The Bulgarian economy is projected to decrease by 3% in 2020, according to the Government’s forecast for the economic impact of the COVID-19 crisis. The coronavirus outbreak has negative effect on domestic consumption and exports which were the main growth drivers in the previous years. After having reached its record low in 2019, now the unemployment rate is going up and is expected to exceed 6% in 2020.
The office market in Sofia faces a significant slowdown, due to the economic uncertainty and weakening business activity caused by COVID-19. Leasing volume amounted to 26,665 sq m in the first quarter of 2020, which is 22% down compared to the same period of 2019, and below the 5-year average. The market was dominated by renewals with more than 40% share of the total take up. Together with the lack of pre-leases, this indicates that occupiers are reconsidering their business and tend to postpone their expansion plans. Net absorption dropped to outstanding low level of 7,088 sq m in Q1, which may be attributed to delayed expansions and finishing works in the rented premises.
Asking rents in Sofia stood at 15 Euro/sq m for Class A offices in CBD and 12-14 Euro/sq m alongside main roads. However, the looming recession and tightening office market will put prices under pressure in the coming year.
The year started with a lower number of new openings in shopping centres compared to the previous ones. Although fine-tuning of tenant mixes in most schemes is still ongoing, the coronavirus outbreak put many expansion plans on hold.
The retail market is among the most affected by the lockdown measures and decreasing consumption. After a state of emergency was declared on the 13 March, a major part of the non-essential retail and the entertainment business suspended operations. Shopping centers were ordered to close, harming turnover-related revenues and raising the risk of tenants seeking compensation or outright rent abatements. After a year of strong leasing activity, which improved the occupancy rate in Sofia malls to 95% on average, now the vacant space is expected to increase rapidly in 2020 and to recover gradually in 2021.
Occupier activity and new brand entries supported the gradual increase in rents over the last few years. Rents leveled off at 40 Euro/sq m for Sofia shopping centres and 58 Euro/sq m in main streets, at the beginning of 2020. The rates are for 100-150 sq m units at prime location. With retail bearing the brunt of the economic fallout rents will inevitably be under pressure in the coming quarters.
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