THE MALLIFICATION OF BULGARIA

Before the 21st Century, all Bulgarian cities had one thing in common: most offices, entertainment spots and shopping areas were located in their centres. Their outskirts resembled sleepy, concrete jungles with poor or nonexistent infrastructure. Those who lived “uptown” had to go “downtown” to find a good nightclub or buy a pair of shoes. Reputable companies rented offices in the city centres as a sign of true prosperity and reliability. Such premises were not designed for business but were converted apartments in blocks of flats - in violation of Bulgarian property law, which states that apartments can be used as offices only if all residents in the building agree. Companies never asked for permission and neighbours were not happy about sharing living space with entrepreneurs.

However, the new millennium brought the Bulgarian property boom, which radically changed urban landscapes. The real estate sector attracted a flood of investors, and foreign and local companies, as well as private buyers practically bought up the city centres. Lack of building space forced developers to focus on less desirable areas. The result? The outskirts of Sofia, Varna, Burgas, Plovdiv and other major cities no longer resemble World War II battle fields. The difference between central and other districts is diminishing every day, thanks to new shopping malls and business parks in outlying areas.

Mall culture has its critics, yet it was precisely malls and their business counterparts that improved the quality of life in “shabbier” urban districts. Bulgaria's first mall appeared in the centre of Sofia in 2005. The total cost of the investment was 45 million euros. Only 10 months later, the owner sold it for an astonishing 94 million euros. This deal made many foreign developers realise retail was the next hot property sector in Bulgaria and changed their focus from holiday homes to malls.

Investors soon faced a problem, however - suitable plots for retail were scarce and expensive. In 2006, prices for land in the centre of Sofia skyrocketed to 4,000 euros per sq m. Developers realised that building malls in the main trade areas was not profitable and moved their projects to less desirable districts, where land cost a mere 300-600 euros per sq m. Currently, more than 10 malls are being built in Sofia - and almost 20 more projects are in progress. Construction on the first - and so far only - malls in Burgas and Varna started in 2006 and 2007, respectively. Large trade centres have become so popular that even smaller towns with sluggish economies like Vidin boast multiple malls.

Malls solved at least three crucial problems plaguing Bulgarian urban life. They made cities look more modern and attractive. They also made shopping much more convenient and finding entertainment in outlying districts easier. Their most important contribution to business life, however, is that mall rental rates are much lower than those in traditional trade districts. In Sofia, rental prices for trade space in the centre vary from 25 to 150 or even 200
euros per sq m, while in malls rates rarely exceed 25-60 euros. Everywhere in Bulgaria mall rental is about twice as cheap as in central trade areas. The same holds for purchase prices.

Another new arrival on the Bulgarian property scene is the business park: a complex of 20-plus office buildings, plenty of parking and logistical facilities, usually located outside city centres. The country's most famous example is Business Park Sofia. It stretches across 220,000 sq m and includes 35 office buildings with a total built-up area of 300,000 sq m. After the last building is finished, the complex will provide much needed office space for 10,000 employees from 400 companies. In 2006 developers laid the first brick of another remarkable project: Business Park Stara Zagora. It covers 260,000 sq m making it not only the largest business complex on the Balkan Peninsula but also one of the most expensive, with a price tag of 150 million euros.

Business parks solved one of Bulgaria's biggest urban headaches: the shortage - or complete absence - of parking spaces. Foreign visitors to Sofia, Varna or Plovdiv are often shocked to see pavements crammed with cars, rather than pedestrians. While business complexes provide parking space for at least every second employee, offices in the city centres are deprived of this “luxury”. Another advantage of business parks is that they substantially decrease companies' rental expenses. The average price for rent in such complexes is 15 euros per sq m, while in central districts prices may be as high as 50 euros.

The reason business space is one of the two most profitable real estate sectors is simple: demand for class A offices in major cities exceeds supply by a healthy 35 percent. Although business parks followed the runaway development pattern of Bulgaria's mushrooming malls, oversupply is not expected in the next few years. Currently, more than 1.2 million sq m of office space are being built in Sofia, 116,000 in Varna and 155,000 in Plovdiv. Most of these projects won't be finished until 2010, however, so the problem of insufficient class A office space will continue in the near future.

What will urban Bulgaria's next facelift entail? Gated complexes that combine all property sectors. An example is the Sofia Akropolis - a city within a city, not far from the centre, with retail, residential and office buildings. And yes - there will be enough parking space for all the occupants.


Business Park Costs Comparison (euros per sq m)

Sofia Varna Burgas Plovdiv

Purchase price 900-2,000 800-1,500 NA NA
Business parks

Purchase price 1,000-4,000 900-2,500 800-2,000 750-3,600
other locations

Rental price 8-15 10 NA NA
Business parks

Rental price 5-50 5-40 5-40 5- 40
other locations

Mall Costs Comparison (euros per sq m)

Sofia Varna Burgas Plovdiv

Purchase price 2,800-3,100 2,000-3,000 NA 1,050-7,000
Malls

Purchase price 2,000-25,000 1,500-10,000 1,000-7,000 1,250-8,000
other locations

Rental price 20-60 20-60 NA 5-50
Malls

Rental price 10-200 10-150 7-50 6-100
other locations