“GROWTH” AND “DEVELOPMENT” DEFINE THE BULGARIAN OFFICE MARKET DURING THE FIRST HALF OF 2016

– Highlights from Colliers International’s report on the office property market during the first half of 2016 –

 

“Growth” and “development” have been the key characteristics of the office market in Bulgaria during the last few quarters. The first half of 2016 made no difference, where the above qualifications were applied to both the supply and the demand sides.

During the surveyed period Class A and B office space supply in Sofia increased by 2% to 1,879,400 m². The new stock delivered over 42,000 m², with Class A projects comprising two-thirds of the supply. Only Class A projects, meeting the international requirements, increased with two new buildings, equivalent to 23% growth and reached 500,000 m². More information regarding the existing supply is available on www.officeMAP.bg. This is a new online platform, developed by Colliers, which includes a detailed register of the contemporary office buildings in Sofia.

The established office locations kept expanding. They remained preferred destinations of the outsourcing sector – the primary market driver. High demand levels gave developers confidence to start or restart construction activities. Colliers’ projections are that 36,000 m² of new space will enter the office market by the end of 2016 – а development pipeline, insufficient to fully correspond to the demand intensity within the current year. An additional stock of 115,000 m² is due for 2017.

The growing supply of Class A projects, meeting the international requirements, led to their higher share in terms of available space -12% from the total stock. The absorption of existing office buildings was faster than the delivery of newly developed stock. However, the Class A and B vacant office space in the capital put together registered an insignificant decrease. It stood at 258,000 m² – a bit below 14% of the total volume. The absorption dynamics resulted into a relatively stable vacancy.

The demand side enjoyed growth, as well. Net absorption* of Class A and B offices was 43,000 m² – almost two times more than the one reported for the respective half of 2015. Total take-up (all leasing transactions on the market) amounted to 57,200 m², showing a 23% growth compared to the first half of 2015. The registered transactions were related to expansions within the current location or co-locations (30%), followed by relocations (25%), renegotiations (25%) and pre-leases (17%).

 

Verka Petkova, Manager Office and Industrial Agency at Colliers International, elaborates on the client requirements:

“The primary demand driver on the market continue to be the outsourcing sector, accountable for 60% of all lease transactions during the first half of 2016. The growth of this industry is the main factor leading the office space change and modernization. Its requirements include creating a social environment for the employees, providing a work-life balance and better comfort at the workplace. Building location, public transport availability and access, amenities nearby have a growing importance in the office selection process. Office occupiers shift their attention from focusing on the building itself towards the multifunctionality of the project and its additional offerings, such as cafes and restaurants, sports centers, convenience services and entertainment.”

 

Over the surveyed period what remained stable were the rental levels. For class A office space they stood at 13 euro per m² for CBD, 12 euro per m² – Broad center and 11 euro per m² – Suburban areas. Class B buildings followed the same trend in terms of asking rents. Class A projects, meeting the requirements of the international companies, kept their previous levels between 12 and 14 euro per m².

What is ahead for the office property market is continuous growth, reflecting to a large extent the dynamics in the outsourcing sector. The representatives of this industry will expand further and will be more intensely looking into options for co-locations not only in the capital, but in the secondary cities as well. Tenants will increasingly prioritize the sustainability and green-building certification requirements, together with the social environment factors. Quality office space availability will remain low until the end of 2017, when more than 115,000 m² are expected on the market. Until then pre-leases and current terms renegotiations will be mostly witnessed on the office market.

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