Valeri Vulchev is Managing Partner of Forton International, which was created in 2005 as part of Address Group, one of the country's largest private property advisors. That year Cushman & Wakefield Healey & Baker, which operates the European division of global real estate firm Cushman & Wakefield, appointed Forton International as an Associate Office.
Sofia News Agency Editor-in-Chief Milena Hristova talked to Valeri Vulchev about the current state of the office premises market in Sofia, the attractions that it holds to foreign investors, the prospects for its development in the capital and outside it.
Q: How would you describe the market for office premises in Sofia at the moment? What are the rental and sale rates achieved for office premises, depending on their class and location?
A: The market is extremely dynamic, with rising demand and a lot of new projects, due to be completed. Demand for rentals is very strong unlike that for purchases. The clients on the office market in Bulgaria are mainly big international companies, which are due to enter our market, local small and medium-sized companies, which are expanding or just want to change the style of their office.
Demand for modern, quality office space is not only concentrated any more in Sofia's central business district, but also along the main boulevards with easy access to the main parts of the city, as well as the business centers that are already shaping up. We expect future developments mostly of Class A and B offices to be concentrated there.
Rental levels for quality Class A office premises average EUR 11-16m2/month. Class B office premises achieve rates in the range of EUR 7-10m2/month. In sales prices average EUR 700-1200 for Class A offices and about EUR 700-750 for Class B offices. The demand is very strong even in the highest segment.
For example, one of the highest quality buildings, which we represented exclusively - Europark, managed by subsidiary companies of Soravia Bautrager Ltd. in Bulgaria, filled up in just a few months up to 97% of occupancy at some of the highest rates in Sofia.
Q: How do the yields of office buildings in Bulgaria compare to those in other countries in Europe and particularly those in Central and Eastern Europe?
A: Average yields nationwide vary between 9-11%. Our forecasts are that the levels will remain unchanged or decrease slightly until the end of the year. These values are still relatively high as compared to other Central and Eastern European countries and make Bulgaria an important investment market for investment funds. Average yields in Central European countries are around 7%, which makes the prospects for high yields in Bulgaria very good and attract many foreign companies.
Unfortunately the total stock of high-quality premises is small. Sofia offers no more than three or four buildings, which meet the highest European standards. My forecast is that this will change within two years.
Q: What is the occupancy rate on Sofia office market now? How does it compare to the rates achieved in the previous years?
A: Forton International data shows 83% occupancy for Class A offices in Sofia and 90% for Class B offices. The overall Class B vacancy rates are lower due to the large number of small and medium-sized enterprises on the market. As compared to the market in previous years, occupancy levels and the number of appropriate land lots offered are higher. Supply of office premises and occupancy levels are expected to mark an increase in 2006 since many investors are about to launch large-scale projects, to be rented by foreign clients.
Q: Can you distinguish different types of demand on this market in Sofia?
A: We can roughly distinguish two types of demand.
Demand for premium office premises, regardless of the base price comes primarily from large international corporations, which are already operating in Bulgaria or are due to enter the market. These clients may not be a large number but they rent large office premises. This makes them very important for the market. One notices a specific subgroup among these clients, which strengthened in the last eight months. Large international companies, which need storage premises near their headquarters require offices in logistic centers. There is virtually no supply of modern format offices of such a type. However, the development of such premises on a large scale will be marked by Sofia Airport City.
The second type of demand comes from developing Bulgarian companies and small companies from neighbouring countries, which are looking for offices Class B or Class C offices. These are administrative buildings, which have been renovated, or newly built office buildings, which are not in line with European standards.
Q: Do you expect development in this sector this year and why?
A: Certainly. The upcoming accession to the European Union stimulates international companies to enter Bulgaria. The country's economic and political development goes in the right direction. There three factors are more than enough to make this happen.
Q: Which sub-segment of the office sector do you expect to see the fastest development?
A: High quality at affordable prices - this is the niche that holds the best prospects throughout all segments. Generally this translates into Class A and B office premises located in business centers or along the main boulevards with an easy access from most parts of the city.
Q: Which towns have the potential for investments in office premises?
A: Apart from Sofia, which is the main attraction for office premises hunters, Plovdiv seems to hold very good prospects after the successful implementation of several large-scale projects for office and commercial premises. Varna will also be attracting a lot of interest, especially after the appearance of the second business park in Bulgaria Business Park Varna.
Q: Which are the more interesting projects for administrative buildings and complexes, which will be completed this year?
A: Despite a certain delay, Porshe Center, which is a perfect example of good quality, location and price combined, is to be completed in the next few months. The size of the project is 11,000 square meters of total build-up area, 9 200 square meters of them are office premises.
Sofia Airport Center, a premiere corporate distribution and office hub, is the biggest project in the pipeline. Located some 300 meters away from the new Airport building, it will offer approximately 120,000 sq m of commercial space.
Another project worth mentioning is the new trade commercial building of Benchmark Fund Imoti along "Tsarigradsko shosse" (22 400 square meters of total build-up area).
There are a few other major upcoming projects, which we will be free to announce in late March.
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Photo by Forton International
