Commercial Real Estate Direction and Trends 2024
The Estonian commercial real estate market is in constant flux, just like everything else around us. A market segment that seems strong and attractive today could prove overinvested on Estonia's small market tomorrow. At the same time, segments that are currently less attractive can make a solid recovery in just a few quarters, and both capital owners and operators are turning their focus to new hunting grounds.
New Maa Commercial Real Estate consultant Kristi Tamm highlights some important trends that are affecting commercial real estate development and investment in Estonia.
Demand for office space remains in the longer perspective
The coronavirus pandemic put companies to the test, forcing them to implement remote work and flexible work arrangements. Due to uncertain economic conditions, the office space market remains rather calm this year, and many companies are in a wait-and-see position. At the same time, Estonia is not seeing the trend of office space becoming vacant as we see in the US, for example, where entire office buildings sit empty.
In Tallinn and elsewhere in Estonia, commuting between home and workplace is considerably easier compared to major cities, which is why many companies have started favoring in-office work again after the pandemic. Companies understand that physical meetings and a creative working environment are still essential for building company culture and employee loyalty.
To make office work attractive for employees, the working environment there becomes increasingly important – both technical and aesthetic aspects. Therefore, we can expect continued interest in modern, functional office spaces with stylish interiors.
At the same time, developers must take into account that Estonia's market is small and the risk of oversupply is large. Alongside new buildings, space continues to come to the market in buildings that are a few years old, which are equivalent to new developments for rental interested parties, sometimes having certain advantages.
Recently, it has often happened that when rental agreements concluded in new buildings in the years before the pandemic are renewed, the amount of office space for the next contract period has been reduced somewhat. It is also worth noting that in recent years, many large companies have already rented new office spaces and are therefore tied to contracts for years to come.
Sustainability and energy efficiency become a priority
Environmental awareness is a growing trend and the commercial real estate sector is no exception. Sustainability has become a key issue in commercial real estate development and management.
In Estonia, we can expect more investments in the development of green and energy-efficient buildings and the renovation of existing structures to meet the challenges of climate change and thereby attract environmentally conscious tenants. Improving a building's energy efficiency will become essential in the coming years in maintaining the competitiveness of older commercial buildings.
Already today, many tenants make it an important criterion when choosing new rental space that the building has at least a B class, preferably an A energy class.
Technology integration
Technological innovations play an increasingly important role in commercial real estate. Smart solutions, such as building automation, enhanced security, and practical space solutions are becoming increasingly important parts of commercial real estate development.
We can also expect increased demand for data analytics and artificial intelligence solutions to better understand and manage commercial real estate portfolios
Logistics facilities and e-commerce support
E-commerce growth has been significant in recent years and has had a major impact on the logistics sector, through which the demand for space in this segment continues to grow.
Thus, we can expect that in terms of logistics space, both the volume of investments and construction and fewer concerns than, for example, in the office space market.
Regional development also outside Tallinn
Although Tallinn remains Estonia's largest business center, we can expect commercial real estate development in other major cities such as Tartu and Pärnu. This will help balance regional economic growth. City development projects and infrastructure investments increase the attractiveness of these regions, especially for companies.
For example, Tartu stands out for its shortage of new quality office space. At the same time, developers are today ready to start new development projects if there are tenants. In a rapidly changing world, however, companies do not want to sign rental agreements too far in advance. So it seems that on the one hand, there is apparently demand for new office space, on the other hand, developers are not certain about whether the demand is sufficient.
Summary
I believe that investors and developers who are able to adapt to changing needs and trends and who invest in sustainable development and technology will be more successful. Therefore, the future of commercial real estate continues to depend on innovation, sustainability, and technology, which makes the commercial real estate world an exciting and challenging investment opportunity.
