Real Estate Market Overview

Estonia I I 2018 Real Estate Market Overview I Latvia I Lithuania 2018

Real Estate is a Location Business. Introduction

That’s why we do business where you do business. We are delighted to present the 15th Colliers International Real Estate Market Overview covering market trends and forecasts, the latest statistics and market insights in Estonia, Latvia and Lithuania. The economy of all three Baltic countries grew last year and the positive trend continues in 2018. Markets are under development and we expect to see approx. 950,000 sqm of new supply of different types of commercial space in the upcoming years in Riga, Vilnius and . Strong supply of offices is expected in the two biggest Lithuanian cities (Vilnius and Kaunas), while Riga and Tallinn will experience their historically biggest additions in the shopping centre segment (more than 260,000 sqm) by the end of 2019. Total investment volume did not reach the 1 bn EUR level as expected a year ago and even decreased by 23 per cent compared to 2016. The result is explained by lack of supply of high quality and large-scale cashflow products, rather than lack of demand. The biggest gap was in Riga, although the shortage in the investment product pipeline can be explained by scarce development activity in the last 5 years compared to other Baltic capital cities. Active investors continue to stay well capitalized, loan interest is low and availability of financing is in general still good. Prime yields in core segments are constantly under pressure, but notable additional yield compression in 2018, especially in Tallinn, is unlikely. Forecasts for all three Baltic States stay positive and we look forward to cooperating and serving your needs in the region. When you partner with Colliers professionals, you tap into an integrated team of experts. Together, we offer insight from 396 world markets, eight service lines and countless specializations, all with a common goal - Sincerely, accelerating your success. Deniss Kairans Table of Contents

Economic Overview Estonia I Latvia I Lithuania 6 Investment Market Estonia I Latvia I Lithuania 12 Office Market Estonia I Latvia I Lithuania 20 Estonia 22 Latvia 28 Lithuania 34 Market Estonia I Latvia I Lithuania 40 Estonia 42 Latvia 48 Lithuania 54 Industrial Market Estonia I Latvia I Lithuania 60 Estonia 62 Latvia 68 Lithuania 74 Hotel Market Estonia I Latvia I Lithuania 80 Estonia 82 Latvia 88 Lithuania 94

Real Estate Market Overview | 2018 | Colliers International 5 Reykjavík Iceland

Finland

Norway

Helsinki Oslo Stockholm

Tallinn 1,318,705 448,746 Economic 1,221 EUR Estonia 5.8% Overview Estonia I Latvia I Lithuania 1,950,116 Latvia 641,423 926 EUR Riga 8.8% Moscow

Copenhagen Lithuania

Vilnius 2,810,118 536,692 GDP Growth, % yoy 840 EUR 5% 7.1%Minsk 4.9% Dublin 4% 4.5% 3.8% Great 3% Ireland 2% Population (country), residents Population (capital city), residents Britain 1% Berlin Average monthly gross earnings 0% Warsaw Estonia Latvia Lithuania Annual unemployment rate London Poland Real Estate Market Overview | 2018 | Colliers International 7 Brussels Prague Kiev Czech Republic Paris Luxembourg Ukraine Slovakia Vienna Bratislava Austria Budapest Moldova Vaduz Hungary Romania Chișinău Ljubljana Zagreb Croatia Belgrade Bucharest Bosnia & Serbia San Marino Herz. Monaco Sarajevo Andorra Pristina Montenegro SoŽa Kosovo Bulgaria Rome Podgorica Skopje Georgia Tbilisi Tirana Macedonia Portugal Madrid Albania Yerevan Azerbaijan Greece Armenia Baku Spain Ankara Lisbon Athens Turkey

Gibraltar Valletta Nicosia Cyprus Estonia I Latvia I Lithuania Investment Market Economic Overview Estonia I Latvia I Lithuania

General Overview

Increasing demand in Estonia’s main In 2017, development of the Lithuanian In 2017, inflation (HICP): in Estonia stood In 2017, average monthly gross earnings export markets had a positive impact economy accelerated on the back of at 3.7 per cent compared with 0.8 per were EUR 1,221 in Estonia, and compared on economic growth in 2017, with value added generated by the service cent in 2016; in Latvia inflation increased to 2016, grew by 6.5 per cent. Compared Estonian GDP increasing 4.9 per sector and industry. Improvements in to 2.9 per cent in 2017 from 0.1 per cent to 2016, gross earnings in 2017 rose by cent y-o-y, mainly driven by a rise in the international economic environment in 2016; in Lithuania inflation rose to 3.7 7.9 per cent in Latvia - from EUR 859 to value‑added in , information boosted trade, resulting in export volume per cent in 2017 from 0.7 per cent in EUR 926. In 2017, average monthly gross and communication, and professional, recovery. This allowed Lithuania to 2016. Inflation in Lithuania and Estonia earnings stood at EUR 840 in Lithuania, scientific and technical activities as well achieve GDP growth of 3.8 per cent y-o-y, was highest among the EU Member increasing by 8.5 per cent y-o-y. Wage as transportation and manufacturing. compared to 2.3 per cent y-o-y in 2016. States in 2017. The greatest influence on growth was mainly reinforced by a At the same time, trade, which had driven the consumer price index was exerted shrinking labour pool, leading to stronger economic growth in 2016, became the by prices of food and non-alcoholic competition over talent. biggest drawback to the growth in the The labour market in the Baltic States beverages in all three Baltic States. second half of 2017. experienced further positive developments during 2017. The annual average In 2017, production of industrial unemployment rate (5.8 per cent) in Turnover of retail trade enterprises enterprises rose by 7.1 per cent in In 2017, economic growth in Latvia Estonia in 2017 was lower than in 2016 reached EUR 6.7 billion in 2017 in Estonia, Lithuania and 7.7 per cent in Estonia, experienced acceleration compared (6.8 per cent), while the labour force equivalent to growth of 1.5 per cent at compared to 2016, while industrial to previous years, mainly driven participation rate reached its highest level constant prices compared with 2016, production output in Latvia increased by improvements in the external for 20 years. In 2017, the unemployment according to calendar-adjusted data. In by 8.5 per cent during the same period environment, more intensive usage of rate accounted for 8.8 per cent in Latvia, Latvia, turnover of retail trade enterprises (according to calendar-adjusted data at EU funding, plus increase in wages and or 0.9 percentage points less than in totalled EUR 7.2 billion, growing 4.2 per constant prices). household consumption. According to 2016 and 7.1 per cent in Lithuania (0.8 cent y-o-y at constant prices. In 2017, flash estimates, GDP increased by percentage points less than in 2016). turnover of retail trade enterprises in 4.5 per cent y-o-y in Latvia as practically Lithuania amounted to EUR 10.4 billion, all economic sectors experienced growth. growing 4.6 per cent y-o-y at constant prices.

8 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 9 Estonia I Latvia I Lithuania Economic Overview

Key Economic Indicators Trends and Forecasts ESTONIA LATVIA LITHUANIA INDICATORS 2016 2017 2018F 2016 2017 2018F 2016 2017 2018F GDP current prices, EUR billion 21.1 23.0 24.7 24.9 26.7 28.4 38.7 41.8 44.7 Due to gradual improvement in foreign demand, Estonian economic growth is expected GDP growth (real), % yoy 2.1 4.9 3.5 2.1 4.5 4.1 2.3 3.8 2.8 to accelerate up to 4.2 per cent in 2018. According to available forecasts, GDP growth Industrial production, % yoy 2.4 7.7 4.4 4.9 8.5 6.5 2.8 7.2 4.5 in 2018 will remain high in Latvia, but will slow down slightly compared to 2017. Unemployment rate, % avg 6.8 5.8 6.8 9.6 8.8 8.2 7.9 7.1 6.8 Recovering investment, private consumption and global trade will be the key drivers Average monthly gross wages growth, % 7.6 6.5 6.2 5.1 7.9 8.3 8.4 8.5 6.1 Total central government debt, % of GDP 9.4 9.1 8.7 40.6 39.1 35.6 40.2 41.2f 36.5 behind economic growth in Lithuania, with GDP growth of 2.8 per cent expected in HICP, % yoy 0.8 3.7 3.5 0.1 2.9 2.8 0.7 3.7 2.6 2018. CPI, % yoy 0.1 3.4 3.1 0.1 2.8 2.8 0.9 3.7 3.3 Fiscal deficit, % of GDP -0.3 -0.3 -0.2 -1.4 -1.0 -0.7 0.3 -0.4 0.5 Export, EUR billion 11.9 12.8 13.2 10.4 11.4 n/a 22.6 26.4 28.5 Consumer price growth in 2018 is expected to exceed the 2.5 per cent level in all three Import, EUR billion 13.5 14.7 15.3 12.5 14.0 n/a 24.7 28.8 31.6 Current account, % of GDP 1.9 2.1 0.3 1.4 -1.4 1.6 -1.1 0.9 -1.5 Baltic States, driven by the rise in various excise duties and the tight labour market (fast FDI, EUR billion 0.83 0.82 0.74 -0.1 1.0 n/a 0.85 0.63f 0.65 wage growth).

GDP Growth HICP In 2018, the labour market is expected to experience a further decline in the 10% 20% 15% unemployment rate and wage growth in Latvia (at the fastest pace in a decade) and 0% 10% Lithuania (stimulated by expansion of international companies and increase of the 5% -10% minimum wage by 5.3 per cent to EUR 400). The unemployment rate is expected to 0%

-20% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f -5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f somewhat increase in Estonia due to a work ability reform, while gross wages will Estonia Latvia Lithuania Estonia Latvia Lithuania continue to grow by more than 5 per cent per annum on average during 2018 - 2019.

Unemployment Rate Average Monthly Gross Wages Growth The population of Estonia is expected to continue growing in 2018, driven by positive 20% 30% net migration. The demographic situation will still be the main cause of concern in 15% 20% Latvia, as further population decline close to 1.0 per cent annually in Latvia and close 10% 10%

5% 0% to 0.5 per cent annually in Riga is projected at this point. Worsening demography will affect the labour market, especially in the regions, likewise constraining higher 0% -10% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Estonia Latvia Lithuania economic growth in Lithuania. Estonia Latvia Lithuania

Retail Sales Growth

10%

0%

-10% f - forecast -20% Source: Colliers International Estonia - National Statistics, Eurostat, Swedbank, SEB, Bank of Estonia -30% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Latvia - Central Statistical Bureau, Eurostat, Ministry of Finance, SEB, Lithuania - Statistics Lithuania, Bank of Lithuania, Ministry of Finance, Swedbank, Estonia Latvia Lithuania Oxford Economics

10 Real Estate Market Overview | 2018 | Colliers International Reykjavík Iceland

Finland

Norway

Helsinki Oslo

Stockholm Investment Volume in Country Tallinn Sweden Investment Estonia Russia

Market m EUR 325.3 Estonia I Latvia I Lithuania Latvia Riga

Denmark Klaipeda m EUR 149.3 Moscow Lithuania Copenhagen Vilnius

Kaunas 450.0 m EUR

Prime Yields Minsk

Dublin 8% 8.0

Great 7.75 7.75 6% Investment by Sector (% of the total volume) 6.5 6.5 6.5 6.5 Ireland 6.5 Belarus 6.25

Britain 4% 44%

Berlin 39% Warsaw 36% Amsterdam 32% 28% 2% 27% 25% 25% 18% 7% 6% 4% 4% 3% Netherlands 0% Poland 2% London GermanyTallinn Riga Vilnius Estonia Latvia Lithuania Oce Retail Industrial Oce Retail Industrial Hotel Mixed-use Residential Brussels Prague Real Estate Market Overview | 2018 | Colliers International 13 Belgium Kiev Czech Republic Paris Luxembourg Ukraine Slovakia Vienna Bratislava Austria Budapest Moldova France Vaduz Hungary Switzerland Romania Chișinău Ljubljana Zagreb Croatia Belgrade Bucharest Bosnia & Serbia San Marino Herz. Monaco Sarajevo Andorra Italy Pristina Montenegro SoŽa Kosovo Bulgaria Rome Podgorica Skopje Georgia Tbilisi Tirana Macedonia Portugal Madrid Albania Yerevan Azerbaijan Greece Armenia Baku Spain Ankara Lisbon Athens Turkey

Gibraltar Valletta Nicosia Cyprus Estonia I Latvia I Lithuania Investment Market Investment Market Estonia I Latvia I Lithuania

Investment Volumes in 2017 approx. 75 per cent of the total number of transactions in General Overview 2017 in the Baltic States comprised deals of less than In 2017, investment* in the Lithuanian commercial real EUR 3 million. estate market reached EUR 450 million, increasing by Baltic investors were the most active in the market, 2.4 per cent compared to the previous year. Economic After a record-breaking 2015 and active 2016, transaction volume in the Baltics in responsible for 52 per cent of total volume in the Baltic growth and favourable market conditions, coupled with States, followed by international and Nordic investors, 2017 amounted to EUR 925 million in total, thus remaining considerably below the capital availability, created strong preconditions for accounting for 32 per cent and 16 per cent of total volume previous year‘s results. vibrant investment activity throughout the year. respectively. At the same time, the year was marked by a lack of large In Estonia, Nordic capital was responsible for almost transactions in Estonia and Latvia and a widening gap one-fifth of acquisitions, while foreign capital in total between the expectations of owners and investors, leading was behind more than 65 per cent of invested volume in The year was marked by a lack of large transactions in Estonia and Latvia, resulting to subdued investment volume. In Estonia, total investment 2017. The Latvian market continues to be dominated by volume amounted to EUR 325 million or 23 per cent down in total investment volume in the Baltic States being 23 per cent less than in 2016. local investors (incl. local Baltic investors). Among Baltic on 2016. In Latvia, the year closed with total investment investors in Latvia, Estonians are responsible for more than volume of EUR 149 million, which was the lowest in half of investment volume, followed by domestic investors. four years. However, it is also important to note that International investments were mainly represented by investments in development schemes in Latvia are high, The retail segment remained the most favoured choice by investors, attracting 40 acquisition of four K-Rauta stores by W. P. Carey. The totalling an additional EUR 207 million in 2017. Lithuanian investment market continued to gain the per cent of total volume in 2017, followed by the office sector (31 per cent) and the Average transaction size across the market as a whole was confidence of both local and international investors. industrial segment (22 per cent). EUR 3.6 million in 2017 (compared with EUR 4.1 million in Baltic investors were responsible for 58 per cent of total 2016). Ca 56 per cent of total volume in 2017 consisted of volume, followed by international (22 per cent) and Nordic deals above the EUR 10 million threshold. At the same time, investors (20 per cent). The share of TOP5 investors - W. P. Carey, Baltic Horizon, Mostly the same players continued to dominate the Baltic investment market in * Colliers includes in investment volumes office, industrial, retail, hotels and multi- East Capital, Colonna, Eastnine - amounted to one-third of residential property deals over EUR 0.4 million. 2017. total investment volume in 2017. Dynamics of Investment Volume in the Baltic States Further compression of prime yields was recorded in all commercial real estate 1,400 Million EUR segments in all three Baltic States. 1,200

1,000

800

600

400

200

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Estonia Latvia Lithuania f - forecast Source: Colliers International 14 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 15 Estonia I Latvia I Lithuania Investment Market

Investment Deals in the Baltic States of over EUR 20 million in 2017 At EUR 201 million, investment in industrial / warehouse Average Transaction Size by Sector in 2017 property accounted for the third largest share of transaction volume in 2017, driven by the sale of the VGP 5 Million EUR NO. OBJECT CITY TYPE TOTAL AREA, SQM INVESTOR 4.9 4 1. Kesko Senukai portfolio Baltic Retail/Industrial 150,200 CPA:17 - Global, managed by W. P. Carey Nehatu in Estonia for EUR 54 million to East Capital, 4.3 the acquisition of the Kaunas Terminal LC by EfTEN Capital 3 3.5 3.6 2. VGP Park Nehatu Tallinn Industrial 77,430 East Capital 3.2 3.3 and the Rimi logistics centre in Vievis by United Partners 2 2.5 3. Postimaja SC Tallinn Retail 11,830 Baltic Horizon Property in Lithuania, plus the sale of Olaine Industrial 1 4. Vertas BC Vilnius Office 9,570 Eastnine Park, located in Riga region. 0 5. Olaine Logistics Park Riga Industrial 37,000 United Partners Property Oce Retail Industrial Hotel Mixed-use Residential Total 6. GO9 SC Vilnius Retail 16,610 Lords LB The share of hotel deals in total transaction volume 7. Penta BC Vilnius Office 13,800* Technopolis remained rather low in 2017 due to the small number of Source: Colliers International transactions. Notable deals in the hotel segment included 8. Vainodes 1 Office Riga Office 8,050* Baltic Horizon the purchase of the 3-star Tallink Express Hotel (50 per Average Prime Yield Dynamics in the Baltic * - total leasable area cent share in the SPV) and PK Ilmarine hotel in Tallinn plus Source: Colliers International acquisition of the 3-star Hotel Metropolis in Kaunas and the States 4-star Hotel Gradiali in Palanga. 14% Investment Turnover in the Baltic States by Investment Properties 12% Property Sector in 2017 Investment Yields In 2017, the retail segment attracted the biggest share of 10% investment (40 per cent), up from 35 per cent in 2016, 2% Compression of prime investment yields continued in 2017, 8% being the main investment activity driver in all three Baltic driven by cheap financial capital, shortage of investment 6% States throughout the year. Following the acquisition % of total 31% 40% 22% 5% 1% grade products and strong investor appetite. In Vilnius, the of Kesko Senukai LC in Kaunas - the largest deal of volume lowest yields were recorded among prime retail and office 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2016 - the American fund CPA:17 - Global, managed by properties (6.5 per cent), while the highest yields remained Oce Retail Industrial W. P. Carey Inc., considerably expanded its portfolio with in the industrial segment (8.0 per cent). Source: Colliers International the acquisition of 11 Kesko Senukai stores and a logistics In Riga, prime yield for industrial objects compressed property in Lithuania. In addition, 7 DIY stores were % of total 35% 34% 22% 5% 4% number to 7.75 per cent, with prime retail and office yields acquired in Latvia and Estonia. Total transaction value experiencing a decline to 6.5 per cent. stood at EUR 127 million, which was implemented through the acquisition of 70 per cent of shares in Baltic Retail 0% 20% 40% 60% 80% 100% In Estonia, prime yields continued to compress slightly by Properties. O ce Retail Industrial 10 - 20 bps throughout 2017 to 6.25 per cent in the office Hotel Mixed-use Residential sector, 6.5 per cent in the retail sector and remained at Other notable deals in the retail segment included the sale 7.75 per cent in the industrial sector. of Postimaja SC in Tallinn for EUR 34.4 million to Baltic Source: Colliers International Horizon, the acquisition of GO9 SC by Lords LB and retail and administrative premises at Gedimino Ave. 20 in Vilnius Investment Turnover in the Baltic States by Size by Sportland LT. in 2017 Investment in the office segment attracted the second biggest share of total transaction volume in the Baltic States in 2017, accounting for 31 per cent of total volume. Notable deals in the office segment included acquisition % of total 8% 14% 9% 14% 18% 38% of the Vertas BC by Eastnine for EUR 29 million, Business volume Centre 135 by Capitalica Baltic Real Estate Fund I, the Duetto BC (stage I) by Baltic Horizon and new office building Penta BC under construction by Technopolis in Vilnius, sale of the Hobujaama 4 office building to Colonna % of total 45% 31% 9% 7% 5% 4% number and the newly constructed Health Centre to an international investor (managed by Zenith Capital) in Tallinn 0% 20% 40% 60% 80% 100% and sale of the Vainodes 1 office building to Baltic Horizon and the Ostas skati office building in Riga. up to EUR 1.0 million EUR 1 - 3 million EUR 3 - 5 million EUR 5 - 10 million EUR 10 - 20 milllion above EUR 20 million

Source: Colliers International

16 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 17 Estonia I Latvia I Lithuania Investment Market

Trends and Forecasts

In 2018, the investment market is Commercial properties located in capital expected to remain reasonably active as cities will remain the top priority for most investors have capital available and investors. In addition, Lithuania’s second are constantly looking for good quality largest city, Kaunas, is becoming more cashflow properties. attractive for investors.

Colliers foresees transaction volume in The search for higher investment returns 2018 increasing to the level of 2016 as a in comparison to the Nordic and Western promising potential transaction pipeline region will continue to appeal to growing is forming for 2018. However, increase interest from European and global in volume also presumes conclusion of investors, leading to expansion of their several larger deals. portfolios as well as entry of new notable players. Sector-wise, the office and retail sectors will remain the most favoured by Prime yields remain under pressure investors, international and local alike. as supply of investment-worthy assets remains scarce. The hotel, healthcare, and wellness segments as well as other alternative Banks will continue to offer attractive assets are expected to capture more financing conditions. However, their interest from investors in the coming cautious internal asset valuations may years as an option to diversify portfolios. pose challenges for high LTV seekers.

The market will remain seller-friendly, making 2018 a good time for divestments.

18 Real Estate Market Overview | 2018 | Colliers International Reykjavík Iceland

Finland

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Helsinki Oslo

13.0-16.5 EUR/sqm I  Office class Stockholm A 5.2% I  Monthly rent rates, trend 8.6-13.5 EUR/sqm I  Vacancy rates, trend B1 6.5% I  Tallinn 4.8-8.8 EUR/sqm I  B2 Office Sweden 9.4% I  Estonia Russia

Market 13.0-16.0 EUR/sqm I  A 1.6% I  9.0-12.0 EUR/sqm I  Estonia I Latvia I Lithuania B1 5.5% I  6.0-9.0 EUR/sqm I  B2 Latvia 4.9% I  Riga Denmark Klaipeda Moscow

A 10.0-14.5 EUR/sqm I  Lithuania Copenhagen B1 6.0-10.0 EUR/sqm I  14.0-16.5 EUR/sqm I  B2 4.3-6.4 EUR/sqm I  Vilnius A 1.0% I  11.0% I  9.0-13.5 EUR/sqm I  Kaunas B1 5.5% I  A 10.5-14.5 EUR/sqm I  6.6-9.6 EUR/sqm I  Speculative Office Stock and Pipeline B1 7.5-11.0 EUR/sqm I  B2 7.6%Minsk I  B2 5.3-8.0 EUR/sqm I  Dublin 750 Thousand sqm 14.9% I  Great 72.2 82.2 600 628.5 617.0 Ireland 48.5 Belarus 450 Division by Class Britain 430.4 300 Berlin 67% 59% Amsterdam Warsaw 53% 150 38.7 2.0 34% 96.1 60.6 28% 0 Netherlands Tallinn Riga Vilnius Kaunas Klaipeda Poland 20% London 13% 13% 13% GermanySpeculative oce stock Pipeline of oce stock Tallinn Riga Vilnius (to be commissioned in 2018) Class A Class B1 Class B2 Brussels Prague Real Estate Market Overview | 2018 | Colliers International 21 Belgium Kiev Czech Republic Paris Luxembourg Ukraine Slovakia Vienna Bratislava Austria Budapest Moldova France Vaduz Hungary Switzerland Romania Chișinău Ljubljana Zagreb Croatia Belgrade Bucharest Bosnia & Serbia San Marino Herz. Monaco Sarajevo Andorra Italy Pristina Montenegro SoŽa Kosovo Bulgaria Rome Podgorica Skopje Georgia Tbilisi Tirana Macedonia Portugal Madrid Albania Yerevan Azerbaijan Greece Armenia Baku Spain Ankara Lisbon Athens Turkey

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Ülemiste City I Developer Technopolis Ülemiste

Supply and Demand Leasing activity remained reasonably active in 2017. The General Overview highest contribution to take-up volume in 2017 came from Approx. 24,040 sqm of new speculative office space was companies in the information (IT and High-Tech) and delivered to the market in 2017, bringing total speculative communications sector (32 per cent) followed by office stock to 628,540 sqm by the beginning of 2018. the professional, scientific and technical services sector The office market has continued to demonstrate consistent activity in Tallinn during (14 per cent) and the manufacturing and construction 2017 saw the completion of several new speculative and sectors (8 per cent). the last five years, resulting in buoyant demand and high development activity. built-to-suit (BTS) office development projects started in 2015 and 2016, including the 14- Telia Eesti HQ; By the beginning of 2018, Class A premises accounted Lutheri Business (redevelopment project) hosting for approx. 13 per cent (78,890 sqm) of total stock of Äripäev, the business newspaper; Töökoja 2 Office Building, speculative (not BTS) office in Tallinn, Class B1 By end-2017, estimated total stock (speculative + built-to-suit) of modern office occupied by companies providing healthcare services; 59 per cent (369,370 sqm), and Class B2 28 per cent facilities was approx. 861,580 sqm. New total supply delivered to the market and Tehnopol2kv Office Building (anchor tenant - IT and (180,300 sqm) of total stock. reached 51,630 sqm in 2017. Development Centre (SMIT)) located in Tallinn Science In Q2 2017, Tele2 signed a pre-lease agreement with Park Tehnopol. Mainor Ülemiste to occupy 2,000 sqm in the newly More than half of new supply in 2017 came to the market developing Öpik B building in Ülemiste City in 2018, in the City Centre, thus increasing the share of total while Eesti Meedia, the largest media group in the Baltics In 2017, rent rates for properties in good locations remained more or less stable speculative space in the City Centre to 24 per cent, while (8,000 sqm) will move in summer 2019 to a new office the share of total speculative space in CBD amounted to 38 building developed by Fausto in Fahle Park. Additionally, compared to 2016, although the gap between the lower and upper margins of asking per cent respectively (down from 39 per cent at end-2016). Eesti Raudtee (3,000 sqm) will move to new office rents continued to widen throughout the year. Supply of office premises will grow considerably in CBD in premises developed by PLKV Invest in Telliskivi Quarter the coming years due to completion of several development (redevelopment project) in 2HY 2018. projects, including the 19/21 Office Building (large- While a large proportion of occupier activity in 1HY 2017 scale high-rise project with approx. 18,300 sqm of Class continued to be attributed to lease renegotiations and In 1HY 2017, vacancy rates were fluctuating around the 8 per cent level, showing A office space), a commercial and office building at existing occupiers moving within the market, then 2HY Rd. 7b and expansion of the Rävala 2 office building in upward movement in Class A as well as in Class B2 office buildings, although 2017 saw an increase in new demand coming from outside 2018. (mostly Scandinavian IT companies). turning to some decrease in the second half of the year turning to some decrease in the second half of the year due to growing lease activity. Dynamics of Office Space in Tallinn

700 Thousand sqm 600 500 400 300 200 100 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock Built-to-suit New construction Expected construction

f - forecast Source: Colliers International

22 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 23 Estonia Office Market

Completed Office Projects in Tallinn in 2017 Rent Rates and Vacancy Dynamics of Rent Rates* in Tallinn

PROJECT ADDRESS TYPE DEVELOPER In 2017, rent rates for properties in a good location 20 EUR/sqm/month Telia Eesti Office Building Mustamäe tee 3 Build-to-suit Polaria Kinnisvara remained more or less stable compared to 2016 15 Lutheri Business House Vana-Lõuna 39 Build-to-suit/Speculative Lutheri Ärimaja (13 - 16.4 EUR/sqm per month for Class A premises 10 and 8.8 - 13.5 EUR/sqm per month for Class B1 premises), Veerenni Health Centre Veerenni 53a Build-to-suit/Speculative Veerenni Tervisekeskus 5 although the upper and lower margins of asking rents Tehnopol2kv Office Building Mäealuse 2/2 Build-to-suit/Speculative Tehnopol continued to widen and some downward pressure on 0 Laev Paldiski Road 96a Speculative Al Mare Estate 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 rents in existing Class B1 and Class B2 office buildings Class A Class B1 Class B2 Joint Four-Ministry Building Suur-Ameerika 1 Build-to-suit RKAS (State Real Estate Ltd) increased. R18, Rotermann Quarter Rotermanni 18 Speculative Dollimar Invest * - asking rent rates (EUR/sqm/month) excluding VAT and operating expenses Endla 16, redevelopment Endla 16 Speculative Kaamos Very good offers were - and are expected to continue Source: Colliers International to be - made to large tenants occupying an area around TOTAL GLA, SQM 51,630 1,000 sqm or more, while smaller companies get better Dynamics of Vacancy Rates in Tallinn rental offers though in somewhat older office buildings. Source: Colliers International Smaller office premises with an area up to 100 sqm were 30% continuously in high demand in 2017. New Office Projects Under Construction in Tallinn 20% In 1HY 2017, vacancy rates were fluctuating around the 8 PROJECT ADDRESS TYPE DEVELOPER OPENING YEAR per cent level, showing upward movement in Class A as 10% well as in Class B2 office buildings. A noticeable increase Zenith Business Centre Narva Road 7b Speculative NG Eesti 0% Flora Maja, C Tulika 19 Speculative Lumi Capital in vacancy rates was observed in older office buildings due 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 to high new supply and existing occupiers moving within Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan N116 Business Centre Narva Road 116 Speculative Kadri Legend the market (relocation to better premises). Järvevana 7b Office Building Järvevana 7b Speculative Hepsor Class A Class B Total

Roseni 11 Roseni 11 Build-to-suit Lugosta Growing lease activity in the second half of the year Source: Colliers International Pirni7 Business Centre Pirni 7 Speculative Talleks turned the vacancy rate to some decrease. By end-2017, Rävala 2 Office Building, expansion Rävala 2 Speculative Rävala Büroohoone the vacancy rate of Class A buildings is estimated at Maakri Quarter Maakri 19/21 Speculative Maakri Kvartal 2018 5.2 per cent in Tallinn. The vacancy rate for Class B1 buildings remains slightly below 6.5 per cent in Tallinn, Finest Office Building Pärnu Road 22/24 Speculative Pärnu Maantee 22 and the corresponding figure for Class B2 offices remains Lõõtsa 12 Office Building Lõõtsa 12, Ülemiste City Speculative Technopolis Ülemiste fluctuating around 10 per cent. Öpik Building, 2nd stage Valukoja 8, Ülemiste City Speculative Mainor Ülemiste WoHo Quarter Mustamäe tee 3 Speculative Polaria Kinnisvara Tallinn Court House Lubja 4 Build-to-suit RKAS, State Real Estate Ltd I Building, Telliskivi Quarter Telliskivi 60 Build-to-suit/Speculative PLKV Invest The headquarters of eu-LISA Vesilennuki 5/7 Build-to-suit RKAS, State Real Estate Ltd 9 Office Building Sadama 9 Build-to-suit Hansa Hotell, Infortar Ovaal Maja Veerenni 38 Speculative Fund Ehitus 2019 Fahle Park Road 80 Build-to-suit/Speculative Fausto Porto Franco Kuunari 1 Speculative Porto Franco 2019/2020 TOTAL GLA, SQM 149,930

Source: Colliers International

Ülemiste City I Developer Technopolis Ülemiste

24 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 25 Estonia Office Market Speculative (Not Built-to-Suit) Office Centres in Tallinn

Existing Developments

1. Admirali Business Centre 57 2. WTC Business Centre 3. Rotermann Quarter 31 4. Pro Kapital Trends and Forecasts 58 5. Triumph Plaza 64 63 39 6. Business Centre 7. City Plaza 70 8. Rävala pst 6 Business Centre 38 54 9. Rävala pst 4 Business Centre 10 19 10. Tornimäe Twin Towers 5 26 40 11. Radisson Approx. 128,200 sqm of new speculative Take-up activity in 2018 is expected to 41 25 56 9 12. Rävala pst 5 Office Centre 4 62 13 69 34 13. Office Building at Maakri 23 and BTS office space is expected to be continue to come from the information 1 24 11 14. Hobujaama 4 Office Centre 61 2 15. ECE Business Centre 29 20 22 8 delivered to the market in 2018 - 2019. and communications sector, followed by 12 16. Swiss House 28 17. Roosikrantsi 2 Office Centre 33 30 23 7 the professional, scientific and technical 60 18. Kawe Plaza 27 21 19. Tulika 15/17 Business House 55 20. Tetris Office Centre activities sector. 36 21. Kalev Business Quarter (Lincona, Catweesi) Approx. 72,200 sqm (12 projects) and 59 22. Ärimaja Office Centre 23. Veerenni Business Centre 35 37 21,600 of new speculative office space is 51 24. Ülemiste City 25. Ülemiste Business Centre expected to be delivered to the market in The office market will continue to see 3 26. Valge Maja Office Building 27. Laki 34 Office Building 28. Ehitajate tee 114 and Ehitajate tee 108 Office 2018 and 2019. relocations of some large space occupiers Centres 29. Office Building - Meistri 22 in 2018 - 2019. 30. Sõpruse pst 145 and Sõpruse pst 151 Office Centres 65 31. Tähesaju Office Building 32. Scala City The high level of supply enables tenants 5 33. Tammsaare Business House 34. Marienthali Business Centre either to leave outdated offices or to Due to increasing competition and a shift 35. Tammsaare Business Centre 36. Kawe Business Centres renegotiate their leases (tenant’s market). from a landlords’ to a tenants’ market, 53 37. Delta Plaza 38. Peterburi Road Business Centre 39. Lasnamäe Business Centre tenants are tending to negotiate shorter 40. Peterburi Business Quarter 6 3 41. Al Mare Maja (Audi Maja) 6 1 lease terms (3 years instead of 5 years). 42. Metro Plaza Trends in the development market and 2 43. Nordea Building 46 44. Solaris 14 4 development activity are seen both in 42 45. Toompuiestee Office Building 3 5 46. Shnelli Business Centre 45 OLD 6 47. Lauteri 5 Office Building CBD and well-developed suburban areas Office rent rates are expected to remain TOWN 48. Saarineni Business House 49. EKE Invest Business Centre (Ülemiste City, Pärnu Rd, Tehnopol). stable during 2018. No drastic changes 50. Tatari 23/25 Business House 51. Tallinn Tehnopol are expected in the nearest future, 48 52. Sakala 10/Kentmanni 4 Business House CBD 7 53. Laeva 2, Navigator 67 54. Paldiski 80 Office Building (G4S) 8 although the gap between the lower 9 55. Sõpruse 157 Office Building Several large-scale development projects 2 10 56. Bliss House and Metalli 3 Office Building 12 and upper margins of asking rents may 11 1 68 57. Noblessner Quarter (Creative House) have been announced, although finding 44 58. ON-Building, Telliskivi 60 13 59. Järvevana Quarter ( 22, Lelle 24) continue to widen. 32 18 60. Eesti Loto Building a qualified anchor tenant (or two-three 17 61. YIT Business Centre and Pärnu Road 102b 66 52 43 Building 47 anchor tenants) is and remains crucial for 16 62. Baltika Quarter (Norra Building) 4 63. Business Centre initiation of construction work. Downward pressure on rent rates will be 64. Mayeri Business Centre 65. Explorer Office Building, Kai 1 66. Pärnu 18 Business House observed for office buildings older than 50 67. Maja 68. Novira Plaza, Tartu road 25 10 - 15 years. 69. Büroo 83 Office Building 15 The market will see development of 70. Centennial Office Building

numerous small-scale city-centre projects 49 or projects close to the edge of CBD. 2018 may see a somewhat increased 6. I Building, Telliskivi 60 vacancy rate, especially in older office Completed in 2017 Under Construction 7. Järvevana 7b Office Building 8. Lõõtsa 12 Office Building and Öpik Building II 1. Lutheri Business Centre 1. Maakri Quarter, Maakri 19/21 9. Flora Maja, C buildings (Class B2) as well as in 2. Töökoja 2 Office Building 2. Rävala 2, exp. 10. WoHo Quarter 3. Tehnopol2KV Office Building 3. Zenith Business Centre, Narva Road 7b 11. Pirni 7 some older Class B1 buildings due to 4. Laev, Paldiski road 96a 4. Pärnu 22 Business Centre 12. Ovaal Maja, Veerenni 38 5. Telia Eesti Office Building 5. Porto Franco 13. Fahle Park construction of new office buildings. 6. Rotermann Quarter - R18

26 Real Estate Market Overview | 2018 | Colliers International Office Market Latvia

Jauna Teika I Developer Hanner

Supply and Demand Several projects with total area exceeding GLA 150,000 General Overview sqm are at the planning stage and might reach the market By the end of 2017 total space for Class A and B office by 2022, provided positive trends continue. premises in Riga amounted to approx. 632,600 sqm. During 2017 leasing activity remained reasonably active. Speculative space dominates with 430,300 sqm or 67 per In 2017 the Riga office market saw completion of four new office projects with total The combined take-up of Class A and B professional cent, while built-to-suit (BTS) office buildings account for premises reached approx. 17,800 sqm excluding renewals. GLA above 23,000 sqm and more than GLA 153,000 sqm with 14 projects under 202,300 sqm or 32 per cent. The largest contribution in office take-up comes from construction. During 2017, office space was supplemented by four new IT and professional service companies, while finance / properties with total leasable area of 23,400 sqm, of which banking / insurance companies maintained their stable all were speculative office buildings. position with an average of 4,400 sqm annually. The The industry received strong signals from occupiers on growing GBS industry has been a key demand driver, Positive sentiment in the segment has encouraged developers to launch rising interest in modern high-quality office premises. securing the largest lease transactions in 2017. New construction of previously halted projects. This demand originates from businesses’ need to expand entrants from this occupier segment include Webhelp as well as to increase efficiency and the need to provide Latvia, Genpact and Arvato Systems Latvia, who have additional non-material benefits to their workforce. As a already signed agreements and continue their expansion. result, newly-built office buildings are partly pre-leased Among all GBS (SSC and BPO included) companies The global trend of growing demand from Global Business Service companies before commissioning and further occupation is taken up in Riga, approx. 90 per cent have expressed a wish to in a short period, in turn shifting developers to start active expand their business in Latvia by hiring more employees, (GBS; including SSC and BPO companies) extends to Riga as well. construction on previously initiated projects. relocating under one roof and subsequently occupying more office space. The availability of professionals, as well The construction pipeline in Riga consists of fourteen as the fact that the GBS sector is not yet oversaturated, speculative office buildings under development with total might generate growth in demand from GBS companies. In general, rents remained at the previous year’s level, though the lower bound of GLA 154,400 sqm, most of which is scheduled to be commissioned between 2018 and 2019. rents for Class B1 offices saw a slight rise. Due to strong demand for high-quality offices, the vacancy rate for Class A premises experienced a slight decrease, while Dynamics of Office Space in Riga* in the Class B2 segment vacancy increased. 700 Thousand sqm

600

500

400

300

200

100

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock New construction Expected construction

* - office space at the end of the period (both speculative basis and built-to-suit) f - forecast Source: Colliers International

28 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 29 Latvia Office Market

Completed Office Projects in Riga in 2017 Rent Rates and Vacancy Dynamics of Rent Rates* in Riga

PROJECT ADDRESS TYPE DEVELOPER During 2017, the prime headline rent in Class A 20 EUR/sqm/month Mukusalas Business Centre Mukusas St. 42C Speculative MBC professional office buildings remained stable, though in 15 Place 11 Sporta St. 11 Speculative Hanner Class B1 the lower bounds slightly increased. Rent rates 10 were in the range 13 - 16 EUR/sqm per month for Class A Katrinas Osta Katrinas dambis 20 Speculative CATRI 5 premises, 9 - 12 EUR/sqm per month for Class B1 office LOFTOffice Akmenu St. 14 Speculative Akmenu 14 premises and 6 - 9 EUR/sqm per month for B2 office 0 TOTAL GLA, SQM 23,400 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 premises. Class A Class B1 Class B2

Source: Colliers International As of January 2018, the total vacancy rate for both * - asking rent rates (EUR/sqm/month) excluding VAT and operating expenses speculative and BTS projects in Class A buildings sharply Source: Colliers International The Largest Office Projects under Construction in Riga decreased to 1.6 per cent compared to 4.1 per cent in the same period in the previous year. At the same time in Dynamics of Vacancy Rates in Riga PROJECT ADDRESS TYPE DEVELOPER OPENING YEAR Class B office premises vacancy increased to 5.5 per cent, compared to 4.6 per cent observed previously. 30% Z-Towers Daugavgrivas St. 9 Speculative Towers Construction Management 2018 Teodors in Jaunā Teika Gustava Zemgala St. 74 Speculative Hanner 20% Akropole Rīga Maskavas St. 257 Speculative Akropolis Group Business Garden Riga Office Park, 1st building Maldugunu St. 2 Speculative Vastint 10% Business Garden Riga Office Park, 2nd building Maldugunu St. 2 Speculative Vastint 2019 0% Origo One Business Center Stacijas Sq. 1 Speculative Linstow Center Management 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 SWH Business Centre Skanstes St. 50 Speculative SWH Group Class A Class B Total Henrihs in Jaunā Teika Gustava Zemgala St. 74 Speculative Hanner Source: Colliers International New Hanza City, 1st stage, frozen Mihaila Tāla St. 3 Speculative Pillar 2020 New Hanza City, 1st stage, frozen Mihaila Tāla St. 3 Build-to-suit Pillar TOTAL GLA, SQM 141,900

Source: Colliers International

The top deal of 2017 was international professional service A new trend in the co-working office segment, which company Accenture leasing 3,900 sqm in the Teodors actively started in 2016, took its turn in 2017 and doubled office building in Jauna Teika in a pre-lease deal. In second in size during the year. Demand for co-working office place was Norwegian financial services group DNB ASA space is rising, fuelled by a trend towards more flexible SSC, leasing 2,800 sqm also at Teodors in Jauna Teika. working and lease terms. In addition, lack of qualitative Third, BTA Baltic Insurance Company relocated to Place office space in the city for smaller companies opens more Eleven by taking up approx. 2,700 sqm. Next, a newcomer - business opportunities for co-working operators. Also customer experience and business process outsource among the key factors of co-working popularity growth company Webhelp Latvia - took more than 1,600 sqm in in Riga has been the expansion of start-ups, individual Valdemara Centrs. Closing the top 5 leases, mobile operator enterprises, and marketing companies. Accordingly, Tele2 SSC continued its expansion and signed a lease in new office projects lately commissioned and those agreement for approx. 1,700 sqm at Mukusalas Business currently under construction, space is planned for serviced Centre. Tenants are ready to sign lease agreements for offices. For the occupiers the availability of co-working five years and more in new projects, which is becoming a facilities means greater flexibility in case of temporary common trend in professional office buildings. need for additional space, while for landlords this adds value and attractiveness to their projects, raising their competitiveness.

People Work I Developer People Work Coworking

30 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 31 Latvia Office Market Existing and Development Office Projects in Riga

Existing Developments 39 34 61 1. Valdemara Centre 35 2. Swedbank HQ 17 31 3. Office Complex “Ostas skati” 48 4. Rietumu Capital Centre Trends and Forecasts 41 5. Alojas Business Centre 3 6. DNB Bank HQ ▷ 65 7. Pasta Banka, Brivibas 54 8. Office Centre at Citadeles St. 12 57 9. Ziemelu varti 56 10. Kronvalda Bulvaris 3 The market is expected to build up activity, with a potential office commissioning 11. Baznicas 20/22 12. Valdo Office Complex 3 13. Gertrudes Centrs, Gertrudes 10/12 pipeline of more than GLA 45,500 sqm for 2018 and GLA 108,000 sqm in the following 45 28 14. Terbatas Centre, Terbatas 30 18 40 15. Helio Biroji two years. 44 16. Terbatas Business Centre 21 17. Marine Business Centre 2 18. Astras Biroji 54 19. Baltais Vejs 2 20. Barons Kvartals 21. PBLC Bussines Centre 3 58 22. Modern City 32 ▷ 25 42 24 70 Landlords of older buildings might need to consider reconstruction of their properties 23. Duntes Nami 67 37 24. GMP Bussines Centre in the face of quality competition from new completions with higher occupier comfort, 71 49 25. Mukusalas Business Centre, 2nd 19 6 stage, Tele2 SSC Office Building 4 26. Duntes Biroji Biznesam sustainability and energy efficiency standards. 12 27. Muitas 1a Office Building 69 15 63 28. Dzelzavas Biroju Nams 33 29. SWH Office Centre 30 30. Unity Business Centre 31. Reaton Office Building 32. Panorama Plaza Take-up activity is expected to be bolstered after the commissioning of initiated projects, 33. Upmalas Biroji 34. Indi Centrs 35. Asu Centre where the SSC / BPO, IT and financial/banking sectors will be demand drivers, seeking 36. Muitas 1 Office Building 37. Zuma Biroji areas above 1,000 sqm preferably with further expansion opportunities. 55 38. Zala 1 Office Building 39. Duntes Biroju Centrs 40. Dzelzavas 120 Office Building 41. Valters Jauna Teika 42. Office Complex Mukusalas 41 23 26 29 43. Jupiter Centre 8 44. Energoefektiva Biroju Eka During 2018, the lower bound of rent rates in Class A and B1 projects is expected to 45. Astras Biznesa Centrs 46. Open Centre increase slightly, while in Class B2 premises rent rates would most likely remain stable. 47. Citadele HQ 48. RSTA Office Building 49. Bussines Center Mukusala 1 6 62 50. WTC “Riga” 51. Dominante Office Building 52. Domina Office Lease terms of five years and more will become more common in new office projects. 53 53. Brivibas 171 Office Building 20 54. NTP Business Centre 52 55. Torensberg 7 43 5 9 56. Magnat Business Centre 57. Tomo Business Centre 4 59 4 58. Lubanas Centrs 59. Valdemara Pasaza After the completion of pipeline stock, vacancy might experience a slight upward 60. M4A Office Building 60 61. State Revenue Service HQ fluctuation in 2018 and 2019. 62. LNK Centre 38 63. Vainodes 1 64. Kalku 15 50 11 13 65. Ausma Jauna Teika 51 66. NBP Central Offices 1 46 67. American Embassy 10 36 68. Valdemara Pasaza 8 16 The co-working trend might grow in popularity leading to this function being added in 7 69. airBaltic Office Building 27 14 70. D91 47 71. Draugiem Group Office Building some traditional and new office projects. 1

64 Completed in 2017 22 2 1. Katrinas Osta 2. LOFTOffice 5 3. Mukusalas 42C (MBC) 66 4. Place Eleven

4. Akropole Rīga Under Construction 5. Origo One Business Center 6. Business Garden Riga 1. Brivibas 21 7. New Hanza City (frozen) 2. Z-Towers 8. SWH Business Centre (reconstruction) 3. Teodors and Henrihs Jauna Teika

32 Real Estate Market Overview | 2018 | Colliers International Office Market Lithuania

Quadrum I Developer Schage Real Estate

Supply and Demand The Kaunas office market witnessed a historic wave of General Overview new supply, amounting to 41,000 sqm of new leasable In 2017, the Vilnius office market was highly dynamic office space. As a result, total stock grew by as much in terms of both office space supply and demand. Nine as 74 per cent y-o-y. New supply demonstrated positive speculative office projects were completed during the qualitative changes, corresponding to the office standards In 2017, the Vilnius and Kaunas office markets saw large waves of new supply, both year, bringing to the market 66,000 sqm of modern office of international companies. 2018 is forecast to be just as recording double-digit stock growth. space. Consequently, total stock grew by 12 per cent y-o-y. active in office development, recording further large stock Looking at future perspectives, office market development growth with 40,500 sqm of new modern office space. shows no signs of slowing down, with an extensive pipeline In contrast to Vilnius, demand in Kaunas was not as of new projects planned for 2018 totalling 82,200 sqm of buoyant, falling behind new construction volume. However, Demand for modern office space in Vilnius grew to phenomenal heights, recording new leasable office space. take-up also stood higher than ever before - at over 25,000 two impressive leases - each for a 15,000 sqm office building. Demand for modern office space in the capital city sqm, of which IT and financial companies accounted for reached phenomenal heights. Take-up surpassed office half of leases. An abundance of high quality office projects space volume constructed during the year, achieving an is expected to improve business conditions and attract new impressive record - ca 85,000 sqm of office space leased foreign capital. Intense take-up of new supply in the capital slightly raised rent rates in Class A throughout 2017. As previously, intense activity in the lease The Klaipeda office market was tranquil, with no new business centres. market was driven by SSCs and ICT companies. Telia and projects commissioned in 2017. A breakthrough in new Danske Bank Global Service Lithuania signed the largest supply is not forecast for 2018 as office development lease agreements of the year, each for 15,000 sqm - to will remain highly limited. This is connected to a higher occupy the whole S7 BC (2nd stage) and S7 BC (3rd vacancy level in the city and passive demand for new Despite a surge of new supply, the Vilnius office market recorded a decrease in stage). At the same time, expansion of serviced offices office space. gained momentum, reflecting increasing demand for small vacancy, compared to the previous year. In contrast, new development sharply and flexible office space solutions. raised the vacancy level in Kaunas. Dynamics of Speculative Office Space in Major Cities of Lithuania

700 Thousand sqm

600

500

400

300

200

100

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock in Vilnius Existing stock in Kaunas Existing stock in Klaipeda New construction

f – forecast Source: Colliers International

34 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 35 Lithuania Office Market

Completed Speculative Office Projects in Vilnius in 2017 Rent Rates and Vacancy Dynamics of Rent Rates* in Vilnius

PROJECT ADDRESS CLASS DEVELOPER Strong demand for quality office space in the Vilnius office 20 EUR/sqm/month 17 Penta BC Ozo St. 12A B1 Technopolis market decreased vacancy in Class A business centres, S7 BC , 1st stage Saltoniskiu St. 7 A M.M.M. projektai leaving it as low as 1 per cent at the end of 2017, as well 14 as stimulating slight growth of rent rates. In contrast, Duetto BC, 1st stage Spaudos St. 8 B1 YIT Kausta bustas 11 Class B business centres faced a more competitive Green Hall BC, 2nd stage Upes St. 23 A SBA Group 8 environment in retaining and attracting new tenants. 5 Eleven BC Kareiviu St. 11B B1 Baltic RED Vacancy was considerably higher than in Class A business 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 B Nordic 26 BC J. Basanaviciaus St. 26 B1 Asgaard Property centres, reaching 5.9 per cent, which maintained rent rates Domus PRO BC, 3rd stage Bieliunu St. 1 B1 TK Development unchanged. Overall, vacancy in the Vilnius office market Class A Class B1 Class B2 Narbuto 5 BC T. Narbuto St. 5 A Kapitel stood at 4.3 per cent on average, recording a 2 per cent * – asking rent rates (EUR/sqm/month) excluding VAT and operating expenses Z3 BC L. Zamenhofo St. 3 B2 RDB y-o-y decrease despite large new supply commissioned Source: Colliers International TOTAL GLA, SQM 65,960 during the year. New supply in the Kaunas office market was not absorbed Dynamics of Vacancy Rates in Vilnius Source: Colliers International as successfully as in the capital, accounting for ca 60 per 25% cent of all vacant space. Consequently, the vacancy rate 20% New Speculative Office Projects under Construction in Vilnius was twice as high as in the previous year, reaching 14.9 15% per cent at the end of 2017, allowing companies a choice of PROJECT ADDRESS CLASS DEVELOPER OPENING YEAR expansion and relocation opportunities. Active development 10% Business Stadium West BC Rinktines St. 3 A Hanner of new office projects kept rent rates at a competitive level, 5% S7 BC, 2nd stage Saltoniskiu St. 7 A M.M.M. projektai with a decrease registered in rent rates for Class B1 office 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 3 Bures BC, expansion Giedraiciu St. 3 A Eastnine space. Class A Class B Total Link BC Saltoniskiu St. 9B A Baltijos Gildija Lack of new projects in the Klaipeda office market led to Duetto BC, 2nd stage Spaudos St. 8 B1 YIT Kausta 2018 absorption of existing oversupply. Consequently, vacancy Source: Colliers International Park Town BC, 1st stage West Hill Lvovo St. 105A A MG Valda declined to 11 per cent, indicating a 2.5 per cent y-o-y Zveryno verslo fabrikas BC Saltoniskiu St. 29 B1 ZIA Valda decrease. In addition, vacancy remained being largely Asgaard Keys BC Ukmerges St. 124 A Asgaard Property formed by a few less successful projects, which created Administrative Building Boksto St. 6 B1 Ogvy preconditions for growth of rent rates in Class B1 business Green Hall BC, 3rd stage Upes St. A SBA Group centres that correspond to market needs. S7 BC, 3rd stage Saltoniskiu St. 7 A M.M.M. projektai Park Town BC, 2nd stage East Hill Lvovo St. 105A A MG Valda 2019 Live Square BC Dainavos St. 3 A Eika TOTAL GLA, SQM 116,220

Source: Colliers International

36 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 37

Lithuania Office Market Business Centres in Vilnius ▷ Existing Developments 51 64 1. Oracle 2. MG Baltic 48, 49 50 3. Baltic Centre 4. Eika Trends and Forecasts 9 5. Office Plius 6 6. Victoria 7. BC12 8. Taurakalnis 9. Merchants Club 47 10. Vertas The Vilnius office market will remain the most dynamic in Lithuania, followed by Kaunas, 11. BC 2000 61 12. House of Europe 13. Plaza 31/1 which is currently experiencing a rapid pace of development. Meanwhile, Klaipeda will 14. Administrative Building, Roziu St. 15. VIH continue to significantly lag behind Vilnius and Kaunas in terms of new development 57 16. Helios City 17. Savanoriu 18 due to existing oversupply and low market activity. 18. LJB 70 19. Vilbra 46 20. Vytenio 46 52-54 56 21. Skraja 55 22. Smolensko 7 23. Skraidenis 24. Marenta Market absorption in the capital city will remain highly reliant on the entry and 8 25. Green Hall, 1st stage 26. Hanner 45 40 expansion of international companies. In addition, Kaunas has potential to attract new 27. Saltoniskiu St. 28. Saltoniskiu Trikampis 41 37-39 29. Baltic Hearts, 1st, 2nd, 3rd stages international players, supported by new high-quality office space and availability of 30. Europa 7 31. 3 Bures 36 technological talent. 1 32. IBC 33. Zalgiris 68 34. Business House 92 35. Tuskulenai 5 33, 34 36. North Star 67 35 8, 9, 11 37. Domus Centras 59 5 The co-working marketplace is expected to further expand throughout the country, 26-29 38. Danola 39. Ulonu 62 40. Ozo 43 42, 58 2 4 66 10 supported by a need for small and flexible office space as well as a rising start-up 24 41. Akropolis 30, 31 42. Jin & Jan 1 3 25 culture. 63 43. Trapecija 32 4 44. L3 45. Evolution 65 10 46. Commercial & Administrative Building 47. Unimodus 9 48. 4 3 49. Trio New supply in Vilnius is expected to challenge rent rates for older, especially Class B2, 50. Kamane 7 11, 12 51. Orange Office 1-6 business centres. Downward pressure on rent rates is also expected in Kaunas due to 8 52. Alfa 14 13 53. Beta 54. Gama active office development, while in Klaipeda rent rates are forecast to fluctuate within 15 60 55. Business - Residential Complex, 2 6 Zirmunu St. the same ranges. 16 56. Eta 57. Zirmunu BC 58. Menulio 11 17 19 59. Grand Office 44 18 60. Basanaviciaus 61. Sostena In 2018, vacancy is expected to persist at a high level in Kaunas and grow slightly 21, 22 20 62. K29 63. Premium 64. One in Vilnius due to new developments, whereas in Klaipeda vacancy is likely to further 65. Uniq 23 66. Quadrum, 1st, 2nd stages decrease due to limited new development. 67. City

69 68. Business Centre 135 ▷ 69. Highway 70. Delta

Completed in 2017 Under Construction

1. Duetto, 1st stage 1. Green Hall, 3rd stage 2. B Nordic 26 2. Zveryno Verslo Fabrikas 3. Green Hall, 2nd stage 3. Live Square 4. Narbuto 5 4. Business Stadium West 5. S7, 1st stage 5. Park Town, 1st, 2nd stages 6. Domus PRO, 3rd stage 6. Administrative Building 7. Eleven 7. Duetto, 2nd stage 8. Penta 8. Link 9. Z3 9. S7, 2nd , 3rd stages 10. 3 Bures (expansion) 11. Asqaard Keys

38 Real Estate Market Overview | 2018 | Colliers International Reykjavík Iceland

Finland

Norway

Helsinki Oslo

7.0-12.0 EUR/sqm I  Stockholm Prime shopping centre monthly rent rates and trends 10.5-38.0 EUR/sqm I  Large retail unit (anchor tenants) 13.5-48.0 (up to 100) EUR/sqm I  Medium retail unit (150-350 sqm) 1.0% I  Small retail unit (up to 100 sqm) Tallinn Retail Sweden Prime shopping centre vacancy rates and trends Estonia Russia Market

4.0-11.0 EUR/sqm I  Estonia I Latvia I Lithuania 15.0-35.0 EUR/sqm I  30.0-55.0 EUR/sqm I  4.1% I  Latvia Riga Denmark Klaipeda Moscow Lithuania Copenhagen 5.8-8.5 EUR/sqm I  8.5-18.5 EUR/sqm I  6.0-11.0 EUR/sqm I  17.5-31.0 EUR/sqm I  Vilnius 14.0-25.0 EUR/sqm I  1.8% I  Kaunas 23.0-46.0 EUR/sqm I  1.6% I  Total Retail Stock and Pipeline 6.0-11.0 EUR/sqm I  Minsk 10.0-22.5 EUR/sqm I  Dublin 900 Thousand sqm 18.0-31.0 EUR/sqm I  800 Great 163.7 55.8 1.4% I  700 100.7 600 Ireland 648.1 658.7 622.5 Belarus 500 Distribution of Retail Space by Type (GLA) Britain 400 20.0 Berlin 69% 300 321.2 Warsaw62% Amsterdam 200 229.2 100 0 27% 28% Netherlands Tallinn Riga Vilnius Kaunas Klaipeda Poland 20% 22% 23% 22% 4% London 14% 9% GermanyTotal retail stock Total retail pipeline under construction Tallinn Riga Vilnius Shopping centre Hypermarket DIY Department store Brussels Prague Real Estate Market Overview | 2018 | Colliers International 41 Belgium Kiev Czech Republic Paris Luxembourg Ukraine Slovakia Vienna Bratislava Austria Budapest Moldova France Vaduz Hungary Switzerland Romania Chișinău Ljubljana Zagreb Croatia Belgrade Bucharest Bosnia & Serbia San Marino Herz. Monaco Sarajevo Andorra Italy Pristina Montenegro SoŽa Kosovo Bulgaria Rome Podgorica Skopje Georgia Tbilisi Tirana Macedonia Portugal Madrid Albania Yerevan Azerbaijan Greece Armenia Baku Spain Ankara Lisbon Athens Turkey

Gibraltar Valletta Nicosia Cyprus Retail Market Estonia

SC Ülemiste I Developer Linstow Center Management

Supply and Demand After completion of an extension in autumn 2017, Nautica General Overview centre accommodated several new stores and service By the end of 2017, the stock of Tallinn retail space* had providers (Cropp, House, Regatta, Skechers, Park Minigolf) increased by approx. 44,500 sqm since the beginning of and extended the food court (CHI, BabyBack Ribs & the year, to a total of 648,130 sqm (1.44 sqm per capita). BBQ´s). In 2017, sentiment in the retail sector continued to be quite optimistic. Turnover of At the beginning of the year, Espak opened expansion of its 2017 saw some remarkable activity in the grocery sector. retail trade enterprises reached EUR 6.7 billion in 2016, increasing by 1.5 per cent DIY complex in Tallinn City Centre, while a second Bauhaus This involved the opening of five new Selver stores, at constant prices. store opened in city district, seeing Tallinn’s DIY occupying 8,660 sqm of leasable area in total, throughout segment expand by ca 20,300 sqm. May 2017 saw the 2017. Maxima grocery chain continued to gain market share opening of a new Balti Jaama Turg (Baltic Station Market), in Tallinn due to opening a second XXX format hypermarket a unique universal marketplace with almost 300 different in Tallinn in Haabersti in December 2017. 2017 saw the expansion of one shopping centre and one DIY store as well as the retailers and shops, including Selver and MyFitness as A frenetic pace of retail development is expected with more opening of one new DIY store, one neighbourhood centre and one hypermarket in anchor tenants. than 180,000 sqm of leasable area set to enter the market Tallinn. Capfield (owner of six retail centres in Estonia) completed in the coming years. Construction work on T1 shopping refurbishment and extension of Norde Centrum (opened centre with over 52,500 sqm of different rental space in October 2017 under a new name – Nautica centre) and continued throughout 2017. In Q4 2017, Linstow started started expansion work on Lasnamäe Prisma Hypermarket expansion work on Ülemiste Centre by approx. 13,000 sqm Local and international brands remained interested in further expanding in 2017. by approx. 3,500 sqm of leasable space. to provide more leisure and entertainment services in the centre (new tenants are Apollo Cinema, People Fitness, New shopping centres have a considerable share of tenants providing leisure and * Colliers includes in retail stock all shopping centres (SCs), hypermarkets, PetCity). The expansion is due for completion in 1HY 2019. do-it-yourself (DIY) stores as well as other retail objects with GLA of over sporting activities as well as catering. 5,000 sqm that were constructed/renovated since 2000.

Prime shopping centre rents remained stable in 2017, although some downward Dynamics of Retail Space in Tallinn pressure on rents increased due to intensifying competition within the retail sector. 700 Thousand sqm

600

Vacancy rates in larger shopping centres remained stable in 2017, although growing 500 somewhat in the second half-year. 400

300

200

100

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock New construction Expected construction

f - forecast Source: Colliers International

42 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 43 Estonia Retail Market

Completed Retail Projects in Tallinn in 2017 Rent Rates and Vacancy Dynamics of Rent Rates* in Major Shopping Centres in Tallinn PROJECT ADDRESS DEVELOPER ANCHOR TENANTS Rents have remained largely stable in the main shopping Espak DIY store Veerenni 65 Espak Espak centres in Tallinn during the last decade as demand has 50 EUR/sqm/month 45 Haabersti Bauhaus DIY store Kaeravälja 3 Merko Bauhaus continually exceeded supply. 40 35 Norde Centrum, expansion Ahtri 9 Capfield Rimi, Sports Direct, TradeHouse Prime shopping centre rents remained more or less stable 30 25 Haabersti Maxima XXX Ehitajate tee 148 Maxima Maxima in 2017. Some downward pressure on rents has increased 20 Balti Station Market 1 Astri Grupp Selver, MyFitness in the last two years due to intensifying competition within 15 10 TOTAL GLA, SQM 44,500 the retail sector. Turnover rents and more flexible leasing 5 arrangements are becoming increasingly common, a trend 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Colliers International expected to continue in 2018. Large retail units Medium retail units Small retail units

Vacancy rates in larger shopping centres remained * - asking rent rate (EUR/sqm/month) excluding VAT and operating expenses New Retail Projects Under Construction in Tallinn effectively zero in 2017, although growing somewhat in the Source: Colliers International second half of the year. Community and neighbourhood PROJECT ADDRESS DEVELOPER ANCHOR TENANTS OPENING YEAR shopping centres suffered most as quite a few smaller Dynamics of Vacancy Rate in Major Shopping Prisma, expansion Mustakivi tee 17 Capfield Prisma, Lemon Gym tenants were facing problems and were even forced to 2018 Centres in Tallinn T1 shopping centre Peterburi tee 2 Pro Kapital Selver, stores close their stores. 1.2% Ülemiste shopping centre, expansion Suur-Sõjamäe 4 Linstow Rimi, fashion stores 2019 Constant development activity and saturation of the market Porto Franco Kuunari 1 Porto Franco Prisma, fashion stores 2020 has resulted in a shortage of potential tenants and lack of 1.0%

TOTAL GLA, SQM 101,000 new brand names. 0.8%

Source: Colliers International 0.6%

0.4% 2017 saw the start of construction work on the Porto Distribution of Retail Space in Tallinn by Size in 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Franco business and leisure centre. The retail part of Porto 2017 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Franco includes 32,000 sqm of leasable space planned Source: Colliers International for construction by 2020. Additionally, in November 2017, Citycon started renovation works at the shopping centre. Number of 31 10 2 projects One of 2017’s leading trends involved a focus on improving the quality of retail space. Several shopping centres (e.g. Solaris, , Järve Centre) continued refurbishment, redevelopment and changes in their tenant % of 44% 38% 18% mix throughout 2017. In November, new Sinsay and Mohito total GLA stores opened in Centre, followed by the re-opening of a refurbished and extended Reserved store 0% 20% 40% 60% 80% 100% in December. 5,000 - 15,000 sqm 15,000 - 45,000 sqm In 1HY 2017, Baltika opened a new Monton brand store 45,000 and more sqm (300 sqm) at the Viru Centre, while the first Alandeko store (312 sqm) in Estonia opened in Ülemiste Centre in June. Source: Colliers International Apranga Group extended and renovated its Bershka and Stradivarius stores in Rotermann Quarter. Additionally, Suitsupply, opened its first store (380 sqm) in the Rotermann Quarter in Tallinn CBD in September. At the same time, several retailers have decided to close their stores and pull out of Estonia. Marks & Spencer stores in Tallinn closed in July 2017, while one of Finland's oldest clothing retail chains, Seppälä, has filed for bankruptcy, resulting in the closure of its stores in Estonia. SC Mustamäe Keskus I Developer East Capital

44 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 45 Estonia Retail Market Shopping Centres, Hypermarkets and DIY Hypermarkets in Tallinn ▷

19 Trends and Forecasts 23

Approx. 56,000 sqm of new retail space Turnover rents and more flexible leasing is expected to be delivered to the market arrangements will become increasingly 24 in 2018, driven largely by the expected common in 2018. 31 ▷ ▷ opening of T1 shopping centre in Autumn 22 21 18 ▷ 2018. 6 3 Upward movement in vacancy levels could 15 4 4 17 13 3 7 12

be especially expected in smaller shopping 5 16 11 A significant amount of retail space (incl. centres in 2018. 9 expansion of Ülemiste Centre, Porto 27 34 33 32 Franco complex, the planned Tallink City 1 10 2 3 The Tallinn retail market is close to 30 project) is expected to enter the market in 3 5 38 1 saturation. The emergence of T1 shopping 2 Tallinn over the next three years. 2 centre and development of any new 31 37 29 shopping centre will signify and sharpen 26 8 Grocery retailers continue to seek the growing redistribution of existing 39 20 28 possibilities for further expansion in consumers and will definitely affect 25 14 Tallinn and its suburbs, although plans and the profitability of retailers. Growing 36 ambitions of grocery chains are becoming competition will have an effect on more thought-through and cautious. Lidl turnover per GLA and put additional 4 announced plans to enter the Estonian pressure on rent rates in the near term. market after 2020. There is a limited choice of prospective / In 2018, rent rates are expected to remain new retail tenants, especially in the more or less stable. There is some fashion segment. 14. Magistral Centre 31. Maxima Hypermarket Shopping Centres, Hypermarkets 15. Rotermann Quarter 32. Lasnamäe Maksimarket Completed in 2017 pressure on and expected decrease in ‒ and DIY Hypermarkets 16. Foorum 33. Smuuli Bauhof 17. Postimaja Shopping Centre 34. Lasnamäe Ehituse ABC 1. Bauhaus Haabersti rent rates for tenants occupying medium 1. Ülemiste Centre 18. Stroomi Centre 35. Espak 2. Espak, exp 2. Rocca al Mare 19. Centre and Viimsi Market 36. K-rauta 3. Baltic Station Market 3. Kristiine Centre 20. Mustamäe Centre 37. Kadaka Ehituse ABC 4. Norde Centrum exp. / Nautica retail units (up to 350 sqm) and large 4. Järve Shopping Centre 21. Kärberi Centre 38. Haabersti K-rauta 5. Haabersti Maxima XXX 5. Viru Centre and Tallinna Kaubamaja 22. Arsenal Centre 39. Decora Maja retail units. 6. Tähesaju City (Mustakivi Prisma, Bauhaus) 23. Centre 7. Lasnamäe Centrum 24. Pirita Selver Hypermarket Under Construction 8. Mustikas Centre 25. Tondi Selver Hypermarket 9. Stockmann 26. Kadaka Selver Hypermarket 1. T1 Mall of Tallinn 10. Centre 27. Selver Hypermarket 2. Ülemiste Centre, exp. 11. Solaris Centre 28. Selver Hypermarket 3. Mustakivi Prisma, exp. 12. Mustakivi Centre 29. Sõpruse Rimi Hypermarket 4. Porto Franco 13. Norde Centrum 30. Haabersti Rimi Hypermarket

46 Real Estate Market Overview | 2018 | Colliers International Retail Market Latvia

SC Galerija Centrs I Developer Linstow Center Management

Supply and Demand new stores. In 2016, the Competition Council ruled against General Overview Rimi occupying Prisma premises by opening a Rimi At the end of 2017, the Colliers International commercial hypermarket in Domina Shopping and for the same reason real estate database for the retail segment* was revised Maxima was allowed to open a hypermarket in SC Riga and updated in order to reflect changes in GLA. Total Plaza in 2017. Thus, Maxima will be present in three new Positive economic developments, decline in unemployment and wage growth have leasable retail space amounted to approx. 658,700 sqm, locations previously occupied by Prisma: SC Riga Plaza, resulted in purchasing power improvement. consisting of shopping centre premises (389,400 sqm), SC Domina Shopping and at Grostonas Street 1. On the big boxes (237,300 sqm) and department stores (32,000 other hand, Rimi has already opened a fourth Rimi Express sqm). concept store in Riga, as well as one new supermarket in Ilguciems, while several reconstructions took place By the end of 2017, six retail projects were already at the throughout the country during 2017. In 2017, retail space was not significantly supplemented, though many previously active construction stage and, after commissioning by the initiated shopping centre projects entered the active construction stage. end of 2019, approx. GLA 163,700 sqm will be added to These activities, as well as smaller grocery chain total retail space. Among the largest shopping centres, developments in 2017, show clear signs of existing market after finishing expansion and construction works, SC Alfa players preparing for German grocery chain Lidl’s re- will take first place, followed by SC Akropole Rīga. Highly entry to the market by securing store locations around Development of DIY and grocery chain stores continued its activity by opening new anticipated retailer IKEA will open a store in Q3, 2018, the country: construction proposals for four sites have locations as well as starting active construction in 2017. following the fashion outlet village, which in scale and already been applied for to the Riga Municipality Building quality promises to be something new for the Baltics. Department. After the exit of grocery chain Prisma from the Latvian Positive sentiment in the retail market, the start of new market, the other two major grocery chains, Rimi and development and the fact that some brands are not yet Well-known brand stores already present in the market have opened e-stores, while Maxima, continue to strengthen their position by opening represented in the Latvian market, have encouraged new international brands continue to express a wish to enter the Latvian market. new international brands to appear and those already * Colliers includes in retail stock all shopping centres (SCs), hypermarkets, represented to expand. A large share of retail space do-it-yourself (DIY) stores as well as other retail objects with GLA of over currently under construction has already been pre-leased. 5,000 sqm that were constructed/renovated since 2000. New brands such as Yamamay, Zara Home and Oysho are Rent rates remained at the level of the previous year, though a slight decrease was Dynamics of Retail Space in Riga entering the Latvian retail market.

observed in less sought-after locations in Street Retail. The vacancy rate in Riga 900 Thousand sqm

shopping centres has experienced a slight increase due to the exit of grocery chain 800

Prisma. 700

600

500

400

300

200

100

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock New construction Expected construction

f - forecast Source: Colliers International

48 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 49 Latvia Retail Market

Completed Retail Projects in Riga in 2017 Rent Rates and Vacancy Dynamics of Rent Rates* in Major Shopping Centres in Riga PROJECT ADDRESS TYPE DEVELOPER During 2017 rent rates in shopping centres and prime high SC Damme, expansion Kurzemes Ave. 3 Shopping centre RCH Management street retail premises remained unchanged. Street retail 60 EUR/sqm/month 50 Decco Centrs Katlakalna St. 6D Big-box Decco Centrs experienced a slight decrease in rent rates in less sought- after locations. 40 TOTAL GLA, SQM 11,600 30 By the end of 2017, vacancy increased slightly, mainly 20 Source: Colliers International driven by the exit of grocery chain Prisma from the Latvian 10 market. 0 New Retail Projects Under Construction in Riga 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Large retail units Medium retail units Small retail units PROJECT ADDRESS TYPE DEVELOPER OPENING YEAR Distribution of Retail Space by Size in Riga in IKEA Stopini Big-box Verus Praedium 2017 * - asking rent rates (EUR/sqm/month) excluding VAT and operating expenses Source: Colliers International Outlet Village Saliena Shopping centre VIA Jurmala 2018 Alfa, expansion Riga Shopping centre Multi Dynamics of Vacancy Rate in Major Shopping Origo, expansion Riga Shopping centre Linstow Center Management Centres in Riga Number of 24 20 2 Akropole Riga Riga Shopping centre Akropolis group 2019 projects 12% Depo Riga Big-box Jaunbumani 10% TOTAL GLA, SQM 163,700 8%

Source: Colliers International % of 43% 42% 15% 6% total GLA 4% Due to changing customer habits, shopping centres have 2% begun to focus on expanding their entertainment and 0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 catering functions, reducing the fashion store share. 5,000 - 15,000 sqm 15,000 - 45,000 sqm Source: Colliers International With the aim of attracting more visitors, shopping centre 45,000 and more sqm developers must sacrifice retail turnover in favour of higher customer numbers by making their premises available for Source: Colliers International family leisure locations, fitness centres and bigger food courts. The healthy lifestyle takes turns by opening more fitness centres. Lemon Gym has expanded their sports club numbers after acquiring Athletica’s business, while My Fitness is expanding their locations, focusing especially on shopping centres. In 2017, World Class, a new premium class fitness group, signed a co-operation agreement with People Fitness to open the first two centres in Latvia, one located in Riga with a total area of 2,500 sqm and the other in Jurmala with a total area of 1,500 sqm. The catering segment has started a transformation as well as other retail sectors. Several restaurants developed the take-away concept, which was previously common only for fast food restaurants. Nathan's can be mentioned as a new entrant in the Latvian catering segment. Latvian cuisine restaurant Lido continued to expand its locations by opening two more restaurants in SC Origo and SC Damme.

50 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 51 Latvia Retail Market Retail Projects in Riga Over 5,000 sqm

20

Trends and Forecasts

During the next two years, 2018 and 2019, the market will see the largest supply of ▷ 35 retail space in Latvia’s retail market history. This means that significant adaptations must be developed to maintain a high position in the market. Shopping centres will 16

34 shift their focus from pure shopping destinations to leisure destinations. 1 15 3

23

New entrants and international brands will appear in Riga shopping centres after 5 41 22 the commissioning of new projects. 17

25 ▷ 2 24 30

19 31 5 9 13 28 4 21 12 Shopping centres are considering reducing their retail store share in favour of 7 48

11 leisure, catering and active lifestyle functions, thus increasing, or maintaining, ▷ 18 6 44 32 existing customer flow. 42 6 45 49 40

33 3 36 47 29 50 2 14 8 4 39 Leading grocery chains will continue their development, although new competition 1 43 may appear in the future.

37

10

Rent rates in prime shopping centres are expected to remain stable, though 46 secondary shopping centres might start to suffer from lower income due to lower 26 27 rent rates and retail turnover. 38

The vacancy level might evidence fluctuation after commissioning of new shopping centres.

11. Stockmann 25. Rimi “Stirnu” 39. KSenukai at Lucavsalas St. 3 Shopping Centres, 12. Galerija Centrs 26. Rimi A7 near Kekava 40. Maxima at A. Saharova St. 20A Under Construction and Most Hypermarkets and DIY 13. Galleria Riga 27. Zoom 41. Penta Realistic Projects for Development E-commerce is expected to grow at a relatively fast pace in the future, which might 14. Mc2 28. Maxima at A. Deglava St. 67 42. KSenukai at Priedaines St. 37 in Riga 1. Alfa 15. Berry 29. Maxima at K. Ulmana St. 88a 43. Maxima at Mukusalas St. 73 affect shopping centre turnover in the longer term. To compensate their losses, 2. Spice 16. Sky and More 30. Maxima at Slokas St. 115 44. Depo at Lubanas St. 150 1. Akropole Riga 3. Spice Home 17. Big box at Grostonas St. 1 31. Maxima at Bikernieku St. 143 45. DinoZooPasaule 2. Depo at Kurzemes Prospekts retailers will continue to open their own online shops, such as the “click-and- 4. Riga Plaza 18. A. Saharova St. 30A 32. Depo at Krasta St. 36 46. Meistars at Maskavas St. 322D 3. Alfa, expansion 5. Domina Shopping 19. Imanta Retail Park 33. Depo at K. Ulmana St. 96 47. SKY at Krasta St. 56 4. Origo, expansion collect” concept. 6. Mols 20. Rimi “Milgravja” 34. Elkor Plaza 48. Orange Cash and Carry 5. IKEA 7. Origo 21. Damme 35. Depo Bergi 49. cenuklubs.lv 6. Outlet Village 8. Galerija Azur 22. Rimi “P. Brieza” 36. Krasta 60 50. Decco Centrs 9. Olimpia 23. Rimi “Valdemara” 37. Maxima at Vienibas St. 113 10. Dole 24. Rimi “Bikernieku” 38. K-Rauta at Maskavas St. 418A

52 Real Estate Market Overview | 2018 | Colliers International Retail Market Lithuania

Panorama SC I Developer Kapitel

Supply and Demand The Vilnius retail market is expected to witness more General Overview development further ahead. In 2019, Ogmios Group plans to In 2017, the retail market in Lithuania was quite tranquil. present a new large shopping centre close to the western Among the largest cities in Lithuania, only Vilnius and bypass, which will be dedicated to fashion outlets and Panevezys recorded an increase in supply*. The capital city leisure. In addition, Akropolis Group plans to construct In 2017, the Lithuanian retail market was quite calm, recording only some saw completion of the IKEA store expansion, while a new a second shopping centre in the former Velga factory development concerning DIY stores IKEA and Depo. Depo store opened in Panevezys. territory in 2021. Latvian building materials and household goods chain In 2017, major shopping centres continued to renew, Depo opened its first store in Klaipeda in 2016. By the end adapting to changes in consumer behaviour and the of 2018, the chain is expected to expand by two stores growing role of e-commerce. Coupled with a pinnacle in The grocery retail segment was the most dynamic, still feeling the impact of Lidl’s in Vilnius and one in Kaunas. In addition, another store is wellness, several new health clubs opened in Vilnius and entry to the Lithuanian market and awaiting the merger of Iki and Rimi. planned in Siauliai. Development of the DIY segment is Kaunas. Nevertheless, shopping centre managers continued connected to an active residential market. to seek new ways to attract visitors of all ages. Mega SC in Kaunas opened CurioCity, a 1,500 sqm educational and An active and healthy lifestyle remained a prominent trend. entertainment centre for children, and Zoopark, the first pet Developer VPH announced that the VNO Business & Retail zoo in Lithuania, occupying 500 sqm. In 2018, Panorama The retail trade registered further turnover growth, supported by rising household Park (1st stage) will be solely occupied by French sporting SC in Vilnius will form a 1,000 sqm shop-in-shop area income, but simultaneously challenged by inflation. goods giant Decathlon, which is expected to open its doors dedicated to gourmet stores. New unique concepts and in 2018. The new project will create synergy with the IKEA innovation will continue to gain importance in the future. store and Nordika SC situated nearby. Besides, in 2017, Decathlon launched its e-commerce platform in Lithuania. Vacancy in major shopping centres in the largest Lithuanian cities remained at low levels, creating favourable conditions for a slight increase in rent rates. * Colliers includes in retail stock all shopping centres (SCs), hypermarkets, do-it-yourself (DIY) stores as well as other retail objects with GLA of over 5,000 sqm that were constructed/renovated since 2000.

Dynamics of Retail Space in Major Cities in Lithuania

700 Thousand sqm

600

500

400

300

200

100

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock in Vilnius Existing stock in Kaunas Existing stock in Klaipeda Existing stock in Siauliai Existing stock in Panevezys New construction

f – forecast Source: Colliers International

54 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 55 Lithuania Retail Market

Completed Retail Projects in Vilnius and Panevezys in 2017 Rent Rates and Vacancy Dynamics of Vacancy Rate in Major Shopping Centres in Vilnius CITY PROJECT ADDRESS DEVELOPER ANCHOR TENANTS In 2017, rent rates continued to grow to varying degrees, Vilnius IKEA, expansion Vikingu St. 1 FE Real Estate IKEA mainly depending on the city as well as the type and size 8% Panevezys Depo DIY Klaipedos St. 145A Bumani turtas Depo of premises. Rent rates increased for small and medium 6% retail units, while anchor tenants further secured stable TOTAL GLA, SQM 23,240 rent rates across all major cities. The largest growth in 4% rent rates was observed in the capital, reaching 3 per cent Source: Colliers International 2% y-o-y on average, while Kaunas and Klaipeda saw lighter growth of 2 per cent y-o-y on average. Vacancy in major 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 New Retail Projects Under Construction in Vilnius shopping centres persisted at a low level, standing below 2 per cent in major cities throughout the country. This is Source: Colliers International PROJECT ADDRESS DEVELOPER ANCHOR TENANTS OPENING YEAR connected to high demand for retail space and calculated Depo DIY Maksimiskiu St. 5 Bumani Depo development of new shopping centres, resulting in landlord Depo DIY Ukmerges St. 373 Jaunbumani Depo 2019 dominance in the Lithuanian retail market. VNO Business & Retail Park, 1st stage Vikingu St. 5 VPH Decathlon TOTAL GLA, SQM 55,770

Source: Colliers International

In 2017, the Lithuanian retail market welcomed several Distribution of Retail Space in Vilnius by Size in new players. Among them, German fashion retailer Orsay 2017 opened three stores in major shopping centres across the country: Europa SC in Vilnius, Mega SC in Kaunas, and RYO SC in Panevezys. Polish sportswear company 4F opened its first store at Panorama SC in Vilnius. In addition, Number of 25 10 3 discount apparel and household goods retailer Pepco projects opened its first store in Lithuania, selecting Arena SC in Marijampole, with expansion plans to open 50 stores in the country by 2020. % of 33% 36% 31% Grocery retailers remained the most active in the total GLA Lithuanian retail market. Driven by fierce competition, grocery chains continued to open new stores and renovate 0% 20% 40% 60% 80% 100% old ones, simultaneously closing stores that do not deliver 5,000 - 15,000 sqm 15,000 - 45,000 sqm acceptable results. Finnish hypermarket chain Prisma withdrew from the Lithuanian market due to lack of 45,000 and more sqm competitiveness. Part of their premises was replaced by Source: Colliers International Maxima, which opened a 6,500 sqm Maxima XXX store at Ozas SC in Vilnius and a 3,000 sqm Maxima XX store at Dynamics of Rent Rates* in Major Shopping River Mall in Kaunas. Centres in Vilnius

2017 saw further growth in retail trade turnover, although 50 EUR/sqm/month at a slower pace compared to the previous year, challenged 45 40 by higher inflation. In 2017, e-commerce continued to 35 demonstrate double-digit turnover growth of 26.1 per cent 30 25 y-o-y. Facing the growing importance of e-commerce, 20 15 more retailers are likely to implement an omni-channel 10 strategy, which integrates bricks-and-mortar retail with 5 e-commerce. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Large retail units Medium retail units Small retail units

* - asking rent rates (EUR/sqm/month) excluding VAT and operating expenses Source: Colliers International

56 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 57 Lithuania Retail Market Retail Projects in Vilnius ▷

2 32 31 34 Trends and Forecasts

30

Shopping centres will continue to improve the tenant mix, attracting new names to 28-29 the Lithuanian market. 24

26 25 27

18 The retail grocery segment will remain the most dynamic due to fierce competition 17 37 19 and strategic changes among major market players. 20-23 5 35 15 16

33 Careful planning of new shopping centres will maintain low vacancy levels in 2018, in turn leading to growth in rent rates, mostly for small and medium retail units. 1 6

2

3 Changes in consumer behaviour will motivate retailers to invest in the synergy between traditional and e-commerce as well as to introduce innovative technologies. 4

7 Changes in wages and prices, demographic trends and e-commerce expansion will 8 9 continue to influence the retail market, along with general economic tendencies throughout the country and worldwide. 1

10 12 36 11

1 ▷ 3 14 13

8. Maxima XXX 18. Norfa XL 28. Berry Existing Developments 9. RIMI Hypermarket 19. Ozas 29. Maxima XXX Completed in 2017 10. Maxima XX 20. RIMI Hypermarket 30. Mandarinas 1. Panorama 11. IKEA 21. Domus Galerija 31. BIG 1. IKEA (expansion) 2. Europa 12. Norfa Baze 22. Banginis 32. Link Moletu 3. VCUP 13. Baldai Namams 23. Outlet Park 33. RIMI Hypermarket 4. GO9 14. Maxima-Baze XXX 24. Norfa XXL 34. Domus PRO, 1st, 2nd stages Under Construction 5. Akropolis 15. Pupa 25. Hyper Norfa 35. Former Hyper Norfa (to be replaced by Lidl) 6. IKI Minskas 16. MADA 26. IKI Fabijoniskes 36. Nordika, 1st, 2nd stages 1. Depo DIY 7. Helios City 17. Audejo Baldu Centras 27. Senukai 37. Unideco 2. Depo DIY 3. VNO Business & Retail Park, 1st stage

58 Real Estate Market Overview | 2018 | Colliers International Reykjavík Iceland

Finland

Norway

Helsinki Oslo Stockholm Monthly prime rent rates, trend Vacancy rates, trend 3.9-5.0 EUR/sqm I  Tallinn 5.4% I  IndustrialSweden Estonia Russia Market Estonia I Latvia I Lithuania 4.4-4.6 EUR/sqm I  3.5% I  Latvia Riga Denmark Klaipeda Moscow Lithuania Copenhagen 3.2-4.5 EUR/sqm I  1.9% I  Vilnius Kaunas 3.8-5.0 EUR/sqm I  3.4% I  3.3-4.7 EUR/sqm I  Industrial Stock and Pipeline 1.8% I  Minsk 110.1 Dublin 1,500 Thousand sqm Great 1,384.5 1,200 Distribution of Industrial Space by Type (GLA) Ireland 43.5 Belarus 900 967.6 78% Britain 59.5 68% Berlin 63% 600 Warsaw Amsterdam 574.7 15.2 300 49.0 37% 291.6 32% 154.1 22% Netherlands 0 Poland London Tallinn Riga Vilnius Kaunas Klaipeda Germany Industrial stock Pipeline of industrial stock Tallinn Riga Vilnius* * - GBA (to be commissioned in 2018) Specualtive Built-to-suit Brussels Prague Real Estate Market Overview | 2018 | Colliers International 61 Belgium Kiev Czech Republic Paris Luxembourg Ukraine Slovakia Vienna Bratislava Austria Budapest Moldova France Vaduz Hungary Switzerland Romania Chișinău Ljubljana Zagreb Croatia Belgrade Bucharest Bosnia & Serbia San Marino Herz. Monaco Sarajevo Andorra Italy Pristina Montenegro SoŽa Kosovo Bulgaria Rome Podgorica Skopje Georgia Tbilisi Tirana Macedonia Portugal Madrid Albania Yerevan Azerbaijan Greece Armenia Baku Spain Ankara Lisbon Athens Turkey

Gibraltar Valletta Nicosia Cyprus Industrial Market Estonia

VGP Park Nehatu I Owner East Capital

Supply and Demand expansion of 1 warehouse building in industrial and General Overview logistics in . Among industrial parks By the end of 2017, estimated total stock* of modern located in Harju County, the highest development activity industrial facilities was approx. 1,384,530 sqm (506,530 was registered in new industrial parks. Additionally, sqm of generic facilities plus 878,000 sqm of BTS development of several new industrial parks (e.g. Ringi, The warehouse and industrial property market continued to remain active in 2017 in facilities) in Tallinn and the surrounding region. New supply Valdmäe, Kokasauna, Tähetorni, Lõuna) was started or terms of new developments and stable demand for modern quality space. (119,030 sqm) delivered to the market in 2017 remained on announced in 2017. the high level achieved during the last four years (growth New construction in 2017 continued to be driven mainly of 9-13 per cent per year). by BTS activity, with speculative development remaining In 2017, development activity was seen in the Tartu, Pärnu, rather moderate (44,230 sqm in total), seeing completion By the end of 2017, estimated total stock of modern industrial facilities amounted to Keila and St. Petersburg directions, although one-third of of the fifth building in VGP Park Nehatu and development approx. 1,384,530 sqm. New supply delivered to the market reached 119,030 sqm in total new supply came from Rae in the Tartu Road direction of a new medium-scale speculative warehouse in Lookivi 2017. and another one-third in Jõelähtme (mostly the Peterburi Park. Road direction). Stock Office projects continued to gain momentum in Development activity in 2017 was largely driven by 2017, with several such projects (e.g. business park small- and medium-scale projects. Both the number and II, Tuleviku tee 2, Männiku tee 104a, Suur-Sõjamäe 29a, Speculative development in Tallinn and its suburbs also remained considerably volume of development projects with GBA over 5,000 sqm Järveotsa 50b) with a total area of approx. 18,940 sqm active in 2017, largely driven by StockOffice projects and VGP Park Nehatu. decreased in 2017 compared to 2016. entering the market in 2017. Overall, 2017 saw completion of 19 new buildings plus The industrial segment remains active in Tallinn and its suburbs in terms of new developments with a total area of

* Colliers includes in industrial stock all modern industrial and logistics properties approx. 124,000 sqm under construction in January 2018, In 2017, demand was highest among businesses from the production and located in industrial parks in Tallinn and Harju County and largest detached including several medium-scale development projects, such warehouse / logistics properties of a size and quality commensurate with the needs as the new Omniva logistics centre, phase III of Smarten manufacturing sectors, followed by wholesale and retail companies, while logistics of local occupiers. Logistics and the Peterburi tee 49 building in Tallinn. companies remained less active in the leasing market. Dynamics of Industrial Space in Tallinn and Harju County

1,500 Thousand sqm In 2017, rent rates largely remained at the 2016 level, although some downward

pressure on rental rates intensified. 1,200

900

600

300

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock New construction Expected construction

f – forecast Source: Colliers International

62 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 63 Estonia Industrial Market

Completed Industrial Projects in Tallinn and Harju County with GBA over 5,000 sqm in 2017 Rent Rates and Vacancy Dynamics of Rent Rates* in Tallinn and Harju County REGION PROJECT ADDRESS TYPE DEVELOPER In 2017, rent rates largely remained at the 2016 level, Jõelähtme VGP Park Nehatu, V Niidu tee 3, Nehatu Logistics Park Speculative VGP although some downward pressure on rental rates 8 EUR/sqm/month 7 Rae Smarten Logistics, II Rukki tee 1, Lehmja village Build-to-suit Nordassets intensified due to growing competition within the sector. 6 Jõelähtme Favor industrial building Loovälja tee 11, Liivamäe Build-to-suit Maru As in previous years, tenants were particularly interested in 5 Rae Lookivi Logistics Kõrtsi tee 7, Lehmja village Speculative Bohmann contemporary space going for between 4.0 - 5.0 EUR/sqm 4 Rae Mobec, expansion Kurekivi tee 2, Rae Build-to-suit Montoya Varahaldus per month, with this segment generating market share of 3 Jõelähtme KTN Logistics, 3rd stage Klauske tee 1a, Uusküla Build-to-suit Katoen Natie Eesti almost 50 per cent in 2017. 2 TOTAL GBA, SQM 66,310 Somewhat older contemporary premises (ca 10-15 years 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

old) in good locations could be rented out with a lease * – asking rent rates (EUR/sqm/month) excluding VAT and operating expenses Source: Colliers International price of around 3.5 - 4.0 EUR/sqm per month. Source: Colliers International New Industrial Projects Under Construction in Tallinn and Harju County with GBA over 5,000 sqm Space in the price segment of over 5.0 EUR/sqm per month continued to be driven mostly by absorption of Stock Dynamics of Vacancy Rate in Tallinn and Harju Office space and smaller premises in properties located County REGION PROJECT ADDRESS TYPE DEVELOPER OPENING YEAR close to Tallinn. Rae Smarten Logistics, III Rukki tee 1, Lehmja village Build-to-suit Nordassets 25% Rae Omniva Logistics Centre Pähklimäe tee 3, Lehmja village Build-to-suit Omniva Development of several large-scale development projects 20% 2018 Tallinn Peterburi tee 49b Peterburi tee 49b Build-to-suit Capital Mill during 2014 - 2016 has resulted in consolidation of 15% different units in one location, vacating some previously Rae Lookivi Logistics, 2nd stage Kõrtsi tee 9, Lehmja village Build-to-suit/Speculative Bohmann 10% occupied premises, thus pushing vacancy rates up to the 7 TOTAL GBA, SQM 53,600 per cent level by the beginning of 2017. Increased leasing 5% activity in Q2 2017 resulted in downward movement in 0% Source: Colliers International 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 vacancy by the end of 1HY 2017. Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan

Current existing stock comprises fifteen industrial and Absorption of new premises is supported by continuing Source: Colliers International warehouse projects with a GLA of over 20,000 sqm relocation of tenants from older space. per project and a total area of 446,950 sqm. Most of the Distribution of Industrial Space by Size in existing stock (72 per cent of total numbers) consists of Tallinn and Harju County in 2017 industrial and warehouse projects with a GLA up to 5,000 sqm per project. Leasing activity remained modest at the beginning of 2017 Number of 30 24 9 6 but started to gain momentum in late spring/early summer projects with some remarkable lease deals closed. Overall, demand in 2017 was highest among businesses from the production and manufacturing sectors with a share in total take-up volume of almost 50 per cent, % of 21% 33% 22% 24% total GLA followed by wholesale and retail companies with around 26 per cent and transportation and storage with around 20 per cent. Development of numerous Stock Office 0% 20% 40% 60% 80% 100% projects in Tallinn and Harju County continued to result in a 5,000 - 10,000 sqm 10,000 - 20,000 sqm considerable share of retailers in total take-up. 20,000 - 30,000 sqm 30,000 and more sqm In 2017, tenants were particularly interested in space up to Source: Colliers International 1,000 sqm. This segment accounts for around half of the total number of leases signed in 2017, a year that also saw several leases signed for space in the size range starting from 3,000 sqm. Roughly two-thirds of total speculative take-up volume in 2017 was located in the areas surrounding Tallinn.

64 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 65 Estonia Industrial Market Industrial and Logistics Parks in Tallinn and Harju County

Trends and Forecasts 16 4

33 With around 1.38 million sqm of modern logistics and industrial space currently in 15 stock, at least 110,140 sqm of new-build space are expected during 2017: 73 per 27 cent on a BTS basis and only 27 per cent on a speculative basis. 14

2 3 29

2 25

More than half of new supply in 2018 will come in Rae municipality. 9 24 3

1 26 13 10 2 32 8 4 1 Planned completion of six Stock Office projects will make available an additional 1 3 5 23,625 sqm of new commercial and warehouse space to the market in 2018, while 11 9 more than 40,000 sqm of new Stock Office space remains in the pipeline. 18 6 23 22 6 17 21

Companies from manufacturing sectors are expected to remain among the most 28 7 6 4 active in seeking and leasing industrial/warehouse premises in the coming years. 8 7 The retail trade-oriented distribution sector is expected to become more modest in 9 30 5 the warehouse leasing market. 10 5 12 31 20 19 7 No drastic changes are expected in the nearest future, although the gap between 8 the lower and upper margins of asking rents may continue to widen.

16. Muuga Industrial Park Many warehouse and logistics premises that were initially built for specific tenants Existing Developments 17. Sõpruse Business Park (incl. Sanitex LC) Completed in 2017 Under Construction 18. Allika Industrial Park have remained or will remain vacant in 2018. Increase in vacancy rates will 1. Ülemiste City 19. Rebasepõllu Industrial Park 1. Suur-Sõjamäe Industrial Park 1. Mõigu Industrial Park and Treiali Park 2. Industrial Park 20. VGP Park Tallinn and DSV Logistics 2. Nehatu Logistics Park 2. Tallinna Suur-Sõjamäe Industrial Park therefore create some additional downward pressure on rent rates in 2018. 3. Betooni Industrial Park 21. Liiva Logistics Park 3. Loovälja Park (Favor) 3. Suur-Sõjamäe Industrial Park 4. Suur-Sõjamäe Industrial Park 22. Via3L Logistics 4. Muuga Industrial Park 4. Rae Industrial Park 5. Mõigu Industrial Park 23. KAWE Logistics 5. Jüri Industrial Park 5. Rukki Industrial Park and Lookivi Logistics 6. Peetri Business Park 24. DHL Logistics Centre and Nordnet Logistics 6. Rae Industrial Park 6. Peetri Business Park 7. Sinikivi Industrial Park 25. ABT Warehouse 7. Rae Rukki Industrial Park and Lookivi 7. Valdmäe Industrial Park 8. Rae Industrial Park 26. VIA Estonia Warehouse complex Logistics 8. Industrial Park 9. Põrguvälja Industrial Park 27. Vana-Narva road Logistics Park 8. Tänassilma Industrial Park 9. Peterburi tee 49 10. Jüri Industrial Park 28. Kalda 7c warehouse 9. Allika Industrial Park 11. Killustiku Industrial Park 29. Nehatu Logistics Park 10. Tabasalu Industrial Park 12. Tänassilma Industrial Park 30. Smarten Logicstics Centre 13. Tabasalu Industrial Park 31. Maxima Logistics Centre 14. Iru and Nurmevälja Industrial Parks 32. Coop Logistics Centre 15. Maardu Industrial Park 33. Tallink Logistics Centre

66 Real Estate Market Overview | 2018 | Colliers International Industrial Market Latvia

VGP Park Kekava I Developer VGP

Supply and Demand in Riga city and Riga region rose at a faster pace. Higher General Overview interest in land plots confirms rising activity in development By the end of 2017, total professional leasable industrial of industrial projects in the pipeline for the upcoming years. * space amounted to approx. 967,586 sqm, consisting of In 2017, active demand for industrial premises continued, 661,723 sqm of speculative premises and 305,862 sqm of In 2017, completion volumes of new industrial projects remained low, but due to resulting in total take-up of 66,060 sqm, a 4,940 sqm built-to-suit (BTS) premises. Approx. 50 per cent of total increase compared to 2016. Greatest demand remained rising demand for qualitative and modern premises, development activity continues professional industrial space is located within Riga city for modern warehouse premises with area 1,000 - limits, while the other half is located around the Riga Ring 2,000 sqm in Riga city. Existing vacancy of professional with several projects under active construction and even more in the planning Road (near Kekava, Olaine, Marupe, Salaspils and Jelgava). pipeline. industrial objects was filled up in 1HY, but during 2HY In 2017, industrial space was supplemented by 23,459 sqm, lease deals were closed for premises to be commissioned which resulted in commissioning of four Class A buildings. in 2018. Demand for professional industrial buildings to be All commissioned industrial projects are located within commissioned during 2018 remained high and last year’s Vacancy rates during the year decreased, leading to the current shortage of Riga city and Riga region limits. tendency continued, with companies focusing on projects under construction. professional industrial premises in Riga city and Riga region. By the end of 2017, the construction pipeline was filled, with GLA 43,500 sqm of three speculative Class A In general, companies are more interested in industrial buildings and two Class A BTS buildings. space in Riga city itself, due to the closer distance from service enterprises and for demographic reasons. At the By the end of the year, approx. GLA 240,000 sqm of same time, companies focusing on the logistics business in In general, rent rates in Riga and Riga city industrial projects remained stable, industrial premises was under planning, of which more the Baltic region, as well as companies with limited rental than half has a high probability of being transferred to the though a slight increase occurred in the bottom bound of rent rates for industrial budgets, are looking for premises in Riga Region, preferably active construction stage in 2018. In 2017, the number of near the Riga ring road. space in Riga city. transactions for land plots suitable for industrial projects

* Colliers includes in industrial space all modern warehouse, logistic and industrial buildings in Riga and Riga Region. During the year, more and more companies were forced to adjust their businesses to current locations due to lack of professional industrial space. Dynamics of Industrial Space in Riga and Riga Region

1,200 Thousand sqm

1,000

800

600

400

200

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock New construction Expected construction

f – forecast Source: Colliers International

68 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 69 Latvia Industrial Market

Completed Industrial Projects in Riga and Riga Region in 2017 Dynamics of Rent Rates* in Riga and Riga Dynamics of Total Vacancy Rates in Riga and Region Riga Region PROJECT ADDRESS TYPE DEVELOPER Baltijas Industriālais parks, 3rd stage Piedrujas St. 7 Speculative LNK 6 EUR/sqm/month 20% 5 UA Biznesa Parks, 2nd stage Daugavgrivas St. 77 Speculative UA Investor 15% 4 P5, Ulmana Gatves Industrialais parks K. Ulmana gatve Speculative Piche 3 10% P5, Ulmana Gatves Industrialais parks K. Ulmana gatve Speculative Piche 2 5% TOTAL GBA, SQM 23,500 1 0 0% Source: Colliers International 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Class A Class B Total speculative and built-to-suit New Industrial Projects Under Construction in Riga and Riga Region Total speculative * – asking rent rates (EUR/sqm/month) excluding VAT and operating expenses Source: Colliers International PROJECT ADDRESS TYPE DEVELOPER OPENING YEAR Source: Colliers International Salaspils Stopiņi Built-to-suit Mikrotīkls Balt Cargo Solutions, 3rd stage Dreilini Speculative Balt Cargo Solutions Balt Cargo Solutions, 4th stage Dreilini Speculative Balt Cargo Solutions 2018 VGP, 1st stage Kekava Speculative VGP DSV Katlakalna St., Rīga Built-to-suit DSV TOTAL GBA, SQM 43,500

Source: Colliers International

Rent Rates and Vacancy Distribution of Industrial Space by Size in Riga and Riga Region in 2017 Vacancy rates decreased and by the end of 2017 the total vacancy rate of industrial space decreased to 3.5 per cent, compared to 6.0 per cent at the end of 2016, due to lack of new commissioned industrial projects during the Number of 20 21 11 9 year. Alongside low vacancy rates, lower bounds of rent projects rates for Class A industrial space experienced a slight increase as well as the upper bounds of Class B rent rates. Nevertheless, Riga and Riga Region properties share P5 (Ulmana Gatves Industrialais Parks) I Developer Piche relatively similar upper bounds for industrial premises, % of 20% 19% 21% 40% while the lower bounds of Riga city industrial space total GLA experienced a slight increase during the year. 0% 20% 40% 60% 80% 100% 5,000 - 10,000 sqm 10,000 - 20,000 sqm 20,000 - 30,000 sqm 30,000 and more sqm

Source: Colliers International

70 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 71

Latvia Industrial Market Speculative and Built-to-Suit Projects in Riga District Over 5,000 sqm ▷

11 ▷ 40 Trends and Forecasts

44

At least 43,500 sqm of developments is anticipated to be completed during 2018, 25 equally divided between space for speculative and BTS industrial projects. The 13 volume of new construction and planning will gradually rise during the next few 53

43 38 years. 21

50

51 47

16 17 Shortage of modern industrial space will continue during this next year. Vacancy is ▷ 35 2 4 39 already close to 0 per cent in projects due to be commissioned during 2018, with 2 pre-lease agreements being signed during 2HY 2017. 20 30

15

34 26 ▷ 2 14 ▷ 1 ▷ 18 46 49 9 3 3 31 28 42 48

Companies wishing to relocate their industrial space to new modern industrial 1 27 41 ▷ 36 objects need to start planning in good time, due to high demand for projects under 23 52 19 24 construction and low vacancy of available space.

6 32 37 29 1 33 Highest demand is expected to remain for industrial space from 1,000 - 2,000 sqm. 22

10

Rent rates in Riga and Riga region for Class A industrial premises are expected 7 to experience a slight increase, mainly due to low vacancy, shortage of modern industrial space and growth in construction costs.

12

3 45 Demand from e-commerce companies remained low compared to other European ▷ 4

8 markets, mainly due to undeveloped logistics and inefficient delivery. ▷ 5

17. Karsten Latvia Logistic Centre 35. Kroni Existing Developments 18. Izoterms 36. BLRT Completed in 2017 19. Piepilsetas 37. Polipaks 1. Valdo Logistikas Komplekss 20. NP Business Centre 38. Reaton Logistikas Centrs 1. Baltijas Industriālais Parks 3rd stage 2. Riga Industrial Park 21. Man Tess 39. Coca Cola Logistics Complex 2. UA Biznesa Parks, 2nd stage 3. Nordic Industrial Park in Olaine 22. Baltkors, 1st and 2nd stages 40. Glaskek Industrial and Warehouse Building 3. P5 4. PBLC Business Centre 23. Avers Centrs Logistic Park 41. Vollers Riga 5. Dominante Park 24. Maykel Business Park 42. DB Schenker Logistic Centre 6. BLS 25. System Logistics 43. G31 Under Construction 7. Dommo Biznesa Parks 26. Atlas Logistic Centre 44. Veju Roze 8. Eirkel Business Park 27. Granita Industrial Park 45. NP Jelgavas Biznesa Parks 1. Mikrotikls industrial building 9. Rolands S Warehouse Complex 28. DSV Transport 46. Balt Cargo Solutions 2. Baltijas Industriālais parks 10. Wellman Logistics Centre 29. Maxima Latvia Logistic Complex 47. UA Investor, 1st stage 3rd stage 11. Lauki Warehouse Complex, New Building 30. Rimi Administrative and Warehouse 48. Plienciema 16 3. Balt Cargo Solutions, 3rd and 4th stages 12. Olaines Logistic Park Complex 49. Lexel Fabrika 4. VGP, 1st stage 13. Bergi Logistics Centre 31. DHL Logistic Centre 50. Rikargo 14. Elipse-BLC 32. Sanistal Retail and Logistic Centre 51. Eugesta 15. Nordic Technology Park 33. Beweship Latvija Warehouse 52. Piche 16. Abava Biznesa Parks 34. Baltijas Industrialais Parks 53. Kraftoo

72 Real Estate Market Overview | 2018 | Colliers International Industrial Market Lithuania

Supply and Demand Consequently, total stock grew by 12 per cent y-o-y. In General Overview 2018, Hegelmann Transporte is expected to finish two At the end of 2017, total warehouse stock* in the country administrative and warehouse buildings totalling 10,000 reached 1.02 million sqm, of which 56 per cent was found sqm (1st stage). Overall, the logistics centre will be in the Vilnius region, followed by the Kaunas region with 29 implemented in six stages, to reach 38,000 sqm in total, In 2017, the warehouse market was active in Vilnius and Kaunas regions, where a per cent and the Klaipeda region with 15 per cent. comprising 21,000 sqm of warehouse space and 17,000 sqm of office space. total of 82,300 sqm of new warehouse space was commissioned. In 2017, the Vilnius warehouse market was the most dynamic, recording completion of three speculative and Meanwhile, the Klaipeda warehouse market saw a three built-to-suit (BTS) projects. In total, 51,100 sqm of passive year, with no new projects completed in 2017. new warehouse space supplemented the market, resulting Nevertheless, completion of two large BTS logistics centres Development of new projects remained intense, with 95,200 sqm of modern in 10 per cent y-o-y stock growth. Despite the growing is forecast for 2018, with VPA expected to expand the warehouse space under construction across the largest cities in Lithuania at the popularity of BTS projects, speculative properties continued Baltic Logistics Centre by 21,000 sqm (4th stage), while end of 2017. to dominate the market, accounting for 78 per cent of total SBA plans to construct a 28,000 sqm logistics centre stock. 2018 is forecast to be another active year, with together with a 12,000 sqm furniture parts factory (1st 47,400 sqm of new warehouse space under construction stage). Overall, the SBA project is planned to be completed at the end of 2017, of which about half was speculative in three development stages by 2027. Logistics companies drove demand for speculative warehouse space, supported by development. BTS development remained popular due to measured growth in trade and industrial production volume. The Kaunas warehouse market continued to be driven risks for developers and properties that best meet specific by BTS development, which formed 77 per cent of total requirements for tenants, thus standing as a solution warehouse space at the end of 2017. In total, four projects beneficial for both sides. Nevertheless, SIRIN Development for own needs were completed during the year, bringing began construction of the speculative Liepkalnio Industrial New speculative supply pressured rent rates in the Vilnius region, simultaneously to the market 31,200 sqm of new warehouse space. Park project (2nd stage) without pre-lease agreements, which is expected to supplement the Vilnius market with slightly increasing the vacancy level in the market. * Colliers includes in industrial stock all speculative and BTS warehouse buildings 16,000 sqm of modern warehouse space in 2018. with GBA of over 5,000 sqm that were constructed since 2000.

The warehouse market in Kaunas and Klaipeda regions maintained stable rent rates, Dynamics of Industrial Space in Major Cities in Lithuania

with low vacancy levels reaching below 2 per cent due to measured development. 700 Thousand sqm

600

500

400

300

200

100

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Existing stock in Vilnius Existing stock in Kaunas Existing stock in Klaipeda New construction f – forecast Source: Colliers International

74 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 75 Lithuania Industrial Market

Completed Industrial Projects in Vilnius and Kaunas in 2017 Rent Rates and Vacancy Dynamics of Rent Rates* in Major Cities in Lithuania REGION PROJECT ADDRESS TYPE DEVELOPER In 2017, new speculative supply intensified competition in Liepkalnio Industrial Park, 1st stage Liepkalnio St. 172M Speculative SIRIN Development the Vilnius warehouse market, likewise exerting downward 6 EUR/sqm/month pressure on rent rates, which decreased by 2.2 per cent BSP LC Meteliu St. 4 Built-to-suit Baltic Sea Property 5 y-o-y. In comparison, BTS development in Kaunas and AD REM LC J. Dobkeviciaus St. 7 Built-to-suit AD REM Vilnius passive market activity in Klaipeda maintained rent rates at 4 Titnago Logistics Park, 3rd stage Jankiskiu St. 52A Speculative Woodline a stable level. Arvydo Paslaugos warehouse Terminalo St. 5, Kuprioniskes v. Speculative Arvydo Paslaugos 3 Airport Business Park, expansion J. Dobkeviciaus St. 10 Built-to-suit Ogmios Group At the end of 2017, the highest vacancy level was observed 2 Aibe LC Kokybes St. 8, FEZ Built-to-suit Alliance Aibe in the Vilnius region, where it reached 3.4 per cent due to 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Joldija warehouse, expansion Tikslo St. 10, Kumpiai v. Built-to-suit Oranzinis turtas new supply, although indicating only a slight 1.1 per cent Vilnius region Kaunas region Klaipeda region Kaunas y-o-y increase. In the Kaunas region, vacancy remained at Hansa Flex Hidraulika warehouse Taikos Ave. 17F Built-to-suit Hansa Flex Hidraulika roughly the same level, reaching 1.8 per cent as a result * - asking rent rates (EUR/sqm/month) excluding VAT and operating expenses Baltic Logistic Solutions, expansion Alsenu St. 8, Kampiskes v. Built-to-suit Sanitex of carefully planned development, whereas in the Klaipeda Source: Colliers International TOTAL GBA, SQM 82,260 region vacancy dropped sharply to 1.9 per cent, recording a significant 10.9 per cent y-o-y decrease due to absorption Dynamics of Vacancy Rates in Major Cities in Source: Colliers International of a large development commissioned in 2016. Lithuania

New Industrial Projects Under Construction in Vilnius, Kaunas and Klaipeda 18% 15% OPENING 12% REGION PROJECT ADDRESS TYPE DEVELOPER YEAR 9% Liepkalnio Industrial Park, 1st stage Liepkalnio St. 172M Speculative SIRIN Development 6% Apranga Group LC Ukmerges St. 362 Built-to-suit MG Valda 3% 0% M7 LC Minskas Rd. 7 km, Kuprioniskes v. Built-to-suit/Speculative Avisma 2018 Vilnius 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Libra Vitalis warehouse Vakarine St. 104 Built-to-suit Libra Vitalis Vilnius region Kaunas region Transekspedicija LC, expansion Galines St. 1 Speculative Transekspedicija Klaipeda region Barduva warehouse Berzuonos St. 2 Built-to-suit Barduva 2019

Kaunas Hegelmann Transporte LC, 1st stage Zemaitkiemis v. Built-to-suit Hegelmann Transporte Source: Colliers International 2018 Klaipeda Baltic Logistics Centre, 4th stage Kairiu St. 1A Built-to-suit V. Paulius & Associates TOTAL GBA, SQM 95,220

Source: Colliers International

In 2017, the Lithuanian warehouse market was supported Distribution of Industrial Space by Size in by lively industrial production growth and positive export Vilnius Region in 2017 dynamics. Consequently, over a third of demand for modern speculative warehouse space was generated by companies engaged in logistics, followed by companies from the retail and manufacturing sectors. In the lease Number of 10 12 8 4 projects market, the most sought-after area stood at 1,500 sqm on average. In addition, the industrial segment attracted several large international players, including automotive manufacturers % of 11% 31% 34% 24% Continental and Hella as well as medical manufacturer total GBA Hollister, which will be situated in the Kaunas Free Economic Zone. This is connected to Lithuania’s 0% 20% 40% 60% 80% 100% competitive offer, comprising affordable costs and a 5,000 - 10,000 sqm 10,000 - 20,000 sqm qualified labour pool. 20,000 - 30,000 sqm 30,000 and more sqm

Source: Colliers International Liepkalnis Industrial Park I Developer Sirin Development

76 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 77 Lithuania Industrial Market

Trends and Forecasts

BTS development will continue to prevail in the warehouse market as a way to manage the risk of oversupply and to meet the specific needs of companies.

Demand for modern warehouse space will be supported by economic growth, strengthening the business environment and active global trade.

International companies will maintain an interest in establishing production facilities in Lithuania, drawn by competitive costs and unexploited potential.

In 2018, rent rates in the Vilnius region are expected to move in a downward direction due to a wave of new speculative supply, which is also expected to further increase the vacancy level.

Due to dominance of BTS development, vacancy is expected to remain at a similar level in the Kaunas and Klaipeda regions, leading to forecast stable rent rates in 2018.

78 Real Estate Market Overview | 2018 | Colliers International Reykjavík Iceland

Finland

Norway

Helsinki Oslo

Stockholm 59 No. of hotels (city) 6,724 1,493.5 ths No. of rooms (city) Tallinn No. of foreigners accommodated Hotel Sweden (in accomodation establishments) Estonia Russia Market 92 Estonia I Latvia I Lithuania 6,800 1,745.9 ths Latvia Riga Denmark Klaipeda Moscow Lithuania Copenhagen 28 1,129

111.1 ths Vilnius Kaunas 75 4,532 26 876.1 ths No. of Foreigners in Accommodation 1,195 Minsk Establishments in the Country Dublin 192.6 ths Great 3,000 Thousand visitors No. of Hotels and Rooms in the Country Ireland 2,577.3 Belarus Britain 2,000 2,156.2 Berlin 379 Amsterdam 1,552.0 Warsaw 250 1,000 189 19,617 Netherlands Poland12,867 13,586 London 0 GermanyEstonia Latvia Lithuania Estonia Latvia Lithuania No. of hotels in the country No. of rooms in the country Brussels Prague Real Estate Market Overview | 2018 | Colliers International 81 Belgium Kiev Czech Republic Paris Luxembourg Ukraine Slovakia Vienna Bratislava Austria Budapest Moldova France Vaduz Hungary Switzerland Romania Chișinău Ljubljana Zagreb Croatia Belgrade Bucharest Bosnia & Serbia San Marino Herz. Monaco Sarajevo Andorra Italy Pristina Montenegro SoŽa Kosovo Bulgaria Rome Podgorica Skopje Georgia Tbilisi Tirana Macedonia Portugal Madrid Albania Yerevan Azerbaijan Greece Armenia Baku Spain Ankara Lisbon Athens Turkey

Gibraltar Valletta Nicosia Cyprus Hotel Market Estonia

Supply and Demand guesthouses, B&B, and others) is concentrated in Tallinn, General Overview while Tallinn hotel rooms account for 52 per cent of After 2009, no new hotels entered the Tallinn hotel market Estonia’s total hotel room stock. in 2010 - 2011. The following years (2012 - 2016) saw the The hotel market in Tallinn is largely dominated by local opening of the new 202-room Tallinn Hilton luxury hotel, In 2017, the tourism sector in Estonia posted a very positive start to the year, hotel chains and operators. Approx. two-thirds of Tallinn two hotels in Old Town and expansion and refurbishment hotels are part of a hotel chain. The Carlson Rezidor Hotel leading to an overall increase in the number of arrivals and nights spent in of several hotels in Tallinn. Group with 1,380 hotel rooms is the largest international accommodation establishments. In 2016, Landeste started construction work on a hotel and hotel chain - as well as the largest hotel chain - in Tallinn. office building at Roseni 9 and 11 including extension of the Among local hotel chains the biggest is the Tallink Hotels Metropol hotel. The 8-storey building, located in Rotermann chain, which has 4 hotels with 1,035 hotel rooms in Tallinn. Quarter, is due for completion in summer 2018. One of the new local players in the market is Baltic Beach Holding. In 2017, the BBH Hotel Group moved to a new In 2017, the number of tourists increased from several major partner markets, In 2016, Unique Hotels Group announced that it will expand hotel brand, Hestia Hotel Group, and now operates six including Russia, Sweden, Latvia, Lithuania and the UK, although several other by opening a new 4-star hotel in the centre of Tallinn. The hotels. major partner markets (Finland, Germany and Norway) showed some decline. 4-storey Centennial Hotel Tallinn, featuring 81 modern hotel rooms, opened in August. Additionally, 2017 saw expansion In 2017, 2.16 million foreign tourists stayed overnight in of the Von Stackelberg Hotel Tallinn (+9 rooms), while Estonian accommodation establishments. Their number renovation and expansion of the Kalev Spa Hotel (+22 hotel increased by 4.8 per cent or by 99,621 compared with the Domestic tourism in Estonia maintained continuing growth in 2017, increasing by rooms) should be completed by autumn 2018. previous year. The number of foreign tourists (1.49 million) staying overnight in Tallinn accommodation establishments Construction work on the first Ibis Tallinn hotel started at 9.5 per cent y-o-y and thus positively affecting the hospitality industry. in 2017 increased by 2.2 per cent y-o-y. the end of 2017 - a second Accor group hotel in Tallinn is expected to open in mid-2019. Compared to the previous year, tourist numbers from most European Union countries increased. There were also Approx. 36 per cent of Estonia’s total rooms in more tourists from Russia (+18.9 per cent y-o-y increase) Hotel revenue per available room (RevPAR) in Estonia saw a solid increase in accommodation establishments (incl. hotels, hostels, and Asian countries. In Tallinn, the number of tourists from 2017 compared with 2016, driven by a steady rising average daily rate (ADR) and occupancy rate. Number of Hotel Rooms Accrued to the Tallinn Hotel Market

400

In 2017, the Von Stackelberg Hotel Tallinn expanded by 9 hotel rooms, while a new 260 4-star hotel in the centre of Tallinn - the Centennial Hotel with 81 rooms - opened in August. 120

-20

-160

-300 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f

f - forecast Source: Colliers International, Estonian Hotel and Restaurant Association

82 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 83 Estonia Hotel Market

Russia increased by 11.3 per cent, driven by a considerable Number of Hotels and Rooms in Estonia and Prices and Occupancy Change in Number of Tourists in Estonia annual increase in the first five months of the year. Tallinn by Stars in 2017 The number of Finnish tourists, who accounted for In 2017, the average price for a night in accommodation NO. OF TOURISTS CHANGE establishments in Estonia was EUR 37.4 and EUR 45.8 42 per cent of the total number of foreign tourists in TALLINN ESTONIA COUNTRY ABSOLUTE STARS in Tallinn, indicating a y-o-y increase of 6.7 per cent in 2017 2016 % accommodation establishments in Estonia, decreased HOTELS ROOMS HOTELS ROOMS FIGURES by 3.7 per cent in Estonia and 5.9 per cent in Tallinn Estonia and 10.4 per cent in Tallinn respectively, according 5-star 6 438 7 462 Finland 916,241 951,025 -3.7% -34,784 respectively compared to 2016. to Statistics Estonia. 4-star 27 4,056 49 5,525 Russia 238,636 200,972 18.7% 37,664 The hospitality industry clearly benefited from the Estonian Visits to Tallinn are relatively seasonal in comparison to Germany 125,660 125,942 -0.2% -282 3-star 21 2,043 92 5,662 presidency of the Council of the European Union in the other European cities and they are also short, amounting Latvia 161,250 142,043 13.5% 19,207 2-star 5 187 41 1,218 second half of 2017, positively affecting the occupancy to 1.8 nights on average, the number of visitors remaining Sweden 73,296 74,415 -1.5% -1,119 TOTAL 59 6,724 189 12,867 level in Tallinn. During 2017, the number of passengers traditionally highest in July. Lithuania 64,369 61,111 5.3% 3,258 (including both arrivals and departures) passing through The number of domestic tourists and their overnights Source: Colliers International, Estonian Hotel and Restaurant Association the amounted to 10.56 million (a new all- 58,402 48,733 19.8% 9,669 has grown steadily, and new records have been set. time record), increasing by 3.8 per cent y-o-y. In 2017, Norway 35,784 37,725 -5.1% -1,941 Some 9.5 per cent more domestic tourists stayed in the number of passengers (including both arrivals and Source: Statistics Estonia accommodation establishments in Estonia than in 2016. departures) at increased by 19.2 per cent to In Tallinn, the number of domestic tourists increased by 2.65 million. 7.7 per cent y-o-y. Price Range for Double Standard Hotel Rooms During 2017, the average room occupancy rate in Estonia in Tallinn in 2017 Distribution of Hotels by Number of Stars in Distribution of Foreign Visitors by Country in was 45.3 per cent and 65.5 per cent in Tallinn, indicating steady growth in the room occupancy rate both in Estonia STARS ROOM RATE RANGE, EUR Estonia in 2017 Accommodation Establishments in Estonia in and Tallinn. 2017 5-star 110-250 4% In 2017, hotel revenue per available room in Estonia saw 4-star 55-150 a significant increase (by 10 - 15 per cent on average) 22% 3-star 45-100 Finland compared with the same period a year earlier, driven by a 2-star 30-55 26% 5-star slight rise in the occupancy rate and a significant increase 27% Russia 4-star in ADR. In 2017, RevPAR in Tallinn hotels increased by Source: Colliers International 42% Latvia 3-star 15 per cent on average, driven by rising ADR (by more than Germany 10 per cent on average). 2-star 3% Sweden 3% 48% 6% Lithuania Total Number of Passengers (Including both 7% Other countries 11% Arrivals and Departures) in Port of Tallinn and Dynamics of Average Room Occupancy Rate in Tallinn Airport Accommodation Establishments Source: Colliers International Source: Statistics Estonia 12 Million 70%

10 Distribution of Visitors in Accommodation Distribution of Local and Foreign Visitors in 60% Establishments in Estonia Accommodation Establishments in Estonia 8

4,000 Thousand visitors 2,500 Thousand visitors 6 50% 3,500 4 2,000 3,000 40% 2 2,500 1,500 2,000 0 30% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1,500 1,000 Tallinn Airport Port of Tallinn Tallinn Estonia 1,000 500 f – forecast Source: Statistics Estonia 500 Source: Port of Tallinn, Tallinn Airport

0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Tallinn Estonia Local Foreign

Source: Statistics Estonia Source: Statistics Estonia

84 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 85 Estonia Hotel Market

Trends and Forecasts

According to the European Travel Commission, inbound tourism is expected to grow by approx. 3.4 per cent in 2018 in both Central Europe and the Baltic States.

In 2018, growth in the number of tourists accommodated in Estonia is expected to remain modest due to a high reference base, increased ADR and external uncertainty. All of these factors put downward pressure on ADR level in 2018.

The Port of Tallinn expects the number of passengers to continue growing in 2018 to reach 10.7 million, thus surpassing the record level set in 2017.

Development of inbound tourism is substantially dependent on the volume of Estonia’s air travel. Tallinn Airport expects the number of passengers to continue growing by at least 3 per cent in 2018.

Tallinn hotel room stock is expected to increase significantly in the next three years by more than 1,000 rooms (or 15 per cent of current stock) due to expansion and opening of several new hotels. New hotel chains are also expected to enter the Tallinn hotel market in the 2 - 3-year perspective.

86 Real Estate Market Overview | 2018 | Colliers International Hotel Market Latvia

Grand Hotel Kempinski Riga

Supply Street and the Hilton Garden Inn in Grecinieku Street. General Overview Consequently, Riga hotel room stock is expected to be By the end of 2017, Latvia had 250 hotels, among supplemented by an additional 711 rooms on account of which 131 were not certificated, while some 70 per hotel projects currently under development. cent of a total of 8,802 certificated hotel rooms The Latvian hotel market experienced another successful year, demonstrating The dynamics of hotel numbers have remained positive for were in Riga. In general, the most significant part several years. The number of rooms has been growing for stable growth in visitor numbers, as well as development of new hotel projects. of certificated hotel room supply was dominated by the last 7 years. Total room numbers in Riga 4-star hotels 4-star hotel rooms, constituting 59.0 per cent and has grown to 4,255 rooms (growth is almost 150 per cent 69.9 per cent respectively of Latvia’s total certificated compared to 2011). hotel room stock and total Riga certificated hotel room The previously unrepresented Kempinski international hotel chain has opened a stock. The number of rooms for each hotel class may vary. In Riga, five-star hotels do not have a great number of rooms, luxury hotel in Riga, while other hotel chains strengthened their positions by settling During 2017, the Riga hotel market was supplemented while some 4-star Riga hotels such as the Radisson Blu on new locations. by the 5-star Grand Hotel Kempinski Riga (141 rooms). Daugava, Radisson BLU Hotel Latvia, and the Albert Hotel Additionally, Mogotel expanded its presence on have a large number of rooms (up to 587). account of opening the Rixwell Domus Hotel (previously Kolonna Hotel Riga) and Rixwell Hotel The Latvian hotel market is clearly dominated by local Together with increasing numbers of tourists, the occupancy rate both in Riga and Konventa Seta (previously Konventa Seta Hotel) both hotel operators, among which Mogotel with its Wellton located in the Old Town with a total of 182 rooms. and Rixwell chain is the largest. During 2017, the Latvian Latvian hotels generally is constantly growing. hotel market saw the entry of the previously unrepresented Current market activity indicates that the local hotel Kempinski chain with the opening of the luxury class Grand market will see both further strengthening of already Hotel Kempinski Riga. Meanwhile international hotel chains present international chains and entry of currently already present - Carlson Rezidor Hotel Group and Accor Room rates in international hotel chains remained stable or even experienced a unrepresented ones, as well as further expansion by Hotel Group - continued to seek opportunities to expand local hotel operators. The current construction pipeline their presence. slight increase, while room rates were lower in hotels operated by local companies. is filled with a number of new projects under active development, such as the 4-star Semarah Hotel in Raina Boulevard, the 5-star Wellton hotel in Kungu Street, another upscale Wellton hotel in Minsterejas Street, a new Radisson Red Hotel in Elizabetes

Number of Visitors Served

1,000 Thousand 30%

800 25% 20% 600 15% 400 10%

200 5%

0 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 2013 2014 2015 2016 2017 Hotels, resort hotels and motels Other Y-o-y growth

Source: Central Statistical Bureau

88 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 89 Latvia Hotel Market

Demand Number of Hotels and Rooms in Latvia and Riga Prices and Occupancy Dynamics of Average Monthly Room Occupancy in 2017 Rate in Accommodation Establishments In 2017, growth in the total number of visitors to hotels and According to City Cost Barometer, Riga continued to be one other accommodation establishments exceeded 11 per cent, LATVIA RIGA of the cheapest travel destinations among other European 60% compared to the same period in 2016, with foreign tourists STARS capitals in terms of overnight stay costs. returning as the main growth driver. HOTELS ROOMS HOTELS ROOMS During the global economic recession, the Latvian tourism 50% 5-star 12 665 8 430 Since most social-economic and cultural life takes place market learned how to attract more visitors and encourage 4-star 51 5,183 33 4,255 in Riga, foreign tourists mostly stay in Riga and the tourism development as a way to improve the economic 40% surrounding region. 3-star 64 2,884 23 1,376 situation. For three consecutive years, since the end of 2-star 3 55 1 10 the recession, the number of visitors staying in all Latvian According to Central Statistical Bureau data, the top six 1-star 1 15 1 15 hotel accommodation has been growing. However, growth 30% countries of origin of tourists are the Russian Federation, TOTAL CERTIFIED 131 8,802 66 6,086 slowed in 2014 compared to the previous year. The reason Germany, Lithuania, Estonia, Finland and the United for this tendency was a decrease in the tourist flow from 20% Kingdom. These countries generate around 56 per cent Non-certified 119 10,815 26 714 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CIS countries and a general decrease in length of stay. The of foreign demand. Between 2012 - 2017, Latvian tourism TOTAL 250 19,617 92 6,800 first nine months of 2017 resulted in continuation of room Riga Latvia saw an increase in tourist share from Estonia, Germany, occupancy growth of 2.5 per cent in Riga accommodation the United Kingdom, Finland and Lithuania. The greatest Source: Central Statistical Bureau Source: Central Statistical Bureau establishments and 5.0 per cent in Latvia overall. increase is observed from the USA, though this is still not enough to place it among the top tourism source markets. Distribution of Hotels by Number of Stars in In 2017, the average occupancy rate increased in Riga by Price Range for Double Standard Hotel Room in 2.3 per cent and in Latvia by 4.7 per cent compared to the During 2017, the number of people serviced by Latvian Latvia in 2017 2017 same period in 2016. hotels and other accommodation establishments experienced positive annual growth. A total of 2.5 mln 9% 2% The Latvian and Riga hotel markets have strong seasonality STARS ROOM RATE RANGE, EUR visitors were serviced by the Latvian hotel industry, among 1% variation. During the summer, occupancy reaches 70 - 80 5-star 125-255 which 1.77 mln or 69 per cent were foreign visitors. The 5-star per cent; many hotels have no vacant rooms. 4-star 40-150 total amount of visitors in 2017 grew by 11.9 per cent 4-star 3-star 30-60 In accordance with Central Statistical Bureau data, Riga and the number of foreign visitors grew by 13 per cent 3-star hotels have a higher occupancy rate of about 10 per cent compared to the same period in 2016. 49% Source: Colliers International 39% 2-star compared to Latvia overall. Some seasonality component Additionally, the number of visitors from Western European 1-star presents in both Latvian and Riga hotel occupancy rates. countries, USA, Japan and has been constantly The highest hotel occupancy observed is in June - August. growing over the last three years. The lowest hotel occupancy is in February. Presumably, In 2017, the average nights spent in Riga hotels or other seasonality in the Riga region and Latvia overall is the accommodation establishments by foreign visitors remained Source: Central Statistical Bureau same. unchanged compared to the previous year at 1.9 nights. The leaders in terms of hotel stays among neighbouring Distribution of Foreign Visitors by Country of countries were visitors from Belarus with 2.89 nights Origin in 2017 spent per visitor and Russia with 2.07 nights. Increasing destination awareness (e.g. the extended NATO Russian Federation mission in the Baltics, Riga’s recognition as a former 14% Capital of Culture, convenient connection with recently Germany Lithuania launched new direct flights to other European cities) has 12% had a positive impact on foreign visits. 39% Estonia Finland

10% UK

Sweden 9% 4% 7% 5% Other countries

Source: Central Statistical Bureau

Grand Hotel Kempinski Riga

90 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 91 Latvia Hotel Market

Trends and Forecasts

Active development of the Riga hotel market is expected to result in opening new hotels with 711 new rooms in the period 2018 - 2019.

New hotel chains (Marriott, Hilton) are expected to enter the Riga hotel market within the next two-year period.

Convenient access by air, launching even more new direct flights every year, the fact that Latvia is considered a safe and relatively cheap destination, are factors expected to increase demand for accommodation services in future years.

Despite the growing number of new hotels, the constantly increasing number of foreign visitors might maintain a relatively stable room occupancy level in Riga hotels.

With opening new upscale hotels in 2018 and 2019, room prices are expected to experience a slight increase.

92 Real Estate Market Overview | 2018 | Colliers International Grand Hotel Kempinski Riga Hotel Market Lithuania

Radisson Blu Hotel Lietuva I Vilnius

General Overview Supply Distribution of Hotels by Number of Stars in Lithuania in 2017 At the end of 2017, the supply of hotels in Lithuania stood at 375 units, of which only 250 hotels were 4% classified (1.6 per cent growth y-o-y) dominated by 2% In 2017 Lithuanian tourism maintained robust growth, driven by strong domestic 3-star and 4-star hotels. Changes in the hotel supply 14% 5-star demand, growth in Russian tourism, turmoil in foreign markets, plus Lithuania’s structure underwent certain adjustments. However, 31% these were more of a qualitative nature. A few new 4-star improving accessibility and marketing activities. hotel openings recorded in the market brought a total 3-star of 286 new rooms to major cities throughout the 2-star country, though this is less than what was initially 1-star 49% As before, Vilnius attracted more than half of foreigners - 55 per cent (compared planned. to 20 per cent in Kaunas and Klaipeda and 25 per cent elsewhere), indicating a Prospects for the Lithuanian hotel market in 2018 are optimistic. Although 2017 brought no surprises to distinction between major cities and posing a risk of their high dependence on the the Vilnius hotel market, 2018 will feature significant Source: The Lithuanian Association of Hotels and Restaurants local market. expansion of global hotel chains (opening of 5 new hotels with over 700 rooms). Hotel market development in other major cities in Lithuania will remain measured, leading to balanced market growth. Hotel occupancy rates as well as hotel room prices throughout the country have undergone some adjustments, mostly positive, fuelled by rising standards of living Dynamics of Number of Hotels in Lithuania and strong domestic demand. 400 Units

350 Global hotel operators were active, looking for new expansion opportunities not only 300 in Vilnius but also outside the capital (for instance, in 2019 the reconstructed hotel 250 in Birstonas will become the Mercure Birstonas Royal SPA Hotel on a franchise 200 basis). 150 100

50

While Vilnius aims for construction records and has monitored relatively modest 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 growth in foreign arrivals due to reconstruction of the runway at Vilnius Airport 1-star 2-star 3-star 4-star 5-star Total in the summer, Kaunas enjoyed solid hotel performance, reaching the strongest occupancy growth of almost 19.0 per cent over the last 5 years. Source: The Lithuanian Department of Statistics, the Lithuanian Association of Hotels and Restaurants

94 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 95 Lithuania Hotel Market

Number of Classified Hotels and Rooms in Major Cities and Resorts in 2017 Demand Distribution of Foreign Visitors by Country in Hotels in Lithuania in 2017 SEASIDE RESORT WELLNESS RESORT Tourist arrivals accommodated in Lithuanian hotels are VILNIUS KAUNAS KLAIPEDA STARS (PALANGA) (DRUSKININKAI) estimated to have grown 6.2 per cent y-o-y during Q1 - Q3 2017. Among major cities, Vilnius experienced the most HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS 12% Germany modest growth in arrivals (a 1.3 per cent increase) mainly Poland 5-star 6 557 - - - - 3 186 - - due to reconstruction of the aircraft runway at Vilnius 10% 4-star 23 1,661 12 720 8 546 9 341 8 459 Belarus Airport in the summer, when most flights were directed to 44% 3-star 29 1,691 10 357 13 402 13 428 13 638 Kaunas Airport. In contrast, during the same period Kaunas Russia 10% 2-star 9 580 3 183 2 158 2 106 1 100 and Klaipeda saw robust performance (11.8 per cent and Latvia 1-star 1 30 ------13.3 per cent increase respectively) driven by strong Ukraine 10% TOTAL 68 4,519 25 1,260 21 1,106 27 1,061 22 1,197 domestic demand. Other countries 5% The main source markets of Lithuania remained 9% Source: The Lithuanian Association of Hotels and Restaurants unchanged. Moreover, travel from Russia gained a growth trend, as its economy rebounds from a deep recession, Source: The Lithuanian Department of Statistics which is considered to be positive on a pan-European scale. Price Range for Double Standard Hotel Rooms in 2017 Constructed or Renovated Hotel Projects in Major Cities of Lithuania in 2017 Prices and Occupancy TRENDS The average occupancy rate in Lithuanian hotels continued STARS VILNIUS KAUNAS KLAIPEDA CITY STARS PROJECT NAME ADDRESS NUMBER OF ROOMS OPERATOR FOR 2018 to grow during Q1 - Q3 2017, reaching 55.8 per cent (5.2 3-star plus Old Town Trio Hotel Raugyklos St. 15A 52 Independent per cent growth y-o-y). Kaunas and Klaipeda were the 5-star 100-290 - - 4-star Dvaras - Manor House Tilto St. 3 8 Independent 4-star 50-170 39-92 37-150 Vilnius cities that demonstrated the fastest growth (18.9 per cent  4-star Ratonda Centrum Hotels Gedimino Av. 52 A. Rotundo St. 1 43 Centrum Hotels and 10.1 per cent increase respectively) fuelled by rising 3-star 32-96 32-75 42-70 4-star Loop Hotel Dariaus ir Gireno St. 21 105 Independent standards of living, while weakened foreign demand for 2-star 30-53 30-51 29-52 Kaunas 3-star Air Hotel Oro Uosto St. 2, Karmelava 53 Independent hotel services in Vilnius led to more modest occupancy Klaipeda 3-star Smiltyne Yacht Club hotel Smiltynes St. 25 25, expansion Independent * - rack rate, EUR growth of 1.3 per cent.  - slight increase Source: Colliers International TOTAL 286 Hotel room prices in Lithuania also underwent some adjustments, mostly positive. In general, a favourable Source: Colliers International economic situation, strong demand for accommodation services, as well as lower price levels compared to foreign countries were the main factors that determined positive price changes in the market.

Dynamics of Visitors in Hotels of Major Cities and Resorts Occupancy Rate of Rooms in Major Cities and Resorts

1,800 70% 1,600 60% 1,400

1,200 50%

1,000 40% 800 30% 600 20% 400

200 10%

0 Q1-Q3 2008 Q1-Q3 2009 Q1-Q3 2010 Q1-Q3 2011 Q1-Q3 2012 Q1-Q3 2013 Q1-Q3 2014 Q1-Q3 2015 Q1-Q3 2016 Q1-Q3 2017 0% Q1-Q3 2008 Q1-Q3 2009 Q1-Q3 2010 Q1-Q3 2011 Q1-Q3 2012 Q1-Q3 2013 Q1-Q3 2014 Q1-Q3 2015 Q1-Q3 2016 Q1-Q3 2017 Wellness resort (Druskininkai) Seaside resort (Palanga) Klaipeda Kaunas Vilnius Lithuania Wellness resort (Druskininkai) Seaside resort (Palanga) Klaipeda Kaunas Vilnius Lithuania

Source: The Lithuanian Department of Statistics Source: The Lithuanian Department of Statistics

96 Real Estate Market Overview | 2018 | Colliers International Real Estate Market Overview | 2018 | Colliers International 97 Lithuania Hotel Market

Trends and Forecasts

Despite geopolitical tensions and terrorist attacks, positive consumer confidence and private consumption are expected to boost travel across all European destinations. In this regard, Lithuania, as a novel and relatively cheaper travel destination, is expected to maintain an upward trend in growth of tourist arrivals in 2018. In addition, significant growth in arrivals of tourists from Asia and North and South America is also expected.

In 2018 the Vilnius hotel market will experience a significant number of new hotel openings (over 15 per cent market growth by number of rooms), which is not expected to have a strong impact on the market as this will be targeting various types of tourists whose robust growth is planned for the coming years.

With greater market competition, more hotels will be planned on behalf of well- known global hotel brands due to the benefits that a hotel gets from a famous brand. In addition, an increasing number of owners of local hotels are expected to approach major hotel market players aiming to close deals in order to preserve and develop their business.

In 2018 the occupancy rate and room prices are expected to maintain an upward trend supported by various events of national importance (such as those related to the 100th anniversary of the restoration of Lithuania) and conference tourism development.

98 Real Estate Market Overview | 2018 | Colliers International Kempinski Hotel Cathedral Square I Vilnius Reykjavík Iceland

Finland

Norway

Helsinki Oslo Stockholm

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