ABSL review: Lithuania among top 10 most desirable destinations for service business centres in Europe
In its overview report of the location spectrum that Europe offers to business service centres, the Polish organisation, ABSL has published a comprehensive report on the 10 most desirable destinations for the sector in Europe. The following countries were analysed: Lithuania, Poland, Slovakia, Czech Republic, Portugal, the United Kingdom, Ireland, Romania, Spain and Hungary. Two cities from every country participating in the analysis were reviewed.
In Lithuania, Vilnius and Kaunas were selected for the analysis. The cities were reviewed according to three indicators: HR landscape, payroll costs and office market. Data on the office market in these cities was provided by Ober-Haus.
High ranking of quality of life in Vilnius attracts young and educated employees
Vilnius continues to increase its attractiveness for business service centres due to its high number of multilingual and skilled employees. The report notes that Vilnius has the highest percentage of youth population in the Baltics and ranks high in the Quality of Life ranking – Vilnius has the fourth highest quality of life in the CEE, – this may help to attract talent from abroad.
Vilnius has the largest office market in Lithuania. The office market has been boosted over the last few years by the establishment of new and large service centres of international corporations and the expansion of well-known companies already operating in Vilnius. The current office space in Vilnius is approx. 547 000 sq. m. and it is expected to add on another 70 000 sq. m. by the end of 2016. Recent leasing activity in Vilnius has been subdued due to a lack of available space, and the office vacancy rate in Vilnius business centres has decreased to just 3.5% (A-class – 0.8%, B-class – 5.0%) or 19 000 sq. m. at the end of Q2 2016. It is forecasted that new developments to be completed before 2018 will offer over 150 000 sq. m. of additional office space. This level of development has not been seen since the onset of the global financial crisis in 2008–2009, ASBL states.
ABSL reports that office rents have been broadly unchanged since 2015. Compared to the lowest levels in 2010, rents for office space in Vilnius have, on average, increased by over 40%. Currently, rental costs for A-class premises range between €13-16 / sq. m. and between €8.5-13.0 / sq. m. for B-class office space. Analysts feel that the current and planned supply and demand ratio has determined the office rental market peak. Thus, it is unlikely that rents will increase much over the next few years. ABSL anticipates that the office market in Vilnius will slowly swing from a neutral market to a tenants’ market.
Kaunas – the best emerging city for business service centres in the CEE region
Meanwhile, Kaunas is presented to investors as a yet undiscovered destination for the business service sector in Europe. Due to its small size, it may not be suitable for large centres. However, it is well positioned to attract smaller scale operations, which is particularly attractive for IT companies. The report says, that the city’s untapped talent pool, progressive university community, and improving office real estate market is the reason why it was recently named as the best emerging city for business services centres in the CEE region.
Kaunas has the second largest office market in Lithuania, with an office stock of over 91 000 sq. m. – one sixth of that in Vilnius. To date, developers in Kaunas have been focused on smaller-sized (1 000-2 000 sq. m.) administrative buildings, but have been slowly preparing for larger projects. Currently there is very little choice of office space with vacant space at just 2.1% (2 000 sq. m.). The current volume under construction totals approximately 40 000 sq. m., and planned for delivery by the end of 2018. The report emphasises that Kaunas must use its potential to attract new businesses, as international companies considering a move to Lithuania typically analyse the possibilities of setting up operations in either the capital city or Kaunas.
Changes in office rental costs are also likely to encourage the development of new projects. Although there has not been an significant increase in rents (during the first half of the year rents for office space in Kaunas increased on average by 5%), this is an extra incentive for developers to commence planned projects. Currently, A-class rental costs range between €10.5-13.0 / sq. m. and between €6.0-10.0 / sq. m. in B-class office premises. ABSL forecasts that the office market in Kaunas is expected to remain neutral in the next two years.