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Investor attention indicates good prospects for Lithuanian industry
Last year, Lithuania demonstrated the second-best economic results in the EU. Lithuania’s industrial sector not only grew but also clearly surpassed the indicators of Germany and Poland. Some of these results were due to new orders submitted to Lithuanian manufacturers when the global supply chains were disrupted, but market experts are confident that Lithuania has the potential to become one of Europe’s manufacturing leaders. The significantly increased attention among institutional investors to Lithuania’s industrial and logistics real estate also indicates the trust in industry’s strength.
These trends were discussed on Wednesday at the seminar Nuo Nulio Iki Mėnulio: Industrinis NT Baltijos Šalyse (From Zero to the Moon: Industrial Real Estate in the Baltic States).
Chief economist at Luminor bank, Žygimantas Mauricas, highlighted not only the solid results demonstrated by the Lithuanian industrial sector last year but also the less recognised fact that Lithuania is statistically an industrial country where the manufacturing sector generates 18% of the economy’s added value – more than the EU average of 17%, more than Italy’s 17%, France’s 11% or Spain’s 12%. Based on this indicator, Lithuania is only slightly behind Germany, where the industrial sector generates 21% of added value for the economy.
“With Western manufacturers shortening their supply chains, the Lithuanian industry has received more quantity and diversity of orders than usual. Last year, Lithuania saw growth in the industrial, agricultural, real estate service and IT sectors. We had a record foreign trade surplus, and our industrial sector surpassed the EU, Germany and Poland indicators, and this success story continues” Ž. Mauricas says.
According to him, across the world, consumption shifted from services to goods during the pandemic, and this is a positive sign for the industrial sector. Thus, it comes as no surprise that, at least in the USA over the past year, the best results were demonstrated not by the residential or retail real estate segments but by the logistics and industrial ones. Ž. Mauricas believes that strong industrial indicators will also encourage both industry and its corresponding real estate investment in Lithuania. However, he believes that Lithuania country should strive to quickly and flexibly resolve its challenges of nurturing and attracting talent and uneven regional development while using the market’s new competitive and innovative proposals for new investors.
Investor attention to Lithuania’s industrial and logistics real estate is also clearly felt by the consultancy Newsec. According to it, this segment is now no longer a narrow niche for diversification alongside offices and homes – it has become an important sector that is of interest to investors.
“If a year ago, investors avoided this sector and weren’t familiar with it, I would say that today, they have gone crazy for it. Within the past 12 months, high-quality logistics and manufacturing premises rose in price by around 10-15%, and this momentum will likely be sustained. Investors are asking us to find operational manufacturing and logistics premises, which owners would like to sell and continue under the lease. Already today, we cannot meet this demand even if we wanted to. This segment is usually of interest to professional, institutional investors,” said Neringa Rastenytė-Jančiūnienė, head of capital markets for the Baltic States at Newsec.
She was echoed by Newsec head for the industrial real estate segment in the Baltic States, Vytis Kapočius, who noted that industrial real estate is becoming an individual property class.
“This segment is no longer solely a diversification measure – it is becoming a separate class of real estate, which sees the entry of investment funds with a deliberate strategy of investing in industrial real estate. I think that we can soon expect even more new players and developers in this segment who have thus far been actively building offices and residential buildings. The logistics segment is particularly active – during the pandemic, there were major changes to consumption, both retail and supply chains; therefore, many companies were faced with a growing demand for logistics facilities,” V. Kapočius said.
One of the most notable investments in real estate last year was expanding the German polymer company REHAU in Klaipėda‘s Free Economic Zone (FEZ). Giedrius Kaukas, the head of this factory, explained at the seminar that over 3.5 billion euro in turnover, over 170 branches and 20 thousand staff decided for the first time in history to carry out its expansion in Klaipėda via partners as opposed to being involved in real estate management. Thus, last year, the Klaipėda FEZ management company organised an international investor and factory project developer tender, which was won by the Finnish capital real estate company YIT Lietuva.
“The value of the project at Klaipėda FEZ will reach close to 20 million euro, but we will only be tenants in the facility. We are happy with the achieved long-term agreement; it fundamentally matched REHAU’s initial outlook and will have the option to expand if necessary. Also, we view the fast pace of this process and its smoothness positively – the construction work is ongoing, and we plan to start testing already in November-December, officially launching in January 2022,” G. Kaukas said.
When the current expansion stage is completed, the REHAU factory in Klaipėda should employ around 150 specialists – manufacturing and logistics operators, engineers and other professionals.
The REHAU representative was also echoed by Eimantas Kiudulas, the CEO of Klaipėda FEZ, who highlighted that manufacturers are increasingly uninterested in handling real estate in Western Europe also in Lithuania.
“I am hearing from more and more manufacturers that they want to invest in technologies and manufacturing and not buildings. Thus, also talking about attracting new foreign and local investments, the question of the chicken and the egg no longer applies – pre-arranged industrial real estate solutions are a competitive advantage,” E. Kiudulas stated. He also remarked that Lithuanian capital investment in the FEZ is already at around 40%, our country’s businesses have all the technologies and knowledge necessary for the development and so, encouraging Lithuanian investment and forming conditions for it should be as equal a priority for the state as is drawing in foreign direct investment.
Meanwhile, Vidmantas Janulevičius, the president of the Lithuanian Industrialists’ Confederation, spoke about how while Lithuanian industry is definitely showcasing excellent results and has a bright future, Lithuania should focus on strengthening its regions and correctly making use of opportunities offered by the European Green Deal and the EU Economic Recovery and Resilience Facility (RRF).
“The Green Deal, circular economy, and digitalisation programmes are ideal for countries such as Lithuania, which do not have fossil fuels. Thus, while developing our industry and industrial real estate, we should be mindful of clean technologies, recycling, new innovative solutions in buildings, energy efficiency and other measures. I believe that through intentional efforts, Lithuania is fully capable of becoming the “Green China of Europe,” V. Janulevičius said.