ECONOMY: Healthy Growth

Bulgaria is on course to complete 2023 with healthy growth. The most recent key indicators are positive. GDP growth in the third quarter was 1.8% y/y, the seventh highest in the EU. The unemployment rate for the same period slipped to 4.0% (4.6% in Q2) and inflation in December decelerated to 5% y/y. Yet, there are some mixed feelings. In October, consumers assessed their own budget as the best in two and a half years. Meanwhile, the confidence and business climate indices in retail have softened, mainly due to worries about the uncertain economic environment. These concerns are not unfounded. Through most of 2023, retail grew only thanks to groceries. An encouraging sign from the fourth quarter is that the index of non-food retail sales, including categories like clothing, household appliances, and electronic equipment, finally moved to positive territory in November.

SUPPLY AND DEMAND: Retail Parks do the Heavy Lifting Again

In the last three months of the year retail parks continued to be the main driver of the market. Five facilities opened, bringing 46,000 sqm of new modern retail space. For the full year, a total of 18 facilities with 174,000 sqm of GLA started operations. As a result of this activity, the total stock of retail parks swelled to 510,000 sqm or two thirds the stock of shopping malls in the country.

In the last quarter, new openings weakened somewhat to about 54,000 sqm of GLA, compared to 74,000 sqm in Q3 2023. For the full year, new outlets with 220,000 sqm of GLA were opened, mostly in shopping centers and retail parks. Nearly 80% of this space was in retail parks. Non-food discounters were very active throughout the year. These retailers opened nearly 70 stores with about 50,000 sqm of GLA. Meanwhile, electronics, DIY, and toys Big Box operators swooped up over 50,000 sqm of GLA with just 10 new outlets.

Looking forward, retail parks are expected to continue their relentless expansion. At the outset of 2024, five more projects with 77,000 sqm of GLA are under construction, and an additional 20,000 sqm in partially opened facilities were completed. Further seven facilities with 95,000 sqm of GLA are in planning phase.

PRICING: Rents and Yields Likely to Creep Higher

Asking rents in Sofia shopping centers edged up slightly to 37 euros/sqm in the fourth quarter and prime yields held firm at 7.75%. The asking rents and prime yields for retail parks in Sofia remained unchanged at 11 euros/sqm and 7.75%, respectively. Upward movement of rents and yields in shopping centers and retail parks appears likely in Q1 2024.