Sofia's office market is moving at two speeds, with projects in the prime segment performing distinctly better than the rest of the market. These are the main insights of the latest report by Cushman & Wakefield Forton. The hybrid model of work is permanently imposed and breaks the link between business growth and hiring new space, especially in the segment of IT and BPO companies
Leasing activity reached almost 42,000 sqm in the first quarter of 2023, surpassing the 5-year average for this period of the year. Even with the hybrid work model, some companies are increasing their spaces, which is driving up the share of expansions and preleases in overall demand. Despite this positive trend, renewals and relocations still form the prevailing part of leasing activity, which results in moderate net absorption – 10,848 sqm in the first quarter.
Growing demand for coworking space is another noteworthy market trend. To respond to occupier preferences, an increasing number of office buildings are incorporating flexible office solutions. At the beginning of 2023, the supply of coworking and serviced office space in Sofia surpassed 61,000 sqm, with another 11,500 sqm under development. Unlike the coworking segment, the office pipeline is tightening, due to the feeble start of new projects. The vacancy rate for class A and B office buildings in Sofia is hovering around 16% and is expected to remain stable for the foreseeable future.
Inflationary pressures translated into rental growth across all segments of the office market. Premium locations in Sofia's central business district commanded a rent of €16 per sqm, and rents for class A offices along the main roads reached €15 per sqm. Class B office rents increased slightly to €9-10 per sqm. Office service charges were stable in the range of €3-4 per sqm per month reached at the end of 2022.
