Sofia's industrial space stock up 9% in H1

Another 252,000 sq m were under construction, with an expected date of completion in 2024, MBL said in a press release.

About two-thirds of the current stock was owner-occupied, with the remaining third in use by tenants. More than half of the industrial space under development is slated to be occupied by tenants, according to the data.

Demand for industrial real estate space has been healthy over the past two years despite the pandemic and resulting economic disruption, with construction of new properties active in the last three years, the agency noted.

"Despite the large amount of newly constructed industrial space, vacancy continued to drop and net absorption continued to be stable, demonstrating that demand is strong and the sector was in very good condition," MBL said.

The average vacancy rate in the industrial segment has been below 3% since the second half of 2022, dropping further to up to 2% since the start of the year. The eastern part of Sofia, which holds a 41% share of all industrial space, has seen vacancy fall under 1% due to its proximity to the two major northern and southern motorways.

Despite competitive lending terms in Bulgaria and an encouraging 80 million euro in deal volumes in 2022, investment activity was weak in the first half of this year, with no notable deals, according to the report.

Rental rates, which ranged between 3.90 euro ($4.38) and 5.10 euro per sq m, are on an upward trend due to high demand and the low vacancy rate. At the same time, average yields vary between 8% and 9%, and likely to move upwards due to rising interest rates and jittery global markets.

"MBL remains cautiously positive regarding the local industrial investment market, as the aforementioned fluctuations might as well attract new, yield-hungry investors filling the void and creating a healthier competitive environment for existing market players," the agency concluded.

($ = 0.889 euro)