OREANDA-NEWS. May 05, 2008. The beginning of 2008 on the Tallinn real estate market was very quiet, reported the press-centre of Uus Maa Real Estate.

Residential premises prices continued to fall and as compared to the top prices of 2007 the fall made up ca 15% in case of apartments and 25-40% in case of private houses and plots of land. Also the rental apartments market experienced an oversupply causing a small decrease of rental charges. On the business premises market the supply of offices has grown and rental charges in the suburbs have decreased.

Residential premises market:
Buyers are price-sensitive
In January 2008 the transaction activity was the lowest in several years, transaction prices continued to fall. In February and in March the number of transactions concluded with apartment ownerships in Tallinn and Harju County increased, however, the average transaction price continued falling. The average price range has dropped to the level of the middle of 2006. On the apartment market there are a lot of people actively looking for a new home. However, most of them dare to make a purchase decision only when the price of the apartment is really favourable and lower than the average price on the market.

The first quarter may be characterized by big discounts made by developers. YIT and Rime publicly lowered the prices at their projects in Tallinn the most. Lowering of prices by ca 30% served its purpose and in the apartment house at the address Suur-Ameerika 12 only 3 of the 15 apartments remained vacant. Rime also managed to conclude 1 purchase-and-sale contract and 6 booking contracts at the Dutch auction. After the end of the auction 3 more apartments have been booked. It is obvious that buyers are sensitive to prices, however, not everything offered cheaply is bought. Buyers are looking for apartments with good location, high-quality internal finishing and furnished with taste. In the city centre also additional values such as views and availability of a fireplace or a sauna are highly appreciated.

According to the data of the Land Board, the total number of transactions concluded with apartment ownerships in Tallinn in the first quarter was 1769 and the average price made up ca 23,400 kroons per m2. Considered by a quarter, the number of transactions in the first quarter of 2008 was the smallest over the years and the average transaction price dropped to the level of the second half of 2006.

As compared to the peak period of spring and summer of 2007, transaction prices have decreased by 12-15%. Considered by a month, the smallest number of transactions in the first quarter was concluded in January and since then this number has grown. In March about 650 transactions were concluded in Tallinn, which is the highest result in the last four months. The average transaction price in March was 13% lower than that of the same period last year and 1% lower than in February.

In the city centre average transaction prices of apartments in the older houses range from 25,000 to 30,000 kroons per square meter and for those in the new houses - from 28,000 to 40,000 kroons per square meter. The average price for a new two-room apartment in the city centre makes up 1,6-1,9 million kroons. A smaller (ca 40 m2) new apartment may be purchased in the area adjacent to the city centre also for the price of 1,4-1,6 million kroons.

The price range of apartments located in bedroom districts is from 17,000 to 21,000 kroons/m2 in case of older apartments and from 24,000 to 28,000 kroons/m2 in case of new ones. The price difference between the new and the old apartments in the suburbs has decreased approximately to 30%, which is a reasonable difference and should remain at that level.

The market of rental apartments is continuously active and the necessity for rental apartments is big. Despite the increased demand rental charges have not increased as the supply has also grown rapidly and increased by two times during the last six months. It creates pressure to lower the charge and in case of rental apartments owners are often ready to lower the rental charge by 500-1,000 kroons.

The average rental charge for a new 2-room apartment in the city centre makes up 6,500-7,500 kroons per month and in the suburbs - 5,500-7,000 kroons per month. In the older houses located in the suburbs it is possible to rent a smaller apartment already for 3,500 and 4,000 kroons per month. The named prices are added by communal expenses.

Price decrease on the market of private houses and plots of land
The grown supply provides a bigger choice for the buyers causing longer selling periods - up to one year or even one and a half year. The prices of private houses and plots for private houses have fallen on the average by 20% over the last six months. According to real estate agents, transaction prices have decreased by 40% as compared to the peak period of 2006.

The number of people actively looking for a new home is big and with the coming of spring it has even grown, still, only few of them dare to make a purchase decision. However, in case of a private house with a very favourable price and good location a buyer may be found quite quickly, during a selling period of less than six months. Also a new segment of buyers has emerged on the market: liquid position belongs to the investors who look for cheap plots of land with a 3-4-year outlook in the nearest surrounding of Tallinn.

In the highly valued residential districts of Tallinn (Pirita, Kakumae, Nomme, Kristiine) prices for plots of land start at 2,5 million kroons and prices for private houses - at 4 million kroons. Starting at 3 million kroons it is possible to buy a part of the house, an apartment in the terraced house or 1/2 of a two-family house.

Outside Tallinn, in the range of up to 40 km plots for private houses may be found also for the price starting at 300,000-600,000 kroons. In Harju County the lowest price limit of new private houses is 1,5 million kroons. As the prices have decreased, the purchase interest has moved closer to Tallinn. The more active range of influence is within 10 km from Tallinn, where prices for new private houses start at 2.5 million kroons and the prices for plots of land - already at 600,000 kroons.

There is a big demand for plots for private houses at a price of fewer than 1 million kroons located close to Tallinn, but the number of such plots in supply is small. As a second interest group very expensive plots with a very good location could be named. Such are, for instance, registered immovables located by the sea in the highly valued residential districts - Pirita, Nomme or Kakumae. Such plots come to the market quite rarely and their prices do not correlate with the fluctuation of the average market prices.

The demand is the smallest for plots of land and private houses with an average or worse than average location. As the supply of plots is very big, buyers have the liberty of choosing a plot with the best location. The sales have stopped in developments where communications, roads and street lighting are not yet built. Therefore the developments with existing asphalted roads and the majority of houses already completed have an advantage.

Business premises market
The supply of office premises in the suburbs has grown rapidly. New offices have been and are brought to the market first of all in the direction of Mustamae and Lasnamae. It is difficult to find lessees for buildings with average location and architecture as the choice is wide. Enterprises don't rush into making a decision until the building is at the final stage of construction.

As a result of the increased supply in new office buildings in the suburbs the selling periods have become longer and the rental charge has decreased. Monthly rental charges in new office buildings in the suburbs start at EEK160/m2 and reach EEK280/m2 in the offices of quality category A+ in the heart of the city; the named amounts don’t include communal expenses and value added tax.

The increased supply also influences the vacancy. Upon completion of new buildings the vacancy in older and depreciated buildings is likely to increase and several new office buildings are probably forced to open at a vacancy rate of over 15%.

On the trading premises market the situation is more or less the same as in the previous quarters. There is a deficit of vacant trading premises in larger centres; some premises are still available in the Rotermanni department store and the Rocca al Mare extension that is still under construction. The first stage of the extension to the Rocca al Mare centre should be completed in autumn and it will add ca 16,000 m2 of new premises. Rental charges of trading premises have grown in the last years.

Over the last six months the rental charge has remained relatively on the same level. As a forecast for the next six months it may be said that in the most wanted shopping centres the rental charge will remain on the same level.

New projects on the storage and production premises market
The supply of storage and production premises is gradually increasing. Though we may say that the supply of storage premises at the stage of detailed planning exceeds the demand, there is a gap between the demand and the supply. The biggest problem is the time difference: developers are able to offer storage premises corresponding to the enterprises' needs in about 1-1,5 years, but the enterprises are only prepared to wait for new storage premises on the average for half a year.

During the last quarter the demand for storage and production premises has decreased a bit. Enterprises' confidence in their future has decreased and expectations have become more pessimistic. In such situation no expansion plans are made and therefore there is no need for new premises.

Buying of production land with the aim of constructing for own purpose is less popular. This trend has been spreading since last year and according to the forecast it will continue. Before, enterprises saw an earning opportunity in purchasing cheap real estate and earning from the growth of its value. By now the land prices have grown very high and their further increase is questionable.

Therefore enterprises prefer the lessee's status more and more, which results in the increase of the number of sale-and-leaseback transactions with different funds and investors, in which case the enterprise sells its building but stays there as a long-term lessee.

The rental charge of production and storage premises has not increased in the last six months. During the first quarter of 2008 there has rather been a pressure for decrease of the rental charge caused by sufficient supply and decreasing demand. Monthly rental charges of storehouses in good condition start at EEK55/m2 and reach EEK100/m2 in case of buildings by the highway in the highly valued regions. The rental charge of production land has also been stable but due to the decrease of interest in production land some corrections may also occur in the next periods. The average rental charge of production land in case of registered immovables located by the highway makes up EEK 800-1400 per square meter.

Summing up, the beginning of 2008 on the Tallinn real estate market was very quiet. With the coming of spring in March more activity could be noted in all market sectors, which is characteristic of the seasonal real estate market. Although the number of transactions has increased as compared to December and January no increase of the price level is expected.