The Bulgarian commercial property market in 2023 will maintain activity around last year's levels. Main buyers are again expected to be local investors with sufficient funds or being able to obtain favourable credit terms. This is what Cushman & Wakefield Forton is forecasting for the period. C&W Forton estimates the total volume of commercial property transactions in 2022 to be just over €270 million. Transactions with traditional market assets – office and retail space – are predominant, while there is also a stir in the industrial property segment
Industrial rents on the rise
The last quarter of 2022 was marked by a significant drop of vacancy rate in Sofia, with the share of unoccupied production and logistics space falling below 1% of the total supply. On the one hand, the active demand from retail and logistics companies led to the exhaustion of available space. The last quarter was marked by an acceleration of the occupiers' activity and take-up. The total volume of leased space and completed owner-occupied premises in Sofia amounted to roughly 104,000 sqm, an unprecedented quarterly result. As at the end of 2022, the construction pipeline amounted to 319,898 sqm. More than 60% of this supply is for owner occupation. Active development locations are the state industrial zone to the west and the Sofia ring road area to the east The fall of 2022 registered continuing rent increase, with prime logistics space in Sofia rented at €4.75/sqm for premises over 10,000 sqm. The rents for small to midsize schemes increased to €5/sqm in Q4 from €4.6/sqm in the previous quarter. The price growth is pushed by rising construction prices and operating expenses and is expected to continue.
Low pipeline and stable vacancy rate in offices
With 76,009 sqm leased space in the last quarter of 2022, the office market in Sofia registered activity comparable to the pre-pandemic time. The total take-up for the year reached 186,655 sqm. Space optimization remained the leading trend over the last year, since many companies continued to use their offices at partial capacity, due to the hybrid work model.Net absorption remained moderate, with 48,683 sqm annual volume.
Development activity posted a visible decrease in 2022. The office completions were reduced to 55,514 sqm over the year, since a lot of projects were withdrawn in time. The high inflationary pressure resulted in rent increase for class A and B offices in the capital and the big cities. As at the end of 2022, prime space in Sofia's central area was offered at €15.5-16/sqm, while main road location office schemes reached €14-15/sqm. Service charge rates in Sofia vary in the range of €3.5-4/sqm. Office markets in the big cities also saw rent increases in the last months of 2022, with asking rates up by approximately 10%.
"In 2023, we expect construction of new office space to remain low, given the uncertain market and difficult-to-predict costs. On the other hand, in the expected recession, many sectors will slow or stop their growth, which will negatively affect demand. All this suggests that the market will remain active, but at lower volumes compared to peak years. The shift of demand towards newer and higher quality projects will strengthen the market segmentation and lead to vacancies and higher vacancy rates in the class B segment," said Yordan Krastev, Manager Office Space at Cushman & Wakefield Forton.
Discount retailers and retail parks in expansion
The past year 2022, was marked by the extremely rapid development of the retail parks segment. Over 100,000 sqm of new space was opened, mainly in the year's second half, nearly three times above the space opened in 2021. Currently, over 300,000 sqm of retail parks are operating in the country, counting only those with a leasable area of over 5,000 sqm.
The last year was marked by a rise in revenues and a recovery in shopping centres' footfall and revenue to pre-crisis levels. The only retail space expansion was realised by Park Mall Stara Zagora, which increased its space by about 8,000 sqm. New mall openings or expansions are not planned for 2023. The vacancy rate of shopping centres in Sofia posted a slight decrease within the last quarter, dropping to 5.6%, with the high-performing schemes remaining fully let.
"The good news is that the negative effect on the retail space market from the COVID-19 closures has almost entirely been overcome. In 2022 we saw many store openings and new brands entering the market, as well. We register interest mainly from budget to mid-price clothing and footwear brands", said Yordanka Velikova, Expert Retail Space at Cushman & Wakefield Forton.
Asking rents in shopping centres in Sofia remained stable in the last quarter at €35 /sqm, with a trend to slightly increase at the beginning of 2023. Rents for high street shops and retail parks rose within 5%, reflecting the inflation and the associated increase in landlord costs
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