baltic states and belarus real estate market review - Colliers

Real Estate Market Review 2011 | Estonia Office Market
Dynamics of Rent Rates in
Tallinn
Rental Rates (EUR)
26
22
18
14
10
6
0
2005
2006
2007
2008
2009
Class A Class B1 Class B2
Rent Rates
The main changes in office rental and
vacancy rates took place in the first half of
2009 when many companies started to
restructure their activities and look
aggressively for cost saving opportunities.
Office rent rates started to decline
dramatically only in Q4 2008, significantly
dropped during the first six months of 2009
when A and B properties showed an average
year-on-year drop of 25 - 40 per cent in
rental rates, while rent rates for new
premises outside CBD decreased up to 50
per cent. In the second half of 2009 office
rental rates started to stabilize.
In early 2010, rent rates remained more or
less on the same level since 2009, although
the range of asking rent rates (especially for
B1 Class buildings) became wider. In order to
attract new tenants landlords have agreed to
rent out office space to tenants during first
one or two years of lease agreement for a
rent that is significantly lower than the market
average price.
Overall in 2010 the average asking rental
rates decreased by 2 - 5 per cent due to a
small decrease in average rental prices for A
Class properties and decrease in the lower
end prices for B1 Class properties. At the
same time, while the average asking rental
rate continued its falling trend, the rental
rates in contemporary office buildings in
good location have stabilized or even
somewhat increased.
The Tallinn office market remains a tenant’s
market, with a good range of choice and
attractive rental rates. However, lease
incentives, rent-free periods and partial fitout
compensation are less likely to be offered
to tenants now compared with the crisis
period.
Office rental rates are expected to remain
more or less stable during 2011. A sharp
increase in construction prices in 2010 have
put pressure on the average rental rates of
potential developments, although tenants are
not yet prepared to pay higher rents.
Rental rates in Tallinn are typically 15-17 per
cent lower than average rent rates in main
Eastern European capitals.
Vacancy
A strong supply of new office projects
accompanied by the economic slowdown and
tenants’ cost-saving policies (reducing the
size of office space requested, renegotiating
rents, and sub-leasing excess office space)
resulted in an increase in vacancy rates in
2009.
There were no new contemporary office
buildings accruing to the market in 2010, and
the vacancy rate of existing office buildings
(especially for A-class properties) started to
decrease gradually. The key strategy for
attracting new tenants became active
marketing and communication, not only the
cheapest rental rate.
By the end of 2010, the situation in the office
sector had improved for landlords who are
flexible with pricing, thus the vacancy rate in
A and B1 office buildings is slightly
decreasing. The average vacancy rate for
Class A offices varied in the range of
12 - 15 per cent at the end of 2010 while the
average vacancy rate for Class B offices
varied in the range of 14 - 17 per cent.
Dynamics of the Vacancy Rate in Tallinn
35%
30%
25%
20%
15%
10%
5%
0%
Jan 2005
JUne 2005
Jan 2006
June 2006
Jan 2007
2010
June 2007
Jan 2008
June 2008
Jan 2009
June 2009
Jan 2010
June 2010
Jan 2011
Class A Class B1 Total
CONTACT: AVO RÕÕMUSSAAR - a.roomussaar@colliers.ee
Colliers International | p. 56