Business Properties in Sofia continue to offer the highest returns in CEE

Business properties in Sofia continue to offer the highest returns among major capitals in Central and Eastern Europe (CEE).

The highest yield in Bulgaria is from industrial properties - 8.5%. In Bucharest, which ranks second in the ranking, investors in industrial space can expect a return of 7.75%, and in Budapest it is 6%.

Sofia is the leader in CEE in terms of profitability of office space - 8%, and it is significantly higher than in Bucharest, where it reaches 6.75%. In Bratislava and Budapest, it is 5.50% and 5.25% respectively, and in Warsaw and Prague it is even lower - at the level of 4.70% and 4.25% respectively.

Shopping centres in Sofia have a yield of 7.75%, and in Bucharest it reaches only 6.75%. Investors in shopping malls in Budapest and Warsaw can expect a return of 6.50%, while in Bratislava it is only 5.75%, and in Prague it is even lower - 5.25%.

Despite the continuing disruptions caused by the pandemic, investment volumes for the first three quarters of 2021 amounted to 7.3 billion euros and are only 10% lower on an annual basis and about 20% lower than the same period in 2019. It is predicted that by the end of 2021 the volumes will reach similar levels as in 2020 - between 10 billion and 11 billion euros.

Separately, most countries lag their volumes before the pandemic, with Poland forming 56% of the volume in 2021, and Hungary and Slovakia exceeding levels compared to 2020. The usually strong fourth quarter may not be enough intensive as volumes, due to the lack of product available in many markets and the continuing complications of investors’ travels.

The office sector barely managed to stay in first place in the total volume of investment in commercial real estate in the region with a share of 36% for the first nine months of 2021. The logistics and housing sectors continue to register higher volumes, retained only by the lack of product available for sale on the market. Retail volumes continue to be fueled by assets such as shopping malls and supermarkets, while the share of hotels remains small.

Funds from Western and Northern Europe accounted for 42% of the total investment market in the first three quarters of 2021, with the most capitals coming from Germany, the United Kingdom and Sweden. The capital from CEE also occupies a large share - 30% of the total volume. Czech investors are the most active with a share of 19% and account for 53% of the volumes in the Czech Republic and 80% of the volumes in Slovakia, with acquisitions also registered in Poland, Romania, Hungary, and Bulgaria. Investors from Hungary are also active, both with local acquisitions and throughout the region, including Romania and Poland.

The economies across the region are doing relatively well. However, there are several issues of great concern and debate, many of which will affect the real estate sector in terms of supply, demand, and affordability. First, the integration of ESG criteria has become and will continue to be a key factor for change and success in real estate investing. In addition, supply and labour chain problems lead to shortages and rising prices of construction materials and key components and goods in other industries. Residential property prices are rising sharply, raising concerns about their affordability, in addition to the energy crisis and inflationary pressures. However, with a dynamic tenant market (despite health measures due to the pandemic) and an abundance of capital, Bulgaria remains attractive and ready to go through more difficult times.

Works on the article: Bozhidarka Chobaligova, editor: Desislava Popova

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