LM Legal Services Blog

Office rent in Sofia has decreased in comparison to the end of last year and at the moment is between 10 and 15 Euros/sq m. The decrease is due to mainly two reasons. Firstly, the economic recession and secondly, the highest number of new offices for rent, both because of the high number of newly completed office buildings and the bankruptcy of companies which leave their offices.

The office rental market follows the economic situation in Bulgaria. However, according to analysts, the future tendencies will depend to a great extend on the investors. An investor who has already rented 60% of the building before its completion is less likely to accept lower rent than the investor with an empty building. Additionally, it is important how many projects an investor has and whether they are profitable. Last but not least, offices with good location and effective use of the space, with enough of parking space and with access to the necessary technology are unlikely to rent for less.

The planning permissions for apartment buildings which have been issued in the first three months of 2009 have been by 40% less than in the same period of 2008, according to the National Statistics Institute. 1470 projects have received planning permissions from January to March 2009. They are for 6530 apartments with a total area of 895 173 sq m. The number of the apartments has decreased by 49% and of the total area, also by 49% in comparison with the same period of 2008.

79 office buildings, as well as 978 other type of buildings – industrial, etc – have received planning permissions. The number of administrative buildings is by 21% less, while their total area has increased by 21%. The number of all other types of buildings has decreased by 36% and their total area has decreased by 44%.

The only tendency that continues into 2009 from the same period of 2008 is that the major part of the planning permissions for new apartment buildings have been issued in the large administrative centres of the country -
Burgas – 185, Sofia – 182, Varna – 170, and Plovdiv – 158. The number of newly planned apartments in Sofia is 1340, in Varna – 1 305, in Burgas – 896, in Blagoevgrad – 668 and in Plovdiv – 537.

The rent of apartments in Bulgaria is expected to increase by 10% during 2009 because more and more people prefer to rent due to the stricter rules of banks for lending.

The most popular apartment for rent are located in the central parts of Sofia and the neighbouring areas like Reduta, Geo Milev, Pliska, Strelbishte and Ivan Vazov. Concerning the size of the rental apartments the studios and the one-bedroom apartments are mostly in demand.  Depending on the location and if the apartment is furnished, it can get a rent of 350 Euros per month. In the up-market Lozenets the rent of luxury apartments is 1000 Euros per month.

Apart from the central parts of the city, Mladost and Drujba in the outskirts are also very popular. Until now, studios and one-bedroom apartments were rented for 250-350 Euros per month but from the next month is expected that these rents will increase by 20 Euros per month. Most tenants try to secure a clause in their rental contracts that their rent will not increase in the next twelve months.

In the last years the bank credits have been the driving force of the Bulgarian economy. Now the credit flow has dried up, the money from the gray economy has become the majour factor.

Only credits to the amount of 33.6 million levs have been lent by the banks to Bulgarian businesses in December 2008. In comparison, the average amount of the business credits for 2008 is 626.9 million levs.

Many companies have been experiencing cash flow problems and they can not pay their expenses. The bad debt has increased and some analysts expect 30% of the companies in the country to go bankrupt. Others are more moderate in their expectations and do not expect a total collapse.

The construction industry is in a very bad state, despite the opinion of the analysts. The need for fresh cash is so serious that some of the companies have switched to barter deals. They offer their business partners apartments and office space instead of cash.  The problem of many developers is that they have started several projects at the same time and have relied on off-plan purchases. However, once the credit policy of the banks became more strict, the off-plan purchases have stopped.  As result, many investors had to freeze their projects, some of them stopped paying their subcontractors and suppliers. The banks have ignored the whole of the construction industry and now lend money only to companies who also work in another field of business, which can guarantee the repayment of the loans. There is still no official information about the level of debt in the construction industry but it is expected to be quite serious.