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February 2016

One of the highest per capita income levels in Eastern Europe and a technology based market economy bode well for the “Baltic Tiger’s” commercial real estate market.

Facing the Baltic Sea and Gulf of Finland, Estonia is one of the least-populous member states of the European Union. With a population of 1.3 million, Estonia may be small but it’s known as the most ‘wired’ country in Europe due to its technologically savvy nation that created the famous software for Skype.

Since breaking free of the Soviet Union after the Iron Curtain fell more than two decades ago, Estonia has emerged as one of the most advanced countries in the world. Not only known for its technology prowess, Estonia has a robust economy and is frequently called as one of the most liberal economies in the world. Its dynamic economy has earned it 17th place, among 189 countries, on the World Bank’s Doing Business in 2015 report.

Having shown impressive GDP growth rates of about 8% since 2000, the economic crisis hit Estonia hard bringing the GDP growth down by 14.1% in 2009. Things have improved however and the economy has been recovering since; in 2014, economic growth stood at 2.9 percent.

In Q3 2015, Estonian GDP rose by 0.5% compared to the same quarter of the previous year with real estate activity being the greatest contributor to this growth. Interestingly, the contribution of manufacture and trade activities to GDP was close to zero, says the Colliers Q3 report on the Baltic States.

Due to its small size and attractive investment market, Estonia is considered as a frontier market. Coined by the International Finance Corporation in 1992, the term frontier describes the equity markets of the smaller and less accessible, but still ‘investable,’ countries of the developing world.


Real estate investment activity in 2015 was dominated by the office and retail segment. Offices accounted for 30% of total known investment volume in 2015 and retail accounted for 27% of the volume.

“Total investment volume amounted to EUR 530 million, exceeding the total record level achieved in 2007 and showing a more than two-fold increase over previous year’s EUR 240 million,” says Colliers’ Estonia Investment Market report.

The report mentions that the market saw new players from Western Europe as well as groups of local investors investing in the country and the Baltic region in 2015. Domestic spend was responsible for one third of acquisitions, while foreign capital was behind more than 66% of invested volume in 2015.

According to Margus Tinno, Partner and Head of Valuation and Investment Advisory at Colliers Estonia, there are many private investors currently active on the market, increasing the number of market participants. This combined with the shortage of investment grade products, sufficient equity and low interest rates has put additional pressure on already significantly lowered yields.

“Our main challenge is liquidity. The second one is the shortage of products. It’s a somewhat paradoxical situation, but we have witnessed improvements in the sense of liquidity as there are many new investors looking and investing to our market and not only from the usual origins (Nordics, Russia, Baltics) but also from Western Europe and the rest of the world (U.S., Far-East),” says Tinno.

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