The IT sector continues to move the office market in Sofia

Offices for rent

Overview
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.

Outlook
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.