Rental prices for apartments in Tallinn have increased by 5-10 percent in recent months and are likely to continue rising, according to Igor Habal, a management board member of Estonian real estate agency Uus Maa.
“In winter and spring, the number of rental listings was more than a quarter higher compared to now. Tourism was sparse, and the numbers of foreign students and Ukrainians, who had been influencing the rental market in recent years, were declining. There was more supply, lower demand, and rental prices were falling,” Habal said, adding that the situation has reversed over the summer months.
“Since the property sales market is still sluggish — people are waiting for a more stable economic forecast and lower interest rates — they prefer to rent in the meantime. Few new rental apartments are entering the market, and existing listings are disappearing. Investing in new rental apartments is currently not profitable, resulting in a decrease in available rental spaces,” Habal explained.
“All of this affects the demand and prices in the rental market, which have increased by an average of 5-10 percent in recent months, and this upward trend is likely to continue,” Habal added.
He noted that the rental yield for residential real estate is low, and the cash flow from investment properties purchased in recent years is even negative. “Basically, attempts are being made to compensate for the increased loan costs.”
A similar price increase has already occurred in the commercial property market, where the yield for the more in-demand A-class real estate has risen from 6 percent to 7 percent.
Meanwhile, the rental yield for residential real estate has fallen from five percent to 4.5, which essentially means a loss for the owner at current interest rates.
“Owners cannot endlessly cover the costs of their property, and to restore profitability, there are two options — either the purchase price of real estate falls or rental prices rise. A drop in purchase prices is less likely, so inevitably, rental prices will have to go up,” Habal said.
“Fortunately, no sudden spike is expected in rental prices, as landlords also understand that in uncertain times, it is beneficial to extend the contract with the existing tenant under the same conditions or with a minimal increase, which is also a reasonable solution for the tenant,” the board member of Uus Maa added.
Source: BNS
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