Colliers: Office Market in Sofia Grew by 2% in H1 2022, Demand Continued its Upward Trajectory

In the first half of 2022, the market for class A, B, and C offices in Sofia will reaches 2,603 ​​million sq.m. and registered a growth of 2%. The volume of projects under construction has maintained its level since the end of 2021 – 254,400 sq.m. Buildings under construction have been completed, but the launch of new ones has been postponed due to rising inflation and increased prices of construction materials, Colliers’ analysis for H1 2022 shows.

Demand continues to grow – a trend that started in Q3 of 2021. Thus, the net take-up reaches 45,910 sq.m. with the largest share of transactions coming from relocations – 38% and contract renewals – 34%. A small share of the transactions is due to expansions or new entries.

Again, the most active sectors are IT and outsourcing – 44%, followed by professional services – 29% and pharmaceutical products – 13%. Rental levels remain stable at €14 per sq m for Class A in the city center, €12.5 per sq m broad center and €12 per sq m for the suburb areas of the city. An average increase of 10-15% in service charges has been registered, mainly due to higher electricity prices and safety measures related to the pandemic.

The industrial and logistics market has maintained its activity levels since the end of 2021. Demand has been driven mainly by retailers and wholesalers (69%), followed by logistics operators (23%), professional services companies (3%), pharmaceuticals (3%) and manufacturing (1%). A slight increase in supply, along with steady demand levels, has seen vacancies fall by 2% to 6%. Rental rates remain unchanged. For class A warehouses, with a good location and established infrastructure, they are between 4.7 – 5.2 euros per sq.m. Class B areas cost an average of 2.7 euros per square meter per month.

Colliers’ forecast in the retail space segment is for continued investor interest in the second half of the year for retailers with a primary focus on retail parks. New discounters are expected to enter the market. Potential development is expected in the North/ West direction of the capital and around the main roads connected with Hemus and Trakia highways. Colliers is monitoring whether inflation and lower purchasing power will affect the sector.

The analysis of the segment shows a 10-12% increase in vacancies on “Vitosha” Blvd., mainly due to the closing of sites in the food and beverage sector. The total commercial amount of retail space in retail parks is 66,300 sq.m. One retail park is under construction and several others are in the planning stages.

In the first quarter of the year, major grocery brands were more focused on renovating and optimizing existing locations instead of opening new locations. The KAM Market chain (6) has the biggest number of new stores, followed by T Market (5), BILLA (2), Lidl (2) and Kaufland (1). The non-food discounters – Pepco, KiK and Sinsay – have also expanded with 16, 12 and 8 new stores, respectively. Newcomers to the market for the period are Mix Markt, Lynne and AC&co.

In the first half of 2022, the total volume of investment transactions was almost 67 million euros – higher than the same period in 2021, but still lower than pre-pandemic levels, Colliers reports. The war in Ukraine is delaying some deals, leading to an overall volume reduction. 

Despite the interrupted dynamics in the first quarter, retail space continues to attract the attention of investors, a trend that is expected to continue. The breakdown by sector is as follows: 41% of the volume is due to commercial space transactions, followed by industrial and logistics space (23%), office space (14%), mixed-use space (13%) and development land ( 9%).

The complete investment analysis for the first six months of the year can be downloaded from the consulting company’s website here.