TRANSFORMING REAL ESTATE
INTO REAL ADVANTAGE
OFFICE SPACE
MARKET OVERVIEW
SOFIA | Q1 2017
OFFICE SPACE MARKET OVERVIEW
SOFIA | Q1 2017
MARKET HIGHLIGHTS
Net
absorptioN
SPACE UNDER
CONSTRUCTION
Take UP
125,000
TOTAL STOCK
vacancy rate
86,500
24,000
17,000
305,000 m
1.761
2
Q1 Total
2017 2016
Q1 Total
2017 2016
mln. m2
CLASS A €12 ‒ 14
Average asking rental levels
9.1%
CLASS B € 6.5 ‒ 9.5
INVENTORY AND CONSTRUCTION ACTIVITY
NET ABSORPTION AND NEW DELIVERIES (SQ. M)
sq. m
%
50 000
25%
45 000
40 000
20%
35 000
30 000
15%
25 000
20 000
10%
15 000
10 000
5%
5 000
0
Q1 Q2
2013
Q3
Q4
Net absorpon
Q1 Q2
2014
Q3
Q4
Q1
2015
New deliveries
Q2
Q3
Q4
Q1
2016
Q2
Q3
Q4
Q1
2017
0%
Vacancy, %
OFFICE SPACE UNDER CONSTRUCTION, SQ M
AND AVERAGE CLASS A ASKING RENT
sq. m
€
€13
350 000
300 000
€12
250 000
With no new deliveries in Q1 2017,
the existing stock of modern
office space in Sofia remained
at 1.761 million sq. m. A couple
of
new
construction
starts
commenced during the quarter
while construction works on
Ellipse Center were resumed after
being halted for several years.
This brought the total volume of
office space under construction to
ca. 305,000 sq. m, almost half of
which is scheduled for completion
by the end of this year. The volume
of office space in frozen projects
dropped to ca. 105,000 sq. m.
and depending on the market
development, we might see
further restarts. The construction
activity remains particularly high
in suburban areas.
€11
200 000
150 000
€10
100 000
€9
50 000
0
Q1 Q2
2013
Q3
Q4
Q1 Q2
2014
Q3
Q4
Q1
2015
Q2
Q3
Q4
Q1 Q2
2016
Q3
Q4
Q1
2017
€8
Office space under construcon
FOR RENT
OFFICE
BUILDING UNDER
CONSTRUCTION
(RENTABLE AREA
12,500 SQ. M.)
OFFICE SPACE MARKET OVERVIEW
SOFIA | Q1 2017
VACANCY
VACANCY RATES (CLASS A AND B AGGREGATE)
24%
22%
20%
18%
16%
14%
12%
10%
8%
Q1
2013
Total
Q2
Q3
Q4
CBD
Q1
2014
Q2
Q3
Midtown
Q4
Q1
2015
Q2
Q3
Q4
Q1
2016
Q2
Q3
Q4
Q1
Suburban
The vacancy rate continued to drop
further reaching 9.1%. The vacant
space in Class A and Class B offices amounts to 160,500 sq. m. The
decline will continue further before
the expected wave of new deliveries in the second half of the year.
On relative basis, the vacant space
declined more notably in CBD and
wider central areas, where the supply is rather limited. Class A office
space continues to be preferred
– the vacancy rate dropped from
9.5% to 8%, while for Class B office
was rather stable at around 10.5%.
DEMAND
The take-up in Q1 2017 totaled ca.
24,000 sq. m. Technology companies and service centers accounted
for most of the newly leased space
with a 65% share. Pre-leased are-
as amounted to 40% of the total
transacted space. The net absorption was 17,000 sq. m for Class A
and B offices combined.
SELECTED LEASE TRANSACTIONS IN Q1 2017
Tenant
Building
Area (sq m)
ProSyst
Poligraphia, phase 2
5,000
bwin
Expo 2000, phase 4
2,750
Uniqa
Stone
2,500
Similar to global and regional markets, the main drivers for corporate
lease decisions are the objectives
that companies have for talent attraction and retention, workspace
management and cost efficiency.
In addition, companies from highly
regulated sectors, such as banking, energy and telecoms are likely to demand higher flexibility in
terms of shorter leases, more frequent breaks and a growing focus
on shared co-working facilities.
RENTAL RATES
CLASS А AVERAGE ASKING RENT
per sq m
€18
€16
€14
€12
€10
€8
Q1 Q2 Q3
2012
CBD
Q4
Q1 Q2 Q3
2013
Midtown
Q4
Q1 Q2
2014
Q3
Q4 Q1 Q2 Q3
2015
Q4 Q1 Q2 Q3
2016
Q4 Q1
2017
Q4 Q1 Q2 Q3
2016
Q4 Q1
2017
Suburban
CLASS B AVERAGE ASKING RENT
per sq m
€10.0
€9.5
€9.0
€8.5
€8.0
€7.5
€7.0
€6.5
€6.0
Q1 Q2 Q3
2012
CBD
Q4
Q1 Q2 Q3
2013
Midtown
Q4
Suburban
Q1 Q2
2014
Q3
Q4 Q1 Q2 Q3
2015
The average asking rents for Class
A properties kept stable in Q1.
Depending on location, property
characteristics and volume of
available space, the asking rents
for Class A offices are in the range
of €12 - €14 per sq. m. Despite
the current stabilization the
market remains landlord-driven
and further rise in rental rates is
still possible, although likely to be
marginal.
OFFICE SPACE MARKET OVERVIEW
SOFIA | Q1 2017
ECONOMIC HIGHLIGHTS
The GDP in Q4 2016 increased by 3.4% y-o-y and
0.9% on a quarterly basis, compared to a 0.5%
growth on a quarterly basis for EU-28. The main drivers are the export sector and the domestic demand,
marking an increase by 6.8% and 1.7% y-o-y, respectively. The EC’s winter economic forecast is projecting a GDP growth to slightly taper off to 2.9% in 2017.
The average unemployment rate for Q4 2016 was
7.7%, compared to 7.0% for Q3 2016 and 9.2% for
Q4 2015. The European Commission’s expectations
for Bulgaria are 7.1% for 2017 and 6.8% for 2018.
The inflation rate based on the Harmonized Consumer Price Index (HICP) for December 2016 is
-0.5% y-o-y. The European Commission expects an
inflation of 0.8% for 2017 and 1.2% for 2018.
The FDI in Bulgaria as of the end of Q1 2017
amounted to €702 million, staying significantly below the record level of €2,535 million for the same
period a year ago.
MARKET OUTLOOK
The volume of office space under
construction continues to grow and
more new developments are expected
to break ground this year. Due to the
high volume of pre-leased space,
vacancy levels will not experience a
significant change throughout the
year. Demand is likely to be around
the average volume observed in the
past couple of years. Rental rates are
expected to remain generally stable,
but a slight increase is still possible.
footfall figures in some shopping malls
in Sofia drew the attention of several
foreign institutional investors, looking
to enter Bulgarian market. Prime yields
remained stable at ca. 7.5-8.0% for both
office and retail assets.
Overall in Europe, 2017 is likely to see a
gradual increase in investors’ appetite
for risk compared to 2016. According
to a CBRE survey, 41% of the investors
favor opportunistic or value-add
opportunities (38% in 2016), 32% in
prime assets, 25% in good secondary
products and 2% in distressed assets.
For 2017, investors’ focus is expected
to be on the economic climate rather
than geo-political events. For instance,
despite the uncertainty over how
the Brexit negotiations will unfold,
investors show a growing tendency to
invest in the UK again.
INVESTMENT ACTIVITY
The first quarter of 2017 witnessed
a continued positive trend across all
property segments. Transactions with
several larger assets under negotiations
at the end of 2016 are expected to
be closed later this year. The office
segment was among the main market
drivers due to a record low vacancy,
increasing rental rates and lack of
indications for an oversupply. On
the other hand, robust turnover and
CONTACT INFORMATION:
MBL
1 Kuzman Shapkarev Str.
Sofia 1000, Bulgaria
T:+359 2 9888 650
T:+359 2 9888 651
E:[email protected]
www.mbl.bg
Georgi Dimitrov MRICS
Director
Advisory Services and
Valuations
T:+359 2 9888 650
T:+359 2 9888 651
M:+359 886 292 081
E:[email protected]
Nikolay Neov
Director
Office Agency
T: +359 2 9888 650
T: +359 2 9888 651
M: +359 886 292 685
E: [email protected]
This research report has been prepared for general information only. The data herein was obtained from various sources; we do not guarantee its
accuracy or completeness.
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