THE OFFICE PROPERTY MARKET IN BULGARIA IN THE FIRST HALF OF 2023

What are the objective stats and figures about the condition and near future of the office property market in Bulgaria? The latest report of Avison Young, a consultancy company, that focuses on performance in the first half of 2023, reveals interesting trends. In the period, the volume of the actively traded finished office spaces class A and B remained almost the same, amounting to 1.99 million sq.m. Only some small scale projects were actually finished and put on the market.

The projects under construction were 192,000 sq.m. Most of the projects expected to open doors in 2023 were built by companies for their own use or have already attracted enough future tenants. The percentage of unoccupied finished class A and B offices has increased and has reached 14.3%. 

Economic background

Is the Bulgarian economy recovering? It is, but slowly, according to statistical data.

In June 2023 the annual inflation was 8.7%, compared to June 2022. For the first time since January 2022 it was single digit. 

Bulgaria's GDP rose 1.9% on an annual basis in the second trimester of 2023, marking the slowest recovery since the 2020 contraction.

The average wage in Bulgaria increased 10.1% on an annual basis, and in June 2023 reached 985 euros. 

Nationally, the unemployment in July 2023 was 5.2% compared to 4.2% the year before.

In 2023, the Bulgarian National Bank started to increase the interest rates on a monthly basis, reaching 3.53% by 1 September 2023. 

Rents 

The first half of 2023 saw standard levels of activity in renting. The combined volume of the rented office spaces was 116,000 sq.m. The biggest deals were extensions, with the three biggest deals reaching, combined, almost 40,000 sq.m. The new contracts are mainly companies moving into new spaces; there were few new arrivals in Bulgaria.

Unoccupied office spaces

After the slight decrease of unoccupied spaces in the second half of 2022, in 2023 they started to increase again. 

This is the result of several factors: the strategy for reducing office spaces and extension of leasing contracts as a part of the hybrid work model after the Covid-19 pandemic; the lack of new "imported" demand from international companies that step in Bulgaria; the end of existing leasing contracts with companies that have moved in newer buildings. 

For the first time in years, the percentage of free offices in Sofia’s centre and its periphery environs outnumbers the ones in the city’s outskirts. 

This is mainly due to the exodus of companies into new projects in Sofia's outskirts and/or more aggressive offers. 

Construction

With the increase of construction expenses and interest rates, and the decrease in demand for office spaces, few new projects were started in 2023. At the same time, several projects that had to be ready in this period are still under construction. Consequently, new buildings in the first half of 2023 make just 11,000 sq.m. The trend reminds of the decrease in construction in 2011, caused by the crisis of 2008-2009. The new office buildings are expected to be below the average in 2023, and do decrease even more in 2024. 

Rents

The rates for class A offices are about 11-16 euros per sq m per month. They remain stable or increase a bit in some areas, like Hladilnika/Paradise Center or in competitive projects with high occupancy levels. Some projects along and around Tsarigradsko Shose Boulevard decreased their prices to attract new tenants. Despite this, in established office locations the difference in prices is mainly connected to the project (depending on the available free spaces), rather than on location. 

Maintenance costs

The maintenance taxes are in the range of 2.5-3.75 euros per square metre per month. Owners prefer the open book approach in which tenants see and pay for their actual expenses. However, tenants still prefer fixed rates or tax ceilings. 

Prognoses

Avison Young's analysts expect limited availability of new office spaces for rent. They also expect that the office buildings finished in 2023 will add limited new office spaces on the market. The rents will remain stable, but will fluctuate in the different parts of Sofia.

Here is what Anton Slavtchev, CEO of Avison Young Bulgaria, says: "This is a good moment to move into new office because on the market are stepping unqique properties and spaces that were occupied until not that long ago. Because of the limited new construction in the near future tenants will have to choose mainly between already existing office buildings."

avisonyoung.com