The activity on the Bulgarian real estate market was strongly affected by the COVID-19 crisis, but we saw more resilience from the investment and industrial sectors, which registered both an increase during the last year, according with Sofia City Report H1 2021 published by the real estate consulting company JLL. For 2021, the forecasts are still positive for the investment property market and for the industrial development sector.
The report was made with the support of IPC Partners Bulgaria which helped us gather all the relevant and the latest information about the Real Estate market in Bulgaria, with focus on Sofia.
Retail property market the main target for the investors
Prime office yields stood stable in H1 2021 at 7.50%, while prime shopping center yields increased from 7.25% in H2 2020, to 7.50% in H1 2021. However, during the same period, prime industrial yields compressed from 9,00 % to 8,00%. It is likely that yields will increase in the rest of 2021.
The investment activity in the first half of 2021 was moderate. However, international investors are cautious at the moment because of the health and economic crisis. Some of them postponed their investments, especially in the retail and office segments. Furthermore, up to March 2021, international travels have been limited, which also hindered the negotiation of new deals.
There have been two investment deals during H1 2021. The first one was the sale of Mega Mall, a shopping center in the northern part of Sofia, sold by Real Holding Mega Kit to Maverick GR. The value of the transaction is €18 mil. Although the deal was concluded at the end of 2020, it was announced in Q1 2021.
The second investment deal was the sale of another mall, situated in Stara Zagora.
Park Mall Stara Zagora was acquired by Technopolis, a Bulgarian investor, from Unicredit bank, for over 8 million euros.
We might experience a higher investment activity in H2 2021 as there will likely be an increase in the number of distressed assets. Some investors might take advantage of the discounts, especially considering the low interest rates and abundance of liquidity in the financial markets.
Demand for office spaces picked up in Q2
Total leasing volume for H1 2021 reached almost 70,000 m² after a very strong performance in the second quarter of the year, which brought more than 50 000 m² of new office deals. The market is still dominated by renewals and relocations from older buildings to new projects.
Net take-up amounted to over 28,500 m², an upgrowth compared to the first quarter result, which is a positive signal for the increased expansion activities of the occupiers.
During this first half of 2021 the market started its slow recovery and companies’ confidence lead to the increase in leased space in Q2 compared to the previous quarter. This result is also powered by few notable deals, which were closed in the second quarter. The recovery signals are supported by tenant’s interest in moving from older buildings to newer, with better technical characteristics, when in the process they are keeping or even increasing the leased area. The new approaches for the offices are now shifting to premises with larger open spaces, with more areas for collaboration, “hot desks”, training and relaxation areas.
Since during the lockdown and post lockdown period most of the companies in the Services, IT&BPO sectors were active in hiring new employees, their headcount actually increase, and despite the widespread “home office” policy they are expected to retain or even increase the leased areas, which could be another driver for market recovery.
During H1 2021 the office vacancy rate increased to 14.5%, as a result of new deliveries, few of which had a larger percentage of pre-leases.
New offices totaling 94,000 m² were delivered in Sofia in H1 2021, which is nearly half of the projected for the year’s pipeline. All new delivered buildings are in the class A segment, located on main roads and suburban areas.
Among the major deliveries during H1 2021 were NV Tower, with 31,000 m² GLA, Park Lane, with 24,000 m² GLA, Balkan Business Center, with 29,000 m² GLA and EN Building, with another 10,000 m² GLA.
The current modern stock in Sofia increased to 2,45 million m² at the end of H1 2021, out of which 73% is considered class A.
Around 130,000 m² of office spaces are expected to be completed in the second half of 2021 and additionally 135 000 m² are planned for completion in 2022.
Moderate activity in terms of new store openings
The uncertain environment caused by the lockdowns badly affected sales and the expansion plans of many occupiers. H1 2021 registered moderate activity in terms of new stores, with roughly 8,500 m² opening in existing shopping centers in Sofia. In comparison, for 2020 there were 38,600 m² of new stores. This is a serious decrease, resulting from the lockdowns and the overall downward economic trend.
The vacancy rate in Sofia increased from 5% by the end of 2019 to about 7.9% by the end of 2020, with H1 2021 vacancy slightly decreasing to 7%. H1 2021 had lower activity in terms of new openings compared to the previous years. Many expansions and new entries are postponed. The health and economic crisis made the retailers.
Continuing the same trend as in 2020, no new shopping centers are expected to be delivered in 2021 and even in 2022 in Sofia.
Currently the developers’ and retailers’ focus is shifting from shopping centers towards retail parks. A number of such projects were started in Q4 2020 and are expected to be delivered in 2022. However, all these retail parks are located outside of Sofia.
During 2021 the only retail parks to be opened will be Park Sevlievo, with 5,000 m² GLA, in Q4 2021, and Yambol Park, in September 2021.
During the period, the construction of another project has started, Retail Park Parvomay.
In the beginning of 2021, the total stock in the retail parks segment amounted to 179,000 m², concentrated mostly in Sofia and Plovdiv. Smaller projects are in development phase in regional cities, with GLA of approximately 50,000 m² under construction.
Strong leasing activity for industrial sector during H1 2021Gross take-up reached almost 31,000 m² in H1 2021, out of which net take-up accounted for about 23,000 m².
The COVID-19 crisis and the lockdowns of many physical shops encouraged online trade and thus increased the demand for warehouses from e-commerce companies. Their main interest is for premises of 1,000-5,000 m² within Sofia city boundaries.
Development activity in H1 2021 was rather weak, and only about 17,900 m² were delivered during the period.
Another 300,000 m² are under construction, out of which only approximately 31% are for rent, the rest being owner-occupier.
The logistics market registered significant activity. There is a trend for logistics operators, distribution and courier companies to expand in the bases where they already operate.
The rental market remains less developed at the expense of investments in properties for own use. As an example, the Bulgarian company Metrica, (part of the international group of French postal operator La Poste), opened in May a new logistics center for complex warehousing and comprehensive e-commerce services, with an area of 1,900 m², in Industrial zone Sofia – Bozhurishte.