BULGARIA Marketbeat Office – Q2 2022

ECONOMY: Modest growth expectations

At the start of 2022, Bulgaria’s economy was in a good shape, despite mounting headwinds from the war in Ukraine. First quarter
GDP increased 5% y-o-y, driven by strong domestic consumption and unemployment narrowed to 4.9%. Main threats to the
economy are rising fuel and energy prices and related inflationary pressures. In line with the overall uncertainty, the latest
economic projections for Bulgaria are worsening. Real GDP growth in 2022 is seen slowing down to 2.8% and inflation rising to
near 13%.

SUPPLY AND DEMAND: Hybrid work reshapes the market

The office market in Sofia is still recovering, although the leasing activity in the first half of 2022 was above the five-year average,
reaching 85,444 sqm. The hybrid work model gives comfort to many businesses to grow and hire staff without office expansions.
The latest results in modest net absorption (occupied vs. vacated space) – 13,387 sqm for the half-year. Renewals and
relocations continue to dominate the leasing market, with more than 70% of the take-up. The occupiers’ desire for better working
conditions remains the main driver, so larger part of the transactions is in Class A offices and new buildings. IT and BPO
companies keep the largest market share, with more than half of the total transaction volume in the first half of 2022.
Increasing number of companies are looking for flexible office space, thus providing their business with rapid expansion solution.
As of the mid-year the overall supply in this segment in Sofia is approximately 50,000 sqm.
On the supply side, the slow pace of office development limits the availability and keeps the vacancy rate stable. The completion
of a mid-size office project in the second quarter of 2022 slightly raised this indicator to 16.7%. However, with the decreasing
pipeline and the lack of starting office developments significant change of the vacancy rate seems unlikely.

PRICING: Stable Rents

Prime asking rents in Sofia remain resilient for a consecutive quarter at 15 euro/sqm in CBD and 12-14 euro/sqm alongside main
roads. Increasing operating costs put landlords under pressure to increase service charge, with prime rates in Sofia in the range
2.75 – 4 euro/sqm. Prime yields also remain stable at 7.5% for Sofia