The total volume of leased office space in Sofia since the beginning of the year is nearly 108 thousand square meters, and the value of the indicator is close to the average for the last five years. This shows a stabilization of the market and outlines a trend of smooth partial recovery after the crisis of 2020.
However, lower-end office space will face serious challenges in finding tenants. At the same time, the outflow of investors in high-quality projects could lead to a shortage of Class A offices in the next few years.
At the moment, landlords who have decided to invest in an effective transformation of their areas to meet the needs of tenants, are able to realize their spaces in good conditions. This makes the competition for quality spaces high and keeps rental levels stable.
Although the share of vacant space increased during the quarter, in some areas the competition of tenants is high. This is valid mainly for buildings that are built according to the new conditions or have effectively renovated spaces. Market pressure creates a complex picture in which the only solution is or will be flexibility.
Despite the decline in unemployment, newly hired employees in our country do not go to the offices. Companies are moving towards hybrid work models and only 30% of employees visit a physical office. Thus, the share of vacant land increased to 15% for the period July-September compared to 14.3% in the previous quarter.
The market is driven mainly by the IT and BPO industry, whose rotating operating principle does not create the need to rent and use new office space. Thus, consolidation, optimization and relocation are the main reasons for the newly leased areas for the third quarter - 38 thousand sq. M. The net utilization is only 10 685 sq. M. The newly completed offices for the period under review are just over 40 thousand sq. M. from the beginning of the year - 143 120 sq. m.
Market growth is expected in the coming months, when the newly completed projects will be utilized. On the other hand, the limited number of new offices will provide a balance between supply and demand in the medium term. As of the end of the third quarter, only 204,600 square meters of new space are under construction, which is the lowest volume in the last five years. The total volume of available areas now is nearly 2.23 million square meters, of which 333 thousand square meters are unoccupied.
Two major deals took place in the third quarter - the relocation of Software AG to Synergy Tower, where the company leased 2,750 square meters, and the relocation combined with the expansion of a new tenant in the Balkan Business Centre, where 2,300 square meters were leased.
The slight acceleration of the market is a prerequisite for keeping the rental levels of the Class A segment at stable values. At the end of the period, they remain 15 euros / sq. m for the central part of the city and 12-14 euros / sq. m for the periphery around the main boulevards. However, the levels in the lower segment are under pressure.
After declining in the second quarter, between July and September, the return on first-class assets stabilized at 7.5%, as the value was confirmed by the acquisition of Park Lane Office Centre by SAP Labs, which is the largest office transaction for the whole 2021 year.
Works on the article: Bozhidarka Chobaligova,editor: Desislava Popova