Startups and large FinTech companies have sprung up in the region at a remarkable rate – Monese, Transferwise and Skype were all founded in Estonia, and it doesn’t stop there. There are plenty of businesses growing in the area, and if you’re a real estate investor, here’s why you should consider investing.
Rapidly developing economies
For the fifth consecutive year since 2015, the total volume of commercial real estate investments in the Baltic States has exceeded 1 billion euros. This illustrates the region’s capacity for growth, despite the difficulties brought by the Covid-19 pandemic.
After a good 2019, all of the Baltic economies contracted due to the pandemic. In Latvia, GDP fell by 3.6% last year, in Estonia by 2.9%, and in Lithuania by 1.3%. However, the three Baltic states are all in a much better position to cope with the economic downturn than they were during the global financial crisis of 2009.
Understandably, as small open economies, they are vulnerable to lower industrial production and the lack of tourism from Covid-19, but significant EU stimulus packages and a swift easing of quarantine measures have somewhat reversed l impact of the decrease in their GDP.
While retail was the sector most affected by the pandemic in 2020, it has accelerated the growing market share of e-commerce, which is another thriving industry in the region.
In Tallinn, Estonia, the average salary is almost tripled in the last 12 years, which is an excellent indicator of the purchasing power of the local population and therefore of the demand for quality real estate.
Both Tallinn and cities like Vilnius are experiencing waves of massive urbanization – their population has increased in the last five years of 6% and 3%, respectively, indicating an increasing number of potential buyers in the coming years.
Another notable aspect is the construction of a high-speed rail link between the Estonian capital Tallinn and Lithuania’s border with Poland, “ Rail Baltica ”, which could increase the GDP in each of the countries. three Baltic States from 0.2 to 0.6%. This will introduce greater freedom of movement between these countries and dramatically increase the accessibility of the region for foreign companies in Central and Western Europe.
Despite having large diasporas in each of the Baltic states, they all adopted approaches to encourage return migration – Estonia implemented an online residency program that launched digital innovation, Lithuania used a program dedicated for the return of members of the diaspora, and Latvia launched a program in 2018 to help families returning from abroad to settle again. These policies all help maintain the momentum of the Baltic states’ capitals.
Extensive investment offers
There are many options in terms of the types of properties to choose from in the Baltic States, and even rewards for investing in some cases – Latvia, for example, offers a European residence when you invest at least € 250,000 in the property. real estate in the country.
The development of the multi-apartment segment in Vilnius and Tallinn was enormous in 2020, with the highest construction volumes since 2007. Between 2019-2020, in the cities of Tallinn and Vilnius, developers have built 17 and 14 apartments per 1,000 inhabitants respectively. For two-room apartments in Vilnius and Tallinn in 2020, the gross rental yield was 5.2% and 5.6%.
Apart from apartment developments, there is also a fair amount of office space available in the major cities of the Baltic States. In 2019, a total of 290,000 m2 of offices was built in Tallinn, Riga and Vilnius, and construction shows no signs of stopping. A new workforce coming to the cities, coupled with the region’s budding start-up infrastructure, creates the perfect mix for a diverse real estate market.
Crowdfunding is gaining ground
For those looking for an attractive alternative form of investing, the Baltic States are home to some of the largest crowdfunding platforms in Europe – Profitus, Estateguru, Reinvest24 and Crowdestate.
In terms of the amount of projects funded, Estateguru outperforms all platforms in France, Spain and the UK with 1861. And to add to their acclaim, their average rental yield is 11.28%.
There are also other innovative projects that deserve attention. For example, Lendsecured from Riga, Latvia is a company that invests in asset-backed loans, thus ensuring a passive income stream.
There is an old Lithuanian proverb: “It is difficult to teach a cow to climb a tree”, and this fits perfectly with the approach of the three Baltic States. Rather than trying to compete with Germany, France or Spain, they chose their own path to growth, and it paid off.
Having suffered from Soviet occupation, they turned the past around and grew into impressive economies with worldwide success. Their capitals, in particular, have become innovative technology hubs with real estate startups and positive legislation to be appreciated.
* Jan Večerka is CEO of Brikkapp, a research and analysis platform for real estate crowdfunding