Research & Forecast Report Bulgaria | Office Real Estate Market H2 2015
Office Market Overview
Supply A slight 5% increase in modern class A and B office space supply in Sofia was recorded during the second half of 2015. The total stock reached 1,837,000 m².(Fig.1)
Verka Petkova Manager | Offices and Industrial Services verka.petkova@colliers.com “The highest office pre-leases level was recorded since 2010 - 22% of all transactions.” “New office supply grew to 80,000 m², mainly due to Capital Fort. With this project the 7-11 km of Tzarigradsko shosse shaped up as the newest business location in the city.” “Class A available space, meeting international requirements, was 22,400 m², at asking rents between 12 and 14 euro per m².” “Total take-up**, i.e. all transactions on the office market in Sofia for 2015, reached 113,000 m².”
The newly completed projects added more than 79,500 m² space, out of which Capital Fort represented the biggest share and the rest was predominantly concentrated in small office buildings in suburban city locations. The latter did not significantly influence the distribution of office projects in terms of their concentration by submarkets. Capital Fort shaped the 7-11 km of Tsarigradsko Shose as a business area, which is expected to further develop in the future. The established office locations in the capital, such as Business Park Sofia, Sofia Airport surroundings, Nikola Vaptsarov Blvd. and Bulgaria Blvd. will continue to expand, with expectations for each one of them to add at least two buildings to the office stock within the next two years. Colliers’ internal research indicated that 80,000 m² office space would be introduced to the market in 2016 and an even larger volume is planned for 2017 – app. 240,000 m². The number of Class A projects, responding to international requirements reached 23, totalling to 404,640 m².
Fig 1. Total Office Supply in Sofia (in `000 m2) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
1,748
1,649 1,318
1,837
1,686
1,539
1,062
2009
2010
2011
2012
2013
2014
2015
Demand High demand for quality office space continued during 2015. Net absorption* of class A and B offices in Sofia during the second half of 2015 was 62,850 m² and app. 85,860 m² for the whole year. This indicator marked a decrease compared to 2014, as the 2015 calculation excluded renegotiations, preleases and relocations from competitive stock. Total take-up**, i.e. all leasing transactions on the market for the second half of 2015, was 66,000 m² and for the whole year 113,000 m². The primary demand driver remained the international companies in BPO industry, shared service centers and companies in IT sector, forming 43% of the transactions for
2
Office Market Overview | H2 2015 | Colliers International
2015. The impact of these industries on the country economy grew, taking a share of app. 3% of the GDP by the end of 2015. The 2014 trend continued in 2015 with relocations holding the highest percentage of the registered deals - 42%, followed by expansions of companies within their current or on a new location (25%) and pre-leases (22%), the latter having their best result since 2010.
Vacancy Due to the steady absorption level, the supply growth during the second half of 2015 did not notably influence the available office space in Sofia. It remained 258,400 m² or 14% from the total volume of Class A and B projects. Vacant space in Class A projects was app. 22,400 m². Capital Fort offered a significant volume to the office stock, still did not affect the final vacancy statistics. The market absorbed 80% of the project by the end of 2015.
Secondary Cities The interest in Plovdiv, Varna, Burgas and Ruse remained solid in the second half of 2015, despite the fact that the process of securing a location there typically took longer compared to the capital. The total supply in these cities slightly grew to 486,850 m². IT and BPO companies took over demand and led to a total take-up in the four cities of 26,500 m². Plovdiv and Varna remained on top of the wish list. Human capital migration from Varna and Burgas towards Plovdiv was observed in the second half of 2015. The construction of contemporary office buidings, corresponding to the requirements of the international companies, is expected to be completed in 2016 in Plovdiv and Burgas. The rental levels in the secondary cities remained stable over the last six months of 2015.
Forecast
Rental levels Average rental levels for Class A office space in the capital’s CBD and Broad Center remained stable during the second half of 2015, respectively at 13 and 12 euro per m². New supply in Suburban areas led to a slight increase in the offered rents for these locations from 10 to 11 euro per m². Class B projects in the periphery of the city also went upwards from 6 to 7 euro per m².
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Class A office buildings will continue to stand out in terms of quality and characteristics, which will further impact rental rates.
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A slight disbalance between supply and demand will be experienced in 2016, that would result into pre-lease of projects scheduled to open in 2017.
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BPO companies, shared service centers and the IT sector will continue to shape up the Sofia office market and the secondary cities in Bulgaria. The expectations are both for expansions and for new company entries. The provision of more jobs in these sectors will stimulate the office segment along with the retail and the residential ones.
Colliers’ market research revealed that while Class A projects offered rents were between 12 and 14 euro per m², the effective rates came within the range 10.5 - 12.50 euro per m², depending on the location and the specific requirements. The supply-driven market resulted in fewer incentives for the potential tenants.
Definitions:
Fig 2. Class A asking rental levels in Sofia (euro/ m²/ month)
** Gross Take-up - Total Occupational Market Activity is the total floorspace known to have been let or sold as one of the following activity types during the period: Pre-lets, New Occupation/Lease, Expansion, Renewal/Renegotiation, Sub-lease and Sale & Leaseback.
17 15
15 14
12
12
12 11 9
2009 CBD
3
2010
* Net Absorption - Net Absorption refers to the change in occupied stock from one period to the next. It refers only to existing stock (not the development pipeline).
2011 Broad Center
12
12
11
11
9
9
2012
2013
13
13
12
12
10
2014
11
2015
Suburbs
Office Market Overview | H2 2015 | Colliers International
502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia: 199 EMEA: 108
€1.75
billion in annual revenue
Verka Petkova Manager | Offices and Industrial Services +359 2 976 9 976 verka.petkova@colliers.com Adriana Toncheva Senior Market Researcher +359 2 976 9 976 adriana.toncheva@colliers.com
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million square meters under management
16,300
professionals and staff
About Colliers International Colliers International is a global leader in commercial real estate services, with over 16,300 professionals operating out of more than 502 offices in 67 countries. The company operates in Bulgaria since 1991 and delivers a full range of services to real estate users, owners and investors worldwide. Presently Colliers represents some of the most innovative and professionally planned projects in all market segments, including office, retail, logistics, industrial and residential. As of June 2015, Colliers is an independently owned company. The common shares of Colliers International Group Inc. trade on the NASDAQ under the symbol “CIGI” and on the Toronto Stock Exchange under the symbol “CIG”. As part of the CEE Quality Awards 2015 Colliers won for the fourth time in a row the Industrial agent of the year award. The latest annual survey by the Lipsey Company ranked Colliers International as the third-most recognized commercial real estate firm in the world. colliers.com Copyright © 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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