More and more rental apartment buildings being developed in Estonia

Lumi Capital's development on Manufaktuuri tänav, Tallinn.
Lumi Capital's development on Manufaktuuri tänav, Tallinn. Source: Lumi Capital

The availability of living spaces in Tallinn is set to worsen in the future, experts believe. Entrepreneurs are preparing by developing rental houses and apartment buildings in the capital city, which is not too profitable of a step, but it does ensure stable cash flow.

Real estate company Lumi Capital has invested close to €200 million in different Tallinn rental buildings. The company opened an apartment quarter on Manufaktuuri tänav, where it constructed 127 rental apartments. It also has buildings under development on Aiandi and Päevalille streets, totaling 264 apartments. The company's portfolio consists of some 2,000 apartments across the Baltics, 500 of which are still being developed.

Lumi Capital business manager Reeli Simson said the 127 apartments at Manufaktuuri quarter are filled up and tenant interest is great.

"If we look at what real estate prices have done recently, then there are certainly people who do not think it is rational to acquire a living space. Living in a rental building offers the same kind of security in terms of a home as owning a home or buying one using a bank loan does," Simson said.

Real estate fund entrepreneur Eften will see its first tenants in their Kadaka puiestee building in February. CEO Viljar Arakas said two more projects in Tallinn are in the negotiating phase. He said the company's rental apartment building portfolio could consist of some 1,000 apartments in the Baltics, with most of the Estonian apartments in the capital city.

"The rapid increase of construction prices will make this achievement significantly more difficult. It is clear that rental prices have not climbed as quickly as construction prices. As we know, the rental business tends to be a lower margin business than renting business spaces. There are many environmental challenges we are dealing with," Arakas noted.

He added that the payback period for a rental apartment building is somewhere between 17-18 years, depending on rental prices. There is much potential in the sector, however.

"The rental business is among the most important topics of local governments in developed European capitals. Let's look at the new German coalition, who has made a decision to construct 400,000 new apartments each year. The housing deficit and the consequent inflation and inaccessibility for the younger generation is an acute problem. It does not seem that way for us now, but I am completely sure that in a few years or election cycles, it will become one of the more important topics, which Tallinn and other Estonian centers will discuss before local government elections," Arakas said.

Tõnu Toompark, a trainer at the Kinnisvarakool training center, agreed with the entrepreneur. He said that while the availability of housing in Estonia is still good, but purchasing power is going down, leading people to look toward the rental market.

"If we return to an Estonian micro level, then the arrival of professionally managed rental buildings is very positive. You cannot manage a large building in any other way, you must offer a proper service and it could also be a measuring stick for other renters to see what kind of service you have to offer. The direction for better quality is set somewhere," Toompark said.

In addition to Lumi Capital and Eften, real estate developers Scandium, Larsen and Koduingel also have rental apartment buildings. The real estate trainer said the biggest factor in favor of the rental apartments is low risk - the market is wide enough and a tenant will be found eventually. Since risks are low, it also affects the investment.


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Editor: Kristjan Kallaste

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