Retail Space Rents in Sofia Depend More on Quality Than Demand

The last few months have once again seen Bulgaria’s progress in terms of economy, political situation, and social environment – a trend which accelerated after the country’s accession to the EU since 1January 2007, SB Richard Ellis states.The stable GDP and average monthly salary growth, the constant FDI inflow and the ever decreasing levels of unemployment rate make the country one of the hottest scenes for investment in Europe. The improving economy leads to an increase of the average wage and customers’ purchase power. This results in a higher demand for retail goods and, respectively, high quality retail space.In confirmation, more than 50% of all investments in speculative projects made during the first half of 2007 have been in retail centers, due to the high demand and the possibility for realization of longtermincomes.This results in a strong competition among investors, who are striving to purchase the few remaining suitable plots on key locations that make their schemes more attractive and rentable.Mall projects have also been launched in Bulgaria’s major cities as well: Plovdiv,Varna, Burgass, Russe, Stara Zagora, etc.Nevertheless, considering the fact that Bulgaria has only recently started to develop in terms of high quality speculative retail space, the retail market is still far behind the rest of the CEE countries.Approximately 125,000 sq m of modern retail space were put into operation in 2007, thus making thetotal modern retail space in Sofia over 650,000 sq m.The huge success of the first large-scale retail schemes has already attracted investors’ attention for a long time. As a result, several large-scale retail schemes have already been undertaken in Sofia, while more than ten others are expecting launch in the next few years; some of them have already been issued building permits.Among the largest projects in pipeline are Acropolis Centre, ETC Carrefour, Riofisa Mall, Serdica Centre, Bulgaria Mall, etc.Retail schemes are planned for development in all parts of the city. All these activities make us predict that Malls will take the place of the high streets as traditional retail destinations.Retail space supply cannot meet the demand in Sofia CBD, making tenants orientate towards pedestrianzones, less attractive premises or non-central locations. Considering the contemporary mall shopping fashion and culture among teenage and middle-age customers, demand for retail space in the capital’s largest shopping centers remains high.Fashion brands, banks, and mobile operators are among the most active tenants, all of them interested in high quality and spacious retail premises.Recently transformed into pedestrian, Graf Ignatiev blvd. has become even more attractive to tenants which caused increase in rent levels there.The high rent levels on the major boulevards and the insufficient supply make tenants orientate towards non-central locations and entrance boulevards.As a result, the boulevards surrounding the CBD are becoming more and more popular retail destinations: Vassil Levski, Hristo Botev, Maria Luiza, Madrid, etc.Rent levels for retail space in Sofia kept their high levels since the beginning of 2007, as a result of thehigh demand and low supply of quality premises. Another factor for the high rent levels is the new supply of higher quality retail premises which comes to prove that rent levels in Bulgaria depend on the quality of the premise, instead on the supply – demand ratio.CB Richard Ellis expects this trend to be preserved in the next few years. Rents in Sofia’s shopping centers are in the range of €25 – 60 per sq m per month. On the high streets their amplitude varies widely between €50 – 100 per sq m per month, with an average around €65 per sq m per month.Current yield for prime new retail space is circa 7% in Sofia’s shopping centers. Yields are higher on the high streets, varying around 7.75 – 8.25% depending on the location and the quality of the premise.Sale prices in CBD are usually in the range of €2,000 – 5,000 per sq m. The top quality retail premises asking prices are between €12,000 – 17,000 per sq m. However, despite the fact that there are even higher asking prices, these are single cases which do not correspond to the situation on the market.Retail projects remain one of the most attractive to speculative investors but if new developments keeptheir current rates of growth, this may oversaturate the market with mall-type schemes. At the same time, investors are directing their attention to cities with population below 100,000 people, which is an important indicator for the maturity of Bulgaria’s retail market.Source: Profit.bg