Retail Park Varna

Research & Forecast Report Bulgaria | Retail Real Estate Market H1 2015

Retail Market Overview

• Double increase in retail space absorption for the first six months of 2015 compared to the same period last year • By adding IKEA and Comsed as its new anchor tenants, Retail Park Varna shapes as the first, modern retail park in the city

Supply The retail market remained unchanged in terms of new supply in the first six months of 2015. The total stock of contemporary retail space in the country stood at 783,260 m², and for Sofia - 418,660 m². New projects openings are not expected by the end of the year. The retail activity will be concentrated on repositioning of existing shopping centers (Galeria Plovdiv and City Center Sofia) and unfreezing projects in development stage (Markovo Tepe Mall and Plaza West).

The indicator “leasable retail space in shopping centers” maintained the same levels of 345 m² per 1,000 inhabitants for Sofia and 108 m² for the country, which positions Bulgaria below the 800 European average rate.

700

• The restructuring, optimization and replacement of big box operators marks the start of a tendency of retail zones and parks formation • Vitosha Blvd. reached a record occupancy level since the start of its reconstruction

600 Colliers analyzed key retail projects in Sofia from three 500 different perspectives.

One finding is that anchors occupy 400 approximately half of a shopping mall’s gross leasable area, regardless300 of its size.

200

100perspective delves into the tenants’ type of The second 0 operations (local, international or franchise) and their ratio in the respective shopping center. Graph 1 shows that the H1 highest H2 H1share H2 ofH1 H2 H1 H2 H1 H2directly project with the international retailers, 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 operating on the Bulgarian market, is Sofia Ring Mall (55%), followed by Mega Mall (46%) and Serdika Center (42%).

Graph 1. Share of Direct Operators* 60% 50%

• 6% increase in prime rents*** in contemporary shopping centers

40% 30% 20% 10% 0

Bulgaria Mall

Mall of Sofia

Mega Mall

Sofia Ring Mall

Serdika Center

The Mall

Paradise Center

*Calculations are made based on % from the overall leased space in the shopping centers

Price positioning is the third perspective from which the shopping centers were assessed. Graph 2 demonstrates the share of space leased to retailers in the low-end, middle and 41 high-end price segment.

39 38

33

Graph 2.

30 30 Price Positioning** 25

H1 2012

30

H2 2012

H1 2013

Malls Mega Mall Bulgaria Mall Shopping Mall of Sofia Low-end

38

37

Middle

30

H2 2013 Sofia Ring Mall

31

32

H1 2014

H2 2014

High Street Paradise Center

Serdika Center

High-end

**Calculations include the following categories: Fashion, Shoes & bags, Accessories, Cosmetics, Specialty store, Home décor & Houseware

2

Retail Market Overview | H1 2015 | Colliers International

34

H1 2015 The Mall

60% 50% 40%

High streets in Sofia retained stable levels of vacancy and tenant replacements for the first half of the year, respectively 8% and 7%. A mirror image of the tenant movement values was observed in two categories – Restaurants and Cafes and Fashion operators. Their shares during the first six months of 2015 were 41% and 18% respectively, while in the same period in 2014 the figures were reversed - 18% and 51%.

30%

Rental Levels

20% 10%

Prime shopping centers continued to see low vacancy levels, was reflectedMega in Mall a 6%Sofia growth in primeThe rents***.

The High Bulgaria Mall Mall of Sofia Ring Serdika Mall Paradise Mall Center Center Street in Sofia also marked a slight increase in rents, reaching up to 41 euro per m² per month.

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Graph 3. Prime Rental Rates*** in Sofia (euro/m2/month)

Demand During the first half of 2015 the efforts of the shopping centers to differentiate from one another entered a more mature phase. Replacements and relocations of tenants, closing of stores, new operators entries were registered throughout the period. The demand for modern retail space remained stable. The absorped space reached 9,800 m² or double the volume in the first half of 2014.

During both of these periods, no shopping center was opened to public.

Tenant mix improvement was among the instruments, applied to create a competitive advantage. Colliers analysis indicates that the shopping mall with the highest percentage of turnover for the first six months of the year was Mall of Sofia (4%), followed by Serdika Center (3%) and The Mall (3%).

The new brands introduced to the Bulgarian market in the first half of the year were CCC, Brunello Cucinelli, Wycon.

As a result to the recent consolidations and ownership changes undergone in the big box segment, operators’ preferences regading way of possession changed in favor of own versus rent. In the hypermarket segment, the most active chains in terms of new openings in the last six months were Lidl (2), Kaufland (1) and Billa (1), and Lilly (4) and dm (2) from the drugstores.

Retail parks continued to further develop and modernize.

With IKEA (its second store in Bulgaria) and Comsed, Retail Park Varna turned into the first modern retail park in Varna.

E-commerce started to gain speed on the Bulgarian market in the first six months of 2015, with Decathlon and H&M announcing their online stores.

Available space on Vitosha Blvd. registered 5% decline on an annual basis – the lowest value of this indicator for the last 3 years. The retailers that moved to another location shrank by half and fell from 8% to 4%. The Fashion operators continued to manifest strong interest in this high street, which is evident by the low rate of replacements on an annual basis in this category.

3

Retail Market Overview | H1 2015 | Colliers International

38

37

33

30 25

H1 2012

H2 2012

Shopping Malls

30 30

30

H1 2013

H2 2013

38

39

31

32

H1 2014

H2 2014

41 34

H1 2015

High Street

Forecast • Despite the lack of new major operators, the retail market demand will continue to grow as a consequence of the large supply, the repositioning of projects or change in expansion plans of retailers • Increased activity and higher attractiveness of the retail park segment is expected as a result to improvements in the functional layouts and environment, as well as focus on synergy between operators • The gap between rental levels in prime and non-prime shopping centers will widen further - the prime projects will continue to enjoy increasing rental levels, while the rest will need to introduce a variety of incentives to improve their market positioning

Definitions ***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 reflective tenant incentives. ****Anchor – major store (usually a chain) in a shopping centre, above 1 000 m2, being (one of) the primary draw(s) of customers.

The first

Retail Park in Varna

Retail Park Varna is the first of its kind in Varna and the Northeastern part of Bulgaria. It has been established as the ultimate shopping destination, featuring some of the most prestigious local and international brands in the furniture, sports, and food segments. The project is anchored by Decathlon sports shop with its single location in Varna, the only IKEA in Eastern Bulgaria, introducing a unique store concept (IKEA Order and Collection Point) and Comsed toy store. Retail Park Varna also features a Gallery with representatives of the houseware industry, which complement the retail concept.

Retail Park Varna is easily accessible, 3km from the city center on Hemus Highway, connecting Sofia with the Black Sea Coast.

The Park has a GLA of over 12,200 m² and offers a large outdoor and underground parking. With its convenient location, efficient layouts, smart tenant mix and exciting environment, Retail Park Varna offers a unique shopping experience for the whole family.

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Flexible layout to accomodate big and smaller tenants

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Investor

Exclusive Consultant

Bluehouse Capital +359 2 8165955 www.bluehousecapital.com

Colliers International +359 2 976 99 76 bulgaria@colliers.com

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

$1.7

billion in annual revenue

Boryana Peneva Manager | 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

158

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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