Founder of one of the largest real estate companies in Lithuania: the real estate market will depend on 5 factors

I have pointed out 6 trends that I see at the moment: the first three are dictated by the quarantine caused by COVID-19, and the rest are already affecting the real estate sector, regardless of the virus.

The need for offices will change

Working from home has become ingrained in the new reality and you are unlikely to be leaving your jobs at the offices just yet. Although the results of a study conducted by Spinter a year ago showed that only 5% have the opportunity to work freely from home at any time. The situation of the Lithuanian population, which was much older, up to 81%, wanted to fundamentally change.

In April this year, a survey by the same company already yielded other figures: 40 percent worked from home. working-age population of the country and even 70 percent. stated that they would like to continue this practice after the quarantine. Thus, the new reality will dictate its terms and the need for offices will change after that.

One of the trends is a possible return to the offices. I have no doubt that the hitherto popular open-plan office layout will make room for cabinets – this reduces the risk of virus spread. These offices are more expensive because they require 20 to 50 percent. more space. Then, if this trend is confirmed, the need for offices will increase.

But there is another side to the moon. Having gained experience with forced telecommuting in March-May, the managers gained the trust of their employees, so it is likely that some of the time they will be allowed to work from home. This can result in an open-plan office without a fixed workplace.

How does it look? There is an office with workplaces, but anyone who comes to work in the morning can sit in any available chair. Similar to coworking spaces. In this case, the size of the office space will be reduced, since it will no longer be necessary to take care of the workplaces of all employees at the same time. For example, if a company with 100 employees decides that it can allow all employees to work 2 days a week from home, the need for office space can be reduced by as much as 40%, since instead of 100 jobs , may be sufficient by scheduling and agreeing with employees. 60. This is a clear benefit for the company, which allows a more efficient use of resources and savings.

However, based on world practice, I think the main trend will prevail.

The square of the living space will expand.

In recent years, the trend has been that the area of ​​the most sought-after apartments is shrinking and at the peak of popularity is 42-49 m2. m, 2-room apartments, and its purpose is more related to the concept of storage of personal effects, places to spend the night and prepare for the stage of work and socialization. But even this situation has fundamentally changed.

The consequences of the pandemic will also change the housing requirements of buyers: it will be necessary to separate areas of the house. Shrinking offices will require a special workspace at home so that we can focus or unhindered virtual meetings with our clients and colleagues.

Work is inseparable from the rest, so after settling in the first space we will look for a place and for the second, a patio, balcony or terrace with at least some plants, and perhaps even the entire mini garden. In general, the house will recover the lost sense of a safe environment, that is, we will return to the theme of ‘my home is my strength’. For these reasons, the surface of the purchased apartments will grow in the long term.

One of the most frustrating and probably the main reasons to change jobs in the US is the commute to and from the office. If there is no need to travel every day on the home-work-home route, the city center will lose relevance, so people will seek alternatives closer to nature. Perhaps there is even an opportunity to move to the outskirts and, working a couple of days in Vilnius, spend the rest of the time at home in Švenčionys or similar.

Pigs with expensive?

This is probably the most interesting and relevant topic on which, of course, there is a lot of speculation. A survey carried out by the Baltijos tyrimai company at the end of March this year found that 40 percent. Lithuanian residents expect house prices to fall 19 percent. on the contrary – thought that house prices will rise.

Still, you shouldn’t expect to buy cheaper real estate yet. There were rumors that in March or April it was better not to buy a house, but prices not only did not fall, they grew.

As huge budget deficits are being fixed with the launch of money printing machines, many governments and central banks are bailing out economies by cutting interest rates and boosting consumption. In the short term, this is a perfectly understandable and justifiable solution, but in terms of long-term consequences, inflation appears to be ahead of us, which, among other things, will increase property prices. It is difficult to predict how long and how long, but it is inevitable.

If you look at the figures, they are quite eloquent: the European Central Bank has approved a stimulus package worth 3 trillion euros and the value of the package for our country is 10%. GDP – 5 billion EUR. The same ECB implements 1.35 trillion. a € 1 billion bond purchase program, which paves the way for reducing borrowing costs and maintains economic stability. The Federal Reserve of the United States has spent more than $ 2 trillion in a relatively short time. dollars, runs a massive bond-buying program that also includes high-risk, non-investment grade corporate bonds.

The governments of the United States, Germany and Japan have announced fiscal stimulus measures worth more than 10%. annual budgets, and central banks ensure that negative interest rates will not disappear for years to come. Such sums of money will surely lead to higher or lower inflation, and in the face of inflation, one of the most popular measures against the depreciation of money is investing in real estate, where many will rush, forcing prices to rise.

Alternative financing

Funding for real estate projects in Lithuania is still equated to running in a clogged stadium. Although we have had negative interest rates globally for some time, it is difficult for Lithuanian companies to take advantage of them. The main reasons for this phenomenon are conservative banking policies and low competition. For this reason, alternative sources of financing are being sought, of which there are three: bonds, loan funds and crowdfunding platforms.

Both crowdfunding platforms with real estate collateral and private loan funds, and until now a particularly rare practice in Lithuania, bonds, could become a good financing alternative in Lithuania. In the United States, about 80 percent. companies borrow through bonds or other debt securities.

Cluster financing platforms are still more and more popular and there are 4 such platforms operating in Lithuania. Considering that the market share of alternative loans in Latvia and Estonia is even 5-6 times higher than in Lithuania, it is likely that this method will soon become much more popular in our country as well. There are already 5 private loan funds in Lithuania, which finance not only the real estate business, but also the share of real estate among all the projects of these funds.

Funds and their benefits

Another trend: more and more funds will take over real estate. The funds come in a variety of sizes and purposes, but they specialize in investing and managing real estate in a particular area, such as office rental, logistics, and more. This is a global trend and this type of investment will increase in Lithuania. And its benefits are triple.

First of all, for people, this is an opportunity to invest. You will not buy a normal flat for 10,000 or even 30,000 euros, and you will only be able to contribute a few thousand euros to real estate funds; the return on investment will be enjoyed even after retirement.

For companies, this means free capital and much more professional investment management.

Example: A car wash operator is a good car wash manager but knows nothing about its construction, real estate development, and financing. He wants to expand the business and build three new car washes, but realizes that it will take several years to build up enough capital from the profits. In this case, the entrepreneur can agree with a fund that has the experience and capital necessary to implement the project. It involves building a new car wash for the businessman from his capital, and the operator pays the agreed rent to the fund. This model can be applied to many areas: hospitality, logistics, manufacturing and the like.

Well, for the state it is a more efficient and rational management of the available real estate area and the possibility of implementing larger infrastructure projects. For example, in some ministries, up to 50 square meters per employee. meter. area as the number of employees decreased and the buildings remained the same. If the ministry rents a facility from the fund rather than owned it, it could reduce the rented area as needed. A private fund is likely to oversee and manage the same buildings much more efficiently.

It is also much easier for funds to invest in large infrastructure projects, such as the construction of a new bypass, for which, say, municipalities do not have sufficient funds.

The biggest threat to the economy is not COVID-19

A pandemic is a relatively short-term shock. The biggest problem for the economy, and at the same time for the housing market, are threateningly negative demographic indicators. The most important of these is the decrease in the number of people of working age.

It is necessary to save this situation by boosting the birth rate, but the effect is necessary now, that is why it is also necessary to talk about immigration. We need to discuss, find solutions and create conditions for citizens who have left and for those who want to come from other countries: so that everyone works and stays.

So now is the time to review Lithuania’s immigration policy and start deciding how to reduce the looming youth shortage. There may be several solutions, but we can no longer depend on the small towns that have so far fed the big cities: the granaries of their inhabitants are already running out. Therefore, perhaps the only way is to encourage re-emigration of Lithuanian citizens who have left by all means or to focus on immigration from culturally close countries – Belarus and Ukraine. It would be even better to work in both directions.

The demographic situation in Lithuania is the most important factor that will determine both the development of the entire economy and the development of the real estate market. If we don’t put in the time and effort to tackle this issue now, none of the above trends will make sense.