There was moderate leasing activity on the office market in Sofia in the first nine months of the year with volume slightly exceeding 130,000 sqm. Notably, while the result was ahead of the five-year average, the breakdown among the various contract types remained essentially unchanged. These are some of the key findings for the period of commercial real estate consulting firm Cushman&Wakefield Forton.

Renewals continued to make up as much as 40% of all leasing agreements, followed by tenant relocations. The small relative share of expansions and new leases reflected the narrow market potential for growth and absorption, even if total volume had returned to pre-pandemic levels.

IT and BPO firms remained key drivers of demand for office space, despite many of them implementing optimizations under the pressure of hybrid work practices and a general slowdown in their business activity.

“Yet again, the market is steady, demand-wise, and relative to available space. However, this stability mostly reflects a combination of low volume of completions and narrow demand,” commented Yoanna Dimitrova, Head of Office Space at Cushman&Wakefield Forton. In her opinion, the market would face a challenge should there be an uptick in new project finalizations while demand and absorption linger at present levels.

NEW OFFICE BUILDINGS PLANNED IN THE VICINITY OF PARADISE CENTER

At the end of the third quarter, the volume of office projects under construction amounted to 178,000 sqm and was on an upward trajectory going forward, according to the consulting firm. There were new buildings – in planning and with construction permits received – nearby mall Paradise Center and along Vaptsarov boulevard. However, just a single building was completed during the third quarter – one along Bulgaria boulevard.

Net absorption, the difference between absorbed and vacated space, in the third quarter was mere 7,000 sqm. Year-to-date, that figure stood at 45,000 sqm, considerably less than the pre-pandemic level.

RENTS FOR THE MOST SOUGHT-AFTER CLASS A OFFICES CREEP UP TO 18 EURO/SQM

Rents for Class A offices at top locations in the central business district of Sofia inched up in the third quarter to 18 euros per sqm. Key factor for this upward movement was the high occupancy rate of cutting-edge office facilities at prime locations. Rents at the most preferred locations along the main boulevards remained within 14 to 17 euros per sqm. The prime yields of Class A office space stayed unchanged from the previous quarter at 7.75%.