Bulgaria's retail sector has displayed resilience and growth in Q2 2023, with positive economic indicators, aggressive retail park expansion, and stable pricing trends. Despite challenges faced by CEE countries, Bulgaria's economy is on a positive trajectory, setting the stage for a promising retail landscape. These are the highlights of Cushman & Wakefield/Forton's latest retail market report.
As of midway through 2023, Bulgaria's economy is performing well. Inflation has receded to single digits, reaching 7.5% in June. This figure is only slightly above the Eurozone average of 5.5%. Furthermore, the country's leading economic indicators for Q1 showed progress. The number of unemployed individuals dropped by 6% year-on-year, and employment figures increased nationally and in the capital, Sofia. Bulgaria's GDP grew by 2.3% year-on-year, more than twice the EU average growth rate.
Noteworthy is the rise in consumer confidence. As of May 2023, the consumer confidence index hit a two-year high, indicating that citizens are more optimistic about their economic prospects. The retail trade index (at constant prices) showed sales expansion in all months except for April in the first five months of 2023.
Supply and demand dynamics
The retail sector in Bulgaria experienced an aggressive expansion in the form of retail parks during the second quarter of 2023. While shopping centers and outlet centers saw minimal development, two new retail parks opened, adding approximately 35,000 square meters of Gross Leasable Area (GLA) to the total retail stock.
Retail space demand has been driven mainly by discount retailers, affordable clothing brands, and sports stores.
Lease activity in the retail sector saw positive momentum during the quarter. The total volume of new leases reached nearly 60,000 sqm, with over 60% provided by new retail parks and 34% by existing shopping centers. Despite fashion retailers' optimization measures, vacancy rates in shopping centers narrowed.
The outlook for lease activity remains strong, with retail parks expected to be the main driver. At least six new retail park facilities are to open by the end of the year, adding 60,000 sqm of GLA to the retail stock. Furthermore, the retail park pipeline remains robust, with an anticipated 180,000 sqm of GLA in development. On the other hand, shopping center activity is due to be limited to existing stock, as the construction of the Promenade Mall in Plovdiv, the only new project on the market, has yet to commence.
Asking rents in retail spaces within Sofia's shopping centers remained stable at €36 per sqm, with the potential for upward adjustments due to narrowing vacancy rates. Similarly, prime yields in Sofia remained unchanged at 7.5%. This stability in pricing signals a balanced and favorable market environment for retailers and investors.
The positive economic indicators, expanding retail park segment, and stable pricing trends have collectively contributed to the sector's strength. With consumer confidence on the rise and an array of new retail park developments in the pipeline, investors and retailers can look forward to a promising and dynamic retail landscape.
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