Huge changes are taking place in Vilnius. Projects are under way across the city: the renewal of the Vilnius Old Town, the reconstruction of squares and main streets, and the development of a new part of the city centre on the right bank of the Neris River. In Cathedral Square, just below Gedimanas Castle: builders are working around the clock to rebuild the Royal Palace, destroyed 200 years ago. The work is to be completed by 2009 when Lithuania celebrates 1000 years as a nation.

This reconstruction is the most symbolic of the many construction projects taking place in Vilnius. A wander around the streets of Lithuania’s capital reveals a nation intent on preserving the past by retaining classical and baroque facades but also looking forward confidently by initiating new projects in a bid to become the primary business and commercial capital of the Baltics.

City ambitions

Lithuania ambition are achievable thanks to a flourishing economy (GDP grew by 8.9% in 2003 and 6.3% in 2004) coupled with a renewed sense of self-confidence following accession to the EU last May. Years of comprehensive, consistent free market reforms have given the country low taxes and inflation and a transparent legal environment. All these factors are conducive to attracting FDI, as is Lithuania’s geographical location – at the intersection of key transport routes and bordering four countries.

Lithuania has also encouraged large-scale real estate development. Between 2003 and 2004, commercial space was expanded by 162,800m2: the office market added 52,800m2 and the amount of retail space doubled. More is to come, with major investments under way in hotels, shops and residential developments.

Just across the road from Cathedral Square, Swiss hotel chain Kempinski is planning to transform a 19th century building into a five-star hotel by 2006. In the nearby old town – beautifully preserved and listed by Unesco as a World Heritage site – projects are being encouraged by rapidly rising prices for residential, retail and commercial real estate. This includes the careful modernisation of historic buildings to satisfy the growing demand for centrally-based accommodation. There are also plans to rebuild the old Jewish area, destroyed by war.

Commercial upgrade

Vilnius’s main commercial thoroughfare, Gedimino Prospect, has attracted substantial investment: there is a new Novotel Hotel and several new shopping centres. One of the most exciting shopping centres will be Gedimino 9, a historic building purchased by the Irish-based Duke House Asset Managers in June 2004 for €13.2m; a further €35.5m is due to be invested before completion in 2006. With an area of 18,000m2, Gedimino 9 will be to Vilnius what Bloomingdale’s is to New York.

On the banks of the Neris River, in an area that before 1945 comprised villages quite separate from Vilnius, a vast new urban area is taking shape. In the first phase over the next four years, 120 hectares of land will be developed, with more to follow according to demand. The Municipality of Vilnius describes it as the biggest urban development in the Baltics; certainly, the commercial and retail space that will be created by 2010 will transform a non-descript area and enhance Vilnius’s amenities.

Following on from the recent expansion of the Akropolis shopping centre, which is now the biggest in the Baltics, last year the Europa Centre opened. The Europa is a state-of-the-art shopping and office development that includes the Baltic’s tallest tower block. Sold by Lithuanian developer Hanner to Baltic Property Trust Secura for €37m, it is already the focal point of what will be an €800m urban redevelopment project.

Antanas Anskaitis of the Baltic Property Trust says that the emergence of the Europa Centre is confirmation Vilnius’s real estate market has come of age. “This market is becoming more professional all the time,” he says.

Investment pays off

Improved urban infrastructure, including better roads, is accompanying the riverside’s transformation but the municipality is confident that its investment will pay off. “Over the past two years, the city has spent €25m on the area’s infrastructure, yet investors have already put in €200m,” says Linas Naujokaitis, director at Vilnius’s city development department.

As Lithuania’s economic transformation continues apace, with its move to be one of the first EU accession states to join the eurozone, Vilnius’s real estate sector can look forward to good times.