baltic states and belarus real estate market review - Colliers

Real Estate Market Review 2011 | Estonia Office Market
Office Market
OVERVIEW
After poor conditions and high vacancy in
2009 the office market had begun to firm
coming into 2010. Entering 2010 it appeared
that rental and vacancy rates would remain
relatively stable. However, coming into the
year with a significant oversupply, no
dramatic recovery was expected and no
significant office projects were anticipated to
be added to the market. The year saw
vacancy rates gradually decrease and the
situation in the office sector in 2010 started
to improve particularly for landlords who
were flexible with lease terms and pricing.
The vacancy rate in A and B1 office buildings
started to decrease slightly in the second half
of the year.
Supply
As no new premises were added to the
market during 2010, the total office stock in
Tallinn remained at 473,500 sqm. After the
first half of 2009, when approx 51,700 sqm
of new supply entered the market,
development in the Tallinn office market and
supply of new properties has ceased due to
unfavourable economic conditions, an
oversupply of office premises, and a high
cost or absence of liquidity in the market. By
the end of 2010, several developers
considered possibilities for establishing new
office buildings in two-three years time.
Due to the relatively large speculative risk, it
is crucial for developers to have a very good
capitalisation and a high proportion of
pre-lease tenants before starting construction
works.
By the end of 2010, the total stock of office
space in CBD area accounted for 42 per cent
of total Tallinn stock. While 65 per cent of
new supply in 2005 came onto the market in
the CBD and 51 per cent of new supply in
2006 came onto the market in the Kesklinn
(Centre City) district, over the next two years
(2007 and 2008) the most dynamic
development of new office properties was
outside the CBD - in the Lasnamäe district
(mainly in Ülemiste City), comprising 39 per
cent and 34 per cent of new supply in Tallinn
during that period respectively. Half of new
supply in 2009 was developed in CBD.
By the end of 2010, Class A premises
accounted for about 10 per cent
(49,400 sqm) of the total stock of speculative
(not built-to-suit) office buildings in Tallinn,
Class B1 for 54 per cent (254,900 sqm), and
Class B2 for 36 per cent (169,200 sqm) of
total stock.
The volume of occupancy permissions issued
for office and administration buildings in
Tallinn during 2010 decreased by 51 per cent
compared to the same period in 2009
(140,275 sqm in 2010 and 284,916 sqm in
2009), while the volume of building
permissions issued for office and
administration buildings in Tallinn in 2010
comprised only 5,789 sqm. The majority of
volume of issued occupancy permissions in
Tallinn in 2010 was for office and
Distribution of Speculative
Office Space in tallinn by
Class
Dynamics of Office Space in Tallinn
f - forecasts
500
450
54%
400
Sqm (000s)
350
300
250
200
10%
36%
150
100
50
Class A Class B1 Class B2
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f
Total Stock New Construction Built-to-suit Expected Construction
CONTACT: AVO RÕÕMUSSAAR - a.roomussaar@colliers.ee
Colliers International | p. 54