The Bulgarian GDP declined by 4.2% in 2020, due to the lockdown measures and the subdued economic activity. Business sentiment remains cautious at the beginning of the present year, reflecting the uncertainty caused by the pandemic. Although the wage support schemes underpin healthy employment rate, the demand for office space remains predictably frail, since many occupiers are unsure about their future plans. However, first signs of market recovery are expected in the second half of 2021 along with the forecast economic upturn.
Office Space in Sofia, Bulgaria
The office market in Sofia followed the forecasts and remained slow in the first quarter of 2021, with only 16,073 sqm rented space. Compared to the 5-year average, the total volume is down by 46%. Net absorption is slightly below 6,000 sqm which indicates limited expansion activity by occupiers. The main driver in Q1 were small leases, up to 500-600 sqm, mostly relocations and renewals. Large part of inquiries come from companies in the service sector, which aim to move to better location and improve their work environment.
The share of IT and BPO industry in the total take up is slightly down, since work from home remains strong trend and make some companies postpone or reconsider their expansion plans. In general, most occupiers plan to start getting back their employees in the office in the autumn. Since most of the companies continue to hire during the home office period, their teams actually grew, which is expected to support the demand of office space.
Industrial Real Estate in Bulgaria
In line with the forecasts for economic improvement in 2021, the industrial sector in Bulgaria shows tentative signs of recovery. Exports registered slight upward trend in February for the first time in the last twelve months, with 2.8% y-o-y growth. In the same time, industrial production still continues to fall, following the overall trend on the EU markets. Exports and domestic demand are expected to put the Bulgarian economy back on track, with 2.7% anticipated growth in the current year. This will give impetus on the development and leasing activity in the industrial sector.
On the demand side, the rise of online commerce underpin the need of logistics space, especially for last mile deliveries. An increasing number of inquiries is coming from fulfilment centers, pharmaceutical companies and medical supply distributors, as well. The near-shoring of production facilities in the SEE region is another potential source of opportunities for industrial property developments which shall materialize in mid-to-long term.
Retail Real Estate in Bulgaria
The Bulgarian economy experienced noticeable decline by 4.2% in 2020, affected by the coronavirus spread and the containment measures. The lockdown periods left many shops closed for months, having a negative impact on the business of shopping centers and retailers. Despite the wage support schemes, household incomes posted only a symbolic increase in the last quarter of 2020, while retail sales continue to fall. However, slight improvement is likely to start with the expected economic upturn in the second half of 2021.
The uncertain environment caused by the lockdowns badly affected sales and expansion plans of many occupiers in the non-essential retail. The first quarter of 2021 registered moderate activity in terms of new stores, with roughly 8,200 sqm openings in shopping centers countrywide. The most active tenants remain FMCG, sport goods, drugstores and discount stores. As part of their global strategies, some brands rely on new formats and locations. Such example is the big-box sports retailer Decathlon, which added a small-size store in the center of Sofia to its network. Similarly, as part of its global strategy, IKEA is ready with its third order and collection point in Bulgaria. The store will operate on 1,200 sqm in Mall of Sofia. In general, the convenient retail is on the rise, driven by the increasing number of customers who appreciate the proximity and time saving options. Many of these stores are serving as click-and-collect point, especially in lockdown periods.
On the supply side, retail parks remain in the focus of developers, with 31,800 sqm under construction countrywide. As at the beginning of 2021, the total stock in this segment amounts at 179,363 sqm, concentrated in Sofia and Plovdiv. Smaller projects are in development phase in regional cities. Retail parks gain ground among actively expanding tenants and are considered as good and cost effective opportunity for market entry in regional cities.