In 2024, it is an opportune moment to consider leasing new office spaces in Tallinn’s commercial real estate market. Since the middle of last year, the market has experienced an unusual level of passivity, particularly within the office segment. The desire of companies to lease new spaces is undoubtedly hampered by the economic downturn and the general uncertainty stemming from crises in recent years. The continued popularity of remote work, initiated by the pandemic, has also played a significant role, leading many companies that have expanded their workforce to not feel the immediate need for larger office spaces.
Despite the abundance of available properties in the market, corporate interest in office spaces has not completely diminished. However, decision-making in these challenging economic conditions tends to be prolonged, often resulting in companies opting to stay in their current locations for another 1–2 years after exploring the market. Economic forecasts for the year suggest that the office market will remain relatively calm for some time. However, by 2025, a moderate economic growth is anticipated, typically accompanied by increased interest from companies in new offices—whether driven by the need for more space due to growth or a decision to upgrade to higher-quality premises. Even those who extended their leases for a couple of years last year are likely to make relocation decisions in the coming years.
The challenging economic situation has made developers cautious, leading to the postponement of the construction of several planned buildings. This indicates that the planned construction volumes for the coming years may not materialize. If, at the same time, the economy rebounds and demand for offices rises again, it may become exceptionally challenging to find quality office space in 2025. The option of remote work has not encouraged entrepreneurs to abandon offices altogether. Increasingly, it is recognized that physical interaction is essential for maintaining employee loyalty, fostering organizational culture, generating better ideas, and facilitating collaboration. Therefore, having a employee-friendly and inspiring office where people willingly come to work is crucial.
For companies anticipating the need for new office space in the next couple of years, focusing on space searches in the coming months is advisable for several reasons.
• Expiring Leases in New Buildings: Leases signed in new buildings before the pandemic are reaching their end, and due to hybrid work arrangements, some companies have slightly reduced their space requirements. This has resulted in vacancies in new prestigious buildings, providing an excellent opportunity to secure an almost new office space without a lengthy wait. If the existing layout and interior suit the needs, it can be an efficient solution. Additionally, there may be an opportunity to acquire the previous tenant’s furniture without the need for additional expenses on space planning and interior design.
• Availability in New Buildings: Since the market has been quiet, there are still spaces available in some completely new buildings. If the space requirement is not extensive, it is possible to quickly secure a custom-designed office tailored to the specific needs of the company. As these new buildings are already completed externally, the waiting time is usually limited to the time required for the interior to be finished, typically not exceeding six months.
• Consideration of Quality Older Buildings: Advocates of sustainability should explore high-quality older buildings. Many landlords are actively improving the energy efficiency of their properties and stylishly renovating common areas and offices. This approach allows for obtaining a modern and quality office in an older building at a more favorable price compared to a new one.
• Favorable Market Conditions: Given the likely continued calmness in the market in the coming months, the situation is advantageous for tenants. While it is unrealistic to expect significantly reduced rents, landlords are likely to be more flexible with lease terms. Maintaining a strict stance on leasing conditions becomes increasingly challenging in a competitive rental market.
In conclusion, the new year offers prospective tenants excellent opportunities to lease quality office spaces at reasonable prices, as construction costs have remained under control. Predicting the future is not within the purview of real estate professionals, but it can be reasonably stated that if the war in Ukraine concludes (hopefully this year), the reconstruction of Ukraine will have a significant impact on construction costs in our region and, inevitably, on rental prices.
