Bulgaria is on course to complete 2023 with healthy growth, and the most recent key indicators are positive. GDP growth in the third quarter was 1.8% year-on-year, 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% year-on-year. However, confidence and business climate indices in services have softened, mainly due to softening demand and worries about the uncertain economic environment.
Office Overview
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 2019 figures. Take-up amounted to 67,225 sqm in the last quarter of 2023, in line with the five year average. Net absorption remained relatively low over the year at 52,730 sqm. The vacancy rate remained between 15.5-16.5% over the year, dropping below 16% at the end of 2023. Rents reached €17/sqm for prime office space in Sofia’s central business district in Q4 2023. Prime office yields in Sofia reached 7.75% in the fall of 2023 and held steady in the fourth quarter.
Retail Overview
In the last quarter, new openings weakened somewhat to about 54,000 sqm of GLA, compared to 74,000 sqm in Q3 2023. For the full year, new outlets with 220,000 sqm of GLA were opened. Nearly 80% of this space was in retail parks. Asking rents in Sofia shopping centers edged up slightly to €37/sqm in the fourth quarter, while prime yields held firm at 7.75%. The asking rents and prime yields for retail parks in Sofia remained unchanged at €11/sqm and 7.75%, respectively. Upward movement of rents and yields in shopping centers and retail parks appears likely in Q1 2024.
Industrial Overview
After a short pause in the third quarter, supply of light industrial and warehouse space in Sofia rebounded in the fourth. The volume of completed projects in the three months through December, reached 83,000 sqm. For the full year, projects with 268,000 sqm of GLA were finished, up significantly from 122,000 sqm in 2022. Take-up reached 83,000 sqm, bringing the total take-up for the year to 250,000 sqm, up from 225,000 sqm the year before. At the end of 2023, the total volume of projects under construction reached 293,000 sqm. About 84% of this volume was for owner occupation. Prime yields stabilized at 7.50%, while low availability led to Rents increasing to €5.40/sqm.
