Expert: Rental Market is at a Low, But This Type of Apartment Can Deliver Double the Returns
According to Argo Pillesson, a board member of Estonia's largest real estate office and head of the valuation department, the rental yield of Tallinn apartments is at its lowest level in recent decades – with the exception of micro-apartments, which can generate a 7–8 percent yield.
"It may seem surprising, but compared to incomes, renting has not been as favorable in the last 15 years as it is now. The rental yield of rental apartments is currently averaging 3–4%, which hardly covers the owner's loan costs. However, this situation will not last long – if real estate prices have risen and rents have not, it's only a matter of time before rents catch up. Therefore, in the near-term perspective, we can expect growth in both rental prices and yields," said Pillesson.
"Currently, there is one asset class in the rental market whose rental yield is significantly better than others – the 10–16 square meter micro-apartments around Tallinn's universities and in the city center and Kalamaja districts, which are suitable for students and people living alone. Since the final price is affordable, there is always strong demand for such rental apartments, and owners can currently even achieve 7–8% rental yields. You won't find a rental apartment in Tallinn for under 200 euros. In good locations, micro-apartment rents are 300 euros a month and up," added Pillesson.
"Micro-apartment purchase and sale prices have remained quite stable over the last three years. While the micro-apartment rental market is somewhat seasonal, becoming more active before the school year begins, the purchase and sale transaction statistics do not show similar seasonality. Transactions are conducted with similar activity throughout the year. Clearly, such micro-apartments are preferred where you can move in yourself or take in a tenant immediately," said Pillesson.
"Since the broader trend of investing in rental apartments has not recovered, the selection is good now and it's worth keeping an eye on the offerings. When everyone is searching and buying, the best investment time has already passed. For this reason, I myself also acquired a micro-apartment in the Telliskivi area for my portfolio in the fall," noted Pillesson.
