Interesting trends on the Estonian property market

Residential market, change of scenery

Residential property prices, which started to rise in H2 2021, accelerated in 2022. The high demand for residential properties came mainly from individual buyers. In Tallinn, the most active market in Estonia, prices increased by almost 25% over the course of the year. During H2 2022, transactions started to decline, leading to some residential segments having only about a tenth of the previous year's deal numbers. Due to the drop in transactions and increase in interest rates, prices also began to fall, a trend that is likely to continue in 2023.

Industrial and logistics sector remained active

Industrial and logistics properties were the most transacted segment last year, with most transactions taking place in H1 2022. In H2, manufacturers faced increased costs and supply chain problems, leading many to restructure, lay off employees, or halt operations temporarily. This trend, along with lower consumption expected in 2023, will eventually affect logistics and alleviate pressure on a shortage of proper warehouses.

Domestic investors dominated the market

In recent years, the Estonian investment market has been dominated by domestic investors and 2022 was no exception. One of the most notable foreign investments was the acquisition of the Wendre production facility for over 30 million EUR, one of the largest transactions of the year.

New sporting goods retailer enters the market

Decathlon is set to open its first store in Estonia at the Kurna retail park, near the IKEA store. The 20,000 sqm park, under construction and set to be finished in August 2023, will include 20 stores and is being developed by VPH Group for over 30 million EUR.

End of the low-interest-rate era

The era of historically low interest rates ended in 2022, as policymakers were alarmed by high inflation across the Eurozone, which prompted the ECB to raise interest rates to control inflationary pressures. The ECB's target inflation rate is 2%, and further interest rate increases can be expected in 2023, though not as sharp as in 2022.

Higher interest rates should reduce property prices and increase yields. This may force some investors to sell their properties as higher capital costs make investment unprofitable.