Baltics: 368 million Euros pumped into commercial property acquisitions
In the first half of 2017, investor activity in commercial real estate in the Baltic countries was not uncommon, but the recorded scope of investment showed an unfading interest in modern commercial property. A total of 18 investment transactions were concluded in this period in Lithuania, Latvia and Estonia, which involved the purchase of over 312,000 sq.m. of cash-flow commercial property (modern offices, retail, warehousing and industrial buildings and premises, at least EUR 1.5 million in value). The total value of the acquisitions was EUR 368 million, nearly 18% less compared to the first half of 2016, Ober-haus writes in the review of the commercial real estate market.
According to Ober-haus, one transaction concluded in mid-2017 had a major effect on this year’s indicators. The transaction involved the acquisition of 80% ownership interest in the property investment company, Baltic Retail Properties, by CPA®:17, owned by the US investment company W. P. Carey and the Finnish Kesko Corporation. The property portfolio of Baltic Retail Properties comprises 18 retail stores in Lithuania, Estonia and Latvia, and a logistics centre in Lithuania. Following the acquisition, CPA®:17 became the main shareholder of Baltic Retail Properties, paying EUR 127 million (including acquisition-related charges and costs) for its 70% share. Meanwhile, Kesko acquired 10% of the shares of Baltic Retail Properties following Kesko’s sale of its 7 retail stores in Latvia and Estonia to Baltic Retail Properties for EUR 64 million.
“Lithuania shared the major portion of the investment in the first half of 2017, i.e. EUR 198 million or 54% of the overall investment in the Baltic countries. The largest investment transactions in Lithuania during the period were the said acquisition of the shares in Baltic Retail Properties and the acquisition of the Vertas and Pentagon office buildings in Vilnius,” said Saulius Vagonis, Ober-haus Head of Valuation & Analysis.
In June 2017, the Swedish investment company Eastnine (formerly East Capital Explorer) completed the acquisition of Vertas. The company paid EUR 29 million for the building, which, according to the buyer at the time of the acquisition, guaranteed about 6.5% yield. The Finnish property investment and management company Technopolis purchased an almost completed office building in Ozas Park from the ICOR Group. The transaction involved the purchase of both the office building and the parcel of land next to the building. The acquisition of the building was completed in April, and the acquisition of the land is scheduled for completion by the end of 2017. The total transaction value is about EUR 32 million. According to the official notice of Technopolis, the initial yield of 6.5% is forecast on completion.
The value of investment transactions in Estonia in the first half of 2017 totalled EUR 91 million or 25% of the overall investment in the Baltic countries. The largest investment transactions in Estonia involved the sale of 3 retail centres managed by Kesko to Baltic Retail Properties, the acquisition of the shares in Baltic Retail Properties mentioned above, and the sale of the Prisma Shopping Centre in the city of Narva (the shopping centre was purchased by the French property management company CORUM for EUR 16.7 million from EFTEN Kinnisvarafond AS controlled by EFTEN Capital).
According to Ober-haus, Latvia saw the smallest share of investment over the period totalling EUR 79 million. The major portion of the investment in Latvia accounted for the sale of 4 retail centres managed by Kesko to Baltic Retail Properties and subsequent sale of the shares of Baltic Retail Properties to CPA®:17 - Global.
Transactions involving W. P. Carey Inc., Kesko and Baltic Retail Properties determined the distribution of investment by property segments in the first half of 2017. According to Ober-haus, of the total EUR 368 million invested in Lithuania, Latvia and Estonia, 69% went to the retail property sector. A total of 25% investment was made in offices, and the remaining smallest portion (6%) was traditionally invested in warehousing facilities. The largest transaction in the warehousing property segment was the purchase of a 21,000 sq.m. logistics centre in Vievis (with Rimi as the anchor tenant) by the Estonian investment company United Partners Property from Sirin Development.
“One large investment transaction determined that US investors (W. P. Carey Inc.) were the largest single investors in modern commercial property, accounting for 33% of the total investment in the Baltic countries in the first half of 2017. Local investors from the Baltic countries accounted for another 33% of the total investment, and investors from other countries (Denmark, Finland, France, Sweden, Russia and the UK) accounted for the remaining 34% of the total investment. The geography of investors in the Baltic countries has not expanded considerably – local, Scandinavian and private investors continue to take centre stage. However, new international investors in the Baltic market (e.g. W. P. Carey Inc.) have expanded their portfolios; the market has also attracted new market players (e.g. the French property management company CORUM, which has made its first acquisition in Estonia this year). Despite the new larger investors in the market, the geographic pattern of investment remains limited,” said S. Vagonis. According to Ober-haus, over the past 17 years, investors from 15 different countries have invested in developed commercial property in Lithuania, and this number has not changed since 2015.
Saulius Vagonis is Head of the Valuation & Analysis Department at Ober-haus