Up­lift in in­vest­ment builds on avail­abil­ity of in­sti­tu­tional as­sets, re­cov­er­ing mar­ket, ac­cess to debt

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Af­ter a pre-2008 devel­op­ment boom and the more re­cent sta­bi­liza­tion of oc­cu­pa­tional mar­kets Bulgaria now of­fers an at­trac­tive mix of in­vest­ment op­por­tu­ni­ties across all com­mer­cial real estate sec­tors. This is yet to trans­late into in­sti­tu­tional deal-mak­ing as in­vestors shift their fo­cus from some of the over­crowded cen­tral Euro­pean mar­kets and cap­i­tal flows out of the trou­bled Rus­sian and Ukrainian economies in chase of higher re­turns.

En­cour­ag­ing signs were al­ready ev­i­dent in 2014 when Bulgaria's real estate mar­ket saw the high­est level of in­vest­ment ac­tiv­ity for the last five years. To­tal vol­umes amounted to 273 mil­lion euro as mainly lo­cal de­vel­op­ers and cor­po­rate oc­cu­piers re­vived the land mar­ket, banks were en­cour­aged to off-load some of their non-per­form­ing loans and owned real estate and sev­eral in­vestors re­leased non-core as­sets to lo­cal play­ers.

The dis­tressed op­por­tu­nity has by and large been ex­hausted and a shift to the in­sti­tu­tional side of busi­ness is ex­pected to bring more trans­ac­tions with in­come pro­duc­ing as­sets in the prime end of the mar­ket. Specif­i­cally of­fices in Sofia, the cap­i­tal city, are now draw­ing the at­ten­tion of buy­ers and po­ten­tial deals are grad­u­ally brought to the ta­ble. Dom­i­nant shop­ping cen­ters of­fer a broader ge­og­ra­phy and po­ten­tially higher in­di­vid­ual lot sizes.

The prime of­fice seg­ment in Sofia en­joys solid fun­da­men­tals due to strong oc­cu­pier de­mand fu­eled mostly by the IT and BPO sec­tors. As a re­sult the mar­ket is ex­pected to see fur­ther yield com­pres­sion with rates go­ing down to 8% or even be­low for top qual­ity as­sets by 2016 com­pared to around 9% in 2014, yet still above the 7% rates seen at the pre­vi­ous peak.

The process is sup­ported by debt avail­abil­ity on the in­come gen­er­at­ing side of busi­ness with Busi­ness Park Sofia clos­ing on 103 mil­lion euro re­fi­nanc­ing with UniCredit in 2015 fol­low­ing an ear­lier 75 mil­lion euro deal of Hungary's OTP Bank for a lead­ing shop­ping cen­ter.

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