Trends of the Baltic investment market: real property, business success stories and capital market development
At present, society has record-breaking savings, and modern technologies facilitate access to financial instruments turning investment opportunities into a pressing daily problem. The rate of return on investment in the world is low, so the Baltic countries can become an attractive and promising alternative for investors in several asset classes. In addition, the market now has a unique opportunity to combine traditional investments, such as investments in real property or manufacturing, with the potential and speed of new technologies adapting to the maximum the investment proposal to the needs of a modern man.
In general, both institutional investors and well-off private individuals and family-owned private investment companies highly value the Baltic region as a good place to invest in new bonds, stocks and alternative investments. The demand and interest of investors is high, and the time has come to look for new investment opportunities.
Real property as a classic investment value
Many investors are now returning to basic values that are becoming relevant again. Of course, real property objects are a classic value and asset in the investment market, but foreign investors often look for large-scale investment projects in the field of real property that, for obvious reasons (the size of the territory and population), the Baltic states cannot always provide. The Baltic States are a very attractive market, but the size of their territory sets certain limits on attracting investment in the field of real property. There is a limited amount and need for large shopping centres or huge office complexes. Of course, investors want to invest in transactions amounting to EUR 100 million, and the offer of real property projects of this scale in the Baltic States is rather limited since the average real property transaction ranges from 3 to 5 million euro.
However, there are also transactions worth between 20 and 50 million euro and in the current investment climate where the total return on investment is low the Baltic real property market will continue to attract foreign investors by offering investment grade products and higher returns than those in Western Europe or Scandinavia. It is also expected that return on investment in the field of real property will also remain stable.
At the moment, there are many attractive medium-sized investment projects in the Baltic market, such as high-end office and office building rentals, and over the last three to four years the total activity in the Baltic market has exceeded one billion euro which is an extremely good achievement for such a small market. The interest is great, and deals are made. In Lithuania, activity is ensured by many new buildings in Vilnius, especially in the office space segment which is currently on the rise, but the rest of the Baltic states are not far behind. For instance, the apartment, private house and commercial real property segments in Latvia show a growing and positive trend. This fact continues to attract the attention of both local and foreign investors.
The highest profitability is observed in the logistics and industry sectors, but this segment is not risk free, especially in Vilnius and Riga where large logistics buildings depend on the activity of major lessees since after a lessee leaves the building it is often difficult to find another similar major lessee. Of course, the return on investment here is attractive, but higher risks should be taken into account; investors are different and a certain proportion of them choose nothing but high-risk investments with higher returns.
In general, the volume of investments in real property deserves attention in terms of offering attractive and versatile real property tools in the Baltic region market.
Local businesses, success stories and contributions to the Latvian economy
Foreign investors do not have their eye toward real property only; they are also interested in local businesses – profitable companies with good cash flow and, yes, with a great, attractive history. One of these successful domestic examples, of course, is the natural cosmetics manufacturer Madara Cosmetics whose owners created the company from scratch and currently have a market value of about EUR 30 million.
At the end of 2017, the Company decided to raise additional funds and became a public company listed on the Nasdaq Riga stock exchange. Investors like local success stories because Madara Cosmetics began with the four founders of the Company, and over time the number of its shareholders grew to 800 people. In addition, we should not underestimate small investors since private funds in general are rapidly growing, and wealthy individuals are looking for opportunities to invest them choosing the best offers. I believe that this trend and the desire for alternative investment opportunities will continue to grow in all markets of the Baltic region.
Development of Baltic capital markets and the value-added principle for investments
The development of the Baltic capital market is largely due to the privatization of state-owned companies which increases the demand for private financial instruments on the part of private investors. International investors want to invest in the Baltic market when they see significant profit potential as well as opportunities for cooperation with local investment banks.
It should be understood that the market of the Baltic region is a new market where many investment traditions have not yet taken root as in Western Europe. The capital market is developing rapidly, for instance, the role of bonds in the Baltic economy is increasing. Baltic International Bank also offers clients to buy and issue bonds. The Baltic bond market offers good investment opportunities, and the number of transactions in the Baltic markets shows healthy growth. Bond sales are growing in both the official NASDAQ list and the second list. In addition, with the development of crowdfunding platforms small investors are becoming more active.
Currently, the market in our region offers many attractive investment opportunities since foreign investments are attracted by both the banking industry and traditional industries – agriculture, the dairy sector, forestry bearing in mind the sector of services that the Baltic States offer in high quality. This is a time of opportunity in all categories of assets. At the same time, high profitability can be achieved by contributing added value to economic development, GDP growth, job creation and the development of society as a whole.
Baltic International Bank evaluates investment proposals carefully choosing investment projects in large and growing sectors with a clearly defined initial strategy. Our goal is to find the most suitable solutions for each customer conducting in-depth research rather than giving preference to standard projects. We see particular potential in the renewable energy sector and are focused on finding new investment opportunities in global markets. Currently, the opportunity to invest in the Baltic wind energy sector is very relevant since Latvia, as an EU member state, has set a goal to increase the utilization rate of renewable energy sources from 36% to 45% by 2030. Technological developments have significantly reduced the cost of wind energy generation. This makes it possible to generate wind energy which can be sold at a market price without additional government subsidies turning into profitable investments. The goal of increasing the share of renewable energy and technological development offers great opportunities for investors and our customers. In general, we invest in a prosperous, progressive business sector with future potential, added value and contribution to the national economy.
Opinion article published in Delfi.lv, 8 June 2019