Two Markets, One Reality: How Global Luxury Trends Are Reshaping Estonia’s Property Landscape

Sotheby’s International Realty is the world’s largest and most influential luxury real estate brokerage network, operating in more than 80 countries and bringing together over 26,000 sales associates worldwide.

The brand’s annual global market review, Luxury Outlook, is based on macroeconomic data, global capital flows, the actual purchasing decisions of high-net-worth individuals, and the experience of institutional investors and developers. It analyses trends that explain how luxury assets move differently from the mass market and why the housing and real estate market has, in essence, split into two distinct economic spheres. This global framework also helps to interpret the behaviour of the Estonian market – particularly Tallinn and Harju County – in 2024–2025 and to form expectations for 2026.

Tallinn and Harju County real estate market 2025: selective liquidity, a buyer’s market, and stratified price dynamics.

Public discourse has often described the 2025 property market as slowed or even “frozen”. Transaction practice and price movements compared with 2024, however, present a different picture. The market has not stalled; it has become clearly more selective. Capital is present and transactions are taking place, but they are concentrated in assets where location, quality, pricing, and future-use logic are in balance. This applies to both residential and commercial real estate.

The year 2024 was a period of adjustment and stabilisation in the Estonian housing market. The interest rate environment was high, buyer decisions were cautious, and price growth slowed, with temporary corrections in some segments. In 2025, a clear exit from this phase occurred. Aggregated data from Statistics Estonia and market reports indicate that the housing price index increased by approximately five percent in 2025 compared to 2024. Apartment prices rose on average by about 5.5 percent year-on-year, while house prices increased in the range of roughly 4–8 percent, depending on region and quarter. In the third quarter of 2025, apartment prices were up around 5.5 percent and house prices about 4.7 percent compared with the previous year. By autumn 2025, the average price per square metre in Tallinn had reached approximately €3,050, with the median remaining in the range of €2,800–2,850 per square metre. This confirms that 2025 was not a year of decline, but rather a phase of normalisation with moderate and broad-based growth following the stabilisation of 2024.

According to developers and market participants, the environment can be characterised as a buyer’s market. Several developers hold a significant stock of completed apartments, and the need to release capital is forcing adjustments in pricing strategies. At the same time, prime locations clearly stand out: prices there are not falling but differentiating. Strong areas maintain their level and appreciate relatively, while weaker locations must make concessions.

From an investor’s perspective, the maturity of the market is also reflected in the underlying logic: investment decisions are centred on prime location, entry prices below replacement cost, and long-term value rather than short-term price cycles. The opening up of Tallinn’s waterfront areas is a telling example – the transformation of former industrial and military zones into residential environments has created a foundation for long-term value, while the sale of the most expensive so-called “million-euro apartments” will continue to serve as a key litmus test for the market.

In the rental and yield context, it is emphasised that in the conditions of 2025, smaller and functionally efficient apartments offer investors the best risk-return ratio. Micro-apartments can achieve yield potential in the range of 7–8 percent, whereas larger and more expensive units typically deliver returns closer to 3–4 percent. This clearly reflects the internal stratification of the residential market in both buyer and investor behaviour.

Selective yet functioning liquidity is also confirmed by major transactions in 2025. Examples include the sale of Solaris Centre, the former Swedbank headquarters at Liivalaia 8/12, Indexo fund’s entry into the Estonian market, and the consolidation of the Mere puiestee 10 development plot under the control of US Real Estate, among several other landmark deals. Without delving into detailed analysis, these examples demonstrate that capital is moving in both core and value-add assets where pricing and future-use logic are credible.

Residential luxury real estate: the global framework and Estonia as its reflection

Sotheby’s International Realty’s 2026 Luxury Outlook highlights that the real estate market has effectively split into two separate economic spheres. The mass market responds to interest rates, lending conditions, and short-term economic cycles. The luxury market, by contrast, is driven by wealth accumulation, asset diversification, lifestyle choices, and the pursuit of security and privacy. Ultra-high-net-worth buyers are largely independent of macroeconomic fluctuations; their decisions are guided instead by long-term net worth growth and the desire to allocate capital into stable assets with limited supply.

Global experience shows that luxury inventory had recovered to pre-pandemic levels by 2025, creating a more balanced market overall, while in prime locations scarcity and pricing power persist. Buyer priorities are shifting towards lifestyle, security, and privacy; multi-generational living and intergenerational wealth planning are gaining importance. The concept of first-mover advantage is also emphasised: developers and sellers who adapt their pricing and positioning earliest to the new reality often gain visibility and achieve transactions ahead of competitors.

Estonia’s luxury residential market increasingly fits into this international logic. Tallinn’s most prestigious areas – Kadriorg, the Old Town, Noblessner, Pirita, Kakumäe, the coastal zones of Viimsi, and the villa districts of Nõmme – form a distinct sub-market where purchase decisions are not primarily driven by interest rates or rental yields, but by the rarity of location, architectural quality, security, privacy, and an international frame of reference. Buyers no longer compare these assets only within Tallinn, but place them in the same Northern European quality class as the prime districts of Helsinki, Stockholm, and Copenhagen.

Outlook for 2026: moderate growth and strong quality selection

Looking towards 2026, both local analysts and international market participants expect price growth to continue, albeit at a moderate pace. Forecasts place average appreciation in the range of approximately 3–5 percent, particularly in areas and segments where demand was strongest in 2025. Transaction volumes may increase, but even more significant will be the growth in transaction value and quality, indicating more active movement in higher-end assets.

Banks’ willingness to finance is cautiously improving, the stabilisation of Euribor supports purchasing power, and overall pricing discipline in the market creates a foundation for a gradual expansion of liquidity. In the luxury segment, a distinct dynamic will continue, with price levels and demand supported primarily by limited supply, an international buyer base, and lifestyle-driven decisions.

In summary, 2025 was not a frozen year in the Estonian real estate market, but a phase of selective liquidity and moderate price growth following the stabilisation of 2024. The year 2026 is shaping up as a period of balanced growth, in which assets with prime locations, clear usage logic, and high quality will trade more actively than the market as a whole. Within this framework, luxury real estate functions as a separate economic sphere aligned with global trends, and Estonia – especially Tallinn’s top districts – is increasingly becoming a natural choice for higher-segment buyers.

What is essential to understand in the 2026 market phase

  1. 2025 was not a crash, but a correction and a “reset” – the year in which the market adapted to the new interest rate environment and the true cost of capital, and the era of “easy money” ended.
  2. 2026 is likely to mark the completion of the adjustment cycle – those who have not aligned their pricing, financing logic, or business models with the new conditions will now face reality.
  3. A return to the exceptionally low pre-pandemic interest rates is unrealistic. A moderately higher but stable interest rate environment is the more probable long-term scenario.
  4. Market success depends not on prediction, but on strategy – decisions must be aligned with current conditions, not with hoped-for future scenarios.
  5. Understanding market dynamics and timing is more important than trying to catch the absolute bottom or top; purchase and sale decisions should be adapted to the phase of the cycle.
  6. Supply may increase and transaction volumes may grow somewhat, creating more balance and negotiation room for both buyers and sellers.
  7. The market is likely to move gradually rather than through sharp jumps. A drastic price surge is not expected, but neither are there grounds for a systemic decline.
  8. Success requires high market awareness and flexibility – the ability to read data, understand the local market in depth, and adjust decisions to a changing environment.
  9. Analytical capability and discipline will be decisive – instead of emotions, clear value logic and realistic risk assessment will guide success.
  10. Most analysts do not foresee a sharp reversal in the price cycle in the near term, but rather stable and moderate movement.
  11. Buyers and investors should not base expectations on the hope that low interest rates will solve everything. It is more important to learn to operate under current conditions and to make decisions based on today’s market reality, not the previous cycle.

If you’re navigating either side of the transaction — as a seller or buyer — the advantage comes from insight, timing, and a clear plan. That’s where our work begins. Contact us for a confidential consultation – we offer discreet, data-led consultations tailored to both individual owners and institutional investors.

Rauni Tillisoo
Sales Associate / Luxury Homes / Investment properties
rauni.tillisoo@balsir.com
+372 5323 2294