Experts: Geopolitical Shifts and Government Decisions Are Rewriting Real Estate Sector Rules

Real estate experts warn that growing geopolitical uncertainty and rapidly increasing defense investments in the Baltic region will begin to reshape the foundations of the real estate and construction sector. As countries take on an increasingly larger role as construction clients, developers and investors must reconsider their existing business models, and buyers may face longer project completion timelines, as sector capacity is increasingly directed toward strategic infrastructure.

Similar developments are already visible in Estonia, where defense spending is entering an unprecedented growth phase. Starting from 2026, Estonia plans to allocate at least 5% of GDP to national defense, which is among the highest levels among NATO countries. The growth means an additional investment of 844.5 million euros compared to previous levels and includes substantial investments in military infrastructure, expansion of training grounds, air and missile defense, engineering units, and development of defense industry facilities.

In parallel, Estonia is developing physical defense infrastructure along its eastern border, including the construction of fortified positions and bunker systems, which is part of a broader Baltic defense line. These developments, together with new military bases and expanded training capabilities, create sustained demand for construction capacity across the entire country.

According to Karel Aasrand, CEO of Newsec Estonia, these developments point to a structural change in the real estate and construction market. "The region's decisions to significantly increase defense spending mean that governments are entering a long-term construction cycle. In practice, large defense projects – military bases, infrastructure facilities and training areas – compete for the same contractors, engineering capacity and construction materials as commercial and residential developments," explains Aasrand.

Competition for construction resources is intensifying and the actual minimum cost level for new developments is rising, while project timelines may lengthen. According to experts, governments are likely to remain the most active construction clients in the coming decade, reflecting the long-term security commitments of NATO front-line countries.

"This is not a short-term fluctuation, but a structural change in the market. Part of construction capacity will inevitably be directed to defense-related projects. The construction sector itself is becoming a strategic resource, and balancing public infrastructure needs with commercial development will become one of the key issues in the sector," adds Aasrand.

For Estonia, this means that developers and investors must be more cautious when planning projects, taking into account longer procurement cycles, limited availability of contractors, and greater cost volatility. The acceleration of defense infrastructure development will affect construction prices, project completion times and investment strategies, and will likely shape the broader real estate market throughout the 2030s.

These very topics will be discussed on Wednesday, March 4, at the Nordic Real Estate Forum 2026, which will take place at Tallinn Kultuurikatla. This year's forum's main theme "Rethink Real Estate" invites a critical look at existing business models, investment strategies and development practices in a situation where the economic, geopolitical and technological environment has undergone irreversible change.