| Abstract |
In the period of global prosperity, consisting of record high capitalizations and rapid development of the emerging markets, direct commercial real estate is traded more than ever. The far-reaching impact of globalization on the real estate industry has resulted in significant changes in the levels of demand and sources. Within the post-crisis period of 2011-2019. Latvia has significantly developed its commercial real estate market environment, even though the trading activity is still considered very low in comparison to other European capitals. Nevertheless, low interest rates, a more transparent market, and increased interactivity within the Baltic and other European states provided an opportunity for both local and external investors to take part in the development of the Latvian capital. Each significant project sooner or later influences the market, environment, and economy in one way or another.
The researcher chose to study commercial properties pricing assessment due to a professional interest in this specific industry. The researcher explored the price fluctuations in the topmost 15 districts, according to the Cenubanka.lv, to assess the possible relationships and their strength of associations between the capital’s overall commercial real estate price level, trading activity, fundamental and other economic factors. The price level index is based on more than 3.500 transaction records on four types of the property: office, shopping, non-residential, and production facilities. The research and methodology are adapted from the studies of previous scholars, which are related to the national commercial real estate market’s analyses of developed and emerging economies: Turkey, Germany, and South Africa. The framework for this research included interviewing two professionals who possess sufficient knowledge of the market in regard to commercial properties.
Basic tools of descriptive statistics were employed to analyze the main fluctuations and trends within each district and city. Pearson-product correlation method was employed to assess the bivariate relationships between the major economic factors and dependent variables. The multivariate linear regression analysis was employed to identify the statistically significant value drivers for the Riga commercial real estate pricing.
The topmost districts, which have shown a significant value increase in the 2011 - 2019 period are Teika, Brasa, Purvciems, Plavnieki, Imanta, and Kengarags. Researchers have concluded that the commercial real estate market in Latvia is still in the developing state and is very sensitive to internal and external factors, such as amount of investments, overall economic performance, and state of relationships with the neighbor countries. However, out of 21 sampled fundamental factors only GDP has shown the moderate bivariate correlation with the price level. Regression analysis for the price level and sampled factors indicated 7 statistically significant relationships that are driving the prices. These are GDP, Brutto average wage, total number of unemployed people, net turnover for non-financial entities, net earnings/losses for non-financial entities, 2.5% Latvian bonds, and LB lending rates for entities. Research suggests that the most significant factors, which influences the average price level, are GDP and net earnings/losses for non-financial entities. |
