Research & forecast report
Bulgaria | Office Real Estate Market H1 2017
Office Market Overview
43% of all office transactions were pre-leases
Office space demand retained consistently high levels during the period
67% of all leases were completed for the use of outsourcing companies
Gross take-up* increased by 64%
Verka Petkova Director Business Development verka.petkova@colliers.com
Supply
Due to Sofia office market dynamics in the past 60 months and for the purposes of the present overview, Colliers reassessed the existing office building classification and updated the respective database. The evolution of technology and its growing implementation in office projects gave reasons for reconsidering the classification. The qualitative differences between existing projects from the near past and brand new developments have become significant and impossible to ignore in terms of asking prices and tenant preferences. Map of existing class A and B offices in Sofia Millenium Center added 22,000 sqm to the available class A office stock. The reclassification shows a balance between class A office supply in Center and Broad Center areas.
17 % 14 %
17 % 25 % 66 % 61 %
class A offices class b offices
2
Total stock of contemporary offices class A - 718,000 sqm class B - 945,000 sqm
Office market overview | H1 2017 | Colliers International
The maturing of the market will provoke further reclassification of buildings into class B characterized by affordable rents, good technical parameters and functionality. The well-established office district on Tsarigradsko Shosse Blvd., between Capital Fort and 7th-11th kilometer, has been growing in popularity for reasons, such as developed road and transport infrastructure, availability of subway and underground parking.
Office buildings in Sofia in construction stage due by the end of 2017
Office building
Location
Investor
Polygraphia Office Center – phase 2
Broad Center
BLD Office Park
Expo 2000 Office Park – phase 4
Suburbs
Expo 2000 Real Estate
BSR Sofia One – phase 2
Suburbs
BSR Sofia
City Tower
Center
ICON
GOLDLINE
Suburbs
D&L DIEL
The 2016 trend of strong office demand, followed by start or restart of projects, continued. By the end of the current year 5 buildings are due for completion. They will expand the existing office stock with approximately 90,000 sqm. A considerable part of this space is already leased out.
Demand Net absorption** in Sofia (in ‘000 sqm.) 90
Demand remained stable in H1 2017 – net absorption** was approximately 49,000 sqm. – comparable to the H1 2016 levels.
84
80
76
71
70
51
50 40
65
63
60
49
46
43
40
38
The outsourcing sector was the main demand driver with 67% share in the total office transactions. The trend is expected to continue. Gross take-up was 94,000 sqm. - up with 64%, compared to H1 2016.
34
30 23
20 10 0 h1 2011
h2 2011
h1 2012
h2 2012
h1 2013
h2 2013
h1 2014
h2 2014
h1 2015
h2 2015
h1 2016
h2 2016
h1 2017
Outsourcing companies’ share in total office transactions
80%
74 % 60%
67 %
60 % 40%
43 %
43 %
20%
H1 2015
H2 2015
H1 2016
H2 2016
H1 2017
Office market overview | H1 2017 | Colliers International
3
Types of office market transactions in Sofia The pre-lease trend, witnessed in 2016, further strenghtened (43%) following the scarce supply of class A offices.
18 %
17 % 3%
Convenient location, modern and functional layouts, and comfortable workspace remained key tenant requirements.
19 %
43 %
from which class a
pre-lease
from which class b
contract renewal relocation expansion new entry 51 %
20 %
16 %
11 %
2%
13 %
14 %
21 %
52 %
Vacancy Office vacancy in Sofia
15.0%
13.8 %
14.1 %
Class A and B office vacancy in Sofia was 170,000 sqm. with 25% share of class A offices.
13.7 % 11.6 %
10.0%
10.2 %
Constrained class A supply and low vacancy are projected to further direct attention to class B buildings.
5.0%
The companies, open to consider class B buildings with communicative locations, grew in number.
0.0%
H1 2015
H2 2015
H1 2016
H2 2016
H1 2017
Includes the whole vacant office space on the market in Sofia
Vacant Space Distribution in Sofia
OFFICE
69% suburbs
OFFICE
OFFICE
OFFICE
OFFICE
OFFICE
26% center
5% broad center
78% suburbs
15% broad center
7% center
class a
4
Office market overview | H1 2017 | Colliers International
class b
Office market overview | H1 2017 | Colliers International
5
6
Office market overview | H1 2017 | Colliers International
Rents Sofia class A offices asking rents (eur/sqm) The affordable rental levels of quality office space under construction are among the top reasons for the increased pre-lease activity.
15 14 12
12
12
12
11
11
11
9
9
9
2011
2012
2013
13
13
12
12
14
13,5
13
Asking prices grew slightly, due to the insufficient supply of quality offices.
12
12
2016
H12017
11 10
2010
2014
2015
Center
Broad Center
Suburbs
Outlook
Pre-lease deals to continue in the course of the current year, driven by limited supply and widening asking price range. Office lease transactions in the Hladilnika area to grow in the next half-year, due to the concentration of new office buildings in the neighbourhood. Interest in secondary cities (Plovdiv, Varna, Burgas, Veliko Tarnovo, Ruse) to become more distinctive. Tenant preferences to sustainable buildings to be a notable trend.
Definitions *Gross take-up – the total floor space known to have been let or sold during the period and includes the following transactions: pre-leases, new leases, expansion, contract renewal/ renegotiation, sub-leases, sale & leasebacks.
**Net absorption – the change in occupied stock during the period compared to the previous one.
It refers only to existing office stock (not to the development pipeline).
Office market overview | H1 2017 | Colliers International
7
554 offices in 68 countries on 6 continents €2.3
billion in annual revenue
Verka Petkova Director Business Development +359 2 976 9 976 verka.petkova@colliers.com Kamelia Radova Market Researcher +359 2 976 9 976 kamelia.radova@colliers.com
Colliers International | Sofia European Trade Center 115K Tsarigradsko Shose Blvd. Build. B, 7th floor 1784 Sofia | Bulgaria +359 2 976 9 976
170
million square meters under management
15,000
professionals and staff
About Colliers International Colliers International is a global leader in commercial real estate services, with over 15,000 professionals operating out of more than 554 offices in 68 countries. The company operates in Bulgaria since 1991 and delivers a full range of services to real estate users, owners and investors worldwide. Presently Colliers represents some of the most innovative and professionally planned projects in all market segments, including office, retail, logistics, industrial and residential. As of June 2015, Colliers is an independently owned company. The common shares of Colliers International Group Inc. trade on the NASDAQ under the symbol “CIGI” and on the Toronto Stock Exchange under the symbol “CIG”. As part of the CEE Quality Awards 2016 Colliers won for the fifth time in a row the Industrial agent of the year award. The latest annual survey by the Lipsey Company ranked Colliers International as the third-most recognized commercial real estate firm in the world.
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