“Bulgaria is an important market in the SEE region and offers plenty of opportunities to investors, including top real estate players. Following the increased interest for the Bulgarian real estate market, since last year, JLL Romania has extended its capabilities on this market. The launching of this report helps us and our clients to understand better the Bulgarian real estate market”, declares Alina Cojocaru, Head of Valuation Advisory JLL Romania.

Around 370,000 sqm of new office space under construction

Office supply in Sofia for the whole of 2020 at 188,000 sqm in total is estimated to be 3.6% higher compared to last year when 181,500 sqm were delivered. ​Around 370,000 sqm is under construction at present, from which approximately 115,000 sqm are expected for H2 2020.

New office supply in Sofia reached 72,000 sqm in H1 2020, following the completion of Building C in Garitage Park, Sofia Office Center on Tsarigradsko Shose and Sofia Tech One. Thus, the current modern stock for rent in Sofia was almost 2.3 million sqm as of the end of H1 2020, out of which 71% is considered Class A.

“With a couple of exceptions, the projects already under construction are not facing delays or change in floor plans. However, given the economic slowdown, some of the projects in the planning stage might be cancelled or postponed. Therefore, no significant new constructions are expected to start during the next 12 months”, comments Maya Baltadjieva​, Managing Partner​ at IPC Partners Bulgaria.

The total office leasing volume for H1 2020 was around 56,600 sqm, which is 15% less when compared to H1 2019. ​The market was dominated by renewals with more than 40% share of the total take-up. ​Net absorption for H1 2020 was around 23,100 sqm. ​

In H1 2020, the office market in Sofia faced a significant slowdown, due to the economic uncertainty caused by the COVID-19.  Most of the inquiries and new leases were terminated or deferred for better days. Companies are becoming more careful in terms of increasing the number of employees, or renting additional office space, and are considering the option of letting more employees work from home in the long run. H2 2020 will offer a clearer view on how the market will develop and on the effects of the crisis. The preliminary indications signal no significant change in the demand after the end of the crisis and most of the employees will return to the offices. At the moment there is an increase in requests for coworking office space.  ​

H1 2020 experienced a slight increase in the vacancy rate, from 9.5% at the end of 2019, to 10.5%. After strong new office deliveries in 2019 and due to the COVID-19 worldwide crisis, vacancy is expected to increase further. ​

Bulgaria's retail market, hit by COVID-19, attracted new players in 2020 

The retail market is the segment that took the greatest hit during the COVID-19 crisis. Most of the shops, restaurants and shopping centres were closed for two months. This initiated a process of renegotiation of certain lease agreements. ​

At the end of H1 2020, total modern retail stock in Bulgaria, including shopping centres, retail parks and outlet centres, was approximately 1 million sqm, out of which 540,500 sqm in Sofia. ​

The vacancy rate in Sofia fell from 9.1% to 8.6% in Q4 2019, while the vacancy outside of Sofia decreased from 10.3% to 10.1% during the same time. 2020 has begun with lower activity of new openings compared to the previous years and expansions and new entries might be postponed. The COVID-19 crisis forced the retailers to focus on online sales, but this cannot compensate for the loss from the physical stores. This can result in higher vacancy rates in the segment. ​

In H1 2020, new retail chains opened their first shops in Bulgaria such as the discount fashion chain Kik, home decoration brand Madame Coco, and the premium cosmetics brand Kiehl’s. Kik is planning to open 6-8 additional shops by the end of 2020. ​

The drugstores Vitalite and sports goods chain Sportisimo both have scheduled openings in 2020. ​

Continuing the same trend as in 2019, no new shopping centres are expected to be delivered in 2020 in Sofia. Currently, the developers’ focus is shifting from shopping centres towards retail parks. ​

Logistics demand in Sofia is focused on warehouses with sizes from 1,000-5,000 sqm

H1 2020 was marked by the COVID-19 crisis and its adverse effect on the different segments of the economy. In general, new requests have dropped by nearly 90% and some of the existing tenants are trying to renegotiate their lease terms. Total take-up reached 33,000 sqm in H1 2020, out of which net take-up accounted for 23,500 sqm. ​

On the other hand, the lockdown of many physical shops increased on-line trade and thus increased the demand for warehouses from e-commerce companies. Their main interest is for premises of 1,000-2,000 sqm within the city boundaries of Sofia. ​

“However, the COVID-19 was devastating for the international supply chains and many of the export-oriented companies, especially the auto parts factories, were forced to close temporarily. Bulgaria has not lost its attractiveness as an investment destination, but most of the investment plans are put on hold. In the long run, Bulgaria and CEE can benefit from the supply chain revision at the global level”, comments Hristo Angelkov, Partner​ at IPC Partners Bulgaria.

Demand in Sofia is focused on warehouses with sizes from 1,000 sqm to 5,000 sqm. Most companies planning to open logistics centres in Sofia are global players, looking for modern warehouses. Since there was a lack of options for existing spaces, most of them preferred built-to-suit projects. Now, there is some significant supply coming on the market, so this will definitely change, although the Sofia logistics market registered weak activity in H1, which was driven mostly by renewals and deliveries of owner-occupied space.

The Sofia industrial property market ended 2019 with a supply increase, due to some large deliveries of production and logistics spaces. Over 260,000 sqm were delivered for the entire year, total industrial stock reaching almost 1.3 million sqm. However, activity in H1 2020 was weak and only about 60,000 sqm were delivered during the period.

Prime industrial rental levels in Sofia remained stable during H1, between €5-6 per sqm per month. The most popular area is still Sofia Airport, where the vacancy rate is very low and asking rents are generally higher. At the outskirts, newly built modern warehouses are offered at lower rents, ranging between €4-4.50 per sqm. In the northern and western parts of Sofia, properties are also becoming more attractive and are available between €3-4 per sqm. The rent for old units remains stable at around €2.50 per sqm. ​No significant changes in rents were recorded throughout H1 of 2020. ​

Vacancy in industrial projects in H1 2020 was around 5% in Sofia and is projected to remain at this level during H2, as most new centres opened with a high percentage of pre-let space.