Growth centers vs. developing areas – where should real estate investors look?

Real estate investment has traditionally been concentrated in large cities, where demand is high and the potential for value appreciation is greatest. In recent years, however, developing areas have become the focus of investor interest: in many smaller municipalities, housing prices are moderate and rental yields can be significantly higher. At the same time, competition for investment properties in growth centers is intensifying and yields are declining (Kuluttajaliitto.fi). This raises a key question for investors: where will an investment property generate the best returns in the long term?

One way to answer this is to look at micro-locations and their development potential. Are there plans for new schools, hospitals, tramways, or other infrastructure projects in the area that could increase the value of the property in the future? The location of an investment property is not just the name of the city, but also the block and street level. In developing areas, a forward-thinking investor can take advantage of future growth factors before they are reflected in prices.

Statistics confirm regional polarization: prices for older homes have risen in large municipalities, while in many small municipalities they have fallen (Tilastokeskus.fi). This offers investors the opportunity to seek higher rental yields and more stable cash flow in areas where price pressures are moderate. On the flip side, the risk in developing areas is higher if population growth or job creation do not materialize as expected. Could an investment apartment in a municipality that is still seeking growth be the gem of the future – or will it remain an underperformer? These questions are key when building a diversified investment portfolio.

Outside the capital region, investors can often stand out by improving quality. For example, a renovated studio or one-bedroom apartment in a municipal center where the supply is old can attract good tenants and offer higher cash flow. This type of real estate investment also benefits from regional development: the construction of a new hospital, factory, or school can quickly increase demand for rentals. However, the certainty of value appreciation is lower than in growth centers, so decision-making requires careful analysis of the region's population and job growth.

The rise of remote working has increased interest in regions that offer space and a better quality of life. This could create a new wave of growth for many previously quiet areas. At the same time, risk management is becoming increasingly important: rising interest rates or a decline in local services could quickly turn a healthy cash flow into a burden. That is why diversification is the best protection for real estate investors – both geographically and in terms of property types. In the long run, successful investors are those who combine sensible risk management, local knowledge, and patience.

Sources

1. Consumer Association:Polarization of the housing market in 2024
2. Statistics Finland:Prices of old dwellings by municipality
3. PTT:Regional housing market forecast for 2025
4. Omatalo Company:In which area should you buy an investment apartment?
5. YIT:Where should you buy an investment apartment?