Colliers: Construction Costs Growth Hinder Developers Future Plans
OREANDA-NEWS. June 7, 2012. Office market is becoming more active in terms of developments. For example, at the beginning of May Selvaag Sakala OU, a subsidiary of the Norwegian real estate group Selvaag Gruppen, signed a contract with Nordecon AS for the construction of an office building (with GBA ca 4,700 sqm) in Tallinn city centre, at Kentmanni 4/Sakala 10. Construction cost of the building will be approximately EUR 4.3 million.
Although there are other projects in the pipeline (e.g. Navigator office building at Laeva Str 2), developers are not prepared to take development risk before they are financially secured. For that reason smaller projects are more likely to succeed. Despite of increased demand for good location office premises, general lack of stability makes tenants still cautious and therefore closing lease contracts for developers difficult.
Although the main concern for developers is currently increasing construction cost, which makes developers quite frequently review their feasibility calculations, Colliers sees construction cost rather as a balancing factor, which prevents arbitrary development.
Retail sector is constantly very active. On the 3rd of May, newly renovated Magistral Shopping Centre opened its doors in Mustamae city district with additional 2,400 sqm of retail space. The largest part in the Magistral shopping centre is occupied by Rimi Supermarket. Additionally, Prisma Peremarket opened its second hypermarket in
However, is should be mentioned again, that the extensive development activity, especially among grocery stores, has not been caused by significantly increased demand, but rather by tight competition among retailers aiming to keep and protect their market share.
Warehouse and Industrial
There have not been any considerable changes in warehouse and industrial market during past few months. The sector is continually active, but as the decisions about long term commitments take time, no quick changes can be observed.
Built-to-suit projects continue to account for the majority of new development projects in
According to Statistics Estonia, 258,200 tourists stayed in the accommodation establishments in
Lodging performance of
Investment market continues to be vigorous. Over the past year, demand among private investors for purchasing up to EUR 1-2 million good location cash flow properties has remarkably increased. Therefore, for example, transactions with small built-to-suit retail properties have become quite frequent. One of the investment market drivers is also banks’ softened loan policy.
In general Estonian investment market is similarly to the rest of