Preserve, Transform, or Rebuild from Scratch? The Anatomy of “Baltisches Haus” Reconstruction Decisions

Building reconstruction is a strategic decision one that determines how a property will perform and what kind of value it will generate in the future. So when is it time to реконstruct, and when is it better to start over? These are the questions addressed by “Baltisches Haus”, a developer and operator of commercial real estate. According to Irmantas Degutis, the company’s Head of Development, there are no universal answers.

“A decision to reconstruct is never spontaneous. It’s a mature outcome shaped by both data and experience. Our business model requires thinking decades ahead,” says Degutis.

A Strategic Perspective: Reconstruction as an Investment in the Future

“Baltisches Haus” manages more than 100 commercial properties across Lithuania, with a total area of 230,000 sq. m. The largest share consists of supermarket-format retail properties in both regional locations and major cities. The company is currently developing 15 projects, including the Mada shopping centre in Vilnius, a project in Palanga, and planned new properties in Alytus and Gargždai.

“Reconstruction doesn’t start with the idea of refreshing the façade or replacing tiles it starts with a question: does the building still fulfil its function? Does it meet today’s standards for retail, technology, and energy performance? Data and calculations are an important starting point for us they allow us to assess the situation objectively and model future scenarios. But sometimes, even when indicators are stable, experience signals that a turning point is approaching. If you don’t move at that moment, in a few years it may be too late.

In such cases, it’s the team with expertise spanning engineering and architecture, leasing and development that identifies the need for reconstruction,” says Degutis.

The Logic of Three Criteria

The final decision to reconstruct is never purely mathematical it’s a combination of three criteria and detailed analysis.

1) Building Condition. This includes assessing physical wear and tear, the age and efficiency of engineering systems, energy and operating costs, the frequency of incidents, maintenance expenses, and how those costs have evolved in recent years.

2) Building Function. This evaluates how well the property meets the needs of both tenants and visitors. It is a multi-layered criterion that covers layout, accessibility, and the quality of goods and services offered. “By analysing visitor flow dynamics and tenant turnover, you can see whether a retail building is facing a functional mismatch. The building’s image in visitors’ eyes is also important if people perceive it as ‘old,’ that has to be taken into account. Tenant feedback is valuable too: whether the existing building and its infrastructure actually enable them to operate effectively and generate revenue,” says the Head of Development.

3) Income Sustainability. To evaluate income sustainability, “Baltisches Haus” analyses revenue dynamics: average rental rates, the share of discounts, occupancy trends, visitor flows, and turnover. Degutis notes that it is equally important to monitor market developments and assess other planned projects and their potential impact. “Even if income is stable today, we evaluate it looking 5–10 years ahead. If we see that the property may lose competitiveness in a few years, the decision must be made now because preparation requires a great deal of time and other resources. The biggest challenge is initiating reconstruction when the building is still generating profit, because that means consciously giving up part of the income temporarily.
However, it’s precisely this timely, data-driven decision that helps ensure income stability and creates long-term value,” Degutis says.

Different Reconstruction Scopes and New Construction

“Baltisches Haus” always considers reconstruction first both for sustainability reasons and financial logic. But sometimes the structural realities of older buildings point to a different path. For example, an outdated column grid can be unattractive for modern retail and reduce valuable leasable area. In such cases, new construction becomes the better solution when looking several decades ahead.

“In many cases, reconstruction allows us to leverage existing infrastructure and reduce both the scale of investment and environmental impact especially when assessing CO₂ emissions. But each time, we carry out a detailed evaluation: we calculate not only construction costs, but also future operating expenses, energy efficiency, and the potential for rental income.

If an existing building cannot reach modern standards, reconstruction may become only a temporary fix one that ultimately costs more than building new,” Degutis explains.

Planning: A Five-Year Pipeline and Three-Year Precision

“Baltisches Haus” operates on the principle of consistent, long-term planning. The company’s development portfolio is planned with a horizon of at least five years. Each project in the pipeline sits at a specific stage from territorial planning to construction. The next three years are planned with high precision: the team knows when design must be completed and when construction is scheduled to begin. However, the plan is not static it is adjusted based on tenant needs or market changes.

“We manage projects according to best practices in project management for example, we constantly validate the assumptions of our business plan and the viability of that plan. At every stage, we need to confirm that the business model still works. If we see that it doesn’t, we stop and evaluate what to do next: whether to adjust solutions so the project becomes viable, or to put it on the shelf temporarily.

That doesn’t mean the project is bad it simply may be unsuitable under certain market conditions or at the time we are preparing to implement it,” Degutis explains.

In addition, the “Baltisches Haus” portfolio includes other initiatives that have not yet moved beyond the early phases they are waiting for the right time. This approach allows the company to remain flexible: to implement its development plans in response to current market and customer needs.

“We can always ‘pull out’ another project from our pipeline that is more suitable at the moment, and leave another for which the timing is unfavourable ‘on the bench’ until the environment changes,” says the Head of Development.

Bureaucratic Labyrinths: An Inevitable Reality

One of the biggest challenges in reconstruction as in the broader real estate and construction market is continuous regulatory change and the burden of bureaucracy. “Baltisches Haus” operates across Lithuania, in different municipalities. According to Degutis, the application of the same law can vary from one municipality to another. This requires constant adjustment, careful navigation, and planning for significant time buffers a risk that is difficult to control.

“It’s not pleasant when processes stall through no fault of our own, but because of external factors. Still, we maintain a partnership approach. That approach doesn’t always speed things up sometimes we have to wait longer than we’d like but we believe it produces better outcomes in the long run, because we are a long-term investor. It’s important to build trust and maintain sustainable relationships,” Degutis is convinced.