The stock of Class A and B office space in Sofia reached 1.871 mln sq. m in Q4 2017. City Tower on Macedonia Square accounted for most of the newly delivered space. The total amount of office space in newly delivered buildings for the year reached ca. 110,000 sq. m., which is the highest figure since 2011. This uptrend is set to continue in 2018, since the volume of space under construction is 340,000 sq. m with majority of the developments scheduled for delivery by the end of 2018.
The overall vacancy rate for Class A and B offices in Q4 2017 decreased slightly from 10.3% to 10%. This minor decline is a result of newly constructed properties being delivered fully pre-let and adding extra stock, while vacant space remaining unchanged at ca.187,000 sq. m in the last 3 months of the year. Despite that the overall amount of vacant space didn’t change, the proportion between CBD, suburban, and midtown areas experienced a slight shift.
New lease acquisitions in Q4 2017 totaled ca.64,000 sq. m, bringing the yearly number to 146,000 sq. m. This is a record high level for the last 10 years. The activity was concentrated in suburban locations, which accounted for 74% of the take-up in the last quarter and for 60% on an annual basis. SSC, BPO, and tech sectors accounted for 64% of the newly leased space in Q4 2017 and 75% for the entire year. The aggregate Q4 and annual class A and B net absorption figures were 41,300 sq. m and 94,700 sq. m respectively.
The average asking rents for modern office space in Q4 2017 remained stable. The asking rents for Class A offices were mainly within the range of €12 – €14 per sq. m. The average level for Midtown locations exhibited a sharp decline, but that was in large due to one new property coming to the market in a less attractive location with below average asking rent, rather than a general trend. Class B properties are offered on average between €7 per sq. m and €10 per sq. m. The rental levels will likely remain stable during the next 6-9 months. However, due to the growing number of buildings in the construction pipeline, the available space is expected to grow in the next couple of years, which is likely to impact the achievable rental levels in the future.
During 2017, the office space market exhibited strong activity in terms of construction and demand. The project completions and new buildings obtaining building permits and breaking ground continued to rise. The potential new office space deliveries for the next 3 years are projected to exceed 600,000 sq. m, which will most likely push vacancy rates up. The average rental rates are expected to remain generally stable this year, but a gradual decline is highly probable in the long run.