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Estonia

Market characteristics

Over the last decade, the most intensive development of the I&L market in Estonia has been concentrated in Tallinn’s outer suburbs and in nearby municipalities. The most developed logistics areas lie in the eastern and south-eastern parts of the city. Development of manufacturing facilities and warehouses are concentrated in three main areas of Tallinn and its suburbs: Peterburi road, Pärnu road, and Tartu road, between the city limits and Jüri municipality.

The market is primarily focused on areas that surround the city, currently with strong interest in the East and Southeast, mainly due to the comparatively good accessibility, infrastructure and access to quality labour.

Supply, demand & vacancy

Stock & vacancy evolution in Tallinn
Demand by evolution in Tallinn
Demand by sector in Tallinn

Overall, there are 27 industrial parks located in and across Tallinn, which totaled ca. 1.7 million m2 of modern stock at the end of H1 2020.

New supply delivered to the market during the first half of the year in Tallinn and Harju County reached 77,200 m2, which was 4.6% of current stock. Q2 2020 saw the completion of 19 projects in the Tallinn region with total of 70,000 m2, of which 35% were speculative premises.

Due to the completion of several SBU premises, the vacancy rate in Q2 2020 has slightly increased and at the end of H1 2020 stood at 4.4%.

Starting from March 2020, developers and tenants started to reconsider their plans for 2020 due to the COVID-19 outbreak - some new leasing deals and development projects have been postponed, but the market otherwise remained rather stable. Despite this the market remains reasonably active in Tallinn and its suburbs in terms of new developments with a total area of ca. 68,000 m2 under construction at the end of June 2020.

Tenants’ activity observed in Tallinn has been experiencing a downward trend since the beginning of 2018. In the first half of the year, the total transaction volume reached 64,000 m2, which is a 28.6% decrease compared to the figure from the corresponding period of last year.

In the leasing structure, the distribution and light production/manufacturing sectors dominated and accounted for 38% and 21% respectively. Tenants from the e-commerce sector also had a significant share in the total leased area (19%).

Rental rates & lease conditions

In H1 2020, prime rental rates remained stable and varied between EUR 4.1-5.0/m2/month. Average lease lengths in Tallinn are 5-10 years in the case of logistics/warehousing, while production/manufacturing are between 5-12 years. Negotiating conditions are turning in favour of tenants, pressuring rental rates and resulting in some incentives like partial rent-free periods. In March-May, landlords started to propose somewhat lower rents to secure new leasing deals.

Outlook

Postponed leasing activity together with ongoing speculative development is creating the expectation for an increase in vacancy by the end of the year. Further speculative development plans in the I&L sector will be carefully evaluated.

Looking ahead the most promising outlook remains for the grocery, e-commerce, pharmaceutics, distribution and needs-based sectors. These sectors are expected to lead the demand for space over the next 12 months, but overall, demand for space will decrease.