From steady growth to high yield expectations in the Baltic real estate markets

Thanks to positive economic developments in the region, Riga, Tallinn and Vilnius have become highly attractive to real estate investors. And as the growth is likely to continue, these countries will remain an interesting choice for investors in both housing and commercial properties. Real estate prices in Tallinn and Vilnius have risen steadily for years, and Riga has finally recovered from the recession caused by the financial crisis and is also on the rise. 

Growth in both residential and commercial property markets in the Baltic capitals

Last year, the Baltic real estate market grew by value as expected for commercial premises as well as housing. The capitals are enjoying especially buoyant growth, with prices in Tallinn having risen particularly rapidly in recent years.

The city now has the highest price per square metre on residential property in the Baltic countries. This growth is projected to continue, albeit at a more moderate pace. As demand continues to increase, new homes are being built continuously. Around 3,100 new homes were built in Tallinn in 2018, with roughly the same number expected for 2019. 

Riga the new focus for high returns

The financial crisis of 2008 and the ensuing recession hit the Latvian capital harder than other Baltic cities. Within just a few years, housing prices fell from their 2006 peak by up to 60 per cent. Although Vilnius and Tallinn recovered quickly, Riga is still getting back on its feet. The average price per square metre for housing in the city in 2006 was EUR 2,300 and is currently EUR 1,250.

It now seems that Riga, the largest Baltic city, is recovering economically.

There is impressive growth in the construction of new housing in Riga, with an increase in new real estate construction of 65 per cent in 2018 compared to the previous year. Despite this, however, construction volume remains significantly lower than in Vilnius and Tallinn. Construction of commercial premises is also picking up, with a total area of about 140,000 square metres being built in the 2019–2020 period. 

This year, Riga will also begin to get its share of the growing shopping centre market in the Baltic region with the opening of Akropole, one of the region’s largest shopping centres. Competition for the attention of international commercial companies is fierce, and modern shopping centres are one way to attract them to the region. 

I believe that Latvia currently offers the best potential yields in the Baltic property market.

If we look at housing market activity relative to population size, for example, or to average price per square metre, Riga is significantly behind Tallinn and Vilnius. We expect growth to slow in both those cities in the next few years, however, whereas growth in Riga is more likely to accelerate. At the moment prices and transaction volumes are the lowest in Riga among Baltic capitals.

Economic growth continues, consumer demand rising

The economic vibrancy of the Baltic countries is naturally reflected in their real estate markets, as people become more willing and able to purchase new homes. Wages in the Baltic countries have risen steadily by about 7–8 per cent in recent years, and people’s expectations are increasing in line with their investment capacity.

Based on our analysis, there is unlikely to be a major price increase in the Baltic real estate market in the next few years. It is more likely that growth will remain steady at an annual rate of 5–8 per cent. 

For expert assistance with investing in the Baltic real estate markets, look no further than Realia 

Realia operates in the Baltic countries under the Ober-House brand. We provide real estate brokerage, counselling, consultancy and real estate management services. If you’re interested in investing in property in the region or would like to learn more, don’t hesitate to contact us!

 

Tarmo Kase is CEO of Ober-Haus Real Estate Advisors with responsibility for Baltic region operations.