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The Estonian Property Market
ESTONIA’S REAL ESTATE INVESTMENT MARKET CLOSE TO ALL-TIME RECORD VOLUME
Photo: Magnus Heinmets
In 2021, Estonia maintained the fastest economic growth in the Baltic region, with GDP growing 8.1% from the prior year. Construction, IT, real estate and transport- and warehousing activities contributed the most to the economic growth. However, not all sectors performed at pre-pandemic levels. Accommodation and food services, the hardest hit, remained 15% down versus two years ago, and manufacturing has not yet fully recovered either. The labour market has heated up amid the economic growth. Unemployment in Estonia declined to 6.4% last year and is forecast to drop to 5.4% in 2022. Inflation, driven mainly by increases in energy prices, rose rapidly, averaging 4.5% over the year and reaching 12.2% at year-end. Price rises in Estonia were among the fastest in Europe and the Baltics. Consumer prices are projected to continue rising in 2022, about 6% on average, with the pace slowing down in the second half of the year. According to the latest forecasts, the Estonian economy will grow 3.5% in 2022.
Real estate investments grew more than 90% in 2021, falling just 9% short of 2015’s record level. Investments in cash-flow generating commercial property totalled nearly EUR 450 million, with an all-time quarterly record of EUR 285 million worth of deals in Q4. The previous record was in Q3 2015, when investments totalled EUR 230 million. Investment transactions in Estonia in 2021 accounted for 30% of the total Baltic investment market. The office segment, which has recovered and grown by more than 30%, was sharply outperformed in 2021 by the retail and the warehousing- and industrial segments, which garnered 42% and 28% of investments respectively. While there were more acquisitions of retail properties late in the year, activity in the industrial and logistics segments remained strong throughout the region. Newsec forecasts Estonia’s real estate investment market to see some EUR 360 million worth of deals in 2022, about 55% more than the average for the last 5 years.
Contact: Kristina Živatkauskaite ˙ k.zivatkauskaite@newsec.lt
Interesting trends on the Estonian property market in 2021 and 2022:
THE MARKET FOR INVESTMENT TRANSACTION VOLUME DOUBLES
The size of Estonia’s investment transaction market nearly doubled in 2021 while the number of transactions more than quadrupled. The last quarter of the year alone saw 10 investment deals with a sale price of over EUR 5 million. A total of 25 deals were completed in Estonia last year, almost catching up to Lithuania, where 27 deals were done in 2021. The Estonian market mirrored the trends in the Baltics, where 2021 was characterised by investor activity and increasing market liquidity. Significant deals included properties sold by East Capital, Eften Capital and Baltic Horizon investment funds, for which the holding period had ended. The future will bring growth in the supply of professionally managed properties acquired by investment funds, with their value maintained and continuously improved by updating the assets’ concepts and investing in their sustainability.
RETAIL PROPERTY DEALS RETURN TO THE MARKET
In 2021, the value of retail property transactions was the lowest among the Baltic countries, though the number of transactions was similar. It should be recalled that investment into retail has been viewed with caution in recent years throughout the region and that transactions in this segment are less frequent. As there had been no notable acquisitions in Estonia for 3-4 years, the second half of last year can safely be considered a break- through for the retail segment.
EUR 450 MILLION
Total investment volume in 2021
EUR 360 MILLION
Total investment volume expected in 2022
+3.7%
GDP growth expected in 2022
TALLINN’S NEWEST SHOPPING CENTRE SOLD BY AUCTION
After several failed attempts to sell the T1 Mall of Tallinn, the bankruptcy administrator auctioned off the 55,000 sqm multi-storey shopping centre. Lintgen Adjacent Investments, representing the mall's creditors, acquired the project for EUR 55 million. Following the acquisition, there are plans to refurbish the shopping centre and change its concept, invest in its management and provide a new direction for development. It is hoped that additional investments of EUR 10 million to upgrade the project will make it possible to restore the shopping centre to viability as early as 2022.
A RECORD YEAR FOR THE INDUSTRIAL- AND LOGISTICS SEGMENT
About 40% of all industrial real estate investments in the Baltics were made Estonia. This segment has seen a particularly strong demand over the last few years, with deals in 2021 worth a total of approximately EUR 125 million. That equals the same amount invested into Estonia over the previous 5 years combined. This well-developed property segment is likely to remain in demand this year.
THE DEMAND FROM LOCAL-CAPITAL INVESTORS IS GROWING
The vast majority of the investors who acquired real estate in Estonia were domestic companies. The Estonian market also stood out for the increased share of investments made by non-traditional professionally managed investment funds. Noteworthy among new investors on the Baltic market is the Finnish investment fund Titanium Baltic Real Estate, which will seek to expand its portfolio of holdings throughout the Baltic region.
