Riga Office Outlook, 2020 H1

RIGA OFFICE OUTLOOK 2020 H1 Project: VERDE Business Centre Developer: Capitalica Asset Management

MODERN OFFICE PREMISES RIGA OFFICE OUTLOOK, 2020 H1 RIGA OFFICE MARKET ENTERS A NEW PHASE OF MARKET EXPANSION INSIGHTS 6% benefits offered by the new properties. • Data as of the end of Q2 2020 Consequently, any rise in the vacancy showed that Latvia had managed to Supply grew in 2020 H1 level should be limited in coming years, bring the COVID-19 pandemic under though the situation will vary notably control and that the first wave, unlike in 14% among projects. some other countries of the world, had been halted. Vacancy increased in SUPPLY 2020 H1 The last two years on the Riga office • Riga’s market for modern office market stood out for sharp growth space had about 756,000 sqm at the 7 new projects in new supply. In 2019 and H1 2020 end of H1 2020. The area available for tenants were offered the same amount lease grew 6% in the six-month period Under development of new space – 113,000 sqm – as was and was up nearly 15% from a year for 2022 built in the entire period of 2011-2018. earlier. 142,000 sqm 2019 was a watershed year in the • Significant growth of supply on the market, even if some of the developed Riga office market is expected only as New office space for 2022 projects included some smaller of 2022. Annual supply growth will be properties and developers rather nearly 20%, or more than 142,000 sqm. cautiously tested market demand. Among the biggest were the 19,100 sqm • Tenants planning expansion or Henrihs Business Centre developed by changes that year already have 7 Hanner at Jauna Teika, the first phase business centres to choose from. Those of the Riga Business Garden built by who need to make changes sooner can Vastint with 14,000 sqm of leasable choose from over 100,000 sqm of space space, the SWH office complex’s that is currently vacant. expansion of more than 14,000 sqm, and the 9,000 sqm Akropole Business • Since not many pre-lease deals Centre. are being made at projects still in development, the vacancy rate in Among the biggest office projects of Riga’s office market increased as new H1 2020 was the finally completed properties began operating. Tenants still Z-Towers Business Centre, with 25,000 need time to assess the advantages and sqm of A class office space for lease, and the Origo One Business Centre with Office Stock Source: Newsec Office Stock by Class Source: Newsec Thousand, sqm 20% 20% 80% 900 800 11% 6% 0% 700 2% 4% 600 500 400 300 200 100 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Existing Stock Additional Stock A Class B Class 2

RIGA OFFICE OUTLOOK, 2020 H1 MODERN OFFICE PREMISES «In the coming year, with growth of office supply at a halt, vacant premises will be gradually absorbed and the vacancy rate should fall below 12%.» 11,500 sqm of A class office premises. distant from the city centre, but the sqm in H1 2020, will now pause most projects in recent times have somewhat. The office space on offer There’s no one direction in which been developed on the right side of the needs to be absorbed and new projects new office projects in Riga are being Daugava River. are not due until early 2022. After developed. Varied locations are being more than a year, the Riga office chosen, both near the old town and Supply, after growing 6% to 756,000 market, which grows in surges, should open one property after another. More OFFICE DEVELOPMENT IN RIGA 2019-2022 AND PLANNED than 140,000 sqm of office space will be offered in phases at least 7 No Developer/Owner Project GLA, sqm new projects. For some time, planned projects will be focused on large 2019 Akropole Business Centre 71,200 tenants, bringing a jump in quality to 1 Akropolis Group Telegraph Offices the market and sharply increasing the 2 NBP Group P83 Office Building 9,000 supply of A class premises in Riga. Most 3 Mikrotikls RedLine Offices 3,400 projects plan certification under the 4 Dambis Business Garden Riga, 1st stage 4,600 BREEAM and LEED standards, which 5 Vastint Mezaparks Offices 4,400 developers working in the Baltic markets 6 Domuss Jauna Teika, Henrihs 14,300 now see as standard. 7 Hanner SWH Office Centre 2,200 8 SWH Grupa 19,100 DEMAND Z-Towers 14,200 In the short run, the market is likely to 2020 Origo One witness a significant decrease in take-up 9 SPI Group Riverside Offices 42,500 for 2020. The drop in take-up will be due 10 Linstow slower employment growth and tenant 11 LVM Group Verde, 1st stage 25,000 activity. It will take companies 4 to 12 Business Garden Riga, 2nd stage 11,500 months to figure out which direction Planned for 2022 Jaunais Preses Nams, 1st stage 6,000 they are heading in. The impact on the 12 Capitalica ELEMENTAL office market will depend on how fast 13 Vastint Office Building Complex 142,450 market activity is able to resume. There 14 Lords LB Pine will be companies with long-term plans 15 Kapitel Salas Biroji 15,000 that need to make decisions on office 16 Baltijos Gildija Verde, 2nd stage 27,200 solutions. More lease extensions are 17 Eastnine 25,000 expected and there could be relocations 18 Bauplan Nord 20,250 amid downsizing. 19 Capitalica 19,450 15,800 TOTAL 4,750 15,000 Source: Newsec 256,150 Average Rental Rates Source: Newsec New Office supply Source: Newsec Thousand, sqm 13.0-17.0 8.0-14.0 160 142 EUR/sqm/month EUR/sqm/month 140 2022 120 100 80 60 40 20 43 0 2020 A Class B Class Completed Under construction and planned 3

MODERN OFFICE PREMISES RIGA OFFICE OUTLOOK, 2020 H1 RIGA OFFICE MARKET VACANCY RENTAL RATES first purchase in the Riga office sector The overall vacancy level in the Riga In H1 2020 the rent for class A office by a Western European investor and one office market has grown over the space in Riga average 13-17 EUR/sqm/ of the biggest investments in Latvian last several years and in H1 2020 month and in certain cases exceeded 20 commercial property in several years. was almost 14%. Take-up of new EUR/sqm/month. For class B+ offices, Other large deals included Colonna office supply has not been as rapid as meanwhile, further from the city centre, Capital’s acquisition of Luminor’s HQ developers hoped. When new projects rents averaged 11-14 EUR/sqm/month. with total area of over 15,000 sqm and are completed, it is taking much longer In other central districts, rents were Eastnine’s purchase of the Valdemara to lease them out, and so far the 7-13 EUR/sqm/month. New projects Centrs business centre with leasable number of pre-lease agreements in the offer space and services that meet area of 8,700 sqm. Another head office market is very limited. The main engine higher quality standards, but the sudden acquisition stood out in early 2020 with of the rental market should be corporate jump in supply and slower take-up of the purchase of Air Baltic’s HQ by EfTEN expansion, but the Riga market is not premises limits the possibilities for rents Capital. gaining momentum. It’s expected that to rise. the biggest spark for the office market After years of compression, the prime should be increased need for a change INVESTMENT Riga office yield in 2019 was 6.20%. of quality. Tenants still takes time to Western European investors’ trust in the Whether we’ll see yield corrections assess the advantages and benefits of Latvian real estate market has returned. in the market will depend on the new the varied properties – advantages of In 2019, three large-scale business transactions made in 2020. The office location, possible budget optimization, centre transactions were completed with segment remains the least impacted employee motivation or flexibility for a total amount of 116 million euros. In by the Covid-19 pandemic, and as the the long term. In the coming year, with late 2019, the Vienna Insurance Group’s supply of modern office space grows, growth of office supply at a halt, vacant VIG Fund acquired three office buildings the market will remain attractive premises will be gradually absorbed and with total leasable area of 20,000 sqm both for local investment funds and the vacancy rate should fall below 12%. in Riga from the Baltic RE Group. That international players seeking new company’s entry on the market was the opportunities. 4

RIGA OFFICE OUTLOOK, 2020 H1 NEWSEC ANALYSIS PRODUCTS NEWSEC MARKET REPORTS REQUEST ANY REPORT [email protected] Thanks to Newsec comprehensive knowledge we are able to offer a number of analysis and segment market reports which give you a valuable summary of the property market. Newsec Property Outlook, Baltic Property Outlook, Baltic Investment Outlook, Spring 2019 Spring 2019 2019 Baltic Office Outlook, Tallinn Office Outlook, Riga Office Outlook, 2019 2019 2019 Kaunas Office Outlook, Vilnius Office Outlook, Newsec Property Outlook, 2020 H1 2020 Q2 Spring 2020 Access Newsec’s market report portal here: www.newsec.lt and www.newsec.lv

MODERN OFFICE PREMISES RIGA OFFICE OUTLOOK, 2020 H1 THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE Newsec — The Full Service Property in 2001, Norway in 2005, the Baltic Newsec has approx. EUR 39 billion under House in Northern Europe — is by far the countries in 2009 and Denmark in 2016. management and annually signs lease largest specialised commercial property The Norwegian asset and property agreements of some 760 000 sqm, firm in Northern Europe. management companies First Newsec manages transactions of some Asset Management and TM Partner EUR 3 billion and does real estate Newsec manages more properties and were acquired in 2012. In 2013, Newsec valuations of underlying property worth carries out more transactions, more acquired Jones Lang LaSalle’s Swedish almost EUR 180 billion. Thanks to large lettings and more valuations than any property management operation. In volumes, local presence combined other firm in Northern Europe. Through 2017, Newsec grew with the acquisitions with in-depth understanding of a range this great volume, and the knowledge of Norwegian Basale and Danish Datea, of businesses, Newsec has a unique and depth of our various operations, we further strengthening the position within expertise of the real estate market in acquire extensive and detailed knowledge Property Asset Management. Northern Europe. of the real estate market. In turn, we can quickly identify business opportunities Newsec was founded in 1994 and is that create added value. today a partner-owned company with some 2000 co-workers spread across Our prime market is Northern Europe, the seven Nordic and Baltic markets. but through our alliance membership with BNP Paribas Real Estate, we offer OULU our services on the global market. This makes Newsec Northern Europe’s only TRONDHEIM full service property house, and provides us with a unique ability to forecast the TAMPERE future. HELSINKI Newsec is the result of a unique STOCKHOLM history of growth, characterised by constant originality of thinking. The TALLINN first issue of the comprehensive market analysis, Newsec Property Outlook, was published in 2001. The Group expanded internationally into Finland BERGEN OSLO GOTHENBURG MALMÖ RIGA KLAIPEDA AARHUS COPENHAGEN KAUNAS VILNIUS 6

● CONTACT AND ADDRESSES CONTACT AND ADDRESSES More analytical information at Newsec: Newsec in Latvia: LATVIA Head of Strategic Analysis, Chairman of the Board, Newsec in Latvia Vesetas Street 7 Newsec Advisory in the Baltics Girts Grinbergs LV-1013, Riga Mindaugas Kulbokas Cell +371 2942 4847 Phone +371 6750 84 00 Cell +370 652 10556 E-mail [email protected] E-mail [email protected] E-mail [email protected] www.newsec.lv Office solutions at Newsec: Senior Analyst ESTONIA Kristina Zivatkauskaite Tenant Consulting Roseni str. 7 Cell +370 610 38171 Head of Corporate Solutions EE-10111 Tallinn E-mail [email protected] Martynas Babilas Phone +372 664 5090 Cell +370 616 12216 E-mail [email protected] E-mail [email protected] www.newsec.lt/en Office FIT-OUT Service LITHUANIA Head of Project Management Konstitucijos ave. 21C Tadas Grincevicius LT-08130 Vilnius Cell +370 679 79779 Phone +370 5 252 6444 E-mail [email protected] E-mail [email protected] www.newsec.lt Office Care and Property Management Head of Office Management Group Justas Bandza Cell +370 6555 8989 E-mail [email protected]