4 minute read
The Estonian Property Market
Estonia took the lead in the Baltics with a record 8.5% GDP growth in the first half year and a 12.9% increase in Q2 2021 alone. The biggest contributors to economic growth were the rapidly recovering manufacturing, transportation, and warehousing sectors. The economy also received a boost from the information and communication segment. Increases in private consumption were reflected in retail turnover growth, especially from mid-spring onwards, and recovery in both the accommodation and catering sectors has also commenced. According to the latest assessments, the Estonian economy is estimated to grow by 8.0% this year and maintain this pace into 2022 as well. Estonia’s real estate investment market continues to post strong results, with 2020 proving a successful year. In fact, the country contributed one third to the Baltic investment market. The first half of 2021 was more active in terms of the number of deals and nearly 1/4th of the total transaction volume – more than 100 million EUR – was closed in the capital city and regions. The largest segment, accounting for almost half of the volume of Estonian sales, was industrial/logistics. This remains the hottest sector across the entire region. Smaller local investors are mainly on the lookout for smaller scale retail, hotel properties and office projects. The investment market in Estonia remains tight as larger investment grade properties are rare and local capital investors compete for smaller scale opportunities. In fact, there have been no large scale investment deals that exceeded EUR 25 million size per transaction so far in 2021. With the construction market experiencing an 18% increase only in 2021, it will be the active traditional segments of office, industrial and logistics which will be responsible for creating new investment grade properties to attract both local and international investors.
Contact: Kristina Živatkauskaite ˙ k.zivatkauskaite@newsec.lt
Interesting trends on the Estonian property market in 2021
INDUSTRIAL AND LOGISTICS SEGMENT IN DEMAND
The Tallinn region is the most advanced Baltic capital area, offering pre-developed modern infrastructure for manufacturing and logistics companies. The largest RE investment deals closed in 2021 H1 came from this segment and involved Estonian and Swedish investors acquiring modern and sustainable properties with secured long-term tenants.
LOCAL COMPANIES DIRECTED THEIR FUNDS TO REAL ESTATE
The stock of deposits held by residents in Estonia increased in 2020 by 15% and by 9% in H1 2021 . Business companies followed a tighter regime in 2020 and saved more as the stock of deposits increased by 24%. However, at the end of July 2021, savings were even lower. High activity on the RE investment market may lead to more changes in property ownership going forward.
OFFICE DEVELOPMENT GROWTH INCREASED
Tallinn is the largest office market among the Baltic capitals. After a short halt in growth, its 2021 supply will most likely see it maintain its top position. Annual growth of 10% will bring Tallinn’s supply to ca. 960,000 sqm. At least another 60,000 sqm is planned for the next two years. There is a demand for new supply from office targeted investors, as the share of investment into this segment has been in decline recently.
EUR 235 MILLION
Total investment volume in 2020
EUR 165 MILLION
Total investment volume expected in 2021
+8%
GDP growth expected in 2021
ESTONIA IS NO. 1 IN EUROPE BY NUMBER OF UNICORNS PER CAPITA
Estonia is currently leading the way when it comes to unicorn start-ups per capita in Europe, with 7 unicorns including Skype, Playtech, Wise, Bolt, Pipedrive, Zego and ID.me being founded by Estonians. Estonia welcomed 162 new start-ups in 2020, increasing its number by 16% up to 1,172. By the end of summer 2021, the total number of companies reached 1,217. The largest employers in the Estonian start-up sector are Wise (1,079 employees), Bolt (818), Veriff (265). Indeed, the growing start-up community may in the future become one of the largest office tenant groups.
THE LOCAL TOURISM AND HOTEL MARKET NEEDS AN INCREASED INFLUX OF ESTONIANS
Facing at least 1–2 additional years of slow international tourism recovery, the hotel market is now accommodating increased flows of Estonian citizens. The Estonian market is expanding its supply with innovative and modern solutions – such as attractive locations that are close to nature, and resorts which offer health and wellness tourism. The number of local tourists using accommodation experienced a 26% year on year increase during H1 2012, while the number of foreign guests remained low. The EU Digital Green Certificate remains the biggest hope for the revival of travel in Europe, and Tallinn’s hotels may welcome more business guests in autumn and winter.
ESTONIA PROCEEDS WITH NONTRADITIONAL COMMERCIAL AND RESIDENTIAL RE INVESTMENTS
In 2021, the Estonian EfTEN Capital’s EfTEN United Property Fund invested its first capital into a residential development project. The active stock office market, where commercial, storage, and productive functions are consolidated within a single project, is receiving more attention from local RE investors, as investment deals are being closed and the properties are in demand.
