why bulgaria investment atlas - forton / cushman&wakefield ... · is bb+ with a stable outlook...

Why BulgariaInvestment Atlas2017

Forton is a premium commercial real estate advisory company. We are a subsidiary of AG Capital, the largest real estate company in Bulgaria, and Member of the Cushman & Wakefield Alliance in Bulgaria and Macedonia. Our alliance with Cushman & Wakefield, the world’s largest privately owned real estate advisory firm, contributes to the successful blend of local real estate insight and experience with international expertise. So is Cushman & Wakefield our gateway to investors in more than 60 countries all over the world. We employ this hands-on experience to add value to our clients’ real estate projects and developments.

We offer the following advantages:

Strict application of Cushman & Wakefield’s methodology and professional quality standards.

Full compliance with the Royal Institution of Chartered Surveyors’ (RICS) ethical standards (Red Book 2014) and the International Valuation Standards 2013. Among the biggest real estate consultancy companies in Bulgaria Forton is the only RICS regulated firm and the only company that has 3 certified RICS members. At present Forton has 2 Registered Valuers by RICS.

Complete coverage of the Bulgarian commercial real estate market.

Access to knowledge and data within Bulgaria’s leading real estate service group, involved in all important markets and all property types.

BulgariaKey FactsArea: 110,910 sq. km

Population: 7.1 million (2016)

Capital City: Sofia

Currency: Lev (BGN). Fixed exchange rate pegged to Euro

Government type: parliamentary republic

EU Member (2007), NATO Member (2004)

Political and business stability - EU Member; Currency board; Low budget deficit and government debt

Low cost of doing business - 10% corporate tax rate (0% in high unemployment areas); 10% personal income tax; Lowest cost of labor within EU; Favorable office rents and low cost of utilities

Educated and skilled workforce

Government incentives

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Economy

Economic Growth Projected to Remain on a Sustainable Path

The Labour Market Has Seen Marked Improvements

Public Investment Gets Strong Support from EU FundsBulgaria is a member of the European Union since 2007 and benefits significantly from the trade with EU countries (exports to EU members grew by 7.2% in 2016), as well as from the investment support of the European Structural and Investment Funds. Over 2015-2016 the Bulgarian economy has been growing at a faster pace than EU-28 and this trend is expected to continue over the forecast period 2017-2022.

Bulgarian GDP is estimated at ca. EUR 42.7 billion in 2016, increasing by 3.4% in real terms, which was above the estimates of the international financial institutions. The better-than-expected results were mainly driven by the higher domestic consumption stemming from the increased income and falling unemployment. Based on the improved macroeconomic indicators, IMF raised its GDP growth forecast to 2.9% for 2017 and 2.7% for 2018.

Going forward, the positive effect of growing net exports is expected to diminish, with oil prices rising and uncertainty in the EU, while consumption and investment will have greater contribution to GDP growth.

Economic growth is expected to be further supported by EU funds, with a total budget of EUR 11.7 billion secured for the period2014-2020 and directed at creating jobs, developing infrastructure, providing an innovation-friendly business environment, etc.

InflationThe introduction of a Currency Board in 1997 helped stabilise the country following a period of hyperinflation. Since the second half of 2013, the economy entered a deflationary period that continued until 2016. Falling consumer prices were mainly driven by supply-side factors including decreasing food and energy prices. In the coming years, inflation is expected to increase gradually,

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converging to the overall EU level of around 2% in the long term.

Labour marketAfter the unemployment rate peaked at 13% in 2013, the labour market improved continuously in the next three years. Following the positive recent developments, IMF lowered its forecast for Bulgaria’s unemployment and expects the rate to stabilise at around 6.6% in the long term. The decrease will be driven by both new jobs creation and expected increase in the labour participation rate as a result of the ongoing pension reform (increasing the age and length of service needed for retirement). Yet, important challenges in the labour market relate to the shrinking population due to emigration and declining fertility rates.

Fiscal stabilityThe authorities are targeting to gradually decrease fiscal deficit to zero by 2020, which will also help reduce government debt to below 25% of GDP.

Currently Bulgaria benefits from a relatively low government debt, which provides a substantial buffer against unexpected economic volatilities. IMF forecasts a slight downward trend in the general government gross debt as a percentage of GDP in the next few years.

Bulgaria has enjoyed favourable financing conditions in recent years, both in terms of access and yields. In March 2017, the secondary market yield on Bulgaria’s government bonds

with maturities close to ten years was 1.73% (compared to 0.35% on the German bonds of similar maturity). The yields for short-term bonds are also at historically low levels.

The country’s current long-term credit rating is BB+ with a stable outlook according to Standard&Poor’s (last update in December 2016) and Baa2 according to Moody’s (last update in June 2015).

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OfficeMarket

Office Market is Going Full Steam Ahead

New Office Zones Emerge alongside Main Roads and in the Central Part of Sofia

Along with Sofia, Secondary Cities Draw IT and BPO Industries’ Attention

OverviewBulgarian office market is on the way of sustainable growth based on strong leasing and development activity. The last several years were marked by stable rent increase and rising demand for quality space which stimulate developers to start or to resume office projects that have been put on hold. In the middle term the new supply is forecasted to slightly push vacancy up while at present the shortage of prime space remains a challenge.

As in the previous years, the IT and BPO industries are key demand drivers alongside more traditional customers from the financial and pharma industries. Sofia is the most active leasing market but with the expansion of the outsourcing industry secondary cities as Plovdiv, Varna and Burgas also demonstrate growth potential.

Hot spots

SofiaWith 1.6 million square meters class A and B stock, Sofia is the most developed and well diversified office market in the country and highly competitive location within South Eastern

Europe. The city is appealing office location, thanks to the high-quality supply, affordable rents and low operational costs. Well educated workforce with good knowledge of foreign languages is another competitive advantage.

The inquiries of IT and BPO companies have had the most positive impact on the office market over the last few years. These tenants accounted for more than 60 per cent of the leasing volume in 2016 and are expected to remain key market

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Office Market

driver. Part of these companies expand their operations, while others consolidate their business as a result of mergers and acquisitions and need more office space.

The most notable example is the prelease of 20,000 square meters in City Tower (34,000 sqm GLA) by the outsourcing company Telus International. This is the biggest deal for the last few years and consolidates part of the company’s offices in one building.

With the prelease of 10,000 sqm the IT services and solutions provider Bulpros is the largest tenant in Building 15 of Business Park Sofia, which is currently under construction. The company will relocate after the completion of the building with 20,800 square meters GLA in H1 2018.

In general, the IT and BPO’s inquiries are for prime offices with easy access, enough parking places and flexible working space. Locations alongside main roads and near metro stations are preferred and attract developers’ attention. As a result, new business zones emerge on the Sofia’s map together with the established areas.

The combination of emblematic office projects, main road location and metro station makes the area around Capital Fort on Tsarigradsko Shose Blvd. prominent business location. Currently about 100,000 sqm new offices are under construction or in planning phase in close vicinity, including Sky Fort (202 m) – the new tallest office building in Sofia.

The area between Nikola Vaptsarov Blvd. and the shopping center Paradise in the south part of Sofia is also rapidly developing with potential for construction of 90,000 sqm new office space.

Another 100,000 sqm offices are expected to be completed over the next few years in the Business Park Sofia area. Garitage Park, Richhill Business Center, Advance Business Center and the second building of the investor in Adora Office Center are among the notable projects.

The Central Business Zone with 55,000 sqm under development and the area alongside Todor Alexandrov Blvd. are other emerging office locations.

As a whole, the abovementioned locations represent about 70 per cent of the total office pipeline in Sofia by 2020. As of H1 2017 more than 340,000 sqm are under construction and another 170,000 sqm – in planning phase. The delivery of this space is forecasted to slightly increase the vacancy rate, which currently stands at 9.6 per cent.

With 130-150,000 sqm annual take-up and about 60-70 per cent net absorption, this supply is expected to be absorbed in the next four years. For the time being, the market suffers from a shortage of prime space with a large share

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OCCUPIED VACANT

Bulpros, Adecco, Sitel are presented in Varna, while Sutherland has chosen Burgas to open second Bulgarian office.

Rents

The headline rents for Class A office space in Sofia range between €13 and €13.5 per square meter. Highest levels are registered in the central business area and alongside the main boulevards. In the last two years, the prices have steadily increased, fueled by the scarcity of prime office space and increasing demand. Now, the growing supply stabilizes the rents.

Rental levels for class B space are stable in the range of €6-8/sqm/month.

The rates outside Sofia range from €6 to 9/sqm/month, in particular for Varna and Plovdiv. Rents in Burgas are stable at €6 per square meters.

Office Market is Going Full Steam Ahead

of preleases in the total volume. Even so, the developers have to be careful, bearing in mind the demand fluctuations.

In a long run, some developers are looking for opportunities outside Sofia borders. Such is the case with the multifunctional project Saint Sofia in Musachevo village area which will comprise 785,000 square meters offices. The investor Bulgaria Development Holdings Limited intends to establish a business hub with the newest technology and modern design from Asia, efficient area distribution and high-tech capabilities.

Secondary citiesAlong with Sofia, the second largest city Plovdiv gains popularity as outsourcing destination and a number of IT and shared services firms are looking to establish operations there. Fast growing companies such as Telus, Speedflow, Scale Focus, Sofica Group, SB Tech and 60K already have offices in Plovdiv, some of them announcing plans for further expansion.

Outside Sofia, Plovdiv is the most developed office location with class A stock of about 50,000 sqm and 36,000 sqm under construction, as of H1 2017. Other locations with potential for BPO operations are Burgas and Varna. These cities are large economic and university centres with high proportion of young, well-educated people. IT and shared services companies as

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IndustrialMarket

Industrial Property Market Continues on a Growth Path

Bulgaria Remains in the Focus of Manufacturing Companies

Sofia and Plovdiv are Logistics Hot-Spots

OVERVIEWBulgarian industrial property market has experienced sustainable development during the last few years, without significant fluctuations in prices and inquiries. Market performance is driven by the economic growth and the stable demand of warehouse and production space. Automotive parts suppliers, as well as expanding logistics and retail business are main source of growth countrywide. Thanks to overall stability, EU membership, low taxation and operating costs and attractive payroll to productivity ratio Bulgaria remains in the focus of manufacturing companies, aiming to outsource some of their operations. Locations with sufficient infrastructure and skilled labor force are preferred for development of new projects.

HOT SPOTS

Sofia Sofia is the largest real estate market countrywide and cross point of three European Transport Corridors. The combination of road and railway

infrastructure and international airport makes the capital city highly preferred location for logistic operations.

Central storage facilities of major FMCG retailers and warehouses of international 3PL providers are mainly concentrated east of Sofia, in the area between the ring road and Elin Pelin – Musachevo – Novi Han industrial area. Among the notable projects under development in the area are both storage facilities and clean productions such as the Automotive Leather Company (ALC) Group, Nobel Solar Solutions, dm Drogeriemarkt, Maxima, Billa, Lidl and large industrial parks offering build-to-suit and speculative space, such as Logistic Park East Ring, Industrial Park Sofia East and Logistics Park Sofia Ring.

West of Sofia, Danish based everything for home

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retail chain JYSK acquired 30 ha for 92,300 sqm logistics and distribution center in the state-run Bozhurishte Economic Zone. The first phase of the storage facility is already under construction and will serve company’s operations in the Balkans and Hungary. Behr-Hella Thermocontrol production facility and R&D center is yet another considerable project in the industrial zone. The new manufacturing facility of global supplier of climbing walls Walltopia is also being developed. In this corner of Sofia also facilitates the DB Schenker central warehouse, Coca-Cola production site and a number of logistics and industrial parks under development.

As of H1 2017 the industrial property stock in Sofia is totaling 911,000 sqm, mostly owner-occupied facilities. The shortage of modern supply in combination with the growing demand from retail and logistics business provides good ground for new build-to-suit and speculative developments. The new office and distribution center of DHL in Sofia Airport is among the marked build-to-suit projects under construction. Sofia airport also facilitates Lufthansa Technik premises - one of the most successful maintenance centers of the company across Europe and it’s up to its successive expansion. Lufthansa Technik are present in Sofia since 2008, are investing EUR 30 mln in the new maintenance unit and administrative building.

Plovdiv The second largest Bulgarian city – Plovdiv, is an important manufacturing and logistics center, thanks to the convenient location, easy access and availability of skilled workforce. The largest industrial project in the region is Trakia Economic Zone (TEZ) which spreads on more than 1000 ha. Currently, about 140 companies are operating within the zone – mostly auto part suppliers and light industrial firms. Worth mentioning are the factories of ABB, Liebherr, Schneider Electric, Socotab, Sensata, Magna Powertrain, SMC Automation, Willy Elbe and Osram Lightings.

The largest storage and distribution center (currently over 100 000 sqm) in Bulgaria is also located here – the German food retailer Kaufland

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STOCK ACTIVE PIPELINE


operates its country logistics from Plovidv. The 3PL operator DB Schenker, also maintain a 6,000 sqm warehouse facility after the second expansion in 2016.

South/South-East The South-East region is highly attractive for new production developments due to the availability of workforce and location advantages. The Japanese automotive wire harness producer Yazaki is among the notable examples with two factories in Sliven and Yambol and a third one under construction in the Dimitrovgrad. Meanwhile the company started pilot factory operations in Stara Zagora after a former retail store was converted into production facility to meet the specific needs.

The completion of Trakia and Maritsa Highways boosted the investments in the regional cities alongside, such as Haskovo, Kardzhali, Yambol and Sliven. For example, Haskovo region has been chosen by the Turkish supplier of plastic-based products Sa-Ba for the construction of a new factory in Bulgaria. Thanks to its strategic position on the road between Turkey and Europe, Stara Zagora hosts the first foreign factory of the automotive seals producer Standard Profile. The company doubled its production capacity in Bulgaria in the recent years.

The largest city in South-Eastern Bulgaria and Black-Sea port – Burgas, is also providing

opportunities for industrial development thanks to the combination of road and railway infrastructure, sea port and international airport.

In general, the good transport connections make the South-East region suitable for logistics. The second Bulgarian distribution centre of German FMCG discounter Lidl in Yambol exemplifies the trend. The project has easy access to Trakia Highway and with 47,000 sqm built-up area is the largest logistics facility completed in 2016.

North/North-EastNorth-East part of Bulgaria provides benefits being the sea port in Varna, access to sufficient labor market and availability of production brownfields. While Sofia and Plovdiv are interesting for logistics because of their proximity to highways, smaller

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regional cities in the northern part of the country are attractive for a variety of industries mainly aiming at low operating costs.

Turkish glass maker Sisecam, Danish Carlsberg Group, the local manufacturers, such as Lavena and the Ficosota Holding are some of the largest industrial employers in Shumen – Targovishte region. Last year, the region attracted another large investor - the German based Dr. Bock Industries plans to build a textile processing facility on 2.1 ha in Targovishte. The new ceramic factory of Akgun Seramik is yet another ongoing project in this part of the country.

Ruse is also an industrial and logistics hub in that region. The city is the largest Danube river port in Bulgaria and a crossing point of two Pan European routes: Corridor 7 and Corridor 9. The city provides direct connection to Romania via the Danube bridge. For these reasons, auto part producers, such as French manufacturer of aluminum components Montupet and German Witte Automotive, choose Ruse to establish operations in Bulgaria. Textile industry is also largely presented in the region.

West/North and WestThe northwestern part of Bulgaria has industrial traditions and potential for cost sensitive manufacturing although the local economy underperforms. The region benefits from the

proximity to the second Danube bridge Vidin – Kalafat, the ferryboat connections to Romania and the Pan-European Corridor № IV crossing the area.

The North-West has strong traditions in the chemicals, textiles, food and beverage industry, as well as in the agriculture. In the last several years the automotive industry received a strong impetus with the opening of a number of factories producing cable harnesses for cars. The German manufacturer Nexans Autoelectric opened a production facility in Pleven in the fall of 2014, creating 600 new jobs. In Mezdra, German-Japanese SE Borndnetze produces wire harnesses for a variety of automobile platforms. Bulgarian car battery maker Monbat has a factory in Montana and expands with recycling facilities on neighbor markets.

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In the west part of Bulgaria, Botevgrad and Pernik are the most active municipalities with industrial facilities. Both cities take advantage from the proximity to Pan-European Corridor №IV as well as the good transport connection to Sofia. First Bulgarian plant of the US-based producer of sensors Sensata operates in Botevgrad, together with R&D center in Sofia and second factory recently opened in Plovdiv. Pernik is mostly known for the steel manufacturing and mining industry but the local authorities and private investors consider establishing a logistics and industrial park on a 50-100 ha land plot at the intersection of Corridors IV and VIII.

RENTSSofia is the biggest and the most developed lease market in the country due to the large speculative projects developed in the region. After years of stagnation, 2015 and 2016 was marked by slight rental growth and now due to the raising demand of industrial space. Now the levels for prime logistic space are stable at €4.20 /sqm. Rents are higher for the prime logistics area near Sofia Airport, exceeding €5 /sqm. Since the annual supply of speculative space does not exceed 30,000 – 40,000 sqm, the market is balanced and rents are forecasted to remain stable.

Land market is also active due to the strong

development activity in the big cities and industrial zones. Prices for urbanized pre-developed plots of land are in the range of €15-20/sqm average countrywide. The restructuring of some real estate funds, in the possession of large pieces of land, opens the door to development of mid-size logistics and industrial projects (5,000 to 10,000 sqm GLA) across the country.

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Industrial Revolution in Bulgaria 2017


Retail Market

Retail Market: in the Mood to Expand

Developers' Focus Shifts on Multifunctional Projects with Large Shopping Areas

Prime Rents Slightly Increase Reflecting Consumption Growth and Tenant Appetite for Expansion

OVERVIEW The stable growth of consumption and strong economic performance give a strong impetus to the Bulgarian retail market. Improving purchasing power stimulates the expansion of a number of shopping segments which results in active leasing market. Fashion, Health & Beauty and FMCG are the most rapidly growing categories.

With almost 900,000 square meters stock the retail property market provides a variety of opportunities for penetration of new brands and for enlargement of the ones already presented. After the years of strong development activity, now the retail segment is entering more mature phase. The market is relatively saturated and now it is time for the existing shopping centers and retail parks to reposition.

HOT SPOTS

Shopping CentersAs of H1 2017 the total shopping centers stock reached 738,000 sqm with over half of this space situated in Sofia where 9 malls are operating.

The capital city is the largest market with high proportion of young people and above-average incomes. For that reason, a prevailing part of retail projects is concentrated here. In the booming years, a number of shopping centers and retail parks were completed in the secondary cities, as well.

Now, the market is well saturated and development activity is slowing down with only one scheme completed in the last couple of years. Markovo Tepe Mall (20,500 sqm GLA), which opened in Plovdiv,

Retail Market

was the sole new delivery for the period. In Sofia, it is worth mentioning the rebranding of City Center Sofia as Park Center (23,500 sqm GLA) in the fall of 2016, following full restructuring and tenant mix refreshment.

Strong competition shifts the development focus on multifunctional projects where retailers could capitalize on the synergy between different types of space. Such is the case with Grand Kanyon which obtained building permit in the spring of 2017. The project of the Turkish developer Garanti Koza will have build-up area of 250,000 square meters, comprising residential and hotel parts along with 40,000 square meters retail zone. The second Sofia’s project of the company – Sofia Square, is also planned as mixed-use development with a large shopping area.

The market countrywide is driven mostly by the expansion of middle to budget class fashion brands, while upscale tenants strengthen their presence mostly in Sofia. H&M, LC Waikiki, Polish shoes retailer CCC are rapidly growing with focus on secondary cities. Toys brands, drugstore chains, sport goods retailers are among the other active groups of tenants countrywide.

Food & Beverage is another rapidly growing category. The increasing presence of international cuisines, such as Asian, Spanish, Serbian, American burgers and steak houses is evident in the streets

and the large shopping centers. The entry of Asian fusion chain Wagamama in Sofia in H1 2017 also supports the trend.

In general, although a number of international fashion retailers entered Bulgaria in the last several years, there is still room for new brands. The limited variety in the different market segments remains a challenge.

Retail Market: in the Mood to Expand

DIY and FMCGThe increasing purchasing power in Sofia and the big cities revived the home décor and Do It Yourself segments on the retail market. Large international brands are in expansion mode, aiming at strengthening their positions not only in Bulgaria, but in South-Eastern Europe as a whole.

Such example is JYSK which announced plans for 35 stores countrywide and started construction of a huge regional distribution center west of Sofia at the beginning of 2017. Do It Yourself chains, such as Praktiker and Homemax (ex-Baumax), are also active in the retail market.

After the opening of the first Bulgarian store in 2011, IKEA aims to increase its presence across the country through smaller format stores. The furniture chain entered the largest Black Sea coast cities – Varna and Burgas, with first order & collect points in 2016.

Large shifts occur in the FMCG retail, as well. The withdrawal of Carrefour and the insolvency procedure of Piccadilly, a local chain of supermarkets, resulted in increasing vacancy rates in many shopping centers across the country. In some cases, the abovementioned retailers were replaced by Lidl and Billa, in others the vacated space opened room for big-box tenants, such as JYSK, IKEA and Jumbo Toys, to enter shopping

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Retail Market

centers.

In general, after the years of rapid growth now the retailers are refining their market positions. Some of them take the opportunity also to diversify their sales channels.

Rental levelsRents in Sofia rebounded, supported by the growing consumption and the reviving retailers’ interest. Prime levels in the shopping centers continue to slightly increase, reaching €31/sqm/month in H1 2017 with prospect for further growth. Since the market is back on the way of growth, landlords seize the momentum to raise revenues.

Prime locations on main streets, such as Vitosha Blvd. in Sofia, also register increasing tenant interest. After the years of recovery, the rent for 100 square meters store remains stable at 46/sqm/month.


InvestmentMarket

Capital Goes After Prime Assets for the First Time Since 2011

Investor Profile Moves from Opportunistic to Value-add

Prime Shopping Centers Take Center StageAs at the first half of 2017 Bulgaria has finally started to reap the benefits of the CEE real estate investment market growth story. With investors closing in on several big-ticket acquisitions, institutional quality transactions are expected to post a turnaround this year, easily surpassing the development land and the distressed segments which dominated the market since 2011. This is not to say that land and distressed transactions are missing but they would be dwarfed by the sheer size of the income-generating commercial real estate sector, even if only a part of the present pipeline materializes.

After real estate capital flows went up to their highest level since 2008 in 2016 several large transactions in the pipeline may bring 2017 into that orbit again and make 2016’s trading look small-time. Investment was already €90 mln well into the first half of the year with at least two large transactions expected to bring the number to €150 million, already more than half the €283 million in 2016. Forecasts are in the area of €450-650 million this year, depending on the several large transactions.

There has been a notable shift from opportunistic to value-add deal-making. In part this reflects the changing profile of investors with more balanced strategies now present along with the high-risk and development-focused, mainly local and regional players who have dominated the scene in the recent years. The second part of the explanation is that distressed opportunities are now more limited and concentrated in sales of non-performing loan portfolios (and, unsurprisingly, international

investors are involved again).

Growth StoryInvestor interest is underpinned by steady GDP growth at more than 3 per cent in 2015 and 2016, recovery of household spending consumption and private investment which supported the strongest economic expansion since 2008 in 2015. 2016 finished on a similar note despite a cyclical slowdown in consumption.

The above has helped the continued recovery of the occupier markets. Offices are seen ahead in the market cycle with strong interest in development supporting the land market in Sofia. So is residential where recent price rises have spurred end-user demand and land acquisitions.

Retail FocusAcross segments shopping centers have taken the dominant position with large deals getting publicity – GTC’s two malls in Burgas and Stara Zagora respectively. While the deals have signaled the return of large international investors to the market, they also underscored the value-add potential in the segment with prime rents increasing along with opportunity to easily extend the retail offer in the space vacated by the large food hypermarkets over the recent years. Restructuring remains a trend with Mall Varna transacted in May being a case in point although this opportunity appears limited.

Prime Sofia offices are also firmly in the radar. Smaller deals, below €10 million, are suitable for local investors while large scale transactions, above 50 million, are in the focus of international investors.

An increase in development backed by strong pre-leasing volumes in Sofia’s modern office sector

Investment Market

looks likely to bring more product in the pipeline over the next couple of years. Mixed-use schemes with substantial office element are also appreciated by investors and developers alike due to the relatively stable cash flows produced by offices which counterbalance the more volatile hotel, retail or residential elements.

Industrial real estate is set to remain an opportunity-driven segment due to the scarcity of multi-tenant modern buildings. Local investors are however well-placed to take advantage of opportunities as they emerge, notably the acquisition of the 40,000-sqm logistics and office complex Vienna Real Estate along with additional development potential on the 13-ha site.

Although its contribution is likely to be small, hotel investment remains a focus for specialist domestic or regional buyers. The opportunity is now in Sofia where growth in visitation last year supported both occupancy and room rates.

The OutlookWhereas real estate capital has been made available from both domestic and international sources, the latter look likely to overwhelm as foreign investors chase big-ticket deals. The share of cross-border flows which was between 40-50 per cent of the market over the last five years is now likely to surge to more than 80 per cent.

Across geographies, South-African money should dominate, in line with the broader trend across CEE. NEPI, Prime Kapital and several new players have been active in the market.

The shift from riskier to prime product has also helped yield expectations tighten, especially in offices and retail. Prime yields are hovering around 8 per cent in both segments with downward

pressure caused by capital chasing the top assets and potential income increases due to expansion and rental growth potential priced in.

Altogether, Bulgaria’s market has started to generate international interest with the availability of reasonably priced product, continued economic growth and the possibility to add value to prime assets through repositioning, re-tenanting and extensions where development potential exists. The outlook therefore remains broadly positive as improved liquidity is likely to make more investors consider this market.

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why bulgaria investment atlas - forton / cushman&wakefield ... · is bb+ with a stable outlook...

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