Riga-Tallinn-Vilnius. Comparison of the real estate rental market in the three Baltic capitals

Representatives of the real estate market told how the energy crisis and the war in Ukraine have affected the rental property market in the capitals of the three Baltic countries. What trends are there? What to expect in the future?

Latvia is a stable and cheap market

Rising mortgage rates, skyrocketing inflation affecting food and basic needs, general uncertainty – these are the problems residents of all three Baltic countries are facing. But the real estate market reacts to these changes in different ways.

Latvia is still one of the most affordable capitals in Europe in terms of rental prices. In Vilnius it is no longer possible to rent a house even for 300-350 euros, in Tallinn - for 400-450 euros.

According to the owner and head of the KA Invest Group group of companies, Alexey Kashkarov, there are still apartments on the outskirts of the capital of Latvia - one-room apartments or studios that can be rented for 200 euros (without utility bills). “We are talking about the market for renting apartments with amenities. We, unlike Tallinn and Vilnius, still have offers of apartments with partial conveniences. But there is a lag in price in all segments - Soviet, renovated or new housing, ”he notes.

First of all, low prices indicate that the solvency of the population in Latvia is lower. The outflow of the population is still going on, although emigration is not as strong as it was 10 years ago. “Latvia lags behind both in terms of living standards and income. The second reason is that the housing market is underestimated. As a result, supply still exceeds demand,” notes Kashkarov.

In autumn, there is a shortage of two-room apartments for rent. One of the reasons is that refugee families still come to Latvia, usually with two generations. “I talk to potential tenants every day. The trend is that up to 50% of callers (and the situation has not changed since March) are Ukrainians. Although KA Invest Group rents unfurnished apartments, they are also rented by Ukrainian families who sign contracts for a year. We can conclude that people have found a job, they want to stay here,” the expert adds.

In part, Latvia's lagging behind in prices is due to the lack of a proper number of Class A offices. Unlike neighboring capitals, because of this, international companies come to us less, highly qualified specialists do not come, who would raise the overall level of solvency. “Tallinn has A-class office areas with up to 15,000 employees. These people come to the country and look for housing, pay taxes, make purchases. In Latvia, although we do not see problems with transport, in 20-30 minutes you can get to any residential area, unfortunately, the development of office districts is in its infancy,” notes Kashkarov.

Three reasons for the great potential of the Riga market

In general, the Riga rental housing market has frozen and in some ways copies the real estate sales market. Although enough time has passed since the real estate bubble formed (and it was larger in Latvia than in other Baltic countries), lending has not yet fully recovered, and the Riga rental market is undervalued. “The rental market lags far behind other Baltic countries, mainly in terms of prices and a little in terms of quality,” says Aleksey Kashkarov, owner and head of the KA Invest Group.

Another reason why the Latvian real estate market lags behind the capital markets of neighboring countries is the “fight” between banks and any foreign investment that began in 2018. Various restrictions have caused many good investors to stop investing in Riga. This applies not only to investments from the CIS countries, investments that are ready to be invested by the business of Israel, England, and Switzerland are being hampered. “When the Central Bank of Latvia and the state stop artificially hindering investments, Riga has every chance to overtake other capitals. And there are a number of reasons for this: the first is the largest city in the Baltic countries, the second is the transport hub, the third is that Riga is ahead of its neighbors in terms of the number of attracted foreign tourists. A zero rate of tax on retained earnings, similar to which has been introduced and has been operating in Estonia for several years, can also play a positive role,” adds Alexey Kashkarov.

Hot Tallinn

The real estate market of the Estonian capital, according to many experts, is significantly overheated. Demand exceeds supply, and scarcity spreads. And this applies to all segments without exception. According to the results of May of this year, Estonia has become the record holder of the European Union in terms of inflation growth rates - for several months it exceeds 20 percent. The money printed during the pandemic and the still preferential terms of financing are making themselves felt. But apartment prices rose in the spring and early summer, and the last few months seemed to freeze. In autumn, the rise in prices stopped and the market stabilized.

According to the expert of the Estonian company, Profil invest Dmitry Zvyagintsev, the segment of rental housing is under particular pressure. Refugees from Ukraine arriving in Estonia, as well as new residents from Russia, have a significant impact.