According to the latest macro economic data the economy of Bulgaria showed a significant bottoming out since 2009 and its recovery remained on track in H1 2011, continuing to be primarily driven by net exports. The Gross Domestic Product has increased by 2.5% year-on-year, after a 5% decrease in 2009. However, most of the banks that operate on the local market have significantly tightened their lending conditions in the last few years. The conservative approach has affected the local real estate market, which was previously fuelled by the loose lending approach on behalf of most banks. In the last few months banks are starting to be active again which is an optimistic sign. This fact, together with the economy’s recovery, is a step towards the revival of the property market.
The office stock in Sofia reached 1,350,000 sq m. Despite the evident oversupply of new office space and the high vacancy rate of about 30%, construction works of three new office developments commenced this quarter, adding approximately 20,000 sq m to the pipeline. The active pipeline remains stable with approximately 500,000 sq m under construction in Sofia. The size of the latent pipeline (comprising office project under construction, but currently frozen) is approximately 250,000 sq m. Approximately 145,000 sq m of new offices are scheduled to be delivered by the end of 2011.
The residential market remains comparatively quiet. The construction activity in Sofia continued to slow down, representing 11% of all completions in 2010, down from 16% in 2007-2008. Based on the issued construction permits, the construction activity throughout the country is likely to slow further down. Projects’ sizes and unit sizes tend to be smaller too. The average asking price in Sofia has dropped by 2% over the first semester of 2011 reaching EUR 719. The rental levels are mostly in the range of EUR 2.2 – 3.2 per sq m per month.
Similar to the residential, the retail market also remains still in regards to new retail space. The stock of contemporary malls remained unchanged at around 630,000 sq m over the first semester of 2011. After a long delay, the construction of Strand Burgas has commenced. The construction of several other projects has resumed or speeded up too. The projects actively moving through the pipeline now are more than 200,000 sq m. Discount supermarkets continued spreading out to achieve a higher penetration of the market. Upmarket chains continued their growth too.
The past semester was pretty uneventful for the industrial sector. The impact of the demand makes most market players conservative. A growth by 18,000 sq m did not significantly change the overall modern logistics stock. Almost half of the stock is in the area around Sofia, where prime rates remained relatively stable at EUR 4 per sq m per month. The rates in secondary towns have also remained stable – lower by a euro or more than those in Sofia.
H1 Property Market Report prepared by Danos is available on http://www.danos.bg/article.php?mm=4&submid=1