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Real Estate Market Review 2011 | Estonia Industrial Market Industrial Market Sqm (000s) Dynamics of warehouse space in Tallinn and Harju County 800 700 600 500 400 300 200 100 0 2004 2005 2006 2007 2008 Total Stock New Construction Expected Construction 2009 2010 Distribution of Warehouse Space in Tallinn 5 12 35 24% 31% 45% 2011f Number of Units % GLA of Units 5,000 - 10,000 sqm 10,000 - 20,000 sqm 20,000 and more sqm OVERVIEW The volume of the Estonian economy decreased by 3.6 per cent in 2008, and negative GDP outcome continued in 2009, with an average of minus 14.1 per cent. Amidst a strengthening export-led recovery, economic growth recovered in 2010 with an increase in GDP of 6.6 per cent in the Q4 2010 relative to Q4 2009. In 2010, the overall annual GDP grew by 3.1 per cent compared to the previous year. The sales turnover and profitability of most exporting-sector companies (export is the main driver of economy recovery in Estonia) has started to pick up in the first half of 2010 and exports of goods in 2010 exceeded the historical highest level (the level of 2008). According to Statistics Estonia, in 2010 the export of goods at current prices increased 35 per cent and imports 27 per cent compared to 2009. In the last months of the year growth in trade accelerated as dispatch and arrivals of machinery and equipment increased the most. At the same time, the rapid growth in production recorded in 2010 was partly influenced by the low reference base in 2009. During 2011-2013 the growth in exports will stabilize in accordance with the developments of main export markets and it is indeed a positive sign that future economy growth in the Nordic countries should exceed the EU average expected growth. Supply By 2010, the total supply of new industrial and warehouse premises was estimated at 12,500 sqm. The estimated total stock of industrial facilities exceeded 701,500 sqm (approx 195,000 sqm of generic facilities plus 506,500 sqm of built-to-suit facilities). During the last few years the most intensive development of new industrial and warehouse facilities has been concentrated in Tallinn’s suburbs and in nearby municipalities. The most developed logistics areas lie in the eastern and south-eastern part of the city. Development of manufacturing facilities and warehouses is concentrated in three main areas of Tallinn and its suburbs. Most premises built in 2010 were small, detached warehouses and industrial built-to-suit projects (with a GLA less than 4,300 sqm) mainly for companies representing the food-manufacturing industry. There was little development activity in industrial parks in Harju, although several companies owning or renting premises in industrial parks have announced expansion plans for 2011. According to the Estonian Building Register, the amount of occupancy permits issued in 2010 for new industrial and warehouse buildings in Tallinn and Harju County reached 30,665 sqm, which is approx 57 per cent less than in 2009. Although the projected new supply in 2011 is approx 12,000 sqm, the volume of industrial projects depends on acquiring tenants in advance of development. New built-to-suit projects in Harju County, planned for 2011 include industrial building for Kemivesi located in Rae Industrial Park (with GLA 1,790 sqm), industrial building for Metus-Est in Tabasalu (2,300 sqm) and office and industrial premises for Laser Diagnostic Instruments (1,239 sqm) in Ülemiste City in Tallinn. At the beginning of 2010 the warehouse and industrial market has become more active than some time ago. Several developers announced that they would like to continue with large development projects. For example, the developers of Gate Tallinn and American Corner Retail and Logistics Park have both indicated that the negotiations with potential tenants are in process and they would like to start the construction works as soon as possible. Currently, five industrial and warehouse projects with a GLA of over 20,000 sqm per project and a total area of 228,000 sqm are under way. Most of the existing stock consists of industrial and warehouse projects with a GLA of 5,000 - 10,000 sqm per project. CONTACT: AVO RÕÕMUSSAAR - a.roomussaar@colliers.ee Colliers International | p. 64
Real Estate Market Review 2011 | Estonia Industrial Market Dynamics of Vacancy Rates in Tallinn 25% 20% 15% Demand The general behaviour of the warehouse and industrial market in 2009 has been similar to the office and retail market. Due to a significant decrease in consumption, export volumes and transit, vacancy rates increased and rental rates fell in the first half of the year compared to previous years. In the second half of the year the warehouse market became more active due to foreign companies seeking possibilities to transfer their production from or to Estonia. Several Swedish and Finnish companies started to seek industrial warehouse properties in Estonia to transfer their production activities. In late 2009 and the beginning of 2010, low prices have started attracting foreign industrial companies once again. The industrial market sector saw increased tenancy enquiries for industrial/logistics property (albeit from an earlier low base) in 2010 although both purchasing and leasing activity remained at a low level. Companies that were seeking and leasing warehouse premises in 2010 represented mostly retail sector companies (Prisma, Rahva Raamat, Selver, R-Kiosk). The industrial market continued to be occupier led in 2010 as landlords offered competitive and more flexible lease conditions to tenants. Simultaneously tenants were looking to take advantages of the market conditions in order to upgrade their premises or move to a better location. Presenting 2010, the main group of prospective tenants looking for industrial premises were foreign (mostly Scandinavian) companies, with the aim of reducing their operating costs by transferring their production activity to Estonia (lower rents and labour costs are two examples). Local companies that were looking for industrial/ logistics premises were mostly from retailoriented distribution sectors. The most demanded in 2010 were smaller industrial premises of around 250 - 1,000 sqm. The industrial sector remains more subdued than other sectors although there remains a number of unsatisfied requirements from large warehouse occupiers seeking 5,000 sqm or more. Starting from the end of 2009 foreign investors turned their attention to the industrial market and continue to seek attractive investment possibilities. The number of built-to-suit projects is and will continue to make up most of new projects and the proportion of speculative industrial projects is not expected to increase. General recovery in the overall economy in 2010 leads to increasing demand for good quality industrial space in 2011. Rental rates In 2010 rental rates decreased year-on-year by 6 - 10 per cent while the vacancy rate remained at 18 per cent. Average rental costs for modern logistics warehouses stand at between EUR 2.8.-5.0 per sqm/month. The market does not indicate a substantial decrease in vacancy over the next two years. Average rental rates for older logistics warehouses stand at between EUR 1.3 - 3.2 per sqm/month. In recent years a slightly higher rental rate correction has occurred for outlying areas of Tallinn, although some areas have remained immune. Historically, rental rates in the industrial sector are relatively stable, and more recently have shown a small increase and then decrease of 4 per cent in boom and post-boom periods respectively. Despite reduced demand, the drop-off in supply should allow rents to remain more stable in 2011. Even though the industrial market vacancy rate was quite high throughout 2010, the sector has become more active among Russian and Scandinavian companies, and there was some degree of demand shortfall in larger properties (above 5,000 sqm). 10% 5% Warehouse and industrial space rental rates and vacancy in Tallinn and Harju County * - asking rental rates (EUR/sqm/month) excluding VAT and operating expenses - stable, - slight increase Building condition Rates* Trends Trends Vacancy Rates for 2011 for 2011 New and renovated buildings 2.8 - 5.0 20% Older buildings 1.3 - 3.2 20% 0% Jan 2007 June 2007 Jan 2008 June 2008 Jan 2009 June 2009 Jan 2010 June 2010 Jan 2011 CONTACT: AVO RÕÕMUSSAAR - a.roomussaar@colliers.ee Colliers International | p. 65
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