ECONOMY: Accelerating growth

In 2024, Bulgaria’s economy grew faster in each successive quarter and was among the top 10 most dynamic in the EU. This was achieved with two growth engines (domestic consumption and investments) running properly, while the third (external trade) was struggling due to weak demand abroad. Towards the end of the year, the economic environment is positive. Inflation has subsided bellow the EU and Eurozone averages, and unemployment is at record low. In addition, consumer optimism is high, business leaders in manufacturing appear to gain confidence while in services the situation is stable.

SUPPLY AND DEMAND: Well–balanced market

With 185,045 sqm leasing volume in 2024, the office market in Sofia is in line with the five-year trend. The tenant activity in the last quarter remained relatively high, although primarily driven by renewals and relocations. This trend was apparent throughout the whole 2024, since most IT and BPO companies continued to rely on hybrid work model and office space optimization. In this context, it is indicative that nearly half of the registered transactions during the year had a negative or zero net effect. This resulted in moderate Net absorption (66,509 sqm) and limited market growth.

The limited tenant activity led to slower pace of new office completions during 2024. With 58,085 sqm new deliveries, the Sofia market remained well balanced. The vacancy rate was hovering around 15-16% of the Class A and B supply, while projects under construction stood below 200,000 sqm. However, this threshold was passed at the end of the year, with the start of several large office projects, mostly in the areas of Paradise Center and Nikola Vaptsarov Blvd.

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ECONOMY: Accelerating growth

In the first nine months of 2024, Bulgaria’s economy maintained its upward trajectory. Accelerating growth reflects solid domestic demand and improving investments, offsetting soft external demand. The leading indicators suggest that in the short-term the economy would stay on course. Economic sentiment is firmly in positive territory and rising. Consumer optimism is at its highest this century and confidence is above average across all parts of the economy, especially the all-important services sector.

SUPPLY AND DEMAND: Stable demand

The office market in Sofia ended the nine-months of 2024 with moderate rental activity of 130,655 sqm, slightly above the 5-year average. The lease type distribution did not break the recent years’ tradition and recorded high share of renewals – about 40% of the total volume. Expansions accounted for 10% of the total, with financial and services companies mostly calling for larger space. However, the IT and BPO industry remained main market driver, although most of them are still looking for space optimization, due to the hybrid work.

On the supply side, the recent quarters did not bring significant changes in the office stock. In the third quarter, there was only a mid-size delivery of Class A office building. The third quarter’s Net absorption, which reflects the difference between leased and vacated space, was 6,996 sqm, and in the nine months reached 45,283 sqm. For the moment, the vacancy rate remains stable at 15.3%. Construction pipeline is about 178,000 sqm, with prospects for notable increase in the coming quarters. This is mainly due to several new projects in planning phase, mostly near Paradise Center and Nikola Vaptsarov Blvd.

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ECONOMY: Decent tempo and outlook

Bulgaria’s economy remained solid in the first quarter of 2024, producing the 8th highest growth rate in the EU. The respectable result reflects strong domestic demand, driven by private household consumption, compensating for soft external demand and weak investment activity. The most recent leading indicators suggest that, all things being equal, in the next couple of quarters the economy would likely maintain or slightly improve its pace. Consumer confidence is at its best since 2001, which all but guarantees that domestic demand would remain a key pillar of strength. Meanwhile, the overall economic sentiment is firmly in positive territory with above average confidence in services.

SUPPLY AND DEMAND: Vacancy slightly decreasing

Sofia’s office market registered a small decrease in vacancy rate in the second quarter of 2024, down to 15.3% (50 basis points). It is mainly due to a slight increase in expansions and new leases at the expense of the declining share of contract renewals in the take-up over the period. The leasing volume reached 37,088 sqm which is in line with the 5-year average for the second quarter. In general, the first half of the year did not produce large volumes of transactions or a dramatic shift in the market trend. The IT and BPO industry still leads the market despite slowdown in business and hybrid work. Another notable trend is tenants with growing business moving from coworking space and non-competitive buildings to Class A projects. The office supply posted marginal increase with the completion of two small buildings with combined gross leasable area of 8,200 sqm. By mid-year, the stock for class A and B offices reached 2.259 million sqm. Projects in development phase kept volume below 200,000 sqm due to a lack of new construction starts.

Interest in coworking space continues to grow, mainly as part of the mix in existing office buildings. As at June, the total volume of coworking space in Sofia reached 68 900 sqm with an additional 8 000 sqm in various development phases.

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ECONOMY: Punching above its weight

Bulgaria’s economy delivered another above average quarterly performance at the end of 2023 with the 9th highest growth rate in the EU. Solid domestic demand, driven by private households, handily offset weakness in external demand. Key leading indicators during the first three months of 2024 suggest that economic performance at the start of the year would likely be in-line with recent form. Consumer Confidence is at a 24-year high, boding well for the strength of overall domestic demand. Importantly, the Business Climate indicator is also edging higher, partly due to strong optimism about the near future in the services sector.

SUPPLY AND DEMAND: Moderate Leasing Activity

The office market in Sofia registered moderate leasing activity during the first quarter of 2024. Compared to the same periods in the last two years, the number of closed transactions reduced 10-15% to just over 37,200 sqm. Most of this volume was formed by large renewals and some relocations from noncompetitive or class B buildings. Since IT and BPO companies are slowing down their growth and strongly relying on hybrid work, space optimizations remain a trend. IT industry remains the major office space occupant in the first quarter of 2024, accounting for almost half of the leasing volume. Another notable trend is for tenants with growing businesses to move from coworking spaces to regular offices. Vacancy rate continues to hover around 15-16%, with prime projects almost fully occupied.

Stocks for class A and B offices remained stable at 2.245 million sqm in the first quarter of 2024. Projects in development phase kept volume below 200,000 sqm due to a lack of new construction starts. Recent trends are the result of slow absorption of vacant office space, as well as an unsecure business environment.

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ECONOMY: Healthy Growth

Bulgaria is on course to complete 2023 with healthy growth. The most recent key indicators are positive. GDP growth in the third quarter was 1.8% y/y, the seventh highest in the EU. The unemployment rate for the same period slipped to 4.0% (4.6% in Q2) and inflation in December decelerated to 5% y/y. Yet, there are some mixed feelings. Consumers assessed their own budget and the state of the economy as the best in two and a half years. Meanwhile, business leaders appear concerned. The confidence and business climate indices in services have softened, mainly due to softening demand and worries about the uncertain economic environment.

SUPPLY AND DEMAND: Completions at their lowest point

The office market in Sofia recorded a positive year in terms of leasing volume in 2023. Signed and renewed contracts totaled 181,513 sqm, exceeding the pre-pandemic 2019. Take-up amounted to 67,225 square meters in the last quarter of 2023, in line with the last five years average. Despite the similar volume, the office market in 2019 was driven mostly by preleases and expansions, about 40% of the total volume, while in 2023 renewals had the dominant share. Net absorption remained relatively low over the year at 52,730 sqm. The low number was offset by the extremely low completions – less than 15,000 sqm new office space through the period. As a result, the vacancy rate hovered around 15.5-16.5% over the year, dropping below 16% at the end of 2023. Since larger tenants prefer modern and environmentally friendly offices, even at higher cost, older and technically outdated office buildings saw higher vacancies. In terms of supply, the present year promises to be more balanced with about 104,000 sqm planned for completion, including postponed projects from 2023. The total volume of projects under construction remains low at around 185,000 sqm, due to the lack of new starts.

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ECONOMY: In Good Shape

Nine months into the year, Bulgaria’ economy was in good shape. After a hiccup in July, inflation returned to its downward trajectory, decelerating to 6.4% y/y by the end of September, one of the lowest in the CEE region. Consumer confidence continued to improve, reaching its highest in two years and the business climate index was near a 3-year peak. The latest GDP data showed slight deceleration of growth from 2.2% in Q1 to 1.9% in Q2, which was still the 8th highest in the EU. The situation on the labor market remained essentially unchanged.

SUPPLY AND DEMAND: Anemic Supply

Sofia office market showed moderate activity during the third quarter, with a total of 38,690 sqm leased. This is slightly above the average rates for this period over the past 5 years and 54% higher than the third quarter of 2022. Despite the improved results, landlords continue to report that leases are closing relatively slowly and with a high number of property viewings from potential tenants. The office market remains driven by relocations and renewals, while the share of expansions is relatively small – below 20% of the total leasing volume. This reflects the ongoing trend of hybrid work, especially in the IT and BPO industries, which has a direct impact on the occupiers’ needs of office space.

On the supply side, there was no significant movement on the office market in Q3, with only one small project being completed. The lack of new significant projects and the positive net absorption of office space (15,576 sqm for Q3), led to a minor decrease in vacancy rate in Sofia. However, the levels remain above 16%, which is a relatively high value for CEE. If demand remains muted, the upward pressure on vacancy will persist due to the planned office deliveries in the next couple of years.

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