The home office and the volatile economy affect office rents

Relocations and renovations dominate rental transactions due to the companies' desire to consolidate and optimize their spaces.

In the first half of the year, 39% of the gross leased space was due to relocations, 37% to contract renewals, 10% to the lease of space at the "under construction" stage and 10% to the expansion of existing companies.

Only 4% of the concluded contracts are from companies new to the market. According to experts, the high rate of telework and the still volatile pace of economic recovery are affecting demand. But he adds that, on the other hand, lower rental activity is holding back new construction and the caution of entrepreneurs does not allow for serious imbalances in supply and demand.

There is a decline in projects under construction in the second quarter. Currently, only 212,184 square meters are under construction, or nearly 40% less than at the beginning of 2021. It is expected that by the end of this year to be completed 95 thousand square meters.

The new areas with permission for use are 98,545 square meters, with which the total volume of class A and B office buildings in Sofia reaches almost 2.190 million square meters. Among the more significant new projects in the second quarter are Park Lane Office Center, NV Tower, and Garitage Park - Building 4.

The volume of Class A and B areas, which are actively offered on the market, both in existing and in buildings under construction, reached 557 thousand square meters in the second quarter, marking a slight increase compared to the previous quarter. 83% of these areas are located in the peripheral areas and are distributed mainly between Tsarigradsko Shosse and the "Hladilnika" neighborhood.

The new supply increased the share of vacant office space in the capital by 3% in the first half of this year and reached 16%. Experts expect the large volume of modern space in the process of supply to keep the tension on the rental levels for office projects class A and B. The expectations are the buildings in attractive locations, where the demand is concentrated to maintain relatively higher supply levels.

At the moment, the offer rents for first-class areas in Sofia are about 15 euros per square meter for the central part of the city and 12-14 euros per square meter for the periphery around the main boulevards. The return on first-class assets decreased to 7.5% in the second quarter, which is 25 points lower than at the beginning of 2021.

 In the first half of the year the difference between the offer and the contract price increases depending on the location, the building, and the stage in which it is located. A gradual increase in the share of office workers is expected in the second half of the year, depending on the sector, global or regional corporate policies. It is expected that the companies from the outsourcing industry will remain with the highest activity on the office market, and besides in the capital they are expected to continue to expand their presence in the regional cities.