Western European Trends Affect the Rental Market
Bonava, which until now has only been involved in the development and sale of residential real estate in Estonia and the Baltics, entered the rental market exactly one year ago. This happened at a time when the Tallinn market had the highest number of rental offers in its history.
"We expanded our portfolio into a new segment because we saw great potential in the professional rental market here. We are moving in the same trend as Central and Western Europe, where long-term housing rental is very common alongside home purchases. While currently the share of rental properties in the Tallinn real estate market is 15-20%, we forecast it will grow to 30-40%. For example, in Stockholm the share of rental properties is over 40% and in Berlin it is even over 80%," explained Bonava Estonia's managing director Taavi Soorm's decision to enter the rental market.
Strong competition in the rental market
The entry into the rental market took place at a time when Tallinn had the highest number of rental apartments on offer in its history. "At the beginning of this year, the capital had around 1800 rental offers, which is about 50% more than usual. That is why we are all the more pleased that our offered homes have been well received, we have been able to achieve our set goals at a faster pace, and our rental building occupancy rate has already reached 70%. By the end of the year, we want to reach a situation where the buildings are fully rented out," described Soorm.
Although the last 10 years have brought an increase in institutional rental investors, there is still relatively little new rental real estate on the Estonian market. "In our experience, even in a more difficult overall real estate market situation, clients are interested in new well-thought-out rental housing projects and professional service. We also see this from our competitors' results, who also have good occupancy in their buildings and very low vacancy rates, 1-3%," said Soorm.
Who are the rental building clients?
The trends of a developed and mature society have also reached Estonia – people's lifestyles are more mobile and they do not necessarily want to commit themselves through real estate purchases. A rental home provides this flexibility. In addition, the development of the rental market is supported by the fact that the availability of new real estate is decreasing, which is why people rent for longer to save for a down payment or remain long-term tenants and give up the idea of buying.
"Our rental clients are young families, specialists, but also older couples. There are those who do not want to commit themselves to a larger financial obligation and those who are still planning a home purchase. A rental home in a new building and in a modern neighborhood is often the first step in how families improve their quality of life," described Bonava's development director Martin Rikolas.
It is only a matter of time before the share of rental real estate on our real estate market also exceeds 30%, as it is in other developed countries. "So far, the Tallinn rental market has been fragmented and in the hands of small investors. Energy-efficient apartments with well-thought-out solutions offered by an experienced developer, long-term secure rental contracts – with this, a tenant can essentially get all the same benefits as when buying a new home. In addition, professional customer service that helps when problems arise," explained Martin Rikolas.
If you ask whether a new home should now be bought or rented, the answer depends on the goal and need. Rikolas recommends: "If there is a long-term plan to commit yourself to one area and you have sufficient funds, then it makes sense to buy your own home, especially now when interest rates are again in a downward trend. For logistical and financial flexibility, on the other hand, a rental apartment is a suitable choice, especially if it is the same quality as a new home."
Bonava began signing rental contracts in July 2023, with the first clients moving into the rental building in December 2023. The rental homes are located in the Uus-Mustamäe neighborhood at Aiandi 11. In three buildings there are a total of 112 apartments with 1-4 rooms and a balcony or terrace, ranging in size from 21-82 m2. All apartments are rented out with a storage unit, and on request it is also possible to rent an additional parking space. All apartments have been equipped with kitchen furniture and appliances, rooms have wardrobes, lighting and curtain rails, and the bathroom has a washing machine with a drying function.
