Colliers International | Office Market Overview H1 2017, Bulgaria

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.

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The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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