Sofia City Report H2 2021 – Stronger demand for office space in 2021 marks the start of the recovery process

Sofia, March 1st 2022 - After enduring the challenges brought upon by the COVID-19 pandemic, the Bulgarian commercial real estate market shows signs of recovery. In 2021, approximately 155,000 m² of office spaces were leased in total in Sofia. This level is 44% over 2020 and close to the last 5-year average. During the same period, new stores openings in shopping centres in Sofia totaled 13,500 m² in 2021. Furthermore, approximately 85,000 m² of industrial properties were leased in Bulgaria overall, marking an increase of 18% when compared to 2020. Not least, real estate investment volumes in 2021 reached €240 million, 11% over the previous year, according to the Sofia City Report H2 2021, published by the real estate consulting company JLL.

The report was prepared with the support of IPC Partners Bulgaria, who provided the relevant information about the evolution of the real estate market in Bulgaria, and especially Sofia.

Investors are gradually returning to Bulgaria

The real estate investment market is giving signs of recovery, in 2021 reaching a total investment volume of €240 million, compared to €221 in the previous year. The second half of 2021 also brought the largest office transaction in the last 3 years, the acquisition of Park Lane Office in Sofia, by the software company SAP, for a price of €50 million.

Foreign investors are gradually returning to Bulgaria and we expect 2022 to be the year when the commercial real estate market will continue its progressive recovery, with increased demand due to the availability of capital.

Office and shopping centres prime yields remained stable throughout the year at 7.50%, while prime industrial yields contracted from 8% in H1, to 7.50% in H2 2021. 

Strong demand for office space in 2021 

In terms of office space leases in Sofia, H2 2021 brought a 22% increase compared to H1, to over 85,000 m², as the tenants’ requirements shifted towards higher-class and more modern office spaces. Due to this fact, we see a prevalence of renewals and relocations from older buildings to newer and higher-quality projects. Net take-up for the period amounted to 26,600 m², and remains relatively weak for the whole of 2021.

The office vacancy rate in Sofia increased from 14.5% at the end of H1 2021, to 16.5% in H2, mainly affecting B class properties and newly developed projects with transport connectivity issues.

Prime office rent is relatively stable at a level of €15 per m² per month, within the CBD, but we expect the rental levels in the lower segments to come under pressure.

In terms of office deliveries in Sofia, the second part of the year marked a 40% decrease compared to H1, as several projects were postponed for 2022 given the current uncertainties and COVID-related concerns. The three deliveries, totalling 55,000 m² were Sinergy Tower (32,200 m²), Garitage Park Building 4 (19,600 m²) and Obsidian Building (3,000 m²).

The current modern stock in Sofia reached 2.5 million m² at the end of 2021, out of which 73% are considered class A. However, the office pipeline is at its lowest levels in the last 5 years, with only around 190,000 m² under construction, as development activity continues to be relatively weak. 

Moderate activity in terms of new store openings

The uncertain environment caused by the lockdowns badly affected sales and the expansion plans of many occupiers which explains why H2 2021 registered moderate activity in terms of new stores, with roughly 5,000 m² opening in existing shopping centres in Sofia. 

High street retail is continuously proving its resilience as features previously perceived as weaknesses, such as the fragmented ownership, lack of centralized coordination and direct open-air accessibility, have recently turned into strengths in the context of the pandemic.

Customer demand is focused on discount chains, drugstores, sport shops, supermarkets, as well as specialized stores for furniture and home décor. 

Continuing the same trend as in 2021, no new shopping centers are expected to be delivered in Sofia in 2022, and not even in 2023. Currently the developers’ and retailers’ focus is shifting from shopping centers towards retail parks. The largest retail park projects planned for Sofia total 57,184 m² GLA. Their delivery is expected for the end of 2023 and the beginning of 2024. 

The overall modern retail stock countrywide currently stands at over 1.1 million m², out of which 542,800 m² operating in Sofia. The reported vacancy rate in Bulgaria is 5%.

The industrial and logistics real estate sector continues to perform very well in H2

Gross industrial take-up in H2 2021 reached almost 53,600 m², out of which around 37,500 m² net take-up, with demand mainly driven by growing e-commerce, distributors, courier and logistics companies, who continued to be the most active in the market.

The total supply of modern logistics and industrial spaces in H2 2021 totalled 231,000 m², the highest level in the last 10 years. The largest delivery during the period was the new Orbico facility (32,500 sq m), long term leased to Melexis Bulgaria.

For the whole of 2021, industrial deliveries reached almost 249,000 m², slightly below 2020.

At the end of the year, the share of vacant industrial space in Sofia remained at a healthy market level of a little over 4%, registering a slight increase compared to the beginning of the year due to the increased supply of new properties.

The rent level in the lindustrial segment in Sofia in the second half of the year marked a gradual increase. The preferred area is Sofia Airport, where vacancies are very low and rents are higher, reaching up to €6 per m². 

You can download the report from here

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.6 billion, operations in over 80 countries and a global workforce of more than 92,000 as of June 30, 2021. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For more information please visit www.jll.com