OREANDA-NEWS. September 28, 2010. Office market. Since several lease contracts that were concluded 3-5 years ago are ending and currently it is possible to rent A-class office premises with more or less the same rental level as B-class premises, quite a few companies are moving to better quality properties, reported the press-centre of Colliers International.

Most favoured among tenants are still up to 100 sqm office premises. However, also some larger companies are looking for suitable contemporary office premises up to 2,000 sqm. From previous can be concluded that confidence for the future amongst companies is increasing as they are ready to take new long-term commitments.

Retail market
Although the demand in bigger shopping centres is continually exceeding the supply thus keeping rental rates on stable level, the retail market is becoming more and more tenant oriented. It is evident that sustainable development of shopping centres in after-recession period depends on the turnover generated at the premises and due to the fact that Estonian retail market is too dependant on several retail chains performance, the insolvency of one single retail chain may lead to considerable leap in vacancy rates across Estonia.

Despite an improved global economic landscape, retailers are still expressing caution in terms of expanding and committing to new stores. Possible development depends not only on recovery of consumption in Estonia but to a great extent on financing availability.

Warehouse and Industrial market
Warehouse and industrial sector has become more active among Russian and Scandinavian clients. Nevertheless, the sector has not livened up as much as could be predicted in the beginning of 2010 since many relocation decisions have been postponed to the autumn. In case of built-to suit projects the main criteria for choosing a suitable plot is rather good location and developed communications than the cheapest asking price.

Investment market
It can be now stated that Estonia is standing out more clearly from the rest of the Baltic. The economic situation, Euro zone etc, have made Estonia more visible for foreign investors. Colliers has got these kinds of signals and attitude more and more often lately. One of the main positive aspects is the diminishing currency risk with the help of Euro. Many international players use Estonia as a first step to enter or re-enter Baltic market. In case of Estonia, Colliers sees yields compressing below 10% (or even 9%) in retail and office sector by the end of 2010.

Some (re)entering investors have already indicated readiness to go below 9% in certain cases (prime location, market rents etc). Also must be noted that in Estonia banks are not playing significant role as vendors, although they are of course part of the process. Perhaps noteworthy is also a fact that highly anticipated distressed property market did not emerge in Estonia. Distressed assets were and are sold, but the share is small and the assets are insignificant for typical RE investors.