Europe has the eye of the world

Stronger investment in the real economy

Confidence builds up in Bulgaria’s market

Growth in the European commercial real estate market will accelerate over the next two years, which in turn will benefit Bulgaria by creating more favorable conditions for foreign direct investment, said global commercial real estate advisor Cushman & Wakefield and its alliance partner in Bulgaria and Macedonia Forton at a press conference in Sofia.
The two companies are strengthening their alliance. Forton rebranded with the aim to achieve stronger recognition as well as to increase the confidence of international investors and corporate clients in Bulgaria.

Rising investment volumes in Europe

„Europe has the eye of the world“, said Peter Victor, Senior Managing Director of Cushman & Wakefield for EMEA and Head of International Desk. „Investment demand is growing to new regions and sectors while the interest in development increases. ”
According to the latest data, Bulgaria’s investment market reached EUR 114 million year to date, in a total of 26 transactions and is now 54% above the reported volume for the entire 2013, said Forton.
“We see a considerable increase in demand for land as well as for office and retail space with potential for revenue increases after successful financial restructuring, additional investments and the attraction of new occupiers”, said Michaela Lashova, MRICS, Managing Partner at Forton. “What is more important however, we have experienced a stable growth in occupier demand for office and retail space. This gives greater confidence to international investors who are expected to show higher levels of activity in the following months.”

More investment in the real economy

Compared to the boom years for the commercial real estate markets in Central and Eastern Europe up until 2008, higher growth  rates from 2015 on are expected to be a result of not only capital flows to real estate but also to other, non-financial parts of the economy. “Business process outsourcing and a trend for nearshoring of manufacturing activities will bring numerous benefits to Central and Eastern Europe”, said Peter Victor. “The CEE markets will see growth in demand for commercial real estate, but nevertheless they still have relatively higher levels of supply to absorb,” he noted.

New sources of growth

Bulgaria is considered to be in a favorable position to capture a good deal of the demand for new locations for BPO activities and shared service centers. According to Cushman & Wakefield, Bulgaria ranks third among European countries after Romania (world number one) and the Czech Republic (world rank 13th) as attractive BPO/SSC location as human capital remains the top challenge for CEOs, said Peter Victor.
The share of IT and outsourcing sectors of total office take-up in Sofia (as measured by leasing activity plus owner-occupier absorption) has gone up from 40 percent in 2012 to 52% in the first nine months of 2014, shows the latest survey of Forton. “The office market in Sofia has been experiencing growth for already three quarters now, while the cumulative take-up volumes as of September 2014 exceeded those for the full 2013,” said Michaela Lashova.

Globalization and technology

The emerging trends of globalization and development of online sales channels in the retail industry are causing a shift in focus towards prime markets and locations. Meanwhile, technology presents an important opportunity for quick access to new markets. The end result hence are the more rigorous requirements for new retail projects.
“The supply of retail space now depends not only on construction but also on the closing of existing projects,” said Michaela Lashova. “The retail market is in the process of recovery and it is occupiers that still set the rules. In recent months, several new shopping centers were released on the market proving that there is still room for professionally planned and managed projects. ”
“The trend towards outsourcing production to nearby destinations is expected to strengthen the incentives to invest in Central and Eastern Europe,” commented Peter Victor. The other important growth factor for the industrial and logistics market will be the boom of e-commerce.
According to Cushman & Wakefield’s estimation Bulgarian industrial and logistics space market is currently at the lowest phase of the business cycle from where it is just starting to grow. Nevertheless a lack of new construction has caused prime rents in Sofia to rise from €3.5 to €3.75 per sqm per month in the end of Q3 2014.

Positive outlook

Overall, both globally and locally, commercial real estate sentiment is positive. Consultants project moderate but accelerated growth compared to the last two years.

“Led by the western European markets, prime rents are anticipated to grow by 1-2% this year, 2-3% over the next year and 3% in 2016,” said Peter Victor. “Investment demand will continue to run ahead of the occupier,” he added.
“The Bulgarian market is ever more closely tied to Europe,” said Michaela Lashova. “Although local conditions differ from market to market, business is becoming more global, whole sectors of the economy are dominated by international companies and investors cross borders in search of higher returns. Largely, as a result of the above mentioned trends, the last nine months of 2014 were recognized as the strongest for commercial real estate market in Bulgaria since 2009. “