Domus FND CEO Kairit Kasepuu: Is 2026 a Buyer's Market for Real Estate Investors?

In the world of real estate investments, there have been periods when making money was as simple as buying property and waiting. Real estate values rose, interest rates were low, and cheap borrowed money leveraged equity returns. A mediocre investment could seem like a very good one thanks to a favorable market. Today, the situation is different. And perhaps that's actually healthier for the real estate investor.

Estonia's commercial real estate market has been stabilizing following the rapid interest rate increases of recent years. In 2025, investment volumes in Estonia reached 276 million euros, with nearly half of the year's total volume transacted in the last quarter. In the first half of 2026, transactions were made for approximately 120 million euros.

Over the past year, prime yields have increased slightly. As of the second quarter of 2026, for office space, prime yield was approximately 7%, for retail and service space around 8% (for grocery stores and other "neighborhood shops" slightly lower, approximately 7%, supported by lower-risk tenants and long-term leases), and for warehouse and production space around 7.5%. Assets of lower quality or in more peripheral locations have higher yields.

A couple of years ago, equivalent property would have cost significantly more. So the question arises: could 2026 be a buyer's market for the real estate investor? I think so, on balance. Not because real estate is cheap or because every object with 7–8% yield is a good investment. Rather, because it is again possible to buy real estate whose investment logic is based primarily on cash flow, not on hope for rapid price appreciation.

Cash flow must justify the investment

A cash flow investment should work even without the assumption that the property can be sold at a significantly higher price in a few years. Returns must come primarily from cash flow, not from optimistic exits. But this doesn't simply mean a high return percentage in Excel. What matters is how sustainable this cash flow actually is. Who is the tenant, how long is the lease, does today's rental rate match the market, what investments will the building need in the coming years, and how easy would it be to find a new tenant if necessary?

Over the past year, we ourselves have looked at several objects that at first glance seem like excellent investments. In Excel, the yield looks nice and the price seems reasonable. But when you start asking what happens if the tenant leaves, how much needs to be invested in the building over the next five years, or whether you could find a new tenant tomorrow at today's rental rate, the picture can quickly change.

This is precisely what makes today's market interesting to me. Investors are more cautious, banks scrutinize projects more critically, and buyers demand higher risk premiums. In a market with fewer buyers, an investor with capital has more opportunity to choose and negotiate. At the same time, one shouldn't confuse higher yield with better investment.

In Tallinn, the difference between new and older commercial real estate is becoming increasingly clear. Vacancy in older office buildings has increased, and in warehouse and production space, tenants increasingly prefer modern, energy-efficient buildings that are functional for their business.

So an old building with 9% yield may not be a better investment than a new building with 7% yield. Higher yield can quickly lose its advantage if the building needs significant investment in the coming years or if the existing rental rate cannot be maintained when the tenant changes.

The same is happening outside Estonia

A good example is London. Canary Wharf was one of the bigger losers from remote work after the pandemic, and the region's office vacancy remains high. Yet Barclays purchased a long-term ownership stake in a building housing its global headquarters for 750 million pounds in the summer of 2026. It was Europe's largest office building transaction in nearly four years.

What I find interesting about this transaction is precisely the contrast: a difficult office market doesn't mean all office buildings move in the same direction. Increasingly, what matters are the specific property's location, technical condition, functional value, and long-term competitiveness. For cash flow investments, add to this the strength of the tenant and the length of the lease. The same logic applies in Estonia as well.

A buyer's market doesn't mean a cheap market

For me, a buyer's market doesn't mean prices should be at the bottom. We can only determine the bottom in hindsight anyway. A buyer's market means a situation where the buyer has time to choose, the opportunity to negotiate terms, and where returns reasonably compensate for the risks taken. These are the kinds of opportunities one should look for in Estonia's commercial real estate market in 2026.

Perhaps the most important change is in mindset. The question shouldn't be only: "How much will this real estate be worth in five years?" Much more important is to ask: "How much and how sustainable cash flow will this real estate generate for me over the next five years?" Because after years when real estate investors made a lot of money from property appreciation, one old truth is relevant again: cash flow is king.