investment market - colliers · 3 investment market ... lowest yields were recorded among prime...

Investment MarketTransaction Volume

The total volume of investments in commercial realestate in the Baltics amounted to EUR 511 million in1HY 2017, remaining roughly the same compared to1HY 2016.

Total investment turnover in the Baltic States slightlydecreased by 2.4 per cent in 1HY 2017 in comparison to theEUR 523 million closed in 1HY 2016.

Lithuania leads in terms of the volume of investments incommercial real estate with EUR 260 million, followed byEstonia with EUR 194 million and Latvia with EUR 57 million.The Latvian investment market observed traditionally lowtransaction volumes in the first half of the year. A shortage ofattractive investment products can still be mentioned as oneof the reasons. However, we at Colliers see a significantpotential transaction pipeline already formed. It is alsoimportant to note that investments in development schemes inLatvia are high and totalled additional EUR 52 million in 1HY2017.

Average transaction size across the market as a whole wasEUR 4.0 million in 1HY 2017 (compared with EUR 3.5 millionin 1HY 2016).

The increase in average transaction size can be attributed tothe large number and volume of deals above the EUR 10million threshold in 1HY 2017 (ca 64 per cent of total volume).

At the same time, approx 78 per cent of the total number oftransactions in 1HY 2017 in the Baltic States were deals ofless than EUR 3 million.

Investment Turnover in the Baltic States by Size in1HY 2017

Source: Colliers International

Nordic capital was responsible for almost one-third ofacquisitions in Estonia, while foreign capital in total wasbehind more than 70 per cent of invested volume. The shareof TOP3 investors – East Capital, Corum, UAB Baltic RetailProperties – amounted to almost half of total investmentvolume in Estonia in 1HY 2017.

Dynamics of Investment Volume in the Baltic States


46%

above EUR 20 million

EUR 10-20 milllion

EUR 5-10 million

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EUR 1-3 million

up to EUR 1.0 million

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Estonia 2HY 2017 forecast Latvia 2HY 2017 forecast Lithuania 2HY 2017 forecast

Research & Forecast Report

BALTIC STATES | INVESTMENT MARKET1HY 2017

*Property Types: This report is limited to office, industrial, retail, hotels and multi-residential apartment buildings.Property types outside listed and below the EUR 0.4 million threshold are not captured in this report.

2 Investment Market Overview | 1HY 2017 | Colliers International

Due to the Kesko Senukai portfolio deal, the total share offoreign capital amounted to more than two-thirds of totalvolume in Latvia in 1HY 2017. Apart from the Kesko portfoliodeal, the Latvian market continues to be dominated by Balticinvestors and investors from CIS and Nordics, who arealready present in the region. Among Baltic investors,Latvians and Estonians are the most active, followed byLithuanian investors.

The Lithuanian market continued to gain confidence amonglocal investors as well as international investment funds.Baltic and Nordic investors maintained a dominant hold of themarket, being responsible for more than two-thirds ofacquisitions (65 per cent) in 1HY 2017.

Investment Properties

In 1HY 2017, the retail segment attracted the biggest share ofinvestment (43 per cent), up from 34 per cent in 1HY 2016,being the main investment activity driver in all three BalticStates in the first half of the year. In Estonia, investment inretail property accounted for 38 per cent of total volume; inLithuania - for 45 per cent of total volume, while in Latvia,investment in retail property accounted for more than half (55per cent) of total volume.

Investment Turnover in the Baltic States by PropertySector in 1HY 2017


Following the acquisition of Kesko Senukai LC in Kaunas – thelargest deal of 2016 – the American fund CPA:17 – Global,managed by W. P. Carey Inc., considerably expanded itsportfolio with the acquisition of 11 Kesko Senukai stores and alogistics property in Lithuania. In addition, 7 DIY stores wereacquired in Latvia and Estonia. Total transaction value stoodat EUR 127 million, which was implemented through theacquisition of 70 per cent of shares in Baltic Retail Properties.

Other notable deals in the retail segment included theacquisition of retail and administrative premises at Gedimino

Ave. 20 in Vilnius by Sportland LT and the sale of NarvaPrisma hypermarket in Estonia by EfTEN Capital to Frenchasset management company Corum for EUR 16.7 million.

Investment in the office segment attracted the second biggestshare of total transaction volume in the Baltic States in thefirst half of the year and accounted for 28 per cent of totalvolume. Notable deals in the office segment included theacquisition of the Vertas BC by Eastnine for EUR 29 million,the Duetto I BC by Baltic Horizon for EUR 14.6 million andnew office building Penta BC under construction byTechnopolis in Vilnius, the sale of the Hobujaama 4 officebuilding in Tallinn to Colonna with a price of over EUR 15million and the sale of the Ostas skati office building in Riga.

At EUR 111 million, investment in industrial/warehouseproperty accounted for the third largest share of transactionvolume in 1HY 2017, driven by the sale of the VGP ParkNehatu in Tallinn and the acquisition of the Rimi logisticscentre in Vievis (a sale-purchase transaction) by UnitedPartners Property in Lithuania.

Average Transaction Size by Sector


In June 2017, East Capital Baltic Property Fund III managedby East Capital announced the signing of an agreement toacquire Nehatu logistics park in Tallinn from logistics andindustrial park operator VGP. The price of the transaction isEUR 54 million, making it the largest transaction in Estonia in2017 so far. The transaction was finalized after approval fromthe Estonian Competition Authority in September 2017. VGPPark Nehatu Logistics park includes more than 77,000 sqm ofClass A semi-industrial premises suitable for logistics,industrial and commercial activities.

The share of hotel deals in total transaction volume remainedrather low in 1HY 2017 due to the very small number oftransactions.

Investment Yields

Compression of prime investment yields continued in 1HY2017, driven by cheap financial capital, shortage of investmentgrade products and strong investor appetite. In Vilnius, the

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Office Retail Industrial Hotel Mixed use Residential

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lowest yields were recorded among prime retail and officeproperties (6.5 per cent), while the highest yields remained inthe industrial segment (8.0 per cent).

Prime Yields in the Baltic States by Country

Prime Yields Estonia Latvia LithuaniaOffice 6.25% 6.75% 6.5%Retail 6.5% 6.75% 6.5%

Industrial 7.75% 8.0% 8.0%


In Riga, prime yield for industrial objects remained at 8.0 percent, with prime retail and office yields experiencing a slightdecline to 6.75 per cent respectively.

Average Prime Yield Dynamics in the Baltic States,2006 – 2017


In Estonia, prime yields continued to compress slightly by 15-20 bps throughout 1HY 2017 to 6.25 per cent in the officesector, 6.5 per cent in the retail sector and remained at 7.75per cent in the industrial sector.

Tendencies and Forecasts> In 2HY 2017, the investment market is expected to remain

active as most investors have capital available and areconstantly looking for good quality cashflow properties.

> After a record-breaking 2015 and active 2016, Colliersforesees transaction volume in 2017 exceeding EUR 1.0billion in total, thus remaining at the previous year‘s level.

> Total investment volume in 2017 will heavily depend on thenumber of large lot-size deals. Closing of two-three dealsabove the EUR 30 million threshold will make a notablecontribution to the year’s sales volumes.

> Transaction pace in Latvia can slow down in short-termdue to uncertainties arising from tax law changes effectivefrom January 2018. However, once implemented, thesechanges can open up new opportunities and potentiallyimprove market activity.

> Larger local investors will continue to look for suitableinvestment opportunities in Latvia and Lithuania plus somealternative investment options in the development segmentin Estonia as well as outside the Baltic region.

> New professional investors from other regions willcontinue to appear in the Baltic commercial real estatemarket.

> Sector-wise, the office and retail sectors will remain themost favoured by investors, international and local alike.

> Compressing yields in the office and retail segments mayenhance the attractiveness of industrial / logistic realestate as well as the hotel, healthcare and wellnesssegments for investors.

> Prime yields remain under pressure as supply of assetsremains scarce.

Investment Deals in the Baltic States of over EUR 15 million in 1HY 2017

Object City Type Total area, sqm Vendor Investor

Kesko Senukai portfolio BalticRetail /

Industrial150 200 Baltic Retail Properties

CPA:17 – Global, managed by W.P. Carey

VGP Park Nehatu Tallinn Industrial 77 000* VGP East Capital

Penta BC Vilnius Office 13 800* ICOR Group Technopolis

Vertas BC Vilnius Office 9 570 Laurus Eastnine

Premises at Gedimino Ave.20

Vilnius Retail / Office 5 600 Gedimino 20 Sportland LT

Prisma Hypermarket Narva Retail 13 300 EfTEN Capital Corum

Hobujaama 4 BC Tallinn Office 8 480 Partners Group Colonna

RIMI logistics centre Vievis Industrial 21 200 Sirin Development United Partners Property

* - total leasable areaSource: Colliers International

0,0%

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14,0%

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Office Retail Industrial


w

Copyright © 2017 Colliers International.The information contained herein has been obtained from sourcesdeemed reliable. While every reasonable effort has been made toensure its accuracy, we cannot guarantee it. No responsibility isassumed for any inaccuracies. Readers are encouraged to consult theirprofessional advisors prior to acting on any of the material contained inthis report.

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About Colliers International Group Inc.Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services withmore than 15,000 professionals operating from 403 offices in 68 countries. With an enterprising culture and significantinsider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investorsworldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, projectmanagement and workplace solutions, property and asset management, consulting, valuation and appraisal services,and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcingfirms by the International Association of Outsourcing Professionals’ Global Outsourcing for 10 consecutive years, morethan any other real estate services firm.colliers.com

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AUTHORS:

Maksim GolovkoHead of Research | [email protected]

Colliers International Advisors | Estonia OfficeLõõtsa 2aTallinn | Estonia+372 6160 [email protected]

Dmitrijs KačalovsAssociate Director| [email protected]

Colliers International Advisors | Latvia Office21 Kr.Valdemara street | Riga, LV 1010 | Latvia+371 6778 [email protected]

Diana LebedenkoAnalyst | [email protected]

Colliers International Advisors | Lithuania OfficeA. Gostauto St. 40B | LT-03163, Vilnius, Lithuania+370 5 249 [email protected]

investment market - colliers · 3 investment market ... lowest yields were recorded among prime...

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