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Sofia City Report H2 2023

04.03.2024

 

Investment Market

The cautious behavior seen in investors in H1 2023 continued through H2 as well. The main reason for that seems to be the high cost of financing as interest rates for investors have reached 6.5 – 7.5% which basically melts down the potential return almost entirely.

Total investments activity for 2023 reached €167 mil. Approx. 47% of the total activity was concentrated in the office segment (79 mil) and of those nearly 100% were transacted in Sofia.

In 2023, the office segment had the largest share of transactions – €79 mil., followed by the hotel segment – €42.5 mil. and the retail sector – €39 mil. Continuing the trend from H1 2023, there have been only a few small transactions in the industrial segment and the total activity in the sector is below €10 mil. for the entire year.

 

Office Market Commentary

The second half of 2023 almost mirrored the first one – starting very slow and picking up over the course of the final quarter of the year. The transaction volume (excluding renewals) for H2 2023 stands at 67,818 m2.

As usually, Tsarigradsko Shosse and Hladilnika lead the way in terms of transaction volume with nearly 50% of the new lease acquisitions focused in these areas. Decreasing vacancy levels are observed across most submarkets including Tsarigradsko Shosse (28%), Hladilnika (9%), Business Park Sofia (10%).

The current modern office stock for rent in Sofia is 2.12 million m² at the end of H2 2023, out of which 61% are considered class A.

Construction activity in H2 2023 slightly decreased as there was only one construction start and a very small volume of construction completions, and now stands at 224,900 m². About 58% of these are expected to be delivered in 2024. The volume of frozen projects remains the same – 42,000 m2, but surprisingly, construction permits for nearly 67,000 m2 were received in the second half of the year.

Highest construction activity continues to be observed in the areas of Tsarigradsko Shosse and Hladilnika where almost half of all the construction is taking place.

 

Retail Market Commentary

In the latter half of 2023, the trend of rapidly developing retail parks continued as new areas totaling 62,210 m² were unveiled across the country.

In Bulgaria, at the end of the second half of 2023, there were more than 50 retail parks in stock, or over 472,210 m² of stores. It is important to note that they are spread across the country.

The total availability in retail parks in Sofia amounts to 87,370 m². 4 parks have a 99% occupancy rate. Consumer demand is aimed at discount chains, drugstores, sports stores, supermarkets, as well as specialty furniture and home decor stores.

In the second half of 2023, there were no new shopping centres constructed in Sofia, and this trend will continue in 2024. Developers and retailers are exclusively concentrating on retail parks. Nevertheless, a notable exception occurred in the latter half of 2023 when, for the first time in a considerable period, one retail park, namely Retail Park Knyazevo, was opened in Sofia, with 7,370 m² GLA.

In the second half of 2023, eight retail parks were opened in the country: Retail Park Knyazevo, Retail Park Arena, Retail Park Dupnica Express, Holiday Park Haskovo, Retail Park Karlovo, Retail Park Silistra, Retail Park Chirpan, Retail Park Elin Pelin, with a total gross floor area of 62,210 m²

The retail park projects planned for Sofia have a total area of 194,400 m² GLA. Delivery is expected in late 2024 or early 2025.

 

Industrial Commentary

In the second half of 2023, net take-up reached 83,000 m². Industries such as transport, logistics, retail, manufacturing, courier services, and wholesale trade contributed to this demand, with a substantial 84% of the utilized space designated for owner occupation. The vacancy rate is 2.3%.

In the second half of 2023, the aggregate size of finalized industrial projects totaled 67,900 m², mirroring the concurrent surge in demand. The volume of projects under construction is 293,000 m² and is expected to be completed in 2024 - 2025.

Looking forward, the cost of newly constructed Class A warehouse space within Sofia's Ring Road is expected to remain within the bracket of € 5.4-5.9 / m². Meanwhile, rents for facilities situated beyond this boundary are projected to fall within the range of €4.9-5.4 / m².

 

Residential Commentary

The residential market continued to show growth and resilience during 2023, despite global conflicts and signs of recession in the EU. 5,834 units were delivered in Sofia in 2023, almost the same as in 2022 (+0.6%).

In Sofia, mostly two-room and three-room residential units are put into operation, compared to the other newly introduced dwellings. In 2023 overall, 2,391 two-room dwellings were delivered, which represents 41% of all newly introduced units, followed by 1,988 three-room homes, or 34.1% of the total, 616 four-room homes (10.6%) and 339 studios (5.8%).

The last places in the ranking were occupied by five-room dwellings, totaling 275 units (4.7%), and six-room dwellings, totaling 225 units (3.9%).

The average price of apartments in Sofia for Q4 2023 was €1,930 / m², which is an increase of 7% compared to Q4 2022, when the average price was €1,800 / m². Prices are up 21% in Q4 2023 compared to Q4 2021.

The report can be downloaded here

 

  1. iO Partners Sofia City Report H2 2023.pdf

Sofia City Report H2 2023

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