What are the main trends in the office space market in Tallinn? Experts share their assessments and forecasts!

Office real estate dynamics

Last year saw a decrease in interest in office spaces, but this year promises changes. Despite the trends of the past year, new business complexes that meet modern requirements are planned to be built in city centers.

Growth in the warehouse sector

Experts also note an increase in demand for warehouse space. An example of this is Tallinn, where extensive office zones with a total area of hundreds of thousands of square meters are expected to be built.

Changes in developer plans

Due to the current oversupply of office space, developers may reconsider their strategies in the coming months. Special attention should be paid to projects where work is already underway and a large portion of the offices have been reserved by tenants. Currently, about 55,000 square meters of commercial real estate are being built in the capital, with completion planned for 2024.

Real estate market in Tallinn

The construction of the Arter Kvartal complex in the center of the Estonian capital is in the spotlight, with completion expected in the autumn. Among other significant projects is the new central office of Wise on Volta, with a total area of 30,000 square meters.

Trends in 2022

The situation in the commercial real estate market has changed, with a decline in transactions, especially in the office rental segment. The increase in interest rates is deterring investments in new commercial properties.

Changes in the real estate market

The price per square meter in the real estate market has decreased by 7% in the past year. Despite this, the interest in modern commercial spaces remains stable. According to data from February, the number of rental advertisements for such properties remains at the same level as last year, with 4767 listings.

Office real estate market analysis

Modern offices in prestigious areas with cost-effective expenses quickly attract tenants. This maintains stability in the market, despite the declining interest in older premises.

Classification of premises

• Class A: High demand, excellent location, stable market.
• Classes B and C: Increasing availability, difficulties with new leases.
• Conclusion: The novelty and location of offices influence rental dynamics.

Forecast for the office real estate market

Currently, the vacancy rate for class A properties is less than 10%, for class B properties it is between 5% and 15%, and for class C properties it fluctuates within 10-20%. It is expected that in the next six months, the level of vacant offices will increase in each segment, with the largest changes affecting class B and C properties.

Data on mortgage loans in Estonia

The average size of a mortgage loan in Estonia has reached 125,000 euros.

Tallinn: Demand for Office Real Estate

The central districts and Põhja-Tallinn attract the majority of those looking to rent an office. However, old business buildings often remain vacant on the outskirts and in residential areas. Owners who ignore market trends and needs face a lack of tenants. It is not always justified to convert all outdated offices into modern ones. Some of them are successfully transformed into residential complexes or used for other commercial purposes.

Market Trend: Demand for Warehouses

There is a shortage of available warehouse space on the market. Due to high occupancy rates, vacant spaces are immediately taken by new tenants. In addition, there is demand for older, inexpensive storage facilities.

Mortgage Opinion: Buyers Have the Advantage

Experts in the mortgage industry note that the current market situation is favorable for buyers.

Development of the Warehouse Sector in Harju County

Despite the current uncertainty in the warehouse and manufacturing industry, a number of trusted developers have started constructing new facilities in the Harju County region. It is expected that by 2024, the market will be replenished with approximately 80,000 square meters of modern spaces, including facilities built for specific major clients.

Real estate market situation

Businesses mostly choose to rent warehouses and offices, as it is difficult to buy them due to a shortage of offers. Real estate developers focus on generating a steady income from leasing, as selling does not bring significant profits due to high construction and land costs, as well as financing expenses. However, some projects allow for the purchase of a part of the building, but this is more suitable for small businesses and individual investors.

Commercial real estate development process

The development and construction of commercial real estate is a lengthy process, ranging from two to three years. After construction starts, it takes approximately one and a half years to complete all stages of work. Accordingly, construction started in the current year will not be completed before the next year. Project implementation is often delayed: buildings that were planned to open in 2023 may only be ready in the current year, and properties expected in 2024 may not appear on the market until 2025.

Improving Offices to Attract Employees

Developing large buildings takes time, making it difficult for developers to hit the "right" market moment. With smaller projects, it's easier: many of them are expected to wait for better times or a leading tenant. At the same time, real estate market representatives believe that due to the reliability of major developers and excellent locations, new high-rises will still appear in Tallinn in the foreseeable future.

Investment Interest in Commercial Property

Investors continue to show steady demand for commercial properties. They focus on clear financial indicators and asset profitability. Unlike private home buyers who invest in real estate expecting its value to appreciate, professionals only invest in profitable projects with transparent economics.