Andree Raid: Rental Market Tilted Toward Tenants Is Returning to Balance

The supply of rental apartments in Tallinn is decreasing. The reduction in supply has led to rising rental prices, following the example of other prices. Apartment purchase and sale prices have risen even more than rental prices and have become unaffordable for many. Therefore, a rental apartment remains the primary housing choice for many people. Andree Raid shares his comments:

In anticipation of rising rental prices, it is reasonable for tenants to conclude fixed-term rental agreements and thus lock in the rental price for a longer period. Landlords should take the opportunity when one rental agreement ends to investigate whether it is possible to rent the same apartment to the next tenant at a higher price.

The decrease in rental supply is general

The supply of rental apartments in Tallinn has decreased in all districts and across all apartment sizes. The reduction in the number of rental offerings is primarily due to the autumn high season in the rental market. On the other hand, thanks to a strong labor market and economic growth, Tallinn's population, which had been declining temporarily, has started growing again. This has increased demand for rental apartments. The rental market turnover is high – rental apartments that come onto the market find tenants within days.

The good liquidity of the rental market and scarcity of supply have led to rising rental prices.

The rental market is expanding

Despite rising rental prices, a rental apartment will increasingly become the first housing preference for more people. Apartment purchase prices, which have skyrocketed, have made buying a home unaffordable. Thus, as an economic necessity, one must accept renting.

Given the continued upward movement of rental prices, it is reasonable for tenants in the current market situation to conclude long fixed-term rental agreements in which the rental price is locked in for the entire rental period.

Let the tenant fix the price, let the landlord raise it

Landlords, on the other hand, should try to recover the losses from last year's rental price cuts and move rental prices upward. When one rental agreement is ending, it is worth investigating whether the next agreement can already be concluded at a higher price.

Of course, there is no point in driving away a good existing tenant by raising their rental price. Landlords must also take into account that rising auxiliary costs (electricity, heating, gas) are an additional factor that sets limits on rental price increases.

Given general inflation and rising real estate prices, the rental market cannot escape price increases. The rental market, which had been tilted toward tenants for a year and a half, is slowly beginning to swing back to the other side. Rental prices, which had remained very favorable for a year and a half, are finally starting to normalize, and the previous balance between rental prices and apartment purchase and sale prices is returning.

 

Andree Raid

Managing Director of Raid & Co Real Estate and Law Office