Andree Raid: Tenants – Time to Sign a Long-Term Lease
Spring brought a shock to the rental market along with coronavirus. The disappearance of tourists brought accommodation apartments into the rental supply. This increased supply, or rather the renters' choice options so much that rental prices in Tallinn apartments fell by 10-20%. It seems that the worst of the rental business for autumn and winter is now behind us. This gives hope that within a quarter or two, it will be possible to begin restoring spring-fallen rental prices to their previous level.
The summer retreat of coronavirus and the passing of the initial shock pushed rental prices up somewhat from the bottom, but not quite back to the beginning of the year level. Depending on the area, the condition of the apartment, and the previous price, rental prices in autumn are 5-10% below last year. For rental investors, this means lower rental yields than expected, and for some landlords even difficulties in repaying loans taken for apartment purchases. Owners of accommodation apartments aimed at tourists who hoped for high cash flow may be in real trouble.
Rental supply remains abundant
The continued abundance of rental offerings makes it possible for renters with children and/or pets to also find a suitable rental apartment. Previously, these target groups have had difficulty finding rental apartments. Landlords who previously strictly demanded long binding rental contracts are now agreeing to shorter-term or flexible termination option agreements.
Despite the current state of rental market supply not being at its most positive, it is notable that assessments of the rental market have not worsened over the past couple of months. There is certainly plenty of rental supply, but the number of offerings has not significantly changed compared to a month or quarter ago. Renters are browsing the market. They choose between apartments for longer and make rental decisions somewhat more slowly. An apartment with a reasonable price will find a renter within a couple to three weeks at the latest.
The worst is beginning to stay behind
The persistence or even slight decrease in the number of rental offerings in some sectors suggests that the most difficult time for owners of rental apartments in this business could quietly be starting to recede. The difficulties brought by coronavirus are driving amateur investors away from the market who rent out an apartment or two. Professionals, on the other hand, are on the buying side and are gradually expanding their rental apartment portfolios.
The passing of the difficulties caused by COVID19 will give landlords the opportunity within a couple of quarters to start thinking about raising rental prices, so that hopefully within a year and a half we reach the rental price level where we were before the coronavirus.
Long-term rental price agreement wins for both the renter and the landlord
For renters planning longer stays in rental apartments, the quiet normalization of the rental market means that today it is reasonable to try to lock in today's lower-than-last-year rental price for a longer period. In other words, it makes sense to conclude a longer rental agreement with a fixed rental price. In the hope of keeping one stable renter for longer, most landlords would gladly accept such an offer. A longer price agreement would guarantee the renter reasonable rental costs. The landlord gains a stable cash flow.
Landlords have no reason to fear long-term agreements with tenants. The changed market situation means at least for some period inevitably lower rental yields. Lower rental yield from a proven reliable renter is in any case better than covering the costs of an empty apartment from your own pocket.
Article author:
Andree Raid Raid & Ko OÜ Board Member +372 502 3300 [email protected]
