New Land Leader: Guest Apartments Solve the City's Unfinished Work and Housing Affordability Problem

According to Argo Pillesson, the head of Estonia's largest real estate agency Uus Maa, a new apartment in Tallinn has become unaffordable for many, and the solution would be to build a larger volume of small guest apartments.

According to Pillesson, guest apartments are colloquially referred to as residential spaces that are located on commercial land and whose official purpose of use is consequently non-residential premises. "Guest apartments are typically built on commercial land parcels designated by the city plan where there is no demand for classical commercial space. The current Tallinn master plan dates from 2001, which has created a situation where the land use envisioned by the plan and the city's actual development are in serious conflict," said Pillesson.

"Four or five major office worker clustering locations are emerging in Tallinn, which are draining office buildings in other areas – the downtown Maakri-Arteri area, the Rotermanni and harbor area, Ülemiste City, Telliskivi and its surrounding business quarters, and for example Technopol in Mustamäe. In such locations, regional synergy develops, concentrating services needed for office workers there as well, such as lunch restaurants, sports clubs," said Pillesson.

"Business has changed significantly over 25 years – services have concentrated in regional business centers and commerce largely takes place through parcel machines in shopping center parking lots and food is ordered by courier to your home. Boutique stores are unfortunately a declining phenomenon, but urban planners still think based on that logic. The idea of diversifying residential neighborhoods with office buildings and commercial spaces in apartment buildings is good, but it doesn't really work in practice because demand for such spaces is constantly decreasing," said Pillesson.

"Therefore a choice arises – either keep an empty plot of land sticking out like a sore tooth in the urban landscape for years yet and hope that something changes in urban planning, or build a guest apartment building on it," commented Pillesson.

„Due to lower demand, commercial land is generally somewhat cheaper than residential land, which makes the final price more affordable. More than half of guest apartment buyers are legal entities or investors who purchase them for rental, which also directly aligns with the purpose of commercial land," said Pillesson.

„Currently, properties under 30 square meters are sold in Tallinn on average 850-950 times per year, and 15% of these are guest apartments. Micro-apartments in new developments sell out 3-4 times faster than larger ones, which also shows clear demand. The main problem is a shortage – there is a clear gap in the market for a new micro-apartment segment costing 100,000 euros," said Pillesson.

„By building guest apartments, developers are actually solving work that the city has left undone – Tallinn has planned for far more commercial land and spaces than are currently needed, while there is a shortage of affordable living spaces. Oversupply also affects older office buildings, where building guest apartments is not a problem but would solve a bottleneck, and the city could actively support this in every way," said Pillesson.

According to Uus Maa's head, the affordability problem mainly affects young people, for whom the final price rather than the square footage matters when it comes to their first apartment. "A small and affordable apartment allows a young person to cross the threshold of acquiring their first real estate, often they have no other opportunity to buy an apartment in a new development. Banks also provide loans for guest apartment purchases because small spaces are highly liquid," said Pillesson.

"Some of the city's finest apartment buildings have also been built as guest apartments – for example Laferme and Meerhof on Pirita Road, and such a definition is not actually a problem for the buyer. However apartments built on commercial land are named, they are a very necessary product and solve several problems for the city and ordinary people at once," added Pillesson.