Commercial Property

“Ninety Percent Of All Mellionaires Become So Through Owning Real Estate. More Money Has Been Made In Real Estate Than In All Industrial Investments Combined. The Wise Young Man Or Wage Earner Of Today Invests His Money In Real Estate.”

Andrew Carnegie – Scottish businessman and philanthropist

Real estate investment, like any other type of investing, comes in a variety of flavours. Although the vast majority of investment properties owned by independent investors are residential, the flashiest real estate investors in the world (think Donald Trump) cash in on commercial properties. One of the biggest advantages of commercial real estate is the attractive leasing rates. In areas where the amount of new construction is either limited by land or law, commercial real estate can have impressive returns and considerable monthly cash flow.

Commercial real estate also benefits from comparably longer lease contracts with its tenants than residential real estate. This gives the commercial real estate holder a considerable amount of cash flow stability as long as the building is occupied by long-term tenants.

Commercial Property Market Bulgaria

Office Market Overview 2015

Growth & Strong Demand

The office market performed very well in both aspects of leasing activity and rental growth. Strong demand, from IT and BPO companies encouraged developers and new projects have been started or resumed. Despite the notable increase in completions compared to the previous year, the supply of high-specification office buildings remains insufficient to meet the occupiers’ demand.

High Demand For Quality

High demand for quality office space continued during 2015. Sofia’s office market in 2015 was driven mostly by expansions, new tenants and pre-leases reflecting the growth appetite of the businesses. Vacancy rate in the top 10 office projects dropped to 3 per cent, reflecting the strong demand for high-standard office space.

Pre-leases A Distinct Trend

Preleases remain a distinct trend and the developments that meet the tenants’ requirements for location, building quality, parking provision and expansion possibilities, have opened with high occupancy rate and accounted for 22% of registered deals, which is its highest level since 2010.

“In 2015 The highest office pre-leases level was recorded since 2010 - 22% of all transactions.”

A Colliers International Research & Forecast Report - Office Market Overview, Bulgaria H2 2015

Office Market Forecast For 2016

Positive Business Outlook

GDP growth is expected to reach 2.9% in 2016 supported by a rebound in investment and exports. Alongside this, business confidence is improving and improving levels of occupier demand are expected underpinned by the improving economy. Positive rental growth is likely in central areas where quality supply is low.

Increase In Demand

Demand and pre-lease activity will increase as a result of which developers are now looking to start construction or reassess projects that had been put on hold. A slight disbalance between supply and demand will be experienced in 2016, that would result into pre-lease of projects scheduled to open in 2017.

Expansions & New Entries

BPO companies, shared service centers and the IT sector will continue to shape up the Sofia office market and the secondary cities in Bulgaria. The expectations are both for expansions and for new company entries. The provision of more jobs in these sectors will stimulate the office segment along with the retail and the residential ones.

“Developers are looking to start construction or reassess projects that had been put on hold”

Cushman & Wakefield / Forton Research Publication - Marketbeat Office Snapshot, Bulgaria Q4 2015

Retail Market Overview 2015

An Expanding Economy

Bulgaria’s economy expanded in 2015 with GDP growth reaching 3.0%, which is the strongest growth in the last 6 years. Labour market conditions were favourable in 2015 as the unemployment rate decreased to 10.2%, boosting private consumption. Occupier appetite for expansion was strong in 2015, with focus not only on big cities but also on third-tier markets with limited competition.

Increasing Rents

Solid tenant interest in the high-traffic areas in the shopping centers supported an increase in prime rents after the stabilization in the middle of the year. High-street rents in Sofia and the big cities have also gone up during this period, mostly because of the strong demand from pharmacies, drugstores, organic stores etc.

Limited Supply

While retail occupier demand remained reasonably strong the overall supply, particularly in Sofia, remained limited with no new shopping centre openings in 2015 and a limited development pipeline in 2016-2017.

“Large, modern shopping centres and prime high streets are in high demand, helped by the ongoing expansion of several large international retailers such as H&M”

Cushman & Wakefield - Retail Market Snapshot, Bulgaria Q2 2015

Retail Market Forecast For 2016

Positive Outlook

Sustained economic activity is forecast for 2016 with private consumption remaining the main economic growth driver for the foreseeable future. The outlook for the retail market is expected to remain relatively positive and indeed balanced.

Low Vacancy Rates

Occupier demand will continue at a steady pace and with limited new openings anticipated the overall vacancy rate in dominant shopping centres and along prime high streets will remain low. This in turn will put some upward pressure on rents over the medium term.

Rising Demand, Limited Supply

Rising demand in key retail locations in Sofia and the larger regional cities is expected. Limited development pipeline in 2016 which will help to stabilize rental values.

Information Sources:
Cushman & Wakefield – Retail Market Snapshot, Q3 2015
Cushman & Wakefield - Office Market Snapshot, Bulgaria Q4 2015
Cushman & Wakefield / Forton Research Publication - Marketbeat Office Market Snapshot, Bulgaria Q4 2015
Cushman & Wakefield / Forton Research Publication - Marketbeat Retail Snapshot, Bulgaria Q4 2015
Cushman & Wakefield / Forton Research Publication - Marketbeat Retail Snapshot, Bulgaria Q1 2016
Colliers International Research & Forecast Report - Office Market Review, Bulgaria H2 2015
Cushman & Wakefield – Retail Market Snapshot, Q1 2016
Cushman & Wakefield – Retail Market Snapshot, Q2 2016