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