- The industrial property market froze in the middle of the year, but forecasts suggest a revival is on the horizon.
- Due to limited supply in 2023, prices surged, delaying transactions.
- Investors are expected to become more active due to the existing demand and the stabilization of construction prices.
The market for logistics spaces, which had been thriving during the COVID pandemic, was in a lull around the middle of last year but picked up towards its end. With suitable available spaces in short supply, rental prices have increased while transactions have decreased. Some tenants eventually accept the new higher prices and analysts predict this trend will continue.
"High rental prices and the lack of quality spaces have led many local traders to rent warehouse spaces in neighboring Romania and operate their businesses from there. This trend is expected to persist as traders seek to optimize their costs," according to Colliers. In Romania, rentals for Class A spaces are around 4 euro per square meter per month, compared to 5.5 euro in Bulgaria. Prevailing expectations are that supply in the Bulgarian market will also increase, and within two years, it will meet demand.
Strong demand
Demand remained high in 2023, as stated by Colliers, and they are optimistic for the current year as well. According to their estimates, 32% of the volume in 2023 came from logistics companies and 3PL (third-party logistics) operators. Trade and manufacturing followed with 20% each while fast-moving consumer goods companies accounted for 18%. The remaining 9% was distributed among construction, electronics, and distribution businesses. "Global supply chains continue to evolve towards lower-risk destinations. In this context, our country is well-positioned and has a good chance to benefit," says Georgi Kirov, a partner at Colliers Bulgaria.
Fast-moving consumer goods companies and retail chains are the most active tenants and investors in the market for industrial spaces. Other active business sectors include logistics, distribution, couriers, and online stores, according to Cushman & Wakefield Forton.
Representatives from the BG Warehouse platform in Sofia provide more specific insights. "We have noticed an increased demand for manufacturing spaces from 100 to 1000 square meters in all segments. This may indicate increased activity in the manufacturing sector," says Radoslav Konov, industry property expert. Nencho Kanev, a representative of BG Warehouse, also notes an increase in inquiries from foreign investors about relocating their businesses to Bulgaria, but there is a problem with the shortage of functional spaces.
Growth in 2024
Analysts expect the industrial property market in Bulgaria to grow in 2024, both in terms of areas for the companies' own use and for rental purposes. The unmet demand for new and up-to-date rental spaces is driving investments in new projects and expansions of existing industrial and logistics bases. Construction costs are beginning to normalize, although land prices traditionally remain high.
Georgi Kirov, partner at Colliers Bulgaria, believes that the market will be able to fully return to normal by next year. "Over the next two years, the amounts of available spaces will stabilize at healthy levels, and rental levels will normalize," opines Joro Angelov, industrial areas manager at C&W Forton. At the same time, Angelov does not rule out the possibility of continued increases in investment returns and profitability above 7.5% in 2024 due to rising loan interest rates. This could result in fewer and smaller-scale transactions for the purchase of investment projects that have been leased out.
Availability
As of the end of 2023, completed warehouse and logistics spaces in Sofia amounted to 1.99 million square meters, according to C&W Forton. Colliers reports a smaller volume, 1.376 million square meters, as they track only Class A and B spaces intended for rental purposes.- The industrial property market froze in the middle of the year, but forecasts suggest a revival is on the horizon.
- Due to limited supply in 2023, prices surged, delaying transactions.
- Investors are expected to become more active due to the existing demand and the stabilization of construction prices.
