by Ákos Budai | Interview

International investors seem to have rediscovered one of the biggest and most important markets of Southeastern Europe that have matured a lot over the past few years. Michaela Lashova MRICS, CEO of Forton (an Alliance Partner of Cushman & Wakefield for Bulgaria and FYROM) and RICS SEE Ambassador talked to us about the present and future of the Bulgarian commercial property market. 


Michaela Lashova MRICS will speak at our next conference, CEE Property Forum 2016 in Vienna on 21 September. CEE Property Forum 2016, focusing on all markets of the CEE & SEE regions, is jointly organised by Portfolio Property Forum and RICS.
 
How has investor interest for Bulgaria changed over the past year?
 
Investors have rediscovered Bulgaria as one of the top performing economies in Europe and as a commercial property market with solid growth potential. This puts the country back on their radar as property buyers need higher returns and are looking for new opportunities outside the core markets. Bulgaria is attractive due to its improving macroeconomic indicators: GDP growth ahead of the Eurozone and above the average in the CEE region, lower inflation, currency stability, increasing consumer spending and wage growth supported by improving housing and labour markets, falling unemployment, etc. With regard to the commercial property market Bulgaria offers growth potential in terms of size, strong demand and rent increase. Yield levels are expected to further decrease since, as of now, risks and growth are not properly appreciated. I believe that the Bulgarian market has significant growth potential thanks to a high quality of product with rebalanced rent levels.
 
In your opinion, which segment of the market currently offers the best opportunities for investors?
 
The market today, being in a more matured phase, offers opportunities in all segments. There is core product in the office and retail submarkets suitable for institutional investors.The office segment in Sofia, for example, shows significant potential for worthwhile acquisitions due to outperformers in cash flow, tenants mix and location. After years of recovery the market now offers prime product with increasing rents and low vacancy – about 2% for the top performers in Sofia. Although considered saturated, the Bulgarian retail property market registers density below the EU average level and offers attractive opportunities as well. In Sofia and the main cities there are prime shopping centres with rebalanced rent roll and rent growth potential which could be outlined against the ones in need of restructuring. More opportunistic investors can also find add-value product in all commercial segments – office, retail and industrial. Moreover, the industrial property market is developing at a fast pace mirroring the increasing demand and rental growth. With only 2% vacancy and a lack of modern supply, the industrial market in Sofia is interesting for local and international developers as well.

As RICS SEE Ambassador you oversee the entire region. How is the future of the Bulgarian market looking, compared to other countries in the region? 
What we have noticed in the last few years is that buyers moved on from the core to Southern Europe and in 2015 to Central Europe as well. Eastern markets and Bulgaria in particular are next in line. In general, investors are looking for core product in non-core markets, e.g. buildings with international tenants that offer better returns than similar ones in core markets. Bulgaria now offers such product and due to the increased interest from investors we expect the market to improve its liquidity in a short-term period. Compared to the region, Bulgaria has better performing office and logistic markets with rental growth and limited vacancy. The retail market has stabilized and rebalanced with growth potential as well. We offer the lowest capital value of prime retail product in the EU. At the same time financing is available at quite attractive levels which results in a spread of 300-350 basis points or more.   
 
How are you promoting RICS values and practices in the region?
 
I do believe that market transparency is improving, the quality of the products is higher and the advancement of the profession is faster. My main goal and role is to educate and promote international standards locally so that our market became more understandable and transparent to international buyers. For this purpose every year we organise an RICS conference in Sofia which attracts professionals from the region and international investors that consider the region.   
 
The full version of this interview will be published in the next issue of Portfolio Property Forum's magazine, which will be first available at CEE Property Forum 2016 in Vienna.