BULGARIA Marketbeat Office – Q3 2022

ECONOMY: GDP growth is slowing down

The Bulgarian economy is facing a challenging time, as a result of the deteriorating external environment. The real GDP growth is
expected to slow down to 2.8% in 2022, followed by anemic increase of 0.1% in 2023 in the light of the forecasted global
recession. The economy is affected mostly by the deceleration of the private consumption, reflecting the negative effect of the
growing inflation on the disposable household income. The latest projections of the Bulgarian Central Bank are for 14.9% annual
inflation at the end of 2022 and slowdown to 4.1% at the end of 2023. A bright spot are public investments, which are expected to
increase, primarily due to European funds.

SUPPLY AND DEMAND: Leasing activity around the five-year average

The leasing activity on the Sofia office market for the nine months remained around the five-year average, reaching 110,646 sqm.
Lease renewals and relocations remained the main driver, since most tenants tend to change their office mostly when their
contracts expire. During the period, expansions retained a small share of the market, accounting for 11% of the total take-up. Net
absorption remained moderate, although on a positive territory – 20,537 sqm for the nine months. The figures reflect the wide
spread of the hybrid work model and the attitude of many businesses to optimise their office space. However, the opposite trend
is gaining strength, with an increasing number of companies that want their employees back in the office.

The demand for serviced offices and coworking space is at its peak. Because of the inconsistent utilization of the workstations,
increasing number of occupiers are looking for more flexibility related to lease term and occupied areas. As of the nine months,
the overall supply in this segment in Sofia is exceeding 50,000 sqm and will grow further. During the third quarter, the vacancy
rate remained stable at 16.6% for Class A and B offices, since the slow pace of office development limits the availability. The
completion of two small office buildings added about 7,000 sqm to the market stock. Space under construction dropped to
167,300 sqm, the lowest level in five years.

PRICING: Stable Rents

The slow recovery of demand keeps asking rents in Sofia flat for a consecutive quarter at 15 euro/sqm in CBD and 12-14
euro/sqm alongside main roads. This does not exclude slight growth in the coming quarters under the pressure of the increasing
inflation. Service charge rates in Sofia vary in the range 2.75 – 4 euro/sqm.