LM Legal Services Blog

In the first half of 2009, the worldwide recession has had its effect on the market of commercial property in Bulgaria – the number of frozen and delayed projects of shopping centres and malls.

Among the frozen projects in Sofia are Euro Park for 500 million Euros, Sofia Acropolis for 500 million Euros, Tsarigradski Mall (35 million Euros) and GLS Mall. In the country the largest frozen projects are Grand Gallery in Burgas for 35 million Euros, Litos Ibuild in Pazardjik and two shopping malls in Kazanluk.

At the same time GTC has delayed the completion of its three Gallery projects in  Russe and Burgas by 6 months, and in Varna by 4 months.

Since the beginning of the year two bid shopping malls have been completed – Mall Plovdiv and Burgas Plazza with rental area respectively of 20 000 sq m and 26 000 sq m. With them the total area of all shopping centres in Bulgaria has reached 233 460 sq m, an increase by 25% in comparison with the end of 2008. At the end of June 2009 there are 31 sq m of retail space per 1000 people, while in 2008 it was 25 sq m.

At the same time the average decrease of the purchase price of the commercial properties in Bulgaria in the first half of 2009 is of 6.71%. There is also a decrease of the rent of 18% on average for the country. The highest decrease both in purchase prices and in rents is in Sofia and the big seaside towns. The rents in the shopping centres in Sofia have fallen by 25% and vary from 12 to 45 Euros per sq m. The analysts expect a further decrease by 15% by the end of 2009.

The priceses of houses on the Black Sea coast in Bulgaria have fallen on average by 26% and in some cases they go as low as 200 Euros per sq m.  However, the supply of properties for sale has dimished as only owners who need cash urgently sell.  The supply of properties in the southern part of the Bulgarian Black Sea coast has dimished more then the one in the northern part. The prices in the south vary from 400 to 935 Euros.  In some villages the prices of houses have fallen from 13% to 26%, while in other the prices have not changed and even increased by 3%.  The prices in Sveti Vlas for example have gone up by 4% because the number of old houses for sale has descreased while the number of the luxury newly built properties has increased.  In one year the price has risen from 887 Euros/sq m to 923 Euros /sq m.  Similar is the situation in Chernomorets, which has  become popular in the last four years.

In comparison to the south, the properties on the Bulgarian northern coast have always been more expensive. However, the tendency there is exactly the opposite – the prices of houses have decreased and now they vary from 300 to 730 Euros/sq m. The highest price drop is in Kichevo where last year the choice of houses for sale was twice greater than now and the average price was 764 Euros/sq m.  Now, the average price is 593 Euros/sq m.  In other places like Shkorpilovtsy the number of the properties for sale in June 2008 is exactly the same as in June 2009, but the price has dropped by 14% to 593 Euros/sq m.

In general, the analysts think that the prices of houses on the Bulgarian Black Sea coast will not drop too much as their number is limited and already their price is lower than the one of the apartments in the newly built developments.

The construction of new apartment buildings, offices, shops, roads and others has decreased by 11% in May 2009 in comparison with April 2009, according to the information of the National Statistics Institute based in Sofia. The sharpest drop is in the number of the new apartment buildings closely followed by infrastructural projects. In comparison with May 2008 the volume of construction has shrunk by 15%. This drop is due to the much smaller number of new apartment and office buildings and new shops.

59.8 billion levs  have been held in Bulgarian banks in May 2009 which is a decrease by 437 levs, according to the Bulgarian National Bank (BNB). This is the second most serious decrease of the amount of money in the Bulgarian banks since the beginning of the year. This is mainly due to the fact that the amounts which foreign banks and other foreign credit institutions keep in Bulgaria have decreased by 390 million levs in May 2009.  Despite this the amount which they keep here is not small – 15.4 billion levs.

In comparison   personal savings total 22.8 billion levs and the total of the funds of companies in Bulgarian banks is 19 billion levs.  The personal savings have decreased by 100 million levs despite the attracting interest rates of savings. The total amount of the  money in companies’ accounts has slightly increased.

From January 2009 the level of the  money in the accounts held at the Bulgarian banks tend to fluctuate both ways on almost permanent  basis.  The most significant withdrawals took place in January and in May.  In January about 800 million levs have been withdrawn, 500 million levs of them were withdrawn by foreign banks. The Bulgarian companies withdrew 600 million levs but personal savings increased by 340 million levs.

The personal accounts have a positive balance while the companys’ accounts are in the red.  In May individuals held 22.8 billion levs in their accounts while they had credits amassing to 17.7 billion levs. The companies at the same time held 19 billion levs into their accounts but they owe the banks 32 billion levs.  On the whole the Bulgarian banking system is one of the few in the EU which is profitable. Its profit in the end of May 2009 was 402 billion levs. The liquidity index is 20.6% which means that 20% of the attracted funds in the banks can be immediately paid in cash if requested.

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.