Bulgaria

General Information

Bulgaria is an economy under development within the South - Eastern European region. For the last six years the country is stable politically and economically. Therefore, the full EU membership, which is set for 1 January 2007, is an expected evolution, that provides a great potential for the country. The European Union is about to provide 12 billion Euro by 2013 to assist Bulgaria in improving infrastructure and services.

In 2004 Bulgaria became a NATO member, an allowance that ensures peace and security in the Balkan area.

Bulgarian Economy

The Bulgarian Economy offers very competitive labor costs, competitive tax regimes (15% corporate profit tax to be decreased to 12%), a National policy for the treatment of foreign investments, high educational level and a very adequate English speaking workforce.

Bulgaria is among the most preferred tourist destination worldwide (source: Washington Post) and the annual growth of tourist arrivals for the period 2002 - 2005 exceeded 20%. Especially the increase in the number of British tourists for the same period reached 43%. The government has enforced a new VAT of 7% applicable to all tourism services.

Real Estate Market

General

Property in Bulgaria is the fastest growing asset, mainly due to the stability that exists in the country in all aspects. The real estate values remain significantly low compared to other European countries and one of the lowest in the South Eastern European region.

The expected entry of the country with a full E.U. membership will bring an unprecedented growth potential that is estimated to increase rapidly the prices. However, the prices have already gone up 48% against last year, which according to The Wall Street Journal report is the highest rise in prices registered in any country.

The low interest rates are the main driving force behind this boom together with the investors' aim to find better returns compared to those offered by stocks and bonds. Foreign individuals cannot own land directly, but buildings. The set up of a Bulgarian company is essential for a multi property ownership and mainly for a land investment.

The foreign investments in the property market had a serious role in the values increase. It is accepted that prices mainly for land plots or parcels may rise furthermore after the join with the E.U. Among foreign investments, the Greek Real Estate key players have made their presence clear the recent only years since Bulgaria's entry within the E.U. has been verified.

Today there are a large number of projects under construction from Greek private companies Bulgaria's property market starts to indicate characteristics of a more mature and rational market than before. The big players in real estate market are German, British, Austrian, Greek, Russian, Portuguese and national businessmen.

Real Estate prices are expected to rise 20% in 2007 and 15% in 2008, following a more reasonable direction.

Residential

Residential sector is still the most prominent sector in the real estate market. After the most successful years 2004 and 2005, 2006 is expected to have a steady housing construction, less profitable though, due to more time to sell finished apartments, the need for more flexible payment schemes, better construction quality demanded by consumers.

However, 2006 is characterized by higher prices, friendly banks and willing customers. As supply continues to increase at a steady rhythm, demand is still at very high levels. In the capital city Sofia, the new residential developments are being concentrated in its southern part. In the first months of 2006 the residential inventory is more than 523000 units. Single-family homes and row houses are the most interesting for developers.

Although, price inflation was less aggressive, there were also increased prices in several secondary markets in the Bulgarian territory as a result of catching up with business development. Price levels indicated a marginal increase compared to previous years. Onebedroom apartments showed a slight decrease in sale prices.

Generally sale prices vary between €500-1700/m². Rental levels vary from €5 /m² - €7+ /m² and for exclusive residential properties exceed €10 /m². The most prestigious and high profile neighborhood is Doctor's Garden followed by Ivan Vazov, Iztok and Lozenetz. Yields for single deals of residential property have fallen down to 7% to 10%, compared to the much higher levels of the previous years.

After the country's entry in the E.U., supply is forecasted to increase, the quality of the constructions is going to improve, at the time purchasers and tenants are becoming more and more demanding. The demand from the developers for large-scale sites will still remain at high levels.

Holiday houses

During 2004 and 2005 holiday housing market faced a boom with major destinations the summer resorts in the greater Varna and Burgas areas as well as winter resorts, concentrated mainly in Bansko.

Only in Bansko, a small town in the south-central mountains of Bulgaria 64% of the holiday homes, approximately 8.000 units, of the overall Bulgarian mountain resorts is concentrated. Supply of homes amount totally over 12.000 units as of June 2006, increased by 150% against June 2005.

A significant number of developments offer facilities, such as swimming pools, shops, café and restaurants, sport and health clubs, etc. The majority of the supply is currently under construction. The first draft is estimated to be delivered by late 2006 - early 2007.

The supply of summer holiday homes on the Bulgarian Black Sea coast is associated with development projects located in Sunny Beach, St. Vias and Sozopol. New supply of coastal properties is slowly moving away from the most popular resorts to small towns like Balchik and Kavarna (north of Varna),
Obzor (between Varna and Bouragas) and others.

The total supply of summer holiday homes in June 2006, in all stages of development, is over 22.500 units, 37% higher than June 2005. Middle-class individuals from the western E.U. countries, mostly UK and Ireland mainly drive the demand in both summer and winter holiday homes. The market has been rationalized over the last few years as buyers are more critical in their purchasing decisions.

The absorption rate as of June 2006 was around 60% in the mountain resorts and around 55% in the coast area. Bansko and St. Vias are leading the demand respectively with over 70% absorption rate.

Commercial General

The commercial property market has experienced dynamic development in all sectors. Modern quality supply has registered serious growth, with most of the activity concentrated in the office and retail sectors of the market. However, modern-standing investment inventory is still limited in supply, at the time the retail sector is offering the greatest investment potential.

Office

The office market has reached a satisfying level of maturity. The office space inventory of Class A and B premises totals 502.000 m². Close to 220.000 m² of office space is in the pipeline and another 150.000 m² is in the design phase. The vacancy rate for the same class office premises as well as partially and fully owner-occupied buildings in Sofia is 6.1%.

The potential for high quality modern office space is great with the demand always the last three to five years to be at the top levels. Bulgaria ranks at the 15th position among the top outsourcing destinations according to A.T. Kearney's index. In that respect, the country is expected to attract substantial level of investments in the services sector, which will increase the already high demand for high quality office premises.

Retail

The increase in households' expenditure drives retailers to demand more and more retail space. Except the high street market large shopping centers and facilities are developing towards to that direction. In detail the first three large shopping centers have opened in Sofia in 2006 and one in Veliko Tarnovo.
There is also significant growth of "big box" retailing. Demand for retail space exceeds the current supply. The evidence is the 100% occupancy of Mall of Sofia.

Demand derives mostly from international brands like Benetton, Mango, Tom Tailor etc. In the high street locations demand is mainly from fashion boutiques, fast food restaurants, pharmacies and financial institutions. The most desirable retail location in Sofia remains Vitosha Boulevard, which has
shown virtually no vacancies for years. In the peripheral streets supply is also very limited.

Sofia High Street Shops Rental levels 50-120€/m²/month. In the other major cities like Plovdiv, Varna, Burgas and Stara Zagora the retail space is located on the ground floor of office and residential buildings in communicative locations. Usually, the most popular locations include the traditional city centers and the pedestrian areas. Other major cities high street shops Rental levels 12-60€/m²/month.

Shopping centers

2005 and 2006 seem to be the turning point in the retail property market. As above mentioned the first three malls, of western - type construction standards, have opened during 2006 and provide modern retail space in excess of 65.000 m². Their operation will put under pressure some of the prime high - street locations in downtown Sofia.

Retail Warehousing

Up to now shoppers were concentrated on high street retail and retail warehousing. Since 1999, when Metro and Billa opened their first supermarkets in Sofia market has progressed rapidly. Today 23 retail warehouse developments are present in Sofia. They are concentrated mainly in the main arteries next to residential areas.

Despite being away from the city center, they normally cover a dense area and provide in parallel easy access from other areas of the city. Main retailers: Billa (hypermarket), Metro (Cash and carry), Hit, Ramstore, Mr. Bricolage, Praktiker, Techno polis (Multimedia), Techno market (Electrical Appliances) Rental levels €7-12 m²/month.

Source: Lambert Smith Hampton