Bulgaria's speculated boom as a world-class logistics hub is starting to go off beam
The experts have got it wrong. In 2008, Ruse and Plovdiv have the fastest growing property prices having knocked Sofia off its perch. The most promising holiday sector – spa centres – have gone down the toilet. The logistic and industrial property segment, touted as the next big thing, with Bulgaria harbouring ambitions to become a world-class logistics hub, have badly underperformed. Where did it all go wrong?
Last year, everything seemed to be going well. Bulgaria had just joined the EU, a large number of new companies were entering the local economy every day, and demand for logistics and industrial space was higher than ever. Supply, on the other hand, was scarce. It seemed all that developers had to do was to build and sell warehouses and industrial premises.
Of course it was never going to be that easy. Three problems loom large. Large foreign companies often have precise needs and prefer to build according to their own standards. Two, as prices for rent on industrial/logistics buildings are not increasing and are substantially lower than for commercial/office space, malls and business parks are the preferred order for investors seeking a higher return. Lastly, the high and fast growing prices for suitable land in a developing market has all resulted in a grim situation for developers of logistics projects.
Currently, there are 1.2 million sq m of logistics and industrial space in Sofia, which is insufficient to handle the needs of the capital's business life. About 20 percent of this space is concentrated around the airport area. This region has been developing rapidly as there are at least 10 logistics projects in progress. Probably the most ambitious of them is the Sofia Airport Centre – an international business park, comprising 165,000 sq m of office and logistic space. The first premises are due to be ready and functioning by the end of 2008, with the whole project to be finalised by 2012. These and similar projects, however, are not going to solve Sofia's lack of logistics space. In the Sofia Airport Centre, office buildings prevail, while logistics premises are going to be only 20 percent of the overall space. The surrounding region of Sofia airport is unlikely to have any danger of overdevelopment – the current prices of 250 to 400 euros per sq m will scarcely allow that.
The areas along Sofia's ring road also used to be a popular choice for companies that wished to invest in their own logistics facilities. Prices for land, however, are similar or slightly lower than those near the airport and are already pushing investors away.
Many companies have already found a lower-budget solution – they have relocated to smaller towns 20–30 km from Sofia like Bozhurishte or Elin Pelin. Obviously, prices for land of 40–100 euros per sq m are more likely to encourage developers to start speculative projects. In Bozhurishte, an industrial park of 250 acres is going to be built on the former military airport's land. Needless to mention, the park will include not only logistics premises but shops, restaurants and hotels. Another speculative project in the region of almost 15 acres – the Elin Pelin Industrial Park – is going to be located conveniently close to the Trakiya Motorway.
Real estate agents usually present Plovdiv as "the second most important logistics centre of Bulgaria" and this is indeed true. The problem is that, at least in terms of logistics, Plovdiv has been replicating the Sofia development pattern. Land for logistic purposes today costs 30 percent more than it did at the beginning of the year and prices will probably continue their upward march. Almost 90 percent of the overall 450,000 sq m logistics space were commissioned by large companies. A complete lack of speculative projects is obvious even in the most developed logistics regions of the Maritsa and Rakovski municipalities. With growing asking prices for land and rental levels remaining stable, investors are wary of competing in this property market. Prices for logistics premises in the industrial parts of the city vary from 300 to 400 euros per sq m.
The situation in Varna – the sea capital of Bulgaria – is even worse than in Plovdiv. The city hosts the first and only Bulgarian industrial park that meets all EU requirements – the Logistic Park Varna. The project is due to open by the end of this year. It will contribute an extra 80,000 sq m of space to the very insufficient 300,000 sq m that Varna already has. Speculative projects are unlikely to get buoyed up despite the dramatic demand for space because prices for plots of industrial land in the good industrial areas are comparable to those in Sofia.
Spots of future interest are Vidin and Ruse because of their strategic location, the two bridges that connect Bulgaria to Romania and the low prices of land.
It seems that any predictions about future developments in the logistics and industrial property market are nothing but wild guesses. Without a planned government programme that takes into account needs, utility, future developments and the correct siting of such projects it is hard to see how the haphazard current situation will work. The fact is that local and Bulgaria-based companies are in great need of logistics space that must be met somehow. Hoping things will get better or listening to "expert" forecasts is not the way forward. Planned action is.