BULGARIA Marketbeat Retail – Q1 2023
ECONOMY: Anaemic increase
Bulgaria’s economy expanded by 3.4% in 2022, in line the EU average. Analysts predict that growth would decelerate in 2023, while staying ahead of the economic block. The slower rate of expansion would reflect softening domestic demand as inflation erodes purchasing power. Importantly, demand is helped by a strong labor market. Employment and the unemployment rate last year were second best since 2009 and 2003, respectively. Forecasts reflect demographic trends more so than changes in demand. Another positive note is that deflated retail sales grew throughout 2022 and this far into 2023 Bulgaria stands fourth among only 10 countries in the EU reporting growth. A favorable circumstance is that the currency board (pegged the Euro) eliminated the impact of exchange rate fluctuations on consumer prices.
SUPPLY AND DEMAND: Discount retailers and retail parks in expansion
The rapid development of retail parks continued throughout the first quarter of 2023, as 9,000 sqm of new space opened nationwide. The existing retail parks of more than 5,000 sqm provide over 360,000 sqm, while the two-year estimated pipeline amounts to additional 240,000 sqm. Discount retailers, affordable clothing brands, sports stores and pet shops dominated the market in Q1, mainly expanding in retail parks. Overall, retail parks are becoming a standard retail concept and an excellent solution for retailers requiring more space to enter smaller cities.
Unlike retail parks, no new mall openings or expansions are planned for 2023. With retailers and projects already relatively established, the low rates of vacancy across the market have limited the space for tenants and the dynamics are low. Specifically, international fashion retailers are revising their concepts and are optimizing their space along with an omnichannel strategy. FMCG brands continue their expansion, focusing on small supermarkets and convenience stores with an area of around 100 sqm.
PRICING: Rising rents
Asking rents in retail space in Sofia’s shopping centers posted a steady increase of 3% in the last quarter. At 36 euros/sqm, the prime rents reflect the stable demand of occupiers and inflation. The prime yields in Sofia didn’t register significant change during the first quarter of the year, remaining at 7.5%.