The market for private rental housing in most countries in Western Europe is attractive to institutional entrepreneurs and investors. It is also starting to grow in Central and Eastern Europe (CEE), where booming house prices driven by economic growth and loose monetary policy are making owning a home much more difficult than it was for previous generations.
Or so argues the analysis of the international law firm CMS and the consulting company CBRE from 2023. As the GDP of a country increases, the number of homeowners among the population decreases and those living on rent increase, the analysts say. This leads to expectations that residential properties intended for rent (the so-called Private Rented Sector - PRS) will gradually become a new main asset class in the region.
Last year, the pioneer in PRS in Sofia - the Cleves company, planned to withdraw from the Bulgarian market, which it had entered in 2008. Cleves is an investment fund created by foreigners especially for Bulgaria, and oriented towards foreigners living in the country - diplomats, managers of large companies and others. It sold off its portfolio of 150 large high-end apartments, built up over the past 16 years, one by one. "Our goal has always been a long-term capital gain (from a subsequent sale), and in the meantime, for additional profitability, we rented out," the managers explained. They started selling at a stage when the prices in Sofia went up sharply. And as they said, the decision was made easier by the fact that the growth of rents in recent years has significantly lagged behind that of housing prices.
In the meantime, construction and investment company BLD, part of the leading local real estate group - AG Capital, announced that it was entering the Build-to-Rent segment, i.e. began building rental housing. The ultimate goal of BLD Living is having 1,000 apartments, which will then be sold in a package to a fund. They started with 64 apartments in Manastirski Livadi and continued with a building next to Opalchenska metro station, where the apartments are also sold to investment buyers with the promise of a 5% guaranteed annual return. Rumor has it that other construction contractors in Sofia are also working in this direction without advertising it.
The biggest landlord in Sofia
Against this background, the Danish-owned SEE Residential company recently announced that it is now the largest housing landlord in Sofia. It owns 208 rental apartments in six buildings, some with tenants and others in various stages of construction.
"We are proud to expand our portfolio with three new properties. We see a growing demand for quality residential accommodation in Sofia and are now better prepared than ever to meet the needs of the market," says Anders Johansson, CEO of SEE Residential.
The company plans to reach a portfolio of 1,000 apartments by 2030. Its strategy is "to offer sustainable and quality housing for the growing middle class in Sofia, focusing on central locations and contributing to the positive development of the city."
Housing for the middle class
SEE Residential's buildings are usually five to six stories high and consist of 10-17 apartments. They look identical - inspired by Scandinavian architecture and design. That is, they are built with high-quality materials, an emphasis on light, air quality and external landscaping, as explained by the company. They are located in well-developed neighborhoods in the center and wider center of Sofia.
The target group is "ordinary citizens", according to SEE - people with average incomes, mostly Bulgarians, who are looking to rent a house with a very good location. Most apartments are medium to small size - about 75 sq.m.
Of the current tenants, about one third are from abroad, and two thirds are Bulgarian. Most are young professionals building careers after university. Some live alone, others with their partner. To the question "What are the rents", the company replied that they receive 5% yield from their properties.
"Most tenants choose us because we manage the entire building, and they want it done professionally - not with cash, but with a bank transfer," says SEE Residential. Their rental contracts have a minimum term of 1 year. Jens Kindberg is convinced that long-term rentals are the better option than short-term ones for both investors and the city. They don't lead to cities with empty streets in the off-season because of AirBnB, and the damage to apartments there is less.
The market in Sofia
"We continue to see great potential in the real estate market in Sofia. Despite rising prices, the city remains one of the most attractive and cheapest capitals in the EU to invest in," says Johansson.
They see no real competition in their segment in the center of Sofia. The market for rental projects is still in a very early stage and this is yet to emerge as an effective model.
"For investors, it is obvious that real estate prices will rise in the next 10 years. This will happen in both Sofia and Copenhagen. However, in the Bulgarian market, the percentage growth will be greater and the difference in prices between the two markets will shrink, " says Kindberg. He adds that if the prices in the Bulgarian capital fall, this will probably happen in the rest of the world as well. As a plus, he notes that the current interest rate in Bulgaria is lower than that in the Scandinavian countries, which increases the potential for profits for investors in SEE Residential.
They expect that with the adoption of the euro, Bulgaria will become even more attractive to foreign investors, who will accept it as a market with a lower risk. When entering the Bulgarian Private Rental Sector, however, large foreign investors will be limited by the impossibility of buying an entire building in the center. They will either have to buy individual homes to build their portfolio or buy ready-made portfolios like SEE Residential's once it reaches the 1000 mark.
"Sooner or later, international investors will enter the housing market in Sofia. Although in Denmark we are proud to be advanced, the first international investors in the housing sector in Copenhagen came no more than ten years ago," says Kindberg.
The market for private rental housing in most countries in Western Europe is attractive to institutional entrepreneurs and investors. It is also starting to grow in Central and Eastern Europe (CEE), where booming house prices driven by economic growth and loose monetary policy are making owning a home much more difficult than it was for previous generations.
Or so argues the analysis of the international law firm CMS and the consulting company CBRE from 2023. As the GDP of a country increases, the number of homeowners among the population decreases and those living on rent increase, the analysts say. This leads to expectations that residential properties intended for rent (the so-called Private Rented Sector - PRS) will gradually become a new main asset class in the region.
