Assetz® News - Demand for office space rising in Sofia

Demand for office space rising in Sofia

2nd March 2006 |

Commercial property investment in Bulgaria may have seemed an unlikely prospect just ten years ago, but the rapid development of the country's economic foundations has led to a booming business centre in the capital city.

As observed by Colliers International, vacancy rates for Class A and Class B offices in Sofia fell in the second half of last year, as the demand for business premises began to climb. It is generally accepted that it will take EU accession for Sofia to cement its place as a key European business capital, but there are clearly already signs of growth in the sector.

According to Colliers, the offshoring of activities to Bulgaria has had a considerable effect on demand for office space and it is thought it will continue to do so in future years. The Economic Policy Institute has suggested that industries such as software are particularly likely to see offshoring and it seems Bulgaria is one of the key bases for such business strategies.

Throughout 2005, rental levels for Class A office premises stood at €12.5 per square metre per month and it is a figure that is expected to rise considerably as Sofia develops international relations in the coming years.

In terms of UK property, demand for office space is extremely high and investors in Sofia will be hoping that a similar scenario is in store for Bulgaria.

Yesterday, London-based Investment Property Databank released its annual index for last year, which showed that the all property total return was 19.1 per cent. This was the biggest gain since 1993, reflecting the current levels of confidence in the commercial sector.

At 20.4 per cent, office returns easily outpaced both retails and industrials for the first time for five years. Predictably, the Central London office market was the most impressive in this respect, although investors have recently been reporting similarly healthy returns in the likes of Manchester, Liverpool and Birmingham.

The returns on property investment in the UK are certainly persuading many people to stay at home rather than looking at the likes of Bulgaria, with the vast amount of evidence available pointing to a continuation of the current growth levels.

The Chartered Institute for Purchasing and Supply has revealed that February saw the strongest pick-up in house building since July 2005, while its seasonally adjusted index for construction jumped up from 50.7 to 51.9.

Furthermore, the housing component saw a hugely encouraging rise from 48.9 to 52.8, after four months of stagnancy. It has added to the general consensus that the property market is now well-placed for a successful year, with both residential property and commercial projects attracting investment.

A chief reason for investing within the UK is that it is a known market that generally follows a steady and largely predictable pattern, while Bulgaria is an emerging market that investors have not yet fully sussed out.

For those willing to take more of a gamble, eventual returns in Bulgaria will most probably be outstanding, although there are still some variables to consider. Nonetheless, some investors are happy enough to take this risk, while others are keeping a close eye on future developments with a view to capitalising when they decide that the time is right.