Rapid growth of real estate sparks fears

TALLINN - The rapidly increasing number of new commercial premises in Estonia has prompted banks to warn of excessive optimism among retailers. Aggressive competition is undermining retail profits, they say.

The commercial sector, which has made great strides in recent years, is one of the biggest causes of concern for Hansapank, according to board member Erkki Raasuke, speaking to the business daily Aripaev.

"We've been keeping a close eye on commerce for some time and have altered our lending strategy accordingly," Raasuke said.

Hansapank has provided 700 million kroons ($41.27 million) in credit to the commercial sector as of now.

Sven Kunsing, director of Uhispank's market analysis division, also warned that the expansion in premises was outstripping sales. While turnovers have been showing fast growth, sales per square meter of retail space have decreased, he said. "At some point, when the rise in demand slows or temporarily stops, this may mean losses."

Data from the market research company Profindex shows there was a total of 7,187 stores in Estonia this spring with commercial premises exceeding 80 hectares. More than 40 percent of this space is located in Tallinn. Between 1992 and 1999, the size of commercial premises grew annually at a rate of 13 percent on average. Growth is estimated to have been even faster last year, especially in the Tallinn area.