Half way through 2023, Bulgaria’s economy is doing quite well, with the main economic indicators for the first quarter all being positive. Inflation, a huge problem for most CEE countries, has receded back to single digits (7.5% in June) and was just above the average for the Eurozone (5.5% in June). The unemployment rate dropped 6% y/y, with employment edging up slightly both nationally and in the capital Sofia. GDP grew by 2.3% y/y, which is more than double the EU average.
The office market in Sofia posted visible slowdown in the first half of 2023, with leasing volume decreasing by 11.5% y/y. Transactions for the period amounted to 75,598 sq m. Rents at premium locations in Sofia's central business district remain stable at 16 €/sq m, while the rates for class A properties along the main roads vary between 12 and 15 €/sq m.
Only retail parks saw any significant development in Q2 2023, with the completion of two retail parks adding 35,000 sqm GLA to total retail stock. The total volume of new leases approached 60,000 sqm, over 60% of which was provided by new retail parks and 34% by existing shopping centers. Overall lease activity is expected to remain solid in the near term, driven mainly by retail parks, with at least six such facilities set to open by the end of the year. Asking rents in retail space in Sofia’s shopping centres remained stable at 36 €/sq m/month with upward potential going forward due to narrowing vacancy.
Despite postponements and delays to construction over Q2 2023 due to rises in construction costs and availability of materials, the volume of completed projects in the past quarter stood at 82,000 sqm, nearly half of which was owner-occupied. Prime rents increased 4.0% quarter-on-quarter, reaching 5.20 €/sq m for premises over 10,000 sq m, while rents for small to mid-size schemes edged up 3.7% to 5.60 €/sq m. The upward movement was mainly driven by price indexation and lack of supply, and is expected to continue in the short-term.