Retail Market Overview, H2 2015

Research & Forecast Report Bulgaria | Retail Real Estate Market H2 2015

Retail Market Overview

Supply The total supply by modern shopping centers in the second half of 2015 remained at 412,660 m² in Sofia, and 777,260 m² in the country. There was an insignificant decline of the total volume in the capital as a result of the transformation of retail into office space in Tzum.

Boryana Peneva

Manager I Retail Services boryana.peneva@colliers.com

“By the end of 2015 the available space in shopping centers amounted to 27,500 m² almost equaling the absorbed m² for the year - 26,160” “High streets in Sofia, Plovdiv, Varna and Burgas doubled their level of replacements, registered for the first time in recent history of the segment.”

“Prime rental rates** of established shopping centers in Plovdiv and Varna marked a slight increase.” „Demand started to catch up with supply on the high streets in Sofia and Plovdiv in parallel with a moderate prime rent growth.”

In the autumn of 2015, Colliers partnered with GfK for a sentiment survey* of the modern shopping centers in Sofia, exploring the opinion of visitors, retailers and owners. Key takeaways include: »»

Shopping center visitors defined location, variety of brands and cinema as the most important factors to choose a shopping center.

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Good tenant mix is the intersection point between visitors, retailers and owners in terms of areas for improvement. Retailers identified landlord communication as an additional area to be addressed, while for landlords found that to be the atmosphere in the shopping mall.

(Fig.1)

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Visitors’ attitude towards fashion is dominated by practicality and convenience.

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Top 3 favourite fashion brands of shopping mall visitors are: H&M, Adidas and Zara.

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Retail Market Overview | H2 2015 | Colliers International

For the first time since 2010, a new project was announced to open in Plovdiv – Markovo Tepe Mall. The plans for Plaza West in Sofia would be further clarified to the public.

High streets in Plovdiv, Varna and Burgas marked a significant drop in available space on year-to-year basis. The biggest decline was in Plovdiv from 9% to 1%, followed by Varna from 14% to 8%. Burgas registered an insignificant decrease of 1% and reached 6%. Sofia had an increase of 1% with 7% vacancy.

Demand Colliers’ analysis revealed a 67% growth of the absorbed space in shopping malls in the capital during the second half of 2015 compared to the previous one. It came at 16,370 m² for the second half of 2015 and 26,160 for the whole year. This was mainly due to replacements and entry of new operators.

Shopping center competition entered a mature stage with owners becoming more conscious to the tenant mix quality, as a means to raise attractiveness. Paradise Center and Mega Mall, followed by City Center Sofia had the highest tenant turnover in the last six months of 2015.

Figure 1. Areas for improvement

Visitors

Retailers

Landlords Good tenant mix

Kind personnel in the stores

Convenient parking

Free parking

Good communication between

Pleasant atmosphere

The new brands on the Bulgarian market were Philip Plein, Tom & Paul’s, Duka, Sergio Barrone. G-star Raw and Baldessarini presented their first mono-brand formats. The food retailers Texas Chicken and Roadhouse Grill also made a debut in the country.

Retail parks kept developing and further modernizing. A good example is Retail Park Varna, which added to its portfolio distinguished operators, such as Decathlon, IKEA, Comsed, Martineli and Dominiko. The latter will present a new retail concept, offering a variety of home and garden products on 1,350 m².

Rental Levels Prime rental rates** in shopping centers in the four big cities remained stable in 2015. In Plovdiv and Varna a slight increase by 4% was registered. High street rents in Sofia and Plovdiv grew modestly, while in Varna and Burgas there was no shift whatsoever. (Fig.2)

Figure 2. Prime rental rates in Sofia (EUR/m2/month)

38

Big box market went on consolidating – a trend expected to be seen in 2016 as well. In the second half of 2015 the food retailer Billa opened 8 stores, Kaufland - 4 and Lidl - 2. Lidl leased their first shopping center location in Bulgaria.

Penny Market exited the market complying with the strategy change of the mother company - REWE Group, now focusing on supermarkets, locally presented by Billa.

Piccadilly and Carrefour restructured their business leaving in the past the express supermarket format. The same was witnessed for Metro’s two compact stores in Haskovo and Dobrich.

The replacements on the high streets in the four big cities doubled in 2015 compared to 2014. In Plovdiv this indicator increased from 3% to 14%, in Varna from 8% to 28%, in Burgas from 11% to 20%. The situation in Sofia was no different – from 6% to 12%. The largest share of new operators was on Vitosha blvd. in the fashion and HORECA sector.

37

33

30 25

30 30

30

38

39

31

32

41

42

34

34

H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 Tърговски центрове

Главна търговска улица

Table 1.

Prime rental rates** (EUR/ m² / month) Location

Sofia

Plovdiv

Burgas

Varna

Shopping centers

34

25

21

26

High street

42

20

21

19

Forecast

The leading fashion operator H&M opened two new stores in the surveyed period. One was on the High Street in Plovdiv and the other in S Mall in Sliven.

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Colliers produced a new instrument – high street Retail Map, to illustrate the retail mix on Vitosha blvd., allowing the interested parties to stay informed at all times of the developments on the street.

The shopping center dynamics in 2016 will be related to achieving a better positioning through a variety of competitive advantages. A new shopping center is expected in Plovdiv.

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High streets will retain attractiveness to retailers, evident from the high demand and the large number of replacements in the second half of 2015.

RETAIL MAP OF VITOSHA BLVD.

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The current restructuring undergone by certain hypermarket chains will result into anchor changes in a number of retail schemes.

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Retail parks will strengthen their position as an alternative to shopping malls.

Definitions: *Colliers & GfK conducted a comparative survey, which includes the 9 most important shopping centers in Sofia from three perspectives – owners, retailers and above 700 visitors (representative sample for Sofia population by gender, age and region) **“Prime Rent represents the average top open-market rent estimated to be achievable for a new lease of a 100 m² (net internal area) unit of the highest quality and specification in the best location, excluding service charges and taxes and not reflectiveng tenant incentives.“

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Retail Market Overview | H2 2015 | Colliers International

502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia: 199 EMEA: 108

€1.75

billion in annual revenue

Boryana Peneva Manager I Retail Services +359 2 976 9 976 boryana.peneva@colliers.com Adriana Toncheva Senior Market Researcher +359 2 976 9 976 adriana.toncheva@colliers.com

Colliers International | Sofia European Trade Center 115K Tsarigradsko Shose Blvd.

Build. B, 7th floor 1784 Sofia | Bulgaria TEL +359 2 976 9 976

160

million square meters under management

16,300

professionals and staff

About Colliers International Colliers International is a global leader in commercial real estate services, with over 16,300 professionals operating out of more than 502 offices in 67 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”.

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