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First half of 2018 year – office space market overview

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.


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.


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.


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.


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.

Offices for rent

The IT sector continues to move the office market in Sofia

Growth continued for Sofia office real estate in the first quarter of 2018, retaining the momentum from the record breaking 2017. Leasing activity remained strong backed by the steady economic growth, rising supplyand the expansion of the IT and BPO sector.

Occupier focus
With 36,296 sqm take-up the office market in Sofia registered a repeatedquarter of growth. The leasing volume was up4% compared to the first three months of 2017, driven mostly by the strong performance of the IT and BPO industry. The sector is concentrated in the capital city and plays increasingly important role in the local economy. In the first quarter, it accounted for more than 60% of the total office take-up.

Since the existing office buildings in the prime segment are fully let, a large number of tenants have to lease space currently under construction. As a result, more than 50% of the Class A and B space scheduled for completion in 2018 is already pre-let.Yet the 192,000 sq. m new offices due for delivery in 2018 are expected to help rebalance the market.
As supply still lags behind demand, prime rents went up to €14/sq. m in the beginning of 2018, an increase of 4% compared to the previous quarter. Class A office rents remain in the range €12-14/sq. m, depending on the location.
The lack of new completions in combination with the absorption of existing space in Q1 resulted in slight decline of the vacancy rate to 9.2% on average.
Due to the tenant migration to higher class offices, the Class A vacant space decreased to 8.8% in the first quarter, while the rate in the Class B segment remained at around 10%.
However, with the increasing supply the share of the unoccupied space is expected to rise gradually in the medium term.

Investment focus
While 2017 was dominated by retail property acquisitions, investors are turning their attention to medium -and large-size office projects. The acquisition of two buildings for a total of €9.85 million by the Hungarian developer Wingholding was among the no table transactions in the first quarter.

Stable rents and vacancy rate characterize the office market in the current year. Together with Sofia, many tenants are looking at secondary cities for further expansion.

MBL: 2017 year was successful for Bulgarian office market

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.

Office view

Office market snapshot for fourth quarter 2017

The Bulgarian office market registered a record breaking year in terms of a leasing activity, supported by strong GDP growth and solid economic fundamentals. Despite the completion of a number of large projects in 2017, the supply of modern stock in Sofia still lags behind the demand.

The last quarter of 2017 witnessed strong tenant activity and accounted for a large portion of the annual take-up. Due to few transactions, the total rented space in Q4 reached 64,109 sq. m. The annual take-up rose by more than 46% compared to the previous year, totaling 198,348 sq. m – the best result ever. The market remained driven by preleases and expansions, accounting for 61% of the aggregate volume. The large share of those group of deals reflects the business’ appetite to grow and improve its working conditions. Due to the strong prelease activity the net absorption stood low, accounting for 45% of the annual take-up. The availability of Class A office space on the main roads and in suburban areas concentrated there the largest part of the leasing activity throughout the year. However, the completion of two large office buildings in CBD drew the attention to this area, as well. The market in 2017 remained dominated by IT companies and shared services centers which continued to expand at a fast pace. Large consolidations in the financial sector were other source of leasing activity.

Currently, 291,000 sq. m Class A and B offices are under construction in Sofia, scheduled for delivery by the end of 2020. Development activity is rising in response to the strong demand and is expected to rebalance the market in a medium term. After the slight growth in H1, prime rents in Sofia were stable in the second half of 2017, standing at €13.5 /sq. m. Average vacancy rate remained 9.6% with slight increase in the Class B segment to 10.1%. The rising level mirrors the tenants’ migration to higher class offices. In the most preferred buildings alongside main roads and in CBD the occupancy level draws near 100%.

The stable rents and strong performance of prime office projects in Sofia draws the investors’ attention. The office segment is forecasted to be main driver of the investment market in 2018. Yields remain under pressure.

Office market enjoys high tenant activity, stable rents and low vacancy with prospects to perform strong in the next quarters.

Office space market overview – Q3

The      existing      stock      of  modern     office     space     in Sofia    continued    to    grow, reaching   1.828   mln   sq.   m, following  the  completion  of BSR  Sofia  1  (phase  2)  and several    smaller    properties, informed from MBL.

The new deliveries amounted to   41,800   sq.   m.,   which   is the  highest  quarterly  figure since Q3 2015.  Furthermore, the  number  of  construction starts     is     increasing     and the  volume  of  space  under construction is already 337,000  sq.  m,  of  which  ca. 250,000 sq. m. are scheduled for  delivery  by  the  end  of 2018.


The  overall  vacancy  rate  Sofia  in   Q3   increased   for   a   second   consecutive  quarter,  from  9.4%  to 10.3%. The vacant space in Class   A   and   Class   B   offices  amounts    to    188,000    sq.    m, which  is  up  by  20,000  sq.  m compared     to     the     previous quarter. As expected, the project completions   towards   the   end of  this  year  are  increasing  and bringing   new   office   space   to the  market,  which  will  continue to   push   the   vacany   upwards. Certain attractive business areas however,  due  to  stable  demand and   expected   limited   supply, such as the CBD or certain office building  clusters,  are  expected to   exhibit   lower   than   average  vacancy rates.


The take-up in Q3 2017 totaled 29,000   sq.   m,   bringing   the year-to-date number to 82,000  sq. m.  The activity was mostly concentrated in the CBD where nearly 60% of the newly leased space    is    located.    Pre-leases accounted    for    35%    of    the transacted   space.   SSC,   BPO, and tech sectors accounted for most of the newly leased space with a 75% share. The quarterly aggregate   net   absorption   for class A and B space was 21,000 sq.   m.   and   the   year-to-date figure reached 53,500 sq. m.


The     average     asking     rents for   modern   office   space   in Q3    2017    remained    stable. The asking  rents  for  Class  A offices  are  mainly  within  the €12   –   €14   per   sq.   m   range.

Class  B  properties  are  offered on    average    between    €6.5 per  sq.  m  and  €9.5  per  sq. m.  Due  to  the  stable  demand the   rental   levels   keep   their range  set  in  the  beginning  of the    current    year.    However, due to the growing number of buildings  in  the  construction pipeline,   the   available   space is   expected   to   steadily   rise in  the  next  couple  of  years, which  is  likely  to  balance  the demand and result in stable to slightly  lower  rental  levels  in the future.


In Q2 2017 Bulgaria GDP growth increased to 3.6% on  a  seasonally-adjusted  annual  basis.  Domestic consumption grew by 4.2% and was the key driver for  the  positive  development.  The  EC’s  winter economic  forecast  for  Bulgaria  is  for  an  annual GDP growth of 2.9% for 2017.

The inflation continued to slightly go up. In Q2 the Consumer  Price  Index  (CPI)  increased  by  2.3%. In  their  winter  forecast  the  EC  expects  stronger domestic  demand  and  higher  energy  prices  to result in 0.8% annual HICP inflation for 2017.

The  unemployment  rate  in  the  end  of  Q2  2017 was  6.9%  and  the  latest  forecast  is  to  average 7.1% for 2017.

As   of   Q2   2017,   Bulgaria   had   Foreign   Direct Investment  (FDI)  of  €451  million,  up  from  the   246 million recorded in Q1.


During  the  last  couple  of  years Sofia office space market exhibits a   rapidly   growing   construction activity – the project completions and    new    buildings    obtaining building   permits   and   breaking ground   continue   to   rise.   This brings  the  potential  new  office space  deliveries  for  the  next  3 years  above  600,000  sq.  m.  and hence vacancy rates will continue to    increase.    Therefore,    rental rates   are   expected   to   remain generally stable this year, but are likely to decline in the long run.


The increased buy-side enthusiasm, observed on the Bulgarian  real estate investment market during  the  first  half  (H1)  of  2017, continued into the third quarter of the year, with retail segment being once again the main market driver.

So  far  this  year,  the  total  volume of     transactions     with     income-producing properties has exceeded €700M.  With  more  transactions  in progress across all segments, 2017 may  be  a  record  year  in  term  of overall investment turnover.

Sofia office space market in the second quarter, April-June 2017

The office real estate market has seen another active quarter with increase in take-up, stable rents and high development appetite. Office jobs growth supported demand of prime office space. IT and BPO companies remain the major source of demand in Sofia and the secondary cities.

Office space take-up in Sofia recorded more than 60 per cent y-o-y increase in the second quarter of 2017, reaching 53,971 sq. m. The leasing volume for the half-year totaled 85,638 sq. m which is 55% growth compared to the same period in 2016. The market is driven mainly by expanding IT and BPO companies which generated about 70% of the demand in the Class A market segment. The financial and pharmaceutical sectors are also active, aiming mostly at consolidating their office space. Mirroring these processes, the second quarter was marked by several notable leases.

Relocations are also marked trend, resulting in slight improvement of the occupancy in the prime segment.

In general, the vacancy rate slightly decreased in the second quarter, reaching 9.3 per cent. However, further decline is not expected since the strong development activity is forecasted to increase the availability. Investment focus

After a significant increase in take-up in H1 2017 positive economic expectations bode well for the office market over the next quarters. The trend should encourage transaction activity.

Sofia office market since the beginning of the year

The office space market in Sofia registered a significant increase since the beginning of the year due to increased activity and increased business endeavors. Strong performance is also supported by robust economic fundamentals – 3.4% GDP growth over the past year. The reduction in unemployment also speeds up the demand for office space and ensures the stability of the segment.

The occupancy of offices for the first quarter of this year is 43% higher than a year earlier. In over 60% of the deals, the key operating industries are IT (high technology) and BPO (outsourcing).

In the first quarter of this year, the volume of office space available is about 1,761 million square meters, according to their MBL and Forton reports. A total of 305,000 square meters are in the process of active construction. Frozen office projects are down to 105,000 square meters.

The decline in office space is also continuing, as in the first quarter of 2017 they are only 9.1%. Less than half of these are in Class A office buildings. The free space for Class A and B offices is about 160,500 square meters. Reducing vacancies is expected to continue because new sites are scheduled to be commissioned in the second half of the year.

Rental levels are stable. The net utilized area in the first quarter is 17 000 square meters.

The average bid prices for Class A offices for the first quarter remain within the range of 12 to 14 euro, depending on the location and area. The volume of offices under construction will continue to grow. Demand will probably be around the average volume observed over the past few years. It is also possible to expect a slight increase in prices per square meter.

Experts expect that the second half of the year is expected to remain stable. The mid-term forecast of specialists is that strong demand and scarcity of premium spaces will move the office market this year as well.

State of the office market and future development

A healthy occupier demand kept Sofia’s office market buoyant in 2016. The IT and BPO industries remained the biggest source of leasing activity, in line with the expectations.

On the supply side, a limited number of new completions were registered and the shortage of quality space is still a challenge. This imbalance resulted in prevailing share of the preleases in 2016, pushing rents up in the prime segment. However, the revival of development activity will partially rebalance the market in the present year.


With only 22,300 sqm new completions the last quarter of 2016 met the expectations for moderate increase of the office supply in Sofia.

Due to a number of delayed completions, the office stock expanded by only 32,200 sqm in 2016, or just 2 per cent year-on-year. Moreover, the new supply hardly responded the requirements of larger tenants since most of the buildings offer less than 10,000 sqm of GLA. With these deliveries the total stock of Class A and B space in Sofia reached 1,611,403 sqm* at the year-end.

However, the shortage of high standard offices will be partly overcome in 2017 with the scheduled delivery of more than 160,000 sqm new leasable space.

About 50 percent of the expected space has been already pre-let or is currently under negotiation.

* Forton undertook full revision of Sofia class A and B office stock in 2016 in order to update its database. Now, the company monitors vacancy rate and tenant mix changes in office buildings or mixed-use projects with prevailing office space completed after 2002 or refurbished. Our target are buildings with above 2,000 sqm GLA.

Reflecting the strong tenant interest, total volume under construction rose to 298,000 sqm in the fall of 2016. The included projects are scheduled for completion by 2020.


Annual take-up reached 135,407 sqm in 2016, about 7 per cent over the previous year. Take-up in the fourth quarter amounted to 30,465 sqm, similar to Q4 2015, indicating stable leasing activity.

About 60 per cent of the occupier activity throughout the year came from the IT and BPO industry. Shared service activities remain in dominant position on the office market, together with traditional tenants, such as pharma and financial sectors.

Mirroring the shortage of prime space, the share of preleases is relatively high, accounting for 41 per cent of the total take-up in 2016. In confirmation of this trend, high-standard office buildings such as SPS Tower (8,400 sqm GLA) obtained use permit with almost 80 per cent pre-let space. Epam and Cargill are among the main tenants. Kambanite Green Offices, which was the largest completion in 2016, has been 70 per cent pre-let, as well.

Renegotiations were the second largest group of agreements on the leasing market in 2016 with 22% of the total volume, followed by the expansions. The vacancy rate continued to decrease, dropping down to 10 per cent in the fourth quarter of 2016. The vacancy of the Top 15 office buildings slightly decreased to 2 per cent.

Outside Sofia, Plovdiv and Varna registered moderate volume of office leases, accounting for less than 5 per cent of the market. However, further expansion of IT and BPO companies is expected to underpin the office markets in secondary cities.


The large share of preleases kept prime rents in Sofia stable in 2016. However, the revival of development activity will maintain the offer rates at €13.00-13.50/sqm/month in the middle term. Strong demand supports rates in the range €8.00-10.00/sqm/month for class A properties in Plovdiv.


Strong economic fundamentals and well performing leasing market provide grounds for large transactions with prime office projects. The investors’ focus remains on good quality income-producing assets. Following the decrease of prime yields in 2016, now the rate is stable at 8 per cent.


Volumes of office construction increase underpinned by the strong tenant demand;

Rents are likely to remain stable over 2017, having already grown;

Prime yields are stable, following the slight decrease in 2016.