Analyst: Real Estate Developers Have Accumulated Large Cash Reserves Being Invested in Mysterious New Business

According to Mihkel Eliste, a professional appraiser and analysis expert at Uus Maa, Estonia's largest real estate office, a peculiar situation has emerged in the Tallinn real estate market where especially smaller development companies have plenty of free capital for development on their accounts, but few profitable business opportunities, which is why they are searching for and purchasing real estate different from what they have previously targeted.

According to Mihkel Eliste, the main focus and profit machine of real estate developers over the last ten years has been apartment construction, which has experienced oversupply in Tallinn for a long time, and there is no indication that this will change in the near future. "At the moment, I would not really recommend buying residential development plots – there is certainly demand for land, but the offered prices for plots are high and competition in the new apartment market is very tight. It is clearly evident that alternatives are being sought in parallel in market niches where there is no oversupply yet," said Eliste.

"Many developers have completed their previous projects and the money they earned is sitting idle on their accounts. There are quite a few who are looking for investment opportunities in the real estate sector, but there are few options with a reasonable risk and return level. Many entrepreneurs have also come to the realization that they need to develop somewhat different types of property, not apartments or even regular offices, because the office space market today also has clear oversupply. In the first half of 2026, sales transactions stand out involving small plots with commercial building rights (land with building rights for up to 2500 m2 of above-ground enclosed gross floor area) instead of apartment building plots, which is clearly an unusual phenomenon," said Eliste.

"If one has to choose between residential or commercial development, then the current market conditions favor the latter in certain areas. The price per square meter of above-ground gross building rights for a residential development plot in Tallinn is now predominantly 500 - 800 euros, while for commercial purposes it continues to be rather only up to 400 euros. Although residential development land is often already twice as expensive, the expected return on the apartment market is compared to commercial spaces quite significantly lower. It can be assumed that the long-standing silence in the commercial space market will gain momentum again in Tallinn in certain segments, as asset prices have remained in some cases too low compared to the residential space sector," said Eliste.

"Currently, there is a clear trend of searching for and purchasing commercial development plots with seemingly smaller development potential away from the city center and more expensive areas – for example, in Haabersti and Kristiine. Regarding further plans, parties are sometimes rather secretive so as not to perhaps reveal them prematurely to competitors. Rather, new office buildings are not being planned, but the movement is probably towards trade, services, and accommodation. It is very likely that in residential neighborhoods, smaller commercial spaces and guest apartments will begin to be built again in certain areas more than before," added Eliste.