Tenants and Landlords Replace Buyers and Sellers

In contrast to the slowing down of the property purchases, the rental market marks a stable growth and an ever-increasing interest which is best seen in the capital Sofia and in Varna. This trend started in October 2008 and continues well into the new year. On the one hand, this is due to the fact that more and more people prefer or are forced to rent properties instead of buying them with mortgage loans – due to the more difficult process of financing, the shifting interest rates and the uncertainty regarding the servicing of the loan. The increasing unemployment also contributes to this trend. On the other hand, the increased rental deals are also dictated by the decreasing property purchasing deals which made buyers and sellers turn into tenants and landlords waiting to see what direction the market will take in 2009.

The Demand

What our rental specialists in Sofia and Varna note is that the tenants prefer furnished apartments and offices. They seek properties furnished and decorated to the smallest detail (cutlery, dishware, etc.), with modern appliances and if possible with a garage, porter and other extras.

The most preferred areas for renting an apartment in Sofia are similar to those for purchasing of an apartment – the southern residential quarters (Borovo and the other quarters along Bulgaria Blvd.), the central areas, Lozenets, and the eastern quarters – Studentski Grad, Mladost, etc. In Varna the most preferred areas are the center, the areas around the Sea Garden and the quarters located in the wide center area like Chayka and Briz.

As for the office spaces - the rental price is what makes the companies turn their attention to the areas outside the center of the cities and along the big boulevards.

The Supply

Since the end of last year there are many offers of quality properties to let on the market which is due to the great number of newly-built apartments bought in the last couple of years for investment purposes and/or resale. These apartments are finished and furnished and their owners are renting them out. The other lessors are sellers who cannot sell their apartments due to the slowing down of the market and those who pay their monthly installments under mortgage loans with income from the property’s letting.

Regarding the office rental market – there is a wide variety of offices of lower and higher class, which are let by companies that have fewer employees and do not need big office spaces any more and which offer them both for sale and for rent, depending on what kind of client turns up. Another reason for the companies to sell office areas is to get liquid money to invest in thei business operations.

The Prices

Residential property

The data of BULGARIAN PROPERTIES show that the rental deals in October make up 20% of the company’s total number of deals as this percentage increases to 30% in November, falls to 20% in December and once again increases to 35% in January. The increase in January 2009 is mainly due to the concluded office rental deals. The companies actively started optimizing their expenses at the end of 2008 and started implementing their 2009 operational plans.

The average rental prices of the let residential properties are as follows:

Sofia

October - 670 Euro
November - 748 Euro
December - 650 Euro
January - 580 Euro

Varna

October - 310 Euro
November - 457 Euro
December - 430 Euro
January - 550 Euro

The figures show an increase in the average rental prices of residential property in October and November. In December and January the average rental prices decreased slightly in Sofia probably due to the effect of the financial crisis and the withdrawal of the more solvent buyers. We can add that the rental prices in Varna in the last few months compensated the lower levels in Sofia and in January almost reached those in the capital.

Offices

In Sofia prices of offices for rent vary quite a lot – offices in class-A buildings and business parks are rented out for 15-20 Euros per square meter. The demand for high-class offices has decreased considerably in the last few months. Offices of a lower class are rented out at between 7 to 10 EUR/sq.m. This type of offices provide very good working environment as well and are preferred by the lessees. The apartments in residential buildings which are suitable for offices are let out at 5-6 EUR/sq.m. Even though the trend is the businesses to move to office buildings and to premises built specially for commercial activities there is still demand for apartments-offices mainly due to the lower prices.

In comparison to Sofia the rental prices of high-class offices in Varna are considerably lower – the offices in class-A office buildings and in business parks cost between 9 and 12 EUR/sq.m. as we are also witnessing a lower demand in this segment in the last few months. The offices of lower class as well as those set in residential buildings are offered at between 6-8 EUR/ sq.m. – in terms of price these two office types are not as differentiated as in Sofia and their prices are quite similar to those in the capital.

What is typical both for Sofia and Varna in the last couple of months is the increased supply of offices which are offered for sale and rent at the same time as the supply exceeds the demand. This creates preconditions for good rental deals for companies which want to move to better premises.

Rental Prices of Luxury Property – Decrease, Retention or Increase

According to the data of LUXIMOTI - the real estate agency offering luxury properties in Bulgaria and abroad, rental prices in the deluxe segment have not changed since the end of 2008 as some slight corrections are possible but no significant increase is expected. Traditionally, this segment is less susceptible to the short-term market fluctuations as it depends on a more stable and solvent demand. Supply in the deluxe segment is comparatively limited which will not allow a great difference in the levels of demand and supply.

The Experts’ Advice

We would advise the landlords to consult experts when defining the price, looking for tenants, setting the conditions and drafting the agreements. It is often the case that the owners do not have updated information about rental market prices and they sometimes demand too high a price for sentimental reasons. We also advise the landlords to inform the tenants of any hidden defects of the property which would eventually be revealed.

We advise the tenants to choose carefully the property that suits them best. The wide choice of offers is something very important when looking for a property to rent. Professional real estate agents offer the service of finding a property as per set criteria. This saves the client a lot of time and efforts in finding the right property.

It would be good for both tenants and landlords to regulate their relations with a clear agreement. The agreement regulates a lot of important details like after what period the rental price can be increased or for what period of time it is fixed, what the defaults are if the agreement is terminated early, the deposit sum, the terms for the refund of the deposit, etc.

2009 Rental Market Forecast

Those who have decided to purchase property will do so but while waiting for the right moment to come they will prefer to rent. There will be no significant increase in rental prices in 2009 as there will be stable supply and demand. Both tenants and landlords will become more cautious and will rely on real estate agencies in order to achieve ultimate terms of agreement.

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Copyright: 2009 Bulgarian Properties Ltd. All rights reserved. For further information or advice please contact us on tel: +359 2 9 11 50 or e-mail: info@bulgarianproperties.com. The use of this article by third parties is allowed only with proper quotations of the source www.BulgarianProperties.com and the Author of the article. The data in this material has been collected by the Author and Bulgarian Properties Ltd. and is presented for information purposes only. We have made every effort to ensure the accuracy of the data. However, Bulgarian Properties Ltd. cannot be held responsible for loss or damage as a result of decisions made based on this article.
© Bulgarian Properties Ltd. 2009.