AVISON YOUNG'S OFFICE MARKET REPORT FOR SOFIA IN THE SECOND HALF OF 2023

The actively trading inventory of completed class A&B office space in Sofia tracked by Avison Young Bulgaria is 2.01 million sq.m. Just 10,950 sq. m new office stock were delivered to market during the second half of 2023. The new deliveries for the year were the lowest since 2013. The direct Class A and B vacancy rate was up compared to 2022 and remained steady in 2023 at 14.3%. 144,893 square meters were transacted in the second half of the year. 55,203 square meters were from new leases and 89,690 square meters from prolongations. Asking rental rates for class A office space were largely in the range of €11 - €16.50 per sq.m per month. After the increase in the first half of the year, they remained the same for most of the projects. Most of the expected deliveries for 2024 are delayed projects, the completion was planned for 2023. Very few are the projects started after the COVID-19 pandemic. 

Economic highlights

• The annual inflation rate in December 2023 compared to December 2022 was at 4.7%. The average inflation for the year was 9.5%; 
• According to preliminary data in the third quarter of 2023, GDP grew by 1.8%. The еconomy is still growing but on a slower pace; 
• The average monthly wage in Bulgaria increased by 13.1% year-on-year in 2023 and reached € 1001; 
• The national unemployment rate in the third quarter of the year 2023 was 4.0%, 0.4 points higher, compared to the third quarter of 2022; 
• The Bulgarian National Bank made a symbolical reduction of the interest rate by 0.01% and fixed it to 3.79% on 1st of January 2024. Year 2023 started with a level of the interest rate at 1.42%. 

Leasing 

In the second half of the year, the office market was dominated by extensions of existing contracts. The total volume of transacted office space is 144,893 square meters, with extensions accounting for over 60% of these areas. For the whole year, the total transacted volume was 261,393, where almost 57% were prolongations and 43% were relocations and expansions. The trend for relocations to better quality buildings remains, however, the lack of new supply during the year kept the level of relocations on the lower end and pushed up the prolongations. While hybrid work is fully integrated into our lifestyle, still some companies are struggling to bring back people to the office but recognize the need to gather everybody under one roof more often. 

Vacancy 

In a market where “flight to quality” trend was decelerated by global economic challenges, making the companies more cautious with spendings, the limited supply of new offices kept the increase in vacancy moderate. The move of companies to modern buildings located mostly in suburban locations increased the vacancies in the City Center and Broad Center. Further increase of available space can be expected in 2024, especially in older office buildings, because of the new supply during the year. 

Rents 

After the increase at the beginning of the year, the asking rents remained largely in the range of €11- €16.5 per square meter per month with an average minor increase. Depending on the status and positioning of the projects we can mention different trajectories. Some high-end projects tested the ceiling but reached a cap and bounced back. Projects on challenging locations suggested more aggressive pricing to compensate for location and/or lack of amenities. In the mid-range segment, most landlords kept the rent levels intact feeling the competition amid similar and better quality and location projects. 

Service Charge 

Amidst the challenges posed by inflation, the service charges were increased across the board and the average for class A office buildings reached € 3 per square meter per month. The average increase for the year was almost 9% which is close to the annual average inflation of the country. Some upper-end projects have service charges above € 3.5 or € 4 per square meter per month. Tenants demanding large community areas, ample facilities, abundant greenery, and advanced technologies should be ready to pay the associated costs of services. 

Get more market information: 

Anton Slavtchev Principal & Managing Director 

+359 (0) 886 906 555 anton.slavtchev@avisonyoung.com 

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