ECONOMY: on an upward trajectory

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, even in the industrial sector that has been struggling over the past 18 months.

SUPPLY & DEMAND: rising construction volume

Development activity was relatively strong in Sofia in the third quarter. The volume of completed light industrial and warehouse space stood at 51,500 sqm, up three-fold from last year, but 17% lower from the previous quarter. The new facilities were of relatively modest size – GLA between 3,500 and 9,500 sqm. Over 80% of the completed space was constructed for own use by companies specialized in wholesale, food, energy, and paper products.

On the demand side, take-up jumped two-fold from last year to 53,000 sqm, but was 33% lower from the previous quarter. Speculative space was taken by retailers and manufacturers. A notable trend on the market in recent quarters has been demand for warehouse units of less than 1,000 sqm within the city limits, however, these remain in short supply.

Looking forward, supply continues to grow. Eight new projects were started in the past quarter for a total of 66,000 sqm. Year-to-date, there are 35 projects under construction for a total volume of 357,000 sqm. In terms of use, the volume is split equally between speculative and owner occupation.

PRICING: flat but likely to ease

As of the end of September, prime yields for Class A logistics space (>10,000 sqm) were down by 25 basis points to 7.50% and 100-bps beneath levels from 5 years ago. Yields are likely to stabilize in the next six months. Prime rents remained unchanged at 5.3 euro per sqm in the Greater Sofia area, but near 40% higher from 5 years ago. Notably, in the inner city, newly built small units and projects on good locations were snapped by tenants at  6 to 6.50 euro per sqm. Looking ahead, rents are expected to ease slightly.