Colliers International
An increasing supply of new residential projects in Bulgaria marked the second half of 2005, Colliers International said in its most recent report on the residential property market in the capital Sofia.
The company said that construction permits for about one million sq m of residential buildings were estimated to have been issued in Sofia alone in 2005.
Most of the residential projects under construction fell in the middle-class segment and a project, on average, had a total built-up area of 4000-6000 sq m.
The southern areas of Sofia retained their popularity for well-off families looking for quality housing, a trend continuing from 2004.
New construction was most intense in Lozenets and around South Park, as well as in the Ivan Vazov neighbourhood and in the vicinity of Bulgaria Boulevard.
New supply was comprised primarily of two- and three-bedroom apartments, in response to the recent shift in demand to larger units. Compound developments saw increasing interest and were typically developed in Sofia’s outskirts and the villa zones or along the main boulevards in the southern part of the city (Borovo, Manastirski Livadi, Vitosha).
Supply of houses had traditionally been concentrated in the villa areas Boyana, Simeonovo, Dragalevtsi, and, to an extent, Pancharevo.
The total built-up area of the properties varied from 150 to 800 sq m, with most of the offers in the range of 250-450 sq m.
For the second half of 2005, Colliers noted that Sofia was a demand-dominated market, representing a major shift after years of supply dominating the market.
A demand characteristic in the second half of 2005 was the shift of preferences from purchase in an earlier stage of construction to purchase of an almost-complete residential unit. With the increasing supply and competition among developers, buyers’ preferences shifted toward completed construction because of the available deferred-payment schemes, low payment instalments and increased grace periods offered by developers, as well as the availability of mortgage loans.
Another demand characteristic during the second half of 2005 was the shift of preferences from one-bedroom to two- and three-bedroom apartments. Demand was most intense in the middle segment of the market.
The second half of 2005 also saw price stabilisation. Although there was an increase in asking price, as a consequence of the demand domination, transactions were closed at five to 10 per cent below asking price.
Hectic increases in prices were not recorded in 2005 and are not expected in 2006.
The only segment that experienced a slight decrease in prices was prefabricated panel constructions and old apartments with a low quality of construction.
The highest asking prices for new construction were registered in the city centre; however, at 1900-2000 euro a sq m, these were outliers.
In general, sales prices in prime residential areas were in the range of 820-1650 euro a sq m.
The middle-class market, including Malinova Dolina, Vitosha and Beli Brezi, commanded prices in the range of 650-750 euro a sq m for new construction.
Houses with sizes of 250-450 sq m commanded prices in the 250 000-350 000 euro range. In Bankya and Knyazhevo, which are not among the most sought-out locations, houses of similar sizes commanded 150 000-160 000 euro.
Boyana registered the highest price levels, exceeding 750 000 euro, possible for high-end residences with six bedrooms, a swimming pool and designer interior.
Supply in the rental market gradually increased throughout 2005. Colliers found a shift toward increasing supply of high-end properties in middle-class areas of Sofia.
Most of the supply of high-class rental apartments is located in Doctor’s Garden, Lozenets, Iztok, Ivan Vazov and Hladilnika. 
Middle-class apartments were being developed in Vitosha area, Krustova Vada and, recently, Studentski Grad (Students Town). Most of the supply comprised one- and two-bedroom apartments.
Houses for rent were traditionally offered in the villa zones of Sofia, including Simeonovo, Boyana and Dragalevtsi.
Similar to the previous year, 2005 high-end demand continued to have as its prime target group expatriates, foreign embassies personnel and administration from international organisations.
The most preferred areas remained Lozenets and Doctor’s Garden. However, a new trend from the second half of 2005 showed that tenants were willing to sacrifice top location for higher construction quality and more value-added services. Another trend was a shift of preferences towards two- and three-bedroom apartments.
Demand for detached houses and compound developments came largely from expatriates, who prefer three- and four-bedroom houses with total built-up areas of 250-350 sq m.
There was a shortage of exclusive residences larger than 400 sq m suitable for diplomatic missions, offering high-quality living environments.
In the middle and upper-middle market, rental levels retained general stability, with the exception of a slight decrease in areas like Lozenets, where rental levels were previously artificially raised. For unfurnished apartments rents were in the range of five to eight euro a sq m per month, but rents could attain 10 euro a sq m per month in exclusive locations. For furnished units, rents were in the range of sevent to 12 euro a sq m.
Rental prices of three-bedroom houses, which were among the most demanded, reached 2000-2500 euro for furnished houses and 1500-2100 euro for unfurnished houses.
Rents of four-bedroom houses varied between 2500 and 3500 euro a month, depending on location, additional furniture requirements of the tenant and the quality of construction.
Colliers International forecasted that in 2006 supply will continue to increase in view of the fact that large development companies continue to purchase land-properties for residential construction. Supply is expected to increase most substantially in the middle-class segment.
In 2006, the total built-up area of a residential building is expected to increase further, that is, dense developments are expected (continuing the trend of the last three years).
Prices are expected to continue to increase, however, at a slower rate compared to previous years. In several up-scale areas, properties may exhibit larger price growth because of limited supply.
In the rental market, an improved quality of supply is expected due to the sophistication of tenants’ requirements and the increasing availability. Rental levels are expected to decrease slightly.
Office market review
In another section of its report on the second half of 2005, Colliers said that the supply of office space in Sofia increased by about 10 per cent.
The total stock of multi-tenant/speculative Class A and Class B office premises offered for rent amounted to 250 000sq m. Forty per cent, or approximately 101 000 sq m, were located in Sofia’s central business district (CBD), while 60 per cent of the office supply, or 149 000 sq m, were located in the suburban areas of the capital.
Supply of multi-tenant/speculative Class A and Class B office premises marked a greater increase in the suburban parts of Sofia (15 per cent) than in the CBD (three per cent).
Over the second half of 2005, total stock of premium Class A leasable office space increased by six per cent from its first-half levels, totalling 142 000 sq m. Class B office space increased by 15 per cent, reaching 108 000 sq m at the end of 2005.
Reflecting promising economic growth, increased demand for premium office premises and the respective fall in vacancy levels, Colliers expected the supply of office space to continue to grow in 2006.
Due to limited supply of land for office developments in the CBD, new supply of office buildings will continue to be concentrated in the suburbs. The market of multi-tenant/speculative in the first half of 2006 is expected to grow by about 20 000 sq m of newly constructed office space.
Demand for quality office space increased significantly in the end of 2005. One of the major factors characterising demand, which is also expected to influence demand trends in the future, was the “offshoring” of activities by international companies in Bulgaria. This trend was driven by financial factors, people skills and availability, as well as the overall business environment in Bulgaria.
The first wave was predominantly comprised of call centres, with functions such as customer services and/or back offices following in the recent period.
The spin-off effects of the offshoring activities were expected to further increase demand - including Class B office space. Offshoring and outsourcing companies demand standardised offices with an environment conducive to business, and suitable systems and telecommunications. These requirements might be met by Class A and Class B office space alike.
A slight upward pressure on rental levels was expected as demand catches up with supply.
