In spite of the rather gradual recovery in the economy, the overall business environment for Bulgaria’s real estate sector has improved. Exports are driving the county’s growth but this has a limited effect on the commercial real estate sector, particularly in light of struggling consumer confidence and high unemployment. Property rents recovered in H210 but then sank again in the first half of 2011. It is important to note that there have been very few transactions in the industry, with the consequence that rental values can be distorted by individual transactions.
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The lack of activity also means that take-up of new space has been distinctly lacking. There are a large number of newly completed facilities yet to be occupied, with some having as much as 31% vacant space.
Key opportunities in the real estate market:
- An assessment by international real estate consultant Colliers indicates that a real opportunity for developers lies in the under-served mid- and high-end residential marketplace, where supply is being taken up faster than new projects are coming online. The company reports that no new large-scale projects were completed in 2010 in these residential pipelines and, as developments take up to three years to construct, available supply is becoming scarcer, causing prices to rise.
- This may be the time to enter the Bulgarian property market if investors have time to wait out the recovery. Prices are extremely low but the new supply pipeline has been decimated and as the recovery takes hold, there must come a time when vacancy levels will drop, opening up the market to new development opportunities.
Key risks to the real estate market:
- Bulgaria’s construction industry is suffering from the declining number of projects under development: The National Statistical Institute reported in May 2011 that the country’s construction production index declined by 16.6% compared with May 2010 (already a depressed period itself). However, that was a drop of just 0.1% from the previous month, perhaps indicating that a bottom level has been reached.
- New stock of industrial space coming online has remained entirely empty, except for one partially pre-leased building in Trade Centre Europa.
- Of the 15 shopping centre developments that Forton International lists as under development, more than half of the projects (eight) were on hold as of the end of June 2011. The real estate agent reports that in 2010, there were a record 10 new shopping centres opened in Bulgaria. No new shopping centres opened in the first half of 2011 in the face of over-supply and dropping rents.
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