Roughly 6.7 million people live in the three Baltic states, with over 175,000 square kilometers of territory. In terms of size the region is comparable to Denmark, Finland, Slovakia or Switzerland. Interestingly enough, the Baltics historically became considered as a single (and separate) region – not CEE and not Nordics, but something in between.

Therefore, in the minds of RE investors a separate region also means a separate regional real estate transactions market. And indeed a very small one. This causes all sorts of fears, beginning with illiquidity, and ending with general distrust. To overcome these fears and mitigate at least to some extent the illiquidity risk, the integration to broader regional RE market should be highly desirable for each of the Baltic states. In general, there are two directions:

1) Nordic property market
2) CEE property market.

Any of these directions would certainly serve its purpose of broadening and deepening the perception of the market.

Certain steps towards it are already taking place. Firstly, the RE market of the three Baltic states is maturing, with more educated owners following international standards and practices of “packaging” their properties for sale – that means signing lease agreements on internationally sound terms, managing their properties transparently and professionally.

Secondly, the tenants are increasingly more international and present at least in other CEE or Nordic countries. For example, a portfolio of two office buildings currently on sale in Vilnius has SEB, Western Union, CSC, Sweco, HP as its key tenants – all internationally established companies and strong tenants, which are well known not only to the local market, but to international investors as well.

Thirdly, domestic investors become more business, not speculation oriented, thus strengthening the domestic investment market. This means a stronger competition locally and thus easier exits in case of need for international investors.

However, it would take time for the Baltics to become fully associated with any of the regions proposed above. Before the 2008-2009 economy crisis not many were thinking about strong domestic market or regional identity – stellar economy growth rates were often enough to attract a considerable amount of international investors’ attention. Not now - to change the current investment policies of institutional investors, which in most cases include the CEE and Nordics but exclude the Baltics, would take at least several years.

But there are already good examples present – Estonia demonstrates a stellar number of RE transactions in 2010-2011 – with the 105 million EUR sale of 43 thousand sq.m  Kristiine shopping centre, and a sale of 28 thousand sq.m Radisson Blu hotel in the very centre of Tallinn, among the largest transactions. Both of the transactions involved investors of Scandinavian origin.

In conclusion, the long term perspective for the Baltic RE transaction market is to be perceived as part of CEE or Nordics, not a separate regional market. Market maturity, internationally accepted quality of properties, tenant and management, and transparency should provide the right kicks to achieve this.