The growth of vacant space is partially associated with the State Revenue Service (SRS) having left its recently occupied space of about 40,000 square metres and having relocated its structural divisions to the new SRS office building approved for use this April. Likewise, several premises have become available and still are vacant in other office buildings in Riga centre, for example, in the building at No.3 January 13th Street having had been occupied by GE Money Bank.

“The better quality space left by previous tenants will be taken again gradually, and this process will cause moving out of lower quality premises. With trends of current demand remaining, it is expected that lease rates of Class A and B offices will add 5% on the average in Riga by the end of the year,” points out Janis Shins, Head of Latio Commercial Property Brokerage Department.

The expert of Latio predicts that significant growth of office space supply is not anticipated in the immediate future. After a new owner will be found, the former headquarters of the bank Latvijas Krajbanka undergoing liquidation might become available in Skanste area in a year’s time. Soon, developers may launch construction of several new office buildings thus extending supply of premises for ca.15,000 – 20,000 square metres.

However, rapid development of new office buildings is not expected in the offing as plans of developers are restricted by both tight requirements for getting bank financing and level of lease rates which is too low to ensure desired profitability of new office buildings. Given the current costs to implement such projects, construction of Class B office buildings would be profitable if premise lease rates were 14 euro per square metre a month.

In the second quarter this year, transactions for Class A office premises were closed at lease rates fluctuating between 13–16 euro per square metre a month; Class B offices – 8–13 euro, including 10–13 euro in Riga centre, and 8–11 euro in Pardaugava and other areas outside the centre limits. Class C office premises are leased out at the rate of 4–8 euro per square metre a month.

Specific weight of vacant Class A offices is very little. For instance, this index was around 10% in mid-2012. Volume of vacant Class B offices differs among different parts of Riga – specific weight of vacant space is hardly 10% in the city centre while it is about 20% in office buildings in Pardaugava and other areas outside the centre.

Like previous periods, the strongest demand is observed in office space located in Riga vibrant centre and in quality office buildings at Duntes and Skanstes Streets, as well as at the beginning of Pardaugava. The bulk of the demand is built by companies looking for premises up to 200 sq.m. large. New tenants requiring premises of 1,000 and more square metres are very few currently.

In the second quarter this year, offices were demanded most actively by IT companies, law firms, educational establishments, and public organizations.

The latest Commercial Real Estate Market Report of Latio will be published this week.