As Riga accounts for about 1/3 of Latvia's population and is the major business centre not only for the Republic of Latvia but also in the Baltic States, the real estate market of the city is developing rapidly. At present, the demand for real estate is increasing, particularly for modern office space and newly built or completely renovated houses. During the last ten years a sharp land price gradient has evolved due to disparities in the price of land and structures between the urban core and periphery.

Although real estate prices in Riga have been rising, they have not yet reached the levels of real estate prices of most developed European and North American countries.

Both the State and the City of Riga own considerable amount of land and their actions have an influence on the real estate market in Riga. In order to control city development according to Coty's interests, both governments have a policy of leasing rather that selling the land.

The mortgage market also affects the development of real estate market in Riga. In 1998 the Government of Latvia adopted the "Regulation of Mortgage Credit System", which lead to significant new developments in Riga's real estate market.

In Riga, as in Latvia, real estate market developments and the number of market transactions are influenced by the privatisation of state and municipal property. The price or rent is influenced by different forms of ownership. Usually, the average apartment rent price for state and municipality owned residential space is several times lower than rental costs for privately owned premises (See Table 28 ).

The greatest demand for residential properties exists for 70-125 m² apartments located in Riga's Old Town, the Boulevard Ring, city centre, areas around foreign embassies, and in Teika, just north-west of the centre.

Prices are rising fast for small (under 90 m²) city centre apartments, with current levels at USD 400-500/m², representing a 10% increase over 1999 prices. Larger apartments - many city centre apartments in Riga are 200-250 m² or larger - are still mostly unaffordable, both in terms of purchasing price and monthly upkeep and utilities. Low demand has frozen prices for these properties in the USD 300-450/m² range.

Demand is high in Riga for city centre retail space today, yet supply remains limited. In the best city centre locations with good foot traffic well-renovated ground floor retail premises rent for USD 25-38/m² per month (plus VAT).

In the centre, un- renovated space available for tenant improvements rents for USD 15-25/m², while farther out, rents for comparable space fall to USD 8-20/m². In suburban regions good ground floor retail premises rent for USD 10-15/m², while un- renovated sites rent for as low as USD 5-7/m² per month.

Urban density in Riga is relatively high with few lots available for development and there is also an abundance of central buildings that are architectural monuments. This has caused a situation when most of investment is directed to refurbishment of existing buildings into Western standard class B office space with monthly rents of USD 12-20/m² . These buildings can be 60 years to a few centuries old and usually lack central air conditioning and parking facilities.

Riga's first newly developed class "A" office space, The Valdemara Centre, was brought to market in autumn 1999 by Swedish construction firm Skanska. The new building offers all modern office amenities, including full air conditioning and underground parking. The Centre offers the best office space available today in Riga but offers its premises at a price of USD 30/m² and up (plus taxes and common charges).