INDUSTRIAL REAL ESTATE

Industrial real estate is a type of premises designed to serve a particular industry. In this case the term industry is defined as an area of activity mostly related to the primary or secondary sectors of economy, i.e. natural resource development or the manufacturing of goods, respectively.

Industrial property is sometimes described as a part of commercial real estate, and sometimes these areas do overlap, but, in general, industrial buildings serve a range of highly specialized purposes, whereas the main aim of commercial estate is to be rented out, and it should be more flexible in usage. Typical examples of industrial property are: power plants, goods production factories, warehouses, refineries, forges, sawmills, etc.

Dealing with industrial property (with the possible exception of warehouses) also includes a range of considerations not typical to other types of real estate. One of these is the supply of energy. The manufacturing of goods and extraction of resources takes a lot more energy than any commercial or residential building demands. A related issue is the use of specialized, often cumbersome, machinery, which demands ample space. And, finally, there is the question of waste materials and waste heat, which, in a lot of cases, is dangerous for the environment and must be utilized in a special way.

Industrial property in Latvia

The industrial property market in Latvia is now in its growing phase, with the total industrial area increasing each year. Moreover, this development is not only quantitative, but also qualitative - recent years saw the differentiation of industrial property rent rates in Riga (the capital) and Riga Region, effectively creating two new sub-markets.

Supply and demand

As of 2017, the total amount of available industrial space is approximately 944 100 m2. Out of this, 67.5% is general (speculative) space, designed to accommodate a wide range of tenants, and 32.5% is built-to-suit premises, which were from the very beginning designed and constructed to suit a particular company. Approximately 42% of all the industrial space is located within the administrative territory of Riga. It is projected that the supply will increase by 59 700 m2 by the end of 2017, whereas 140 000 m2 are currently in planning. In Riga and Riga Region, there is the following distribution of industrial real estate space:

• 19% - 5 000 m2 to 10 000 m2
• 18% - 10 000 m2 to 20 000 m2
• 22% - 20 000 m2 to 30 000 m2
• 41% - bigger than 30 000 m2

As for the demand, it increased by 61 100 m2 during the last year, with an average space occupied by each company being 1 700 m2. The most active developments have been observed in distribution and delivery industries, with the increased interest in warehouses and storage yards. The main reason for that is Latvian market's active involvement in e-commerce and online retail, which relies on parcel delivery as the main way of transferring goods to clients.

Rent and vacancy rate

Rents for Latvian industrial real estate are generally stable, but there is a possibility of them decreasing somewhat. This is due to the shift to tailor-made and built-to-suit solutions in new industrial properties, which make it more appealing than older property (especially storage space), which is not so flexible. Accordingly, older warehouse owners, in order to remain competitive, may decrease their prices in the nearest future, if the trend continues developing. In general, however, rents for both Class A and Class B industrial estate have remained almost the same for the last three years. These rates are:

• 3.5 EUR to 4.5 EUR per m2 per month for Class A premises
• 3 EUR to 3.6 EUR per m2 per month for Class B premises

As for vacancy rates, the situation is different for different industrial estate segments. While the overall vacancy has increased by 6% in the last year, there is a notable shortage of spaces for smaller premises (1 000 m2 to 2 000 m2). Considering the number of new projects in planning, vacancy rates are projected to increase.