercial real estate investment such as tax frameworks, accounting or real estate law have to some extent already been made or are planned for the near future. Now is
the time to plan investment structures and models in light of the new regulations planned, and to determine
strategies for the future. However, your attorney and tax advisor should always be consulted on the risks and
effects of whatever steps you decide on.
56
KOBA Company Profile
Since 1989, KOBA has striven to be a serious, competent and professional real estate consulting company,
constantly adjusting to the conditions within an ever-changing market.
Today, our organisation is composed of qualified and motivated employees always focused on the needs of
our clients. We are organised by business sector ensuring that our employees have a sound general knowledge of the property market to complement an in-depth insight into their specialist field. This enables us to
provide added value to our clients, not only as real estate consultants, but also as professional and trustworthy advisers and partners at the strategic level.
KOBA was established in Copenhagen in 1989, and opened an office in Vilnius (Lithuania) in June 2000.
In 2005, KOBA opened offices in Riga (Latvia) and Warsaw (Poland). KOBA also opened a new office in
Kyiv (Ukraine) in 2006.
Our being organised by business sectors enables us to operate in all parts of the Baltics and beyond.
Investment
Acquisition and sales of investment property. Preparation and implementation of buying and selling strategies combined with consulting services.
Valuation
Maintenance of high professional competence in valuation services related to change of ownership, property
financing, accountancy, and expert appraisals.
Corporate Services
Selling and leasing offices and industrial premises. Locating headquarters for large and small businesses.
Retail
Real estate services to chains of retail outlets wishing to acquire or sell shops, including strategic consulting
services. Letting and sales of retail shops.
Hotels
Providing market analysis, consultancy and advisory services to local and international hotel property operators, owners and investors.
Property Management
Various assignments related to property management, including collection of rent, care-taking and maintenance.
Research
Preparation of newsletters addressing the market situation, preparation of market reports, market analyses,
and continued monitoring and evaluation of market conditions.
Special Projects Group
Complex projects, highest and best use analysis, public company and large corporate projects.
Capital Markets Group
Structuring, equity and debt financing solutions, complex real estate solutions for financial institutions
– banks, insurance companies, pension funds, asset managers, etc.
KOBA A/S
Nørre Voldgade 11
DK-1358 Copenhagen K
Tel. +45 33 114644
Fax +45 33 112092
[email protected]
www.koba.dk
KOBA UAB
Konstitucijos av. 7
LT-09308 Vilnius
Tel. +370 5 2487222
Fax +370 5 2487223
[email protected]
www.koba.lt
KOBA Latvia SIA
K.Valdemara iela 21
Riga, LV-1010
Tel. +371 7 333321
Fax +371 7 333322
[email protected]
www.koba.lv
KOBA Ukraine L.L.C.
Turhenivska str. 45- 49
01054 Kyiv, Ukraine
Tel. +38 044 5603310
Fax +38 044 5693330
[email protected]
www.koba.dk
KOBA Sp.z.o.o.
[email protected]
www.koba.dk
Jurevičius, Balčiūnas & Bartkus Profile
Jurevičius, Balčiūnas & Bartkus is a professional law partnership acting as a legal counsel to domestic and foreign, private and public legal entities. The professional law partnership was established under the leadership
of four partners: Gintautas Bartkus, a distinguished specialist in private law, former Minister of Justice in the
11th Government of the Republic of Lithuania; Gintaras Balčiūnas, a distinguished litigation expert, former
Minister of Justice in the 9th and 10th Governments of the Republic of Lithuania; Raimundas Jurevičius, an
experienced international commercial lawyer, and Gytis Kaminskas, a prominent expert in the EU law.
In 2006, law professor Valentinas Mikelėnas, former judge of the Supreme Court of Lithuania, joined the
professional law partnership. He is one of the most prominent experts in civil law in Lithuania, the expert of
civil law well established abroad, the author of a number of scientific articles, handbooks and studies.
Advocate Kęstutis Jungevičius, a distinguished real estate law expert experienced both in the legal and management spheres, became a partner of the professional law partnership in 2006, too.
Jurevičius, Balčiūnas & Bartkus is a member of Baltic Legal Solutions. Baltic Legal Solutions currently
includes Jurevičius, Balčiūnas & Bartkus in Lithuania, Kronbergs & Čukste in Latvia, Teder, Glikman &
Partnerid in Estonia and has over 70 practicing lawyers. Through this legal network and through relationships with other outstanding law firms and attorneys, Baltic Legal Solutions is able to serve the needs of
every client, no matter in what country his needs may arise or how large the transaction may be.
Jurevičius, Balčiūnas & Bartkus is also a member of one of the leading associations of European law firms,
the Pinsent Masons Luther Group (PMLG). In total, the association comprises over 360 partners operating
out of 33 offices across Europe. Members firms have a strong track-record of collaborative working, with
particular synergies in real estate.
Services
General Practice, Mergers & Acquisitions Law, Corporate Law, Insolvency Law, Distribution Law, Competition Law, Finance & Banking Law, EU Law, Transport Law, Insurance Law, Environment Law, Energy
Law, Real Estate Law, Employment Law, Intellectual Property and Information Technology Law, Litigation
& Arbitration, Tax Disputes, Lobbying.
People
The team of Jurevičius, Balčiūnas & Bartkus brings together lawyers with professional experience gained
in law firms, audit and consulting firms, Lithuanian Ministry of Justice, the State Tax Inspectorate under
the Ministry of Finance, the Supreme Court of Lithuania, the Court of Appeals of Lithuania, other state or
municipal institutions.
The majority of the lawyers have been trained in foreign law schools, including J. W. Goethe University
(Germany), Jean Moulin University, Lion (France), John Marshall Law School (USA), University of the
Pacific McGeorge School of Law (USA), Utrecht University (the Netherlands), Lyon Catholic University
(France), Riga Graduate School of Law (Latvia), University of Lund (Sweden).
The lawyers of Jurevičius, Balčiūnas & Bartkus have broad international experience with the European
Commission bodies, European Bank for Reconstruction and Development, Council of Europe.
Professional Law Partnership
Subačiaus 7
LT-01127 Vilnius, Lithuania
Tel. +370 5 274 2400
Fax +370 5 274 2444
E-mail: [email protected]
www.jbblegal.lt
58
Code 3000 62777
Register of Legal Persons
VAT number LT100001278217

13.4. Letting of Real Estate - Jurevičius, Bartkus ir partneriai

Transcription

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