Bulgaria business property transactions top 0.5 bln euro in '06

Dnevnik a.m., 5th January 2006

Over 1.5 bln euro will be invested in the development of business properties in Bulgaria in the next 1-2 years. The top deals for 2006 were the transaction involving office property Business Park Sofia and 3 shopping malls, 2 in Sofia and one in Veliko Tarnovo.

Specialists estimate that the value of transacted business properties - offices, warehouses, production sites, commercial centers, hotels, entertainment venues, holiday vacation villages and land, reached 570 mln euro in 2006 versus 215 mln euro a year earlier.

The spread of shopping mall developments will continue. There will also be an increase in lettings in commercial centers and mixed-used buildings where the ground floor is designated as retail space.

The demand for shopping malls is here to stay as a number of international store brands are yet to open shop in Bulgaria, said Petar Dudolenski, executive director of Mall Plovdiv. In his view, every Bulgarian city with 100,000-150,000 residents can do with a 20,000 sq m mall.

According to Petar Dikov, Sofia's chief architect, the capital can accommodate a couple of more large shopping malls but there is certainly no room for all of the 10 or so mall projects in development.

The shopping malls that opened here in 2006 have dampened high street rents despite the sustained demand for prime store locations, shows a market survey.

High street rents fell by around 10% after the launch of Mall of Sofia, City Center Sofia and Sky City. According to the survey, rents on Vitosha street, Sofia's top shopping destination, have declined from 130 euro/sq m in 2006 to 110 euro/sq m at the moment.

Demand on the office market in 2007 will be driven by a number of factors.

Following Bulgaria's EU entry, a number of European institutions will post staff here and will need prime office accommodations. The country's new position in Europe will also give international corporations that have so far held out the final push they need to start doing business in Bulgaria. Thirdly, the solid outlook for the local economy will allow native corporations to move out of the modified residential buildings they currently occupy and into lower-class purpose-built offices.

Property consultants expect the supply of warehousing space to increase sharply over the near-term. The trend will be fuelled by Bulgaria's geographic location, the country's EU entry and the near-shoring operations of West European corporations.

The current inventory of high quality contemporary industrial and flex facilities continues to grow and is currently estimated at 700,000 sq m, shows a market overview.

Data of the Bulgarian economy ministry shows that a total of 26 industrial zone projects are currently in development in various locations around the country.

The Rakovski, Kuklen and Maritsa industrial zones in the Plovdiv region are developing rapidly and have already welcomed corporate tenants like Liebherr, Socotab and Schneider Electric. The most notable clusters in the Sofia region, according to Colliers, are the area around the Sofia International Airport, Druzhba, Gorublyane, Krivina, Kazichene, Elin Pelin and Novi Han.

The yield levels of business properties will gradually decline until they reach parity with Central and Eastern Europe at around 6%, said market analysts.

At the moment, the different property segments in Bulgaria generate yields of between 8% and 10%. These rates are expected to come down by 1-2 percentage points within the next 2-3 years.

The anticipated yield decline is expected to draw to the Bulgarian market the larger property funds that pursue a longer-term lower-risk investment policy.


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