Even before the Covid-19 crisis erupted in full the Bulgarian business property market experienced a serious difficulties. The 2017-2018 were good due to many large transactions for shopping centers and office space. So everyone wondered if there was an even more serious crisis. Well, we already know the answer. 2020 turned out to be cruel for the real estate market as well.

The Crisis

The crisis for some is an opportunity for others – says a business maxim. These days, some optimistic voices have been heard from various places, including Cushman & Wakefield Forton, a consulting company. According to them, in 2021, the revival of the business property market in Bulgaria is possible.

Expectations are about permanent changes in the way the most affected by the corona-crisis sectors are operated. Such as retail space, hotels and office space.

The great hope for 2021 comes from vaccines. This is the weapon against the virus, which can lead to the desired reversal and normalization not only in the real estate market, but also in the whole economy.

However, no matter how things develop with the virus, the establishment of practices such as home office work, online shopping, online business meetings, etc. already have a serious effect on the industry and segments of the property market.

Office space

Office buildings were not forcibly closed due to Covid-19, but the crisis led to permanent changes in the sector. The most significant of these were – home office work and the freezing of the plans for relocations and extensions of the many companies. In the long run this trend will continue like work from anywhere. Many companies are expected to rely on an ecosystem of workspaces. This including central and outsourced offices, homes, shared offices, and more.

Studies have shown that only 30% of employees have been working from their company office in recent months. No change in this trend is expected in the winter. If the vaccination process is successful, in the spring, there is hope that more and more employees will start returning to their company offices. This will lead to greater clarity for the business of what areas it needs.

In the next 3 months, the growth of the free areas will continue as a result of the vacancy of offices and the completion of new buildings. However, this will hardly lead to a serious imbalance between supply and demand. Some projects is slowing down, and new ones aren’t starting at the moment.

Only economic growth will guarantee the recovery of the real estate business. The official culture, the social element and the team work provide a way for the business. Therefore, the home office trend is temporary. And when life and the economy return to normal, companies will again need office space.

Retail space

The closure of the malls, as part of the anti-epidemic measures, has led to a complete change in the market for retail space. On the one hand, many traders have focused on online sales. And on the other hand, more flexible formats such as retail parks have become popular.

The interest in retail parks is a growing trend. The coronavirus added a new focus to this segment of the market. This is the development of projects without closed common parts, with direct access to stores.

These projects will remain in the field of view of the buyers due to the safety of the traders. This means less risk of closing their objects. For investors, this means stable income and profitability. According to Cushman & Wakefield Forton, by the end of 2020, the country has retail parks with a total leasable area of over 170,000 square meters. m, and new projects are under construction

Due to the two waves of closure, the area of the malls is also doing well. However, the lack of free space is increasing. Some traders closed some of their shops, while others have temporarily stopped their expansion. By the autumn of 2020, the share of unoccupied areas in Sofia malls is about 9%. Following a slight awakening in the spring of 2020, rents in shopping malls in Sofia fell slightly to 36 euros per square meter. m. But they remain stable for the moment. In the retail parks the prices are unchanged. For Sofia they are moving in the range of 8-10 euro / sq.m.

Industrial properties

The segment of the logical areas is among the adaptable ones in the coronavirus crisis. The engine is the growth of the online trade and the need for larger stocks. This leads to an increased demand for logistics areas for rent and the development of own projects in Sofia, as the largest market and distribution hub. The balance between supply and demand is expected to remain in 2021.

The good prospects for the logistics and production segment lead to an active market for construction plots. The entry of new companies, developing logistics projects, as well as the activity on the part of the already operating ones on the market is expected to lead to a permanent growth in the supply and handling of cargo areas. At the same time, an amount of trade and logistics companies are starting projects for their own needs, specialized, pharmaceutical, automated confectionery. The expectations are that this will keep the high volumes of new construction in the segment, which for Sofia is between 160,000 and 240,000 sq. M. m in the last two years. In the logistics parks around the capital, the rental prices are unchanged and range in the range of 4.2-4.5 euro / sq. m.

Investment market

The investment property market went through a slowdown in 2020. Many buyers, especially foreign investment funds, are temporarily retreating due to fears of poor liquidity and uncertainties about the generated revenues. The availability of free resources, the retention of interest rates and the requests for recovery of the economy, however, is a precondition for activating the market in 2021.

There is potential for deals in the office segment and the holiday properties, as well as for areas with potential for complex development.

There is also an interest in acquiring warehousing and logistics projects.

2021 predictions for segments such as retail parks and logistics bases, which show a stable development in the crisis, are to remain in the focus of investors in business properties. An active market is emerging for small office buildings with an excellent location and long-term lease agreements in Sofia.

Income in all market segments is expected to remain stable. For first-class shopping centers in Sofia it is around 7.5%, for first-class office buildings – around 7.75%, and for modern logistics bases – around 8%.

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