Published on and written by Cyril Jarnias
ICELAND often intrigues investors with its volcanoes, fjords, and northern lights. But behind this postcard image lies a commercial real estate market on a powerful upswing, driven by a robust economy, nearly 100% renewable energy, and a relatively reassuring legal environment. In a country with a population of less than 400,000, the real estate sector’s figures are surprisingly dynamic, and foreign capital inflows are intensifying.
Iceland presents a small market, high dependence on tourism, and a volatile currency, but also offers interesting yields, political stability, and demand concentrated in a few key areas. Rather than short-term speculation, a long-term investment strategy is recommended, targeting quality assets in modern offices, logistics, hospitality, or green industrial parks.
A Rapidly Expanding Commercial Real Estate Market
From a macro perspective, ICELAND ticks several boxes sought by institutional investors: an advanced economy, a sovereign credit rating of ‘A’ with a stable outlook from international agencies, a robust rule of law, and high transparency in real estate transactions. The gross domestic product is around $28 billion and is projected to grow 2-3% annually in the medium term, despite a slight contraction in 2024 that is already correcting.
On this foundation, the commercial real estate market has grown. The direct real estate activities industry weighs about 2.3 billion euros in revenue for 2025 and ranks 27th in Europe. Between 2020 and 2025, the size of this sector grew at an average annual rate of 12%, while the number of active companies climbed to over 7,100, with an annual growth rate exceeding 8%. In other words, not only is the value of the property stock increasing, but the number of players—developers, property companies, managers, intermediaries—is also exploding.
The rental and leasing sector generates nearly 378 million euros in revenue, highlighting the importance of the rental model.
Competitive Rental Yields in a Tight Market
Even though most published statistics concern residential more than pure commercial property, they give a fairly accurate idea of the yield/risk profile. Nationally, average gross yields across all housing categories are around 5.20%, with peaks beyond 6% depending on the property’s size and location. In Reykjavik, the observed range is between approximately 3.9% and 5.5%, with an average close to 4.9%.
Commercial properties, according to market analyses, show gross yields between 5.5% and 7%, while small hotels and guesthouses can reach 7% to 9%, especially in tourist areas. After deducting expenses, taxes, and maintenance, net yields typically stabilize between 3.5% and 4.5%. For a Nordic country considered very safe, this yield/security combination is far from negligible.
The evolution of real estate market prices shows a resilient and progressive trajectory. After an annual appreciation of 3-5% in the post-crisis period (2010‑2016), followed by a strong increase of 8-10% per year during the tourism boom (2016‑2019), the pandemic slowed growth to 1‑3%. Since 2023, growth has resumed at 5‑7%. Projections now anticipate a more moderate increase, below 5% per year, signaling a market maturation phase rather than a speculative bubble.
A Generally Supportive Economic Environment
The Icelandic economy has diversified: to the historical pillars of fishing and aluminum have been added tourism, information technology, life sciences, and creative industries. The labor market remains tight, with unemployment around 5-6% and foreigners making up close to 24% of the workforce, prominent in construction, tourism, and fishing.
Inflation, after peaking near 9%, has fallen back to around 4% in 2025, while the Central Bank has begun loosening its monetary policy, lowering its key rate towards 7.75%. The volatility of the Icelandic króna remains a reality, but the strength of the banking system, the size of pension funds, and rigorous prudential supervision limit systemic risks.
Evolving Demand: Flexibility, Experience, and Sustainability
To understand investment opportunities in commercial real estate in ICELAND, one must look closely at the transformation of usage. Icelandic businesses and consumers, like elsewhere, are revising their expectations for buildings: more flexibility, more technology, more environmental sustainability.
In offices, demand is shifting towards open-plan, modular spaces, integrating advanced digital solutions and enabling hybrid work. Coworking spaces, flexible office solutions, and shared services (meeting rooms, relaxation areas, dining, bike parking) are gaining ground, particularly in downtown Reykjavik and developing business districts.
Faced with the rise of e‑commerce, retailers are transforming their stores into experiential places rather than mere points of transaction. Mixed-use zones, combining retail, dining, entertainment, and housing, like the Hafnartorg project in Reykjavik, illustrate this trend.
On the environmental front, the quest for “green” buildings is particularly marked. Nearly all electricity and heating come from renewable sources (geothermal and hydroelectric), and legislation, along with municipal policies, pushes developers to integrate environmental certifications, lifecycle analyses, and low-carbon materials. Districts like Korputún, under development, thus aim for BREEAM Communities certification at the entire district scale.
Where to Invest: Mapping Key Zones and Segments
The Icelandic real estate market is extremely geographically concentrated. Over 65% of the population lives in the Capital Region and a large part of economic activity is located there. For an investor, this concentration allows targeting a few major hubs.
Reykjavik and the Capital Region: The Market’s Beating Heart
Reykjavik is logically the primary destination. The country’s political, economic, and cultural center, the city concentrates the best office assets, prime retail, and mixed-use projects. The downtown area (notably sectors like Laugavegur, the Old Harbour, the waterfront around Harpa) shows the highest values and a structurally low vacancy rate.
Modern, multifunctional workspaces designed to meet the evolving needs of businesses, combining services, amenities, and strategic location.
Modern waterfront building combining retail, restaurants, apartments, and offices. Equipped with underground parking, 24/7 security, and a wellness area.
Offers scalable work solutions, suited to small and medium-sized structures, in a central location.
Provides flexible office spaces designed to adapt to business growth and changes.
Offers scalable and modern work solutions, tailored to the needs of small and medium-sized businesses.
The table below gives an overview, based on published orders of magnitude, of average price ranges per square meter in main urban areas (all asset types combined):
| Investment Zone | Estimated Average Price (€/m²) | Main Comment |
|---|---|---|
| Reykjavik center (101) | 5,500 – 6,200 | Prime locations, strong demand pressure |
| Reykjavik near center (105, 107) | 4,500 – 5,500 | Established residential and commercial districts |
| Reykjavik suburbs (houses) | 4,000 – 4,800 | Family market, road access |
| Kópavogur / Garðabær (Capital Region) | 4,000 – 5,000 | Strong commercial and retail development |
| Hafnarfjörður / Mosfellsbær | 3,500 – 4,200 | Mixed-use zones, residential and industrial |
| Akureyri center | 3,000 – 3,800 | Country’s second city |
| Tourist areas of the South Coast | 2,800 – 3,500 | Cottages and hotel projects |
| Small towns in the Eastfjords | 2,000 – 2,800 | Niche market, vacation potential |
| Westfjords (isolated towns) | 1,500 – 2,500 | Low prices, very high selectivity |
In the Capital Region, shopping malls (like Smáralind in Kópavogur) and peripheral business parks benefit from population growth and rising incomes. Opportunities also exist in urban logistics, to meet the rise of online commerce.
Akureyri and Regional Towns: Controlled Diversification
Akureyri, the country’s second city, positions itself as a rapidly developing regional hub. The market there remains more affordable, with yields sometimes higher than in Reykjavik, particularly in hotel assets, vacation rentals, and mixed-use buildings. Projects like the conversion of the old Sunnuhlíð shopping center into a health and medical services hub (over 4,800 m²) illustrate the potential for value creation through the transformation of existing assets.
Other Icelandic localities, such as Selfoss in the south, Húsavík in the north, certain towns in the Eastfjords or the Westfjords, offer investment opportunities. These markets present lower entry prices and niches like ecotourism, but require investors to have a higher tolerance for liquidity risk.
Logistics Perimeter and Transport Hubs
ICELAND benefits from a strategic geographical position on the transatlantic axis, with the Port of Reykjavik as the main entry point for goods and Keflavik International Airport as a major air platform. Logistics and warehousing are experiencing rapid growth: the sector is progressing at a rate of about 13% per year, employs nearly 9,500 people, and represented over 4% of GDP as early as 2020.
The main hubs are structured around Reykjavik, Keflavik, and areas like Ásbrú. Major retailers and logistics providers plan to increase their storage capacity by about 35%, which should create more than 1,800 additional jobs by 2026, and thus additional demand for warehouse space, cold storage, and cross-docking platforms.
Main Commercial Asset Segments
ICELAND offers more than just a single investment profile. Offices, retail, warehouses, hotels, green industrial parks: each segment responds to specific demand drivers and a different risk structure.
Offices: Flexibility, Technology, and Centrality
Prime offices in central Reykjavik attract banks, law firms, creative agencies, and technology companies. Demand is particularly strong for spaces that are:
– modular, allowing for easy resizing of occupied areas;
– well-connected, with fiber optics and IT infrastructure;
– with high energy performance, leveraging geothermal energy for heating and sometimes cooling.
The trend towards flexible offices also benefits buildings offering per-person, per-month workstations with integrated services. In addresses like L27 or Hafnartorg, rents can be charged per workstation, with shared amenities (meeting rooms, relaxation areas, cleaning, IT services).
Yields in this segment, for well-located and well-leased assets, are around 5.5 to 6.5% gross, with prospects for steady value appreciation in the medium term, as long as economic growth and commercial demand remain strong.
Retail: From Shopping Streets to Mixed-Use Complexes
In the shopping streets of central Reykjavik, retail captures both Icelanders and tourists, with over 95% of foreign visitors passing through the Capital Region. Tourist spending, particularly on accommodation and dining, represents a significant portion of local revenues.
Large shopping malls like Smáralind consolidate national and international brands and offer significant space, but the projects with the most potential are often those that mix retail, dining, entertainment, and offices or housing. This is the case with the redeveloped Reykjavik waterfront, where shops, cafes, apartments, and offices coexist.
The rise of e‑commerce does not translate into a collapse of physical retail, but rather a reconfiguration: click-and-collect, experiential showrooms, smaller and better-located stores. For the investor, the focus becomes tenant quality, space flexibility, and the ability to integrate new uses.
Logistics and Warehouses: An Under-Supplied Sector
The logistics segment is perhaps one of the most under-supplied. Available data shows, for example, that in spring 2025, only 34 warehouses were available for rent in the entire country, for a total area of some 72,700 m², even as demand continues to climb.
Several asset categories stand out:
– standard warehouses for general storage;
– temperature-controlled warehouses, highly demanded by the agri-food and pharmaceutical industries;
– cross-docking platforms, leveraging Iceland’s geographical position for fast flows;
– high-security storage solutions for sensitive, high-value-added products;
– refrigerated warehouses, the fastest-growing segment, linked to fish and fresh product exports.
Yields for logistics can reach 6 to 7% gross, or even more for secondary but well-leased assets. The relative shortage of supply, combined with increasing investment in automation, argues for a progressive valuation of the best assets.
The following table summarizes the yields and typical valuations observed by segment:
| Asset Segment | Typical Gross Yield | Valuation Comment |
|---|---|---|
| Reykjavik center offices | 5.5 – 6.5 % | High values, strong liquidity |
| Secondary offices (periphery) | 6.0 – 7.0 % | Price discount, higher vacancy risk |
| Prime retail | 5.0 – 6.0 % | High exposure to tourism |
| Retail in regional shopping malls | 6.0 – 7.0 % | Higher yield, dependence on local economy |
| Logistics and warehouses | 6.0 – 7.0 % | Limited supply, strong demand growth |
| Small hotels / guesthouses | 7.0 – 9.0 % | High seasonality, more complex management |
| Seasonal tourist rentals | 6.0 – 8.0 % | Variable income, highly dependent on tourism |
Hospitality, Tourism, and Mixed-Use Projects
Tourism is one of the most powerful drivers of real estate demand in ICELAND. Before the pandemic, arrivals exceeded 2 million visitors per year, compared to less than one million in the early 2010s. After the slump of 2020‑2021, traffic quickly recovered and forecasts again call for over 2.3 million tourists.
This is the potential yield tourist accommodations in Iceland can achieve thanks to high occupancy rates and pricing.
In this context, the Reykjavik municipality has even published a dedicated prospectus for hotel opportunities, and several structuring projects exist across the country (coastal hotels, cottage clusters, adventure complexes). Regulations on short-term rentals (limited number of days, mandatory licenses) have the effect of channeling some demand towards professional hospitality, which supports the profitability of well-managed establishments.
A Relatively Clear Legal and Tax Framework, but Selective for Foreigners
For a foreign investor, a market’s attractiveness depends as much on its performance as on the clarity of its rules. ICELAND, a member of the European Economic Area and the OECD, applies a relatively open but regulated regime.
Foreign Ownership: Who Can Buy What?
The basic rules are set notably by Act No. 19/1966 on the right of ownership and use of real property, supplemented by the Land Act No. 81/2004 and more recent texts. The principle is that Icelandic citizens and persons legally domiciled in the country can freely acquire property, residential or commercial.
For nationals of the EEA, EFTA, or the Faroe Islands, access to property ownership is largely liberalized, provided certain reporting obligations are met. For investors located outside this area, a permit regime is in effect: the acquisition of a property requires authorization from the Minister of Justice, granted on a case-by-case basis.
Obtaining a permit to purchase land is facilitated if the investment serves a direct economic activity (hotel, office, logistics center), with an area that can reach 25 hectares. For a purchase without a direct economic project, the area is limited to 3.5 hectares and the owner cannot hold other properties in the country.
One important nuance is the distinction between agricultural land and urban land: the acquisition of agricultural land is strictly reserved for Icelandic citizens and is not open to foreigners, even Europeans. In practice, most commercial projects target land and buildings in urban or industrial zones, which avoids this obstacle.
Acquisition Process: From Due Diligence to the “kaupsamningur”
The transaction process is very structured. The foreign investor must first obtain an Icelandic identification number, the “kennitala,” essential for signing any deed. A preliminary agreement or purchase contract, called a kaupsamningur, is drawn up and overseen by a public notary (Notarius Publicus), then registered with the national land registry (Þjóðskrá Íslands).
The due diligence must cover:
– verification of the chain of title and any encumbrances (mortgages, easements, liens);
– the property’s compliance with zoning rules (zoning, height, permitted uses);
– geological risks (earthquakes, volcanic activity, flooding), relying on maps from the Icelandic Meteorological Office.
In the absence of complications (cash financing, no major immediate renovations), a real estate transaction can be finalized in 3 to 4 weeks. The transparency of the land registry and the digitalization of procedures limit risks, provided one is accompanied by an experienced local lawyer.
Taxation: A Competitive Framework to Integrate into Business Plans
Tax-wise, ICELAND applies a corporate income tax of 20%, in the lower range of OECD countries. Capital gains from the sale of a property are taxed at 22%, as are net rental income (after deduction of eligible expenses). For long-term residential rentals, only half of the gross rent is considered taxable income, which significantly lightens the burden.
Acquisition costs remain reasonable compared to other European markets:
| Cost Item | Indicative Level | Paid by… |
|---|---|---|
| Transfer Tax / Stamp Duty | 0.8 – 1.6 % of property value | Buyer |
| Registration Fees | Approx. 0.1 % | Buyer |
| Notary Fees | Approx. 0.1 % | Buyer |
| Legal Fees | 0 – 1 % or fixed fee | Buyer |
| Real Estate Agent Commission | 1.5 – 2.5 % of sale price | Generally Seller |
| Ministerial Permit Fee (non-EEA) | Approx. 120,000 ISK | Concerned Buyer |
| Technical Inspection | 80,000 – 150,000 ISK | Buyer |
In total, the transaction “roundtrip” (purchase + sale) is estimated between 2.4% and 5.2% of the property price, which is relatively moderate.
Commercial properties are subject to a municipal property tax that can go up to about 1.65% of the assessed value. The standard VAT on goods and services is 24%, but a reduced rate of 11% applies, for example, to short-term tourist accommodation rentals. Long-term residential rentals are generally exempt from VAT.
Financing and Structuring: Demanding but Manageable Conditions
Access to local financing is one of the most sensitive topics for a foreign investor in ICELAND. The banking system, dominated by three major banks (Íslandsbanki, Landsbankinn, and Arion Bank), remains prudent and applies strict criteria, especially for non-resident buyers.
This is the typical maximum loan-to-value (LTV) ratio for foreigners acquiring prime real estate assets in Reykjavik.
This prudence often forces investors to mobilize more equity or structure their operations via:
– financing from their home country (asset refinancing, corporate lines, etc.);
– partnerships with Icelandic investors (notably pension funds, very present in the capital of large property companies);
– loans from supranational institutions like the Nordic Investment Bank (NIB), which is currently financing several real estate projects, including three operations by the Icelandic company Heimar hf via a 4.5 billion ISK loan.
The “Green” Angle and Iceland’s Energy Advantage
One of ICELAND’s most distinctive assets lies in its energy infrastructure and environmental policy. Over 99% of electricity and heating come from renewable sources, mainly hydroelectric and geothermal. This translates into:
– particularly competitive energy costs for intensive users (data centers, processing industries, greenhouses, etc.);
– a very low carbon footprint for buildings, a key argument for companies concerned about their ESG commitments;
– supply stability that greatly reduces the risk of interruption.
The state and the city of Reykjavik aim for carbon neutrality by 2040. A specific plan for the construction sector provides for a 43% reduction in building emissions by 2030. Public-private partnerships, like “Building a Greener Future,” establish roadmaps and encourage environmental certifications (BREEAM, Nordic Swan) for new projects.
For investors, this translates into a dual movement: on one hand, more demanding technical specifications (enhanced insulation, material choices, integration of lifecycle analyses) that increase construction costs; on the other, a valuation premium and better liquidity for certified “green” assets, increasingly sought after by tenants and financiers.
The “eco” industrial parks under development, such as the Grundartangi Eco Industrial Park or the geothermal park around the HS Orka power plants on the Reykjanes peninsula, illustrate a new generation of productive real estate. They integrate energy synergies from the design phase, such as waste heat recovery and CO₂ utilization.
Sectoral Opportunities: From Data to Sustainable Tourism
Beyond classic categories (offices, retail, warehouses, hotels), several niches offer attractive prospects in ICELAND.
Data centers constitute a first avenue: thanks to the combination of a cold climate, cheap and 100% renewable electricity, and high-performance international connectivity (submarine cables to North America and Europe), ICELAND attracts digital infrastructure projects. These centers require technical buildings, often located near geothermal power plants, generating specific demand for specialized industrial real estate.
Isolated regions like the Westfjords or the South Coast are developing sustainable tourism projects (lodges, nature hotels, hot springs, high-end leisure). While the investment is risky and seasonal, yields can be significant for well-positioned concepts.
Finally, cold chain logistics, linked both to seafood exports and growing imports of fresh products, opens up prospects in refrigerated warehouses, port or airport platforms, and processing facilities.
Risks and Limits: A Market to Approach Methodically
ICELAND is not an El Dorado without trade-offs. Several structural risks must be integrated into any serious business plan.
The small market size results in limited liquidity: selling an asset worth tens of millions of euros takes longer than in a major European metropolis, especially outside central Reykjavik. Dependence on tourism exposes the economy—and thus part of the real estate market—to exogenous shocks (pandemics, global recessions, air transport disruptions).
The high volatility of the Icelandic króna (ISK) can reduce, or even cancel out, the returns on investments for holders of euro or dollar accounts. A local yield of 6% can thus translate into a much lower performance after conversion. Currency hedging is recommended for significant commitments.
Natural risks (earthquakes, volcanic activity) are not theoretical, as recent eruptions on the Reykjanes peninsula reminded us, with the evacuation of the town of Grindavík. The quality of local regulations and engineering reduces the probability of major damage to a well-located and well-constructed property but necessitates a fine analysis of location and the systematic use of geotechnical studies.
Finally, regulatory complexity (strict zoning, protection of certain historic districts, high environmental standards) and financing constraints impose a higher level of preparation than required on some more “liquid” markets. A significant portion of project delays is reportedly linked to incomplete or poorly assembled applications.
How to Approach ICELAND as an Investor
For a foreign player, entering the Icelandic commercial real estate market typically involves several structuring choices: whether or not to partner with a local partner, whether or not to target a particular segment (hospitality, logistics, prime offices…), and accepting a medium to long-term rather than speculative investment horizon.
A prudent approach can consist of:
For a successful investment in Iceland, first focus on the Capital Region and Akureyri, where liquidity and market depth are optimal. Prioritize assets linked to local mega-trends like tourism growth, logistics development, and the energy transition. Target certified or certifiable “green” buildings to attract tenants and secure better financing. Structure the investment in Icelandic króna (ISK) while implementing currency hedges to manage risk. Finally, build a strong local network including lawyers, engineers, brokers, property managers, and banks.
In return, ICELAND offers a fairly rare profile: a small but very transparent market, decent yields for a very safe country, a stable political environment, clean and abundant energy, and an economy transitioning towards high-value-added sectors.
For investors willing to accept the Icelandic specificities—harsh climate, particular logistics, demanding regulations—commercial real estate in this Nordic country can constitute an interesting pillar of diversification, with tangible assets anchored in one of the region’s most resilient and innovative economies.
Case Study: A French investor diversifying into Iceland
A French business owner around 50 years old, with a financial portfolio already well-structured in Europe, wanted to diversify part of his capital into residential real estate in Iceland to seek solid rental yields, exposure to the Icelandic króna, and a tangible asset in a politically stable country. Allocated budget: 400,000 to 600,000 euros, without using credit.
After analyzing several areas (Reykjavík, Kópavogur, Hafnarfjörður), the chosen strategy was to target an apartment or a small single-family house in a dynamic neighborhood, combining a target gross rental yield of 6–7%—keeping in mind that “the greater the yield, the greater the risk”—and potential for appreciation linked to tourism and population growth, with an overall ticket (acquisition + fees + possible refurbishments) of around 500,000 euros.
The mission included: market and neighborhood selection, introduction to a local network (real estate agent, lawyer, tax advisor speaking French or English), analysis of regulatory constraints for non-residents, choice of the most suitable structure (direct ownership or via an Icelandic company), and definition of a time diversification plan.
This type of support allows the investor to benefit from the opportunities of the Icelandic market while managing legal, tax, and rental risks, and integrating this asset into an overall wealth strategy.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
