TALLINN, ESTONIA-Some optimism is re-emerging in Estonian real estate, and foreign investor interest, especially from Scandinavia, has increased significantly in the past few months, reports consultant Re&Solution, part of Stockholm-based Newsec.

While only six months ago, nobody would consider buying Estonian assets at yields below 10%, a few recent office deals have been transacted close to 8%, with a couple more in office and retail currently being planned at a similar level, says Re&Solution head of Baltics Investment and Research Neringa Rastenyte. This year, investors are focusing on prime properties, with interest in secondary assets unlikely before 2011.

Re&Solution cautions that risks still remain for emerging European markets due to a possible double-dip recession as well as weak occupier demand, and investors will remain cautious in selecting investment targets. “Quality, quality, and once again quality shall be a key issue. Prime assets really have potential, but when considering secondary assets for a net yield of 7.5-8% this is already a signal of risk,” said Rastenyte. Strong competition at property auctions also suggest market stabilisation and expectations of further growth, bolstered by the country’s improving major macro-economic indicators and upcoming adoption of the euro.