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The office market relies on the renewal of contracts

About 60% of the transactions are for the lease of new areas

Nov 11, 2024 12:51 104

The office market relies on the renewal of contracts  - 1

The office market in Sofia reports moderate rental activity during the nine months – slightly over 130,000 sq. m is the total volume of leased areas. This value is above the 5-year average, with the distribution of rent types remaining unchanged.

Contract renewals continue to make up around 40% of all deals, followed by tenant moves. The small share of expansions and new tenants indicates limited potential for organic growth in the market and absorption of new space, although the overall volume of transactions is returning to pre-pandemic levels.

Companies from the IT and BPO sector remain the main driver of office demand, although many continue to optimize their space under the influence of hybrid work and downsizing.

„The market shows stability in terms of demand and the share of free space for a consecutive quarter. However, this stability is dictated by the weak completion of new areas in the conditions of limited demand, commented Yoanna Dimitrova, manager of “Office areas” at Cushman & Wakefield Forton. According to her, the main risk facing the market is related to the increased completion of new projects, if the demand and utilization of areas remain at the previous levels.

According to the company's data, projects under construction as of the third quarter of 2024 are 178,000 square meters with a tendency to increase in the following quarters. Several new buildings are in the planning stages or with building permits in the area of Paradise Center Mall and N.Y. Blvd. Vaptsarov. In the third quarter, however, only one building was completed in the area of Bulgaria Blvd.

The net absorption of areas, i.e. the difference between absorbed and released in the third quarter was only 7,000 sq. m. Since the beginning of the year, this value is slightly over 45,000 sq. m., significantly below pre-pandemic levels.

Class A office rents in the most preferred location buildings in Sofia saw a slight increase in the third quarter, reaching 18 euros/sq.m. The main reason for this increase is the high occupancy of high-tech buildings with excellent location. The sought-after rents in the most preferred locations along the main road arteries remain within the range of 14-17 euros/sq.m. m. The yield from prime office space in Sofia is stable and maintains the levels of the previous period - 7.75%.

You can see detailed statistics on average property prices in Bulgaria by cities and neighborhoods HERE