- The actively offered office spaces in the capital amount to nearly 2.3 million square meters.
- Seventeen percent, or nearly 538,000 square meters, are vacant, and between 69,000 and 113,000 square meters of new office spaces will be completed by the end of 2024.
- The IT sector still drives demand, but shared offices are becoming increasingly popular due to hybrid working models.
The future of the office market in Bulgaria increasingly depends on the energy goals of the Paris Agreement on climate change and the push for net-zero emissions of buildings. The growing importance of environmental, social, and governance (ESG) criteria is reshaping office selection, with energy efficiency becoming crucial for tenants and banks, prompting landlords to invest in modernization.
Employers are also prioritizing work quality and employee well-being, offering enhanced amenities and green spaces. According to firms like Colliers, demand for shared office spaces is growing, driven by hybrid working models.
Market overview in Sofia
By mid-year, available Class A and B office spaces in Sofia range from 2.02 to 2.5 million square meters, with slight growth observed-Colliers reports a 1% increase due to new buildings added in the first half of 2024.
Transaction volumes for leased office spaces in the first six months hover around 74,000 to 75,000 square meters, with Avison Young estimating a higher figure of 88,000 square meters. The first quarter was weaker (10-20% decline), but a stronger second quarter showed improvement, reaching 34,000 to 37,000 square meters.
"After a quiet start to the year, we are seeing a rebound in the rental market," Yoanna Dimitrova from Cushman & Wakefield Forton tells Capital Weekly, noting interest from new companies and those in trade and logistics. Anton Slavchev from Avison Young highlights companies' cautious approach in adapting to hybrid work, resulting in more deliberate leasing decisions.
Colliers reports that the IT sector remains a major demand driver, accounting for 32% of absorbed space, while relocations from Class B to Class A offices make up 44% of leased spaces. Interestingly, the absorbed Class B space in the second quarter exceeded that of newly occupied Class A offices.
New offices on the horizon
There are discrepancies in the reported volumes of under-construction office spaces among various consulting firms. Avison Young states that 113,400 square meters are set to be completed this year, while Avalant says that over 221,000 square meters are under construction, not limited to 2024. So far, only a small office building of 2,300 square meters has begun construction in the capital's central area this quarter. Avalant predicts that 68,700 square meters will be completed by year-end, with nearly double (128,300 square meters) ready by 2025 and an additional 24,000 square meters in 2026. They also note 34,000 square meters of offices with construction on hold.
MBL reports approximately 260,000 square meters under construction, mostly concentrated in the Hladilnika area (21%) and along Tsarigradsko Shose Boulevard (25%). They estimate that 100,000 square meters will be completed by the end of the year, with much already pre-leased, leading to no significant changes in available office rental levels. Colliers indicates nearly 300,000 square meters are actively under construction, with 30% having signed preliminary lease or purchase agreements. Forton estimates this figure remains below 200,000 square meters due to slow absorption of vacant office spaces.
Vacant spaces decrease
Currently, vacant spaces are decreasing. However, the completion of ongoing construction projects in 2025 could lead to an increase in unoccupied spaces if the volume is significant. Avalant reports that there are 537,900 square meters currently vacant, or nearly 17% of actively offered spaces. They expect a 1% to 2% increase in vacant spaces by mid-2025 based on upcoming projects.
C&W Forton notes that the vacancy rate in Sofia is 15.3%, with Class A offices remaining lower than Class B (14.6% vs. nearly 17%). Their report states that the lowest vacancy rates are typical for central Sofia, just above 12%, while peripheral areas and major boulevards see the average approaching 16% due to greater supply.
Slight decline in vacancy rates
Avison Young reports a minor decrease in the vacancy rate to 13.7%, attributing it to the limited introduction of new office spaces. "There's a significant reduction in available spaces in central areas, even though the total volume of deals there is relatively small compared to the entire Sofia market," explains Anton Slavchev.
By mid-2024, the vacancy rates are 14.5% for Class A and 14.3% for Class B offices, with one-third of vacant spaces concentrated in just ten buildings, according to Colliers. MBL notes that 374,000 square meters, or 14.7%, of office spaces remain unoccupied-a slight decrease from the previous quarter. Interestingly, vacancy rates in Sofia's central area have steadily increased over the last ten quarters, rising from 4.6% at the end of 2021 to 16.5%, indicating a trend of companies relocating outside the central area.
Rental prices to rise
Colliers anticipates that rental levels for quality projects will face an upward pressure due to limited availability and heightened interest. Their data indicates that rental rates remain stable, with Class A offices priced between 14 and 16 euro per square meter and Class B between 9 and 11 euro.
C&W Forton confirms rental rates are stable, with prime locations in central Sofia at 17.5-18 euro per square meter and along major boulevards between 15 and 17 euro for Class A offices. Avison Young's report shows Class A rental prices between 12 and 17 euro per square meter, reflecting an increase of about 1 euro compared to the second half of 2023 that is signaling the market is stabilising.
According to Ivan Parmakov from Avalant, while some landlords in the Hladilnika neighborhood and central Sofia have raised rents, these increases are exceptions, with the prevailing ceiling for Class A rents around 16.50 euro per square meter. However, areas with low vacancy rates are experiencing pressure to rise above this threshold. For Class B offices, rental rates range from 7 to 12.50 euro per square meter.
MBL's report indicates no significant changes in rental rates on a quarterly basis for the second quarter of 2024, with Class A rates typically ranging from 12.5 to 16 euro per square meter.
Shared offices on the rise
Anton Slavchev from Avison Young highlights the growing interest in flexible workspaces and sustainable office solutions. C&W Forton reports that shared office spaces in Sofia have reached 68.9 thousand square meters, with nearly 8 thousand square meters under construction. These spaces offer a convenient entry point for new companies, according to Yoanna Dimitrova. Colliers expects this segment to grow further due to stable demand, driven by the hybrid work model, with some investors in larger office projects offering shared spaces independently.
Office market outside Sofia
Plovdiv has the largest office market after Sofia totaling 324.2 thousand square meters, an increase from 270.7 thousand a year prior, with Class A offices comprising about 56%. The vacancy rate is low at 9.9%, primarily driven by IT companies, with average rental prices for Class A offices at 10 euro per square meter.
Varna ranks third with 270.7 thousand square meters, a vacancy rate of 10.6%, and 54% Class A offices. Prices are comparable to Plovdiv, with Class A rentals averaging 9 euro per square meter. Only 4.5 thousand square meters are currently under construction.
Burgas has a smaller market of 89.7 thousand square meters, with 61% being Class A. After a significant office project was completed in 2022, the vacancy rate rose to 8.7%. Average rental prices for Class A offices increased to 8.5 euro per square meter, while Class B remains at 5 euro, with 5.6 thousand square meters under construction.
- The actively offered office spaces in the capital amount to nearly 2.3 million square meters.
- Seventeen percent, or nearly 538,000 square meters, are vacant, and between 69,000 and 113,000 square meters of new office spaces will be completed by the end of 2024.
- The IT sector still drives demand, but shared offices are becoming increasingly popular due to hybrid working models.
The future of the office market in Bulgaria increasingly depends on the energy goals of the Paris Agreement on climate change and the push for net-zero emissions of buildings. The growing importance of environmental, social, and governance (ESG) criteria is reshaping office selection, with energy efficiency becoming crucial for tenants and banks, prompting landlords to invest in modernization.