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 Tartu on the 16th of May. Kaubamajakas Shopping Centre in Parnu also plans to expand its area by 1/3 or ca 9,500 sqm in two years’ perspective.

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 Tallinn and Harju County. Majority of new supply in industrial parks across Harju County, already added to the market or expected to be completed in 2012, consists of smaller projects in terms of size - the estimated average size of new development projects in 2012 is ca 2,400 sqm.

Hotel market

According to Statistics Estonia, 258,200 tourists stayed in the accommodation establishments in Tallinn in the 1Q 2012. The figure included 222,400 foreign tourists which was 10% more than in the same period last year.

Lodging performance of Tallinn hotels continued to improve in the 1Q 2012. While the room occupancy rate increased only 1.5 percentage points, then average daily rate (ADR) of Tallinn hotels showed ca 15 per cent yoy growth in 1Q 2012.

Investment market

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 Europe rather equity driven. Core investment properties with strong tenants are continually in demand, which is making the deals of none-core products or joint venture style agreements more and more difficult to conclude.