First half of 2018 year – office space market overview

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The Class A and B office space inventory in Sofia reached 1.92 million sq. m in Q2 2018. New completions during the quarter amounted to 43,000 sq. m. Several buildings in Hladilnika area accounted for nearly 60% of the newly delivered space. The amount of new completions is set to grow in the next couple of years – 370,000 sq. m. is the total office space currently under construction, of which 240,000 sq. m. are scheduled for delivery by the end of next year. In addition, office buildings with a combined office area of ca. 220,000 sq. m are planned to break ground in 2018- 2019 and to be delivered by 2021. Tzarigradsko Shosse corridor, Hladilnika and the area of Business Park Sofia account for over 75% of the space under construction and the planned projects.

VACANCY

The vacant space in Class A and B offices in Q2 rose only marginally to 193,400 sq. m. As a result, the overall vacancy rate remained stable at 10.1%. Despite the observed strong demand and the high number of leases signed in projects under construction, the vacancy is likely to rise at a low pace in the medium run due to the higher rate of new completions.

DEMAND

The net absorption in Q2 was 40,000 sq. m., while the takeup was only 15,000 sq. m. Nevertheless, demand remains strong and take-up level is expected to bounce back in the next quarter. Interestingly, for a first time in a while, the IT and BPO sectors accounted for an insignificant share of the quarterly take-up.

RETAIL RATES

The average rent levels remained stable in Q2 2018. The asking rents for Class A offices were mainly within the range of €12 – €14 per sq. m. with only a few exceptions. Class B properties are offered on average between €7 per sq. m and €11 per sq. m. The rental levels are likely to remain stable during this year. However, depending on future demand levels and supply growth rate, rental rates could likely experience a decrease.

MARKET OUTLOOK

The new lease acquisitions in the first half of this year amounted to 48,000 sq. m indicating a stable and typical demand level for Sofia market. On the supply side, new construction starts and planned projects continued to boost the availability of office space and to inflate vacancy rates in the future. As a result, this will likely put pressure on rent levels in certain locations and the market in general.