Baltic StatesOffice Market

Development in the Tallinn office market remains active with16 office projects under construction in September 2017 witha total leasable area of approx 113,850 sqm. Take-up activityis still driven by relocation of companies from the informationand communication sector (IT and High-Tech companies),followed by the manufacturing and construction sectors andthe professional sector (lawyers, notaries, consultants).Additionally, Eesti Raudtee (3,000 sqm) will move to newoffice premises developed by PLKV Invest in Telliskivi Quarter(redevelopment project) in 2HY 2018. Rent rates remainedstable, while vacancy is fluctuating around the 7 per centlevel, thus decreasing in Class A and Class B1 buildings due torelocation of tenants from older space as well as new demandcoming from outside (mostly Scandinavian IT companies).

Source Colliers International

In Q3 2017, nine office projects with nearly 114,000 sqm oftotal leasable office space are in the active construction stagein Riga, among which New Hanza City (GLA 32,600 sqm), Z-Towers (GLA 24,000 sqm), stage III of the Europa BusinessCentre (GLA 15,200 sqm) and the Business Garden Rigaproject in Marupe (GLA 14,000 sqm) are the largest. Totalvolume of office take-up reached approx 6,400 sqm in Q32017, including a lease agreement signed by LatvijasKugnieciba for their new office premises in the Place Elevenoffice building among the largest deals. The size of premisesmost in demand is between 200-1,400 sqm (400 sqm onaverage). In Q3 2017, rent rates remained stable compared tothe previous quarter, while vacancy decreased due to anactive leasing market.

Q3 2017 saw an increase in Class A office space in VilniusCBD with the commissioning of Green Hall II BC (GLA 7,330sqm), Narbuto 5 BC (4,620 sqm) and stage I of S7 BC (11,770sqm), while 115,000 sqm of office space was underconstruction at the end of Q3 2017. The leasing market alsoremained active in Q3 2017. Following occupation of thewhole of stage I of S7 BC, Danske Bank signed anotherimpressive pre-lease agreement for the whole of stage III ofS7 BC (15,000 sqm). In Q3 2017, rent rates remainedunchanged, while vacancy experienced a decrease in bothClass A and Class B business centres.

Retail MarketIn Q3 2017, the Tallinn retail development market experiencedstability with no new additions to stock. In September 2017,Porto Franco concluded a contract with NOBE and the KontekInt consortium to design the three underground floors and fiveground floors in the development project, as well as carryingout the concreting work.

Key Office Figures in the Baltic States, Q3 2017CLASS TALLINN RIGA VILNIUS

A Class Rents 13.0-16.2 13.0-16.0 13.5-16.5

B1 Class Rents 8.6-13.5 9.0-12.0 9.0-13.5

A Vacancy*, % 5-6% 2-3% 2-3%

B1 Vacancy*, % 5-6% 6-7% 7-8%

Source: Colliers International EUR/sqm/month; *-speculative office market vacancy rate

Construction

Supply

Demand

Rent

Vacancy

Yield

Office Trends

Decreasing

IncreasingStable

Research & Forecast Report

BALTIC STATES | PROPERTY SNAPSHOTQ3 2017

2 Research & Forecast Report | Q3 2017 | Property Snapshot | Colliers International

Shopping centres continue to make changes in tenant mix - twonew cosmetics stores opened in Ülemiste SC, a new MAX&Costore opened in Viru Centre, while Rocca al Mare signed pre-lease agreements with LPP Estonia for the re-opening of threestores (Reserved, Cropp and House) and the opening of twonew stores (Sinsay and Mohito) in the centre. Additionally,Suitsupply, opened its first store in the Rotermann Quarter inTallinn CBD.

Key Retail Figures in the Baltic States, Q3 2017Tallinn Riga Vilnius

Prime SC Rents* 23-48 30-55 25-48

Prime High Street Rents* 30-45 40-50 28-60

Vacancy in SC 1.0% 6.9% 1.6%

*EUR/sqm/month; SC – shopping centre

Source: Colliers International

In Q3 2017, the Riga retail market remained active, seeing thestart of construction work on the expansion of SC Origo (GLA17,000 sqm for retail and 9,500 sqm for office functions) andthe expansion of SC Alfa (GLA 19,000 sqm of retail space).Rents remained unchanged compared to the previous quarter,while vacancy turned to a slight decrease after the surge in Q22017 due to the closure of three Prisma hypermarkets in Riga.Physical occupancy of the vacated premises has not yet started,though negotiations with new prospective tenants are in

progress. Meanwhile, discount grocery chain Lidl announcedplans to enter the Latvian market.

In Q3 2017, the Vilnius retail market remained rather stable withonly one store (Depo DIY) under construction in the capital city.At the same time, VPH announced plans to develop a retailbuilding with a total area of 5,800 sqm for French sportinggoods giant Decathlon next to IKEA and Nordika SC, whileOgmios Group plans a large four-storey SC development inPilaite district. On the other hand, the closure of Hyper Norfawas announced in the same district, confirming strongcompetition in the grocery market. In Q3 2017, rent ratesfluctuated within a similar range compared to the previousquarter and vacancy remained at a low level.

Source: Colliers International

Industrial MarketThe industrial development segment remains active in Tallinnregion with a total area of ca 130,000 sqm under construction inSeptember 2017, including the start of construction work on thenew Omniva logistics centre (more than 14,000 sqm) and phaseIII of Smarten Logistics. Leasing activity is largely driven by theproduction and manufacturing sectors (metal manufacturing),followed by wholesale and retail companies and transportationcompanies. Rent rates remained stable compared to theprevious quarter, while vacancy continued to move downward.

Key Industrial Figures in the Baltic States, Q3 2017Tallinn Riga Vilnius

Prime Rents* 4.0-5.1 3.5-4.5 3.8-5.2

Vacancy 5.6% 3.9% 2.0%*EUR/sqm/month

Source: Colliers International

Ca 47,200 sqm of industrial space was under construction inRiga region at the end of Q3 2017 with 146,000 sqm ofwarehouse and industrial space in the pipeline (of which half ison a built-to-suit basis). Completion of two new projects isexpected during Q4 2017, while the remaining three areexpected to be commissioned during 2018. Demand continues tobe high, driven by logistics and distribution companies, thusresulting in vacancy decrease. Total industrial take-up in Q32017 accounted for GLA 16,000 sqm with small warehouse

space of approx 1,000 sqm in most demand. Rent ratesremained unchanged compared to the previous quarter, whiletotal vacancy experienced a slight decrease, reaching 3.9 percent.

In Q3 2017, the Vilnius industrial market saw the commissioningof two speculative developments, namely Liepkalnio IndustrialPark (stage I, GBA 16,180 sqm) and Arvydo Paslaugoswarehouse (6,470 sqm). Companies engaged in logisticsshowed strong demand, supported by positive export dynamicsand industrial production growth. In Q3 2017, rent ratesremained stable, while vacancy declined, though is expected toincrease in the short-term due to new supply (23,700 sqm ofnew modern warehouse space is expected to enter the marketin the fourth quarter of 2017).

Source: Colliers International

Construction

Supply

Demand

Rent

Vacancy

Yield

Retail Trends

Decreasing

IncreasingStable

Construction

Supply

Demand

Rent

Vacancy

Yield

Industrial Trends

Decreasing

IncreasingStable

Investment MarketTotal known investment volume in Estonia in Q1-Q3 2017amounted to EUR 255 million. The most notable deal insummer 2017 included the sale of the newly constructedVeerenni Health Center to an international investor (managedby Zenith Capital). Other notable deals included the acquisitionof the Narva Rd 4 office building (Eesti Krediidipank HQ) byColonna, the sale of the PK Ilmarine hotel by Pro KapitalGrupp for EUR 6.7 million and the sale of two hotels in TallinnOld Town. Additionally, East Capital finalised the acquisition ofNehatu logistics park for EUR 54 million from VGP afterapproval from the Estonian Competition Authority inSeptember. In Q3 2017, prime yields remained stable,although slightly compressing in the office segment.

Key Investment Figures in the Baltic States, Q3 2017Prime Yields Estonia Latvia Lithuania

Office 6.25% 6.75% 6.5%Retail 6.5% 6.75% 6.5%

Industrial 7.75% 8.0% 8.0%

Source: Colliers International

In Q3 2017, the investment market in Latvia remained tranquil,with investment volume reaching just EUR 22 million, drivenby activity in the retail segment. Transaction pace in Latviamay slow down in the short term due to uncertainties arisingfrom tax law changes effective from January 2018. However,once implemented, these changes can open up newopportunities and potentially improve market activity.Nevertheless, the initiated acquisition of several properties isexpected to be finalised in Q4 2017-Q1 2018. Prime yieldsremained stable compared to the previous quarter. However,slight compression might be experienced by year-end.

In Q3 2017, the investment market in Lithuania was largelydriven by the retail segment, which amounted to more thanhalf of total transaction volume. Lords LB signed anagreement to acquire GO9 SC from Eastnine. Other notabledeals in the retail segment included the acquisition of threeImpuls gyms and a PROMO Cash&Carry supermarket.Investment in industrial/warehouse property accounted forone-third of total volume. EfTEN Capital acquired two Class Alogistics buildings in Kaunas from Genesta, while OgmiosGroup purchased the Apranga LC in Vilnius. The officesegment saw the sale of the former Snoras HQ and TeliaLietuva administrative buildings. Prime yields remained stablecompared to the previous quarter.

Economy> Estonia's GDP increased 5.7% in Q2 2017 compared to Q2

2016, driven the most by construction. Other maincontributors to GDP growth were professional, scientificand technical activities, transportation and storage,information and communication, and energy. In Q2 2017, ascompared to Q2 2016, GDP has increased by 4.0% inLatvia (mainly driven by growth in manufacturing,construction and trade activities sectors). The GDP growthin Lithuania was 4.0% y-o-y in Q2 2017. The fastestgrowth in the value added was observed in enterprisesengaged in information and communication (7.6%) andprofessional, scientific and technical activities,administrative and support service activities (6.6%).

> According to flash estimates, GDP of Latvia and Lithuaniaincreased 5.8% and 3.1% respectively in Q3 2017compared to Q3 2016.

> In Q3 2017, the lowest registered unemployment rate ofthe country's working age population was recorded in inEstonia (4.6%), the highest - in Lithuania (7.5%), while inLatvia, it stood at 6.9%. Over a quarter, in Estonia, theregistered unemployment rate decreased by 0.1percentage points, in Latvia – decreased by 0.6 percentagepoints, while in Lithuania, it remained unchanged.

> In Q3 2017, inflation (HICP): in Estonia stood at 4.0%compared with 3.4% in Q2 2017; in Latvia slightlydecreased to 2.9% in Q3 2017 from 3.0% in Q2 2017; inLithuania rose to 4.4% in Q3 2017 from 3.4% in Q2 2017.

> In Q3 2017, the retail sales index rose by 1.6% in Estoniaand by 2.8% in Lithuania. One of the highest annualincreases in total retail trade among the EU Member Stateswas registered in Latvia (+4.9% y-o-y in Q3 2017),according to Eurostat.

> In Q2 2017, the average monthly gross wages and salarieswere EUR 1,242 in Estonia, thus growing by 6.8%compared to Q2 2016, while real wages increased by 3.7%.Compared to Q2 2016, gross wages and salaries in Q22017 have risen by 8.7% in Latvia – from EUR 883 to EUR927, while real wages increased by 4.6%. In Q2 2017,against Q2 2016, average gross monthly earningsincreased by 8.7% in Lithuania and amounted to EUR 839,while real wages increased by 6.0%.

Source: National Statistics, Eurostat

Copyright © 2017 Colliers International.The information contained herein has been obtained from sourcesdeemed reliable. While every reasonable effort has been made toensure its accuracy, we cannot guarantee it. No responsibility isassumed for any inaccuracies. Readers are encouraged to consulttheir professional advisors prior to acting on any of the materialcontained in this report.

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Copyright © 2017 Colliers International.The information contained herein has been obtained from sourcesdeemed reliable. While every reasonable effort has been made toensure its accuracy, we cannot guarantee it. No responsibility isassumed for any inaccuracies. Readers are encouraged to consult theirprofessional advisors prior to acting on any of the material contained inthis report.

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AUTHORS:

Maksim GolovkoHead of Research | Estoniamaksim.golovko@colliers.com

Colliers International Advisors | Estonia OfficeLõõtsa 2aTallinn | Estonia+372 6160 777colliers.estonia@colliers.com

Dmitrijs KačalovsAssociate Director| Latviadmitrijs.kacalovs@colliers.com

Colliers International Advisors | Latvia Office21 Kr.Valdemara street | Riga, LV 1010 | Latvia+371 6778 3333colliers.latvia@colliers.com

Diana LebedenkoAnalyst | Lithuaniadiana.lebedenko@colliers.com

Colliers International Advisors | Lithuania OfficeJ. Jasinskio St. 12 | LT-01112, Vilnius, Lithuania+370 5 249 1212colliers.lithuania@colliers.com