1. What kind of demands does a new real estate market growth make on real estate quality in Estonia? Ene Kolbre Angelika Kallakmaa-Kapsta Tallinn University of Technology

2. Problem The Estonian real estate market has experienced a decline and stabilisation phase and started on a new rise In the real estate market decline phase it was discovered that the prices of low quality objects have fallen the most

3. The aim of the paper To investigate the opinions of market participants about the real estate quality and make a hierarchy of quality indicators under the new real estate market rise. The object of analysis is the housing and office market.

4. Purchase-sale contracts of apartment ownership Number of purchase- sale contracts Value of contracts of apartment ownership, million € Average value of contract, thousands € 200724369149561.3 20081601488255.1 20091089738835.5 20101331847535.7 2011 1st Q 272210237.5

5. Housing market The increase in the number of transactions in 2009 compared to 2010 was 20%. The median price of apartments in center district has risen to 1 300 €/m2 by 1st quarter of 2011, which is 25% higher than the lowest average prices in 3rd quarter of 2009

6. Housing market  The current situation in housing market is characterized by a relatively stable number of transactions. The supply exceeds the demand and offer prices vary widely Still are unsold or not rented out low quality appartments which were buit at the end of boom period The prices have clear differentiation based on the quality

7. A- and B-grade office space indicators in Tallinn 2007-2011 GradeIndicator200720082009 2010 2011 1st Q A Average rent (€/sqm/ month) 15.312.78,9 7.7-11 8.5-12.88 Vacancy (%) 3620 10-15 B Average rent (€/sqm/ month) 11.59.66.4 5-8 3.8-7.7 Vacancy (%) 41525-30 20-30

8. Office market In Estonian office sector Tallinn clearly dominates, described by largest stock of office space and highest market activity During the crisis periood 2008 and 2009 there was great amount of new office space added to the market and the vacancy rate reached 30-40%

9. Office market From the second half of 2008 until the end of 2009 the rent levels decreased around 35-40% The year 2010 brought stabilization on the office market, mostly affected by positive changes in the economical situation

10. Office market 2011 will bring slight increase in rent levels and stabilization of vacancy rates around 10% in city center. The vacancy level in older office buildings stays around 20%. Development activity in office sector will not increase during coming years.

11. The basis of the quality rating system Quality grade is a complex indicator that represents a combination of factors that characterise the income potential and value of the real estate taking into consideration that every factor has to assessed based on the principles of sustainable development and saving use and market expectations for these indicators

12. The basis of the quality rating system Income potential is evaluated on the basis of the following attributes: location and use of the plot, quality of construction, real estate management Valuation of each attribute is based on the factors that influence the respective attribute

13. The basis of the quality rating system The choice of factors influencing the attributes depends on the type of object to be valued residential, office, commercial, storage and production properties

14. Methods Analytic Hierarchy Process (AHP) method elaborated by Thomas L. Saaty was used to evaluate the hierarchy of the factors influencing the quality grade the changes in the hierarchy, depending on market changes or whether the quality rating factor is evaluated from the aspect of market expectations, market value or developer

15. Weightings of factors influencing the quality rating on the basis of location and plot. Office space

16. Weightings of factors influencing the quality rating on the basis of location and plot. Living space

17. Weightings of factors influencing the quality grade on the basis of construction quality Office space

18. Weightings of factors influencing the quality rating on the basis of construction quality Living space

19. Weightings of factors influencing the quality grade on the basis of real estate management Office space

20. Weightings of factors influencing the quality rating on the basis of real estate management Living space

21. Weightings of attributes depending on the purpose of quality rating Office space

22. Weightings of attributes depending on the purpose of quality rating Living space

23. Conclusions Experience gained from the real estate boom and the followed fall of the market forced all of the market participants to re-evaluate their opinion on the real estate quality At the beginning of new real estate market rise the weight of attributes and factors inside every attribute according to which the market participants evaluate the real estate quality has changed considerably

24. Changes in the attributes that characterise the real estate quality are similar to living and office spaces Weight of location and plot has considerably decreased Weight of the construction quality as well as real estate management has risen Changes listed above are valued similarly by tenants, real estate valuers and investors/ developers

25. Biggest changes have taken place in the factors which influence the quality rating based on real estate management More attention is now paid to the following factors: Office space: rental rate and use/non-use of electricity saving measures as a result of which energy expenses are lower Living space: utility service cost and energy consumption of the building

26. Thank You Ene.Kolbre@tseba.ttu.ee Angelika.Kallakmaa-Kapsta@tseba.ttu.ee