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.