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03.02.2017 Expected Property Deals With Offices and Retail Spaces

The past 2016 was particularly strong for the commercial real estate transactions with more office and industrial space deals, light growth in the rents section and active land market and investment assets. This shows the analysis of the consulting company Forton, presented at a press conference on Wednesday. According to experts, there are all prerequisites for the sector to continue its growth at a high pace in the coming months.

"Like 2016, the year now begins with an active rental market and strong investor interest in Bulgaria and Southeastern Europe. Unlike last year, however, during this year we expect a significant volume of office and logistics space deals, part of which will balance the supply and demand in these segments, "said Michaela Lashova, CEO of Forton.

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The investment volume in the last 12 months reached 290 mln. Euro, 16% more than in 2015. This includes both acquisitions of commercial real estate and land purchases. The number of transactions last year was 60, while in 2015 - 54.

"The market this year has been very strong - over 70% of the transactions are lucrative estate. This confirmed our expectations that the focus will gradually shift from land and undervalued properties to this type of asset," said Yavor Kostov, Manager "Capital Markets" in Forton. Experts expect transactions with retail and office space to be completed in the next few months, resulting in the investment market to register its strongest year since 2007-2008. The forecast is Bulgaria, Romania and Hungary to attract the interest of opportunistic investors given the high levels of profitability and growth potential they offer compared to more mature markets.

Activity at Offices

The market for office space in 2016 was dynamic with 7% growth in the rental deals in Sofia compared to one year ago. The total volume of leased area reached 135,407 sq.m., which is above the average figure for the last five years. Due to the shortage of prime office space last year, contracts for office space while the building is still in construction have formed over 40% of the total. This type was the biggest deal of the year - the leasing of 20,000 sq.m. in City Tower by the company Telus.

"Growth in supply is expected - in 2017 there is planned completion of 160,000 sq.m. offices in Sofia" summed Stanimira Pashova, Manager "Office Space." Since the majority of the new buildings are expected to get permission for usage during the second half of 2017, deals with office space under construction will retain a substantial share. The offered levels of the rents remain stable, around 13-13.5 Еuro/ sq.m. for prime office space in the capital and 8-10 Еuro/sq.m. in Plovdiv.

Industrial Recovery

The deals for space under construction have taken a significant share not only in the office sector, but for the industrial space too. An example are the rental transactions in the second phase of the East Ring Logistics Park in Novi Han, the Ring Road Logistic Park in Krivina, the first phase of the Industrial Park Sofia East, and a new stage of Universal Logistics Park. As a result, the investors in most of these projects plan the construction of new phases. "We note a serious interest and expect the market to continue to grow with the accelerated pace of the recent years, i.e. between 30 and 40 000 square meters of utilized logistics space, and that is in Sofia only," said Vladimir Gyurdjiev, Manager "Industrial Space." After a slight increase from the previous year, rents in Sofia remain stable at levels of 3.8 - 4.2 Euro/sq.m. of space over 5000 square meters. The ambition of many businesses to expand maintains an active land market.

Rising Rents for Commercial Space

The events of 2016 in this segment were the rebranding of City Center Sofia as Park Center and the opening of Markovo Tepe Mall in Plovdiv. The supply remains limited, with total retail space in shopping malls in the country reaching 738,500 square meters. New openings of large shopping centers are expected. "Given the limited supply of prime retail space amid the rising profits of the traders and their expansion, however, I see potential for a gradual increase in rents in Sofia and in the dominant projects in the country," concludes Rosen Genev, Manager "Retail." Rents for prime retail space in metropolitan shopping malls reached 30 Euro/sq.m. at the end of 2016, nearly 7% more than during the previous quarter.

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