Sofia Q3 Office Vacancy Rate at 14.7% and Set To Rise, Prime High-street Rents Fall - Forton

December 2 (SeeNews) - The average office vacancy rate in Sofia continued to increase and totalled 14.7% in the three months to September, real estate consultants Forton said in their Q3 office market overview.

Average prime high street rents in Sofia declined to about 75 euro ($112.8) per square metre per month in the third quarter compared to 80 euro per sq m in the second quarter and 100 euro per sq m a year ago, the company said in its Q3 retail market overview.

SOFIA OFFICE MARKET

The take–up of new office space in Bulgarian capital Sofia plummeted to approximately 10,700 square metres (sq m) in the third quarter of 2009, almost two times less than in the previous quarter and six times less than a year earlier.

"New office buildings coming to the market struggle to attract tenants. Most of them are characterised by much higher vacancy rate, usually between 20%-50% and even higher in the first year following their completion. This is why, we expect that the average vacancy rate will further increase by the end of 2009 and beginning of 2010 when several large – scale new office developments are scheduled to be completed, while at the same time business and economic activity is not expected to improve significantly," the report said.

Approximately 21,900 sq m new office stock was delivered to the market in the third quarter of 2009 compared to 73,500 sq m of new office stock a year ago. Most of the newly – delivered offices are located along the Todor Alexandrov boulevard as well as in the Mladost residential district.

The total office stock in Sofia reached about 988,000 sq m at the end of September. This figure includes both speculative and owner-occupied buildings. Almost 80% of the office stock is equally distributed between main roads and suburbs areas. These are the areas that also contain most of the offices under construction since the city center has almost no available land plots.

"Current market conditions put strong pressure on rent levels. Rents have gone down significantly since the third quarter of 2008. Prime rents in Sofia stand at around 14 euro per sq m monthly, service charge excluded. Still some class A buildings in the Central Business District have achieved monthly rents higher than 20 euro per sq m, but most of these rents were negotiated in 2007 and the beginning of 2008 when demand was strong. Rents for class B office space are more flexible. Currently, class B space is leased at about 9.0 euro per sq m per month, service charge excluded."

As of the third quarter of 2009, approximately 1,030,000 sq m office space is in the pipeline, the report said. However, about 745,000 sq m of this office space is currently frozen. The adverse market conditions as well as the lack of financing forced many investors to postpone, alter or cancel their projects. Most of the office projects under construction are scheduled to be delivered in 2010 and 2011.

Largest office developments under construction in Sofia:

(source: Bugarian Office Market Q3 2009, Forton)

SOFIA RETAIL MARKET

Vacancy rates along secondary high streets in Sofia are rising in contrast to the capital's prime shopping strip, Vitosha boulevard, and rents fell to 20–60 euro per sq m per month depending on the specific location and characteristics of the particular shop. High street rents have started to fall long before the impact of the economic crisis. The main reason for this trend is the entry of the first shopping malls in 2006 and the other malls currently under construction.

Prime high street yields rose further in the third quarter of 2009 to 9.0% compared to 6.25% a year ago. The significantly increased yield reflects the heightened market uncertainty.

Average rent levels in shopping centers in Sofia are significantly higher than those in the rest of the country, the report said. They currently stand at 29 euro per sq m in Sofia compared to 21 euro per sq m in the other three big Bulgarian cities, Plovdiv, Varna and Burgas. Average rent levels paid by food hypermarkets in Sofia are 9.0 euro per sq m, while rents in Plovdiv, Varna and Burgas stand at 7.0 euro per sq m. As the economic conditions deteriorated in the last quarter of 2008, many lessors resorted to temporary rent rebates and rent reviews in favor of the tenants. However, as the competition between the increasing number of shopping malls is intensifying, these rent discounts are likely to remain in place.

Existing shopping malls in Bulgaria:

(source: Bugarian Retail Market Q3 2009, Forton)

($=0.6647 euro)