City Report H2 2020

GDP Growth Inflation Unemployment rate November 2020 y-o-y December 2020 y-o-y December 2020

€741 -12% -3.1%

Net average wage in Sofia Retail Sales, Industrial production, December 2020 y-o-y December 2020 y-o-y December 2020

Source: National Statistical Institute of Bulgaria, Bulgarian National Bank Investment Market During 2020 the total value of investment transactions in Bulgaria amounted to approximately €216 million, compared to €170 million in 2019.

2020 will beremembered with the COVID-19 crisis, which was devastating for the economy and will continue to impact every aspect of life in 2021 as well. The macro-economic situation for Bulgaria has worsened significantly because of the COVID-19 lockdown in the first half of 2020 and could not recover in the second half. Nevertheless, the Bulgarian economy is showing resilience, with a GDP decline of -5.2%, which is a significant improvement from the - 7.1% decrease for the year forecasted 6 months ago. A sign of moderate optimism is represented by the labor market statistics. The unemployment rate increased significantly because of the COVID-19, from 5.9% at the end of 2019 to as much as 9% in May, then decreased gradually to 6.7% in December. In December Bulgaria faced a second lockdown, the result of which will beseen in early 2021. Hopefully in 2021 the economy will start recovering especially in the second half of the year given the numerous economic stimuluses and the COVID-19 vaccines. The European Commission is forecasting a 2.6% GDP growth in 2021 and about 2 years for the economy to reach the pre-crisis level. A positive milestone from 2020 was that Bulgaria joined the ERM II exchange rate mechanism and the Banking Union – the so-called Euro area’s waiting room. This should lead to faster economic converg ence with mature Eurozone members. The capital Sofia plays a leading role to the overall performance, contributing with about 40% to the country’s GDP.

Retail sales plunged as a result of the first COVID-19 lockdown reaching a bottom in May, a decrease of -20.4% y-o-y. Since then, retail sales have recovered slowly and in December the decrease was -12% y-o-y, which is s slower recovery than expected, as a result of the second lock down in December.

The Bulgarian industrial production posted sporadic growth in 2020, in line with the overall European sentiment. However, COVID-19 hit the economy and the industrial production decreased every single month in comparison with the same months of 2019. The bottom was reached in May, with a drop of -16.1%. Since then, the contraction in the industrial production decreased. For 2021 it is expected that the industrial production will rebound with the help of the pandemic relief measures, capital spending, increased exports and domestic consumption. However, the evolution of the health crisis will continue to play a significant role in the recovery.

Prime office yields stood stable in H2 2020 at 7.50%, while prime shopping centre yields increased from 7.25% in H1, to 7.50% in H2 2020. During the same period, prime industrial yields decreased from 9.50% to 9.00%. Yields for offices and retail remain under pressure as the consequences of the health crisis are hitting their cash flows. It is likely that yields will increase in 2021. COPYRIGHT © JONES LANG LASALLE IP, INC. 2019 BucharestSofia City CityReport Report Q1 2019 H2 2020 Prime Yields in H2 2020 7.50% 7.50% 9.00%

Shopping Centre Office Industrial

Investment Transactions in 2020

The investment activity in the first half of 2020 was significant. However, the international investors are cautious at the moment because of the health and economic crisis. Some of them canceled their investments especially in the retail and office segments. Furthermore, since March 2020 international travels have been limited, which also plays a role in the negotiation of new deals.

There has been only one investment deal during H1 2020 - Jumbo Plaza Retail Park, sold by Weston Growth Capital to Trinity Capital. The value of the transaction is confidential.

In the second half of the year, a few smaller deals were concluded, such as the sale of the Holiday Inn Hotel in Sofia by Meridian Leisure Hotels to Videolux Holding for €15 mil, the sale ofMall Veliko Tarnovo by VT Mall to AGI- BRE Participations 3 for €12 mil, and the sale of 6 Tasar Osvoboditel Office Building in Sofia by Maveli to Serdika Properties, for €10.85 mil.

We might experience a higher investment activity in 2021 as there will likely be an increase in the number of distressed assets. Some investors might take advantage of the discounts especially considering the low interest rates and abundance of liquidity in the financial markets.

Key Investment Transactions in H2 2020

Sector Property Market Est. Price (€ million) Seller Buyer Meridian Leisure Hotel Holiday Inn Sofia 15 Videolux Holding Hotels Retail Mall Veliko Tarnovo Veliko Tarnovo 12 VT Mall AGI-BRE Participations 3 6 Tsar Osvoboditel Office Sofia 10.85 Maveli Serdika Properties Building

The total leasing volume for H1 2020 was around 56,600 m², which was 15% less when compared to H1 2019. The negative trend continued in H2 2020 and these were the worst 6 months for the office market to date. The total take-up volume for H2 2020 was around51,200 m². Themarketwasdominatedby renewalsand relocationswith morethan 90% sharein total takeup. The annualnet take-up amounted to 8,500 m², which is a record low level and clear indicator of a serious slowdown in the officemarket in 2020. In recent years, the office market in Sofia was going through a favorable period, with many multinational companies opening new offices or expanding their existing offices in Sofia and secondary cities. However, in 2020, the office market in Sofia faced a significant slowdown, due to the uncertainty caused by COVID-19 regarding both economic and social consequences. Most of the relocations and expansions are put on hold. Subleases are becoming popular as tenants attempt to optimize their costs due to the work from home policies and/or decrease in revenues. Companies are becoming more careful in terms of increasing their number of employees, or renting additional officespace, and are considering the option of letting more employees work from homepermanently or implement a hybrid system of work from home – work from office. In H2 2020 the offices remained empty as most of the companies refrained from recalling their employees back to office. In contrast, there is an increase of requests for co-working office space. In the long run, the trends are positive as Sofia is very attractive for foreign companies to outsource and/or centralize some of their processes in the city. Sofia is still one of the cheapest places to hire office employees and will definitely be on the radar for companies which are looking for more efficient ways of doing business. The IT and BPO companies continued to hire people even during the pandemic and the expectationsarethatthese two segments will be the driving forcein therecovery of theofficemarket. During H2 2020 the office vacancy rate increased rapidly, reaching 13.6%. After strong new office deliveries in 2020 and because of the COVID-19 worldwidecrisis, vacancy is expected to further increasein 2021. Total Stock Thecurrentmodern stockin Sofia was2,36 million m² attheend of 2020 ,outof which 71% wasconsidered classA. The market is divided into 12 sub-markets, out of which the largest are the Main road, Business Park Sofia, Hladilnika, CBD and Broad CBD. Sofia Office Sub-markets

Average rent Sub-market Vacancy % (Euro/m²/mth) 1. CBD 14 – 15 4.00 12 2. Main road- T. Alexadrov 12 – 14 8.00 12 3. Main road- Boris III 10 – 11 13.00 12 4. Broad CBD 12 – 14 20.00 2 1 5. Hladilnika 13 – 14 7.00 11 6. Main road- Tsarigradsko 12 – 14 25.00 3 4 7. Mladost 12 5 10 – 13 12.00 10 8. Business Park Sofia 12 – 14 4.00 6 9. Ring road 9 12 – 13 4.00 7 10. Main Road- Bulgaria 8 11 – 12 8.00 12 11. Sofia Airport 6 – 10 25.00 12. Suburban 6 – 10 20.00 TOTAL 13.60

*The updated stock include buildings Class A&B

Prime rents (€/m²/month) Gross take-up H2 2020 (m²)

6,000 13.6%

Net take-up H2 2020 (m²) Vacancy H2 2020

Deliveries in H2 2020 Key Leasing Transactions in H2 2020 Deal size Property Submarket Size (m²) Developer Property Occupier Contract type (m²) GaritagePark Park Lane Office Mladost 19,100 Garitage Park Allianz Pre-lease 6,000 Building C Center Interpred Tzar Veolia Relocation 5,400 Advance Business Mladost 17,500 GTC Boris III Centre 2 East Tower Seeburger Relocation 3,300 Gora Green Offices Hladilnika 15,000 BG REIT Polygraphia Confidential Renewal 3,000 Office Center MM Business Center Mladost 5,900 MM Group Serdika Offices Amdocs Renewal 2,000

New offices totaling 72,000 m² were delivered in Sofia in H1 2020 and another 57,500 m² in H2 2020. Therefore, 129,500 m² were delivered forthe whole of 2020, compared to 181,500 m² in 2019.

Among the major deliveries during H1 2020 were Sofia Tech One (30,000 m²), Garitage Park Building A and B (24,000 m²), and Sofia Office Center One (18,000 m²). In H2 2020, the most notable deliveries were Garitage Park Building C (19,100 m²), Advance Business Centre 2 (17,500 m²), Gora Green Offices (15,000 m²), and MM Business Center (5,900 m²).

Pipeline

Around 227,000 m² of office space are expected to becompleted during 2021. The projects already under construction are not facing significant delays or change in floor plans. However, given the economic slowdown and depressed demand for office space, some of the new projects might be canceled and new constructions are unlikely to start during the next 12 months.

Pipeline for 2021 (selection)

Property Submarket Size (m²) Developer

Sky Fort Main road - Tsarigradsko 40,000 Fort Noks

Sinergy Tower Main road - Tsarigradsko 32,166 BREF REIT

NV Tower Main road 31,166 MINSTROY JSC

Balkan Business Center Main road - Tsarigradsko 29,150 BALKAN BUSINESS CENTER JSC

Park Lane Office Center Hladilnika 24,200 PARK LANE DEVELOPMENT

Garitage Investment GaritagePark Building D Ring Road 19,100 Management

Office Building Premium Class Hladilnika 10,000 ART E STORY

The retail market is the segment which took the greatest hit during the COVID-19 crisis. Most of the shops, restaurants and shopping centers were closed for two months in the first half of the year and again in December. This initiated a process of renegotiation of certain lease agreements. An additional effect is the increased interest in retail parks, which were less affected by the lockdowns and offered the opportunity for retailers to enter smaller cities.

By the end of 2020, total modern retail stock in Bulgaria, including shopping centers, retail parks and outlet centers, is approximately 1.1 mill. m², out of which 542,800 m² in Sofia. Currently only retail parks are being developed.

The vacancy rate in Sofia increased from 5% by the end of 2019 to about 7.9% by the end of 2020, with Q3 vacancy as high as 9%. Vacancy outside of Sofia increased from 10.1% to 12% during the same period. 2020 had lower activity in terms of new openings compared to the previous years. Expansions and new entries might be postponed. The health and economic crisis made the retailers more cautious in their expansion plans. The COVID 19 crisis forced the retailers to focus on online sales, but this cannot compensate the loss from the physical stores. This resulted in higher vacancy rates and put pressure on the rent levels. The new store openings in 2020 were only 38,600 m², compared to 60 000 m² in the previous year. This is a decrease of 57%, which was a result of the lockdowns and the overall downwardeconomictrend.

Major events in 2020 in Bulgaria included the launch of the discount fashion chain KiK, the decoration brand Madame Coco, the premium cosmetics brand Kiehl’s and Sportisimo (H2 2020). IKEA opened a store in Varna and is about to open a second store in Sofia which will be adifferent format from the first one. The German owned HIT supermarkets in Bulgaria were bought by local investors. The brand with the most aggressive expansion in 2020 was the discount retail chain Pepco,which opened 65 shops during the year. Key Tenant Openings in H2 2020

Project Submarket Tenant GLA (m²) Type Delta Planet Mall Varna IKEA 5,400 new lease Burgas Plaza Burgas Techmart 2,500 new lease Bulgaria Mall Sofia JYSK 1,300 new lease Jumbo Plaza retail park Sofia Mania 1,600 new lease Retail park Dupnitsa Dupnitsa JYSK 1,290 new lease Retail park Dupnitsa Dupnitsa Billa 1,195 new lease The Mall Sofia Raffi Bar & Gelato 800 new lease Jumbo Plaza retail park Sofia Sportisimo 700 new lease Sofia Ring Mall Sofia Sportisimo 600 new lease Delta Planet Mall Varna Matstar 600 new lease Panorama Mall Pleven Kik 600 new lease Markovo Tepe Plovdiv Kik 600 new lease Retail park Varna Varna Pet Center 600 new lease Sofia Ring Mall Sofia Notos Boutique 508,5 new lease Sofia Ring Mall Sofia Collective 484,7 new lease Serdika Center Sofia Emag 466 new lease The Mall Sofia Madame Coco 205 new lease

Continuing the same trend as in 2020, no new shopping centers are expected to be delivered in 2021 in Sofia.

Currently the developers’ and retailers’ focus is shifting from shopping centers towards retail parks. A number of such projects were started in Q4 2020, are expect to be delivered by H2 2022. During 2021 only one retail park will be opened in Q4 - Park Sevlievo, with 5,000 m² GLA.

The largestshopping centers projects planned for Sofia, totaling 104,750 m² of GLA, are currently on hold.

Shopping centre pipeline Sofia 2022(m²)

Project Format Developer Size (m²)

Plaza West Mall New Project NBG Pangaea 37,750

Sofia Square New Project Garanti Koza 35,000

Grand Kanyon New Project Garanti Koza 32,000

Prime rents (€/m²/month) Deliveries / Pipeline Sofia (m²) 2020 2022 36 7-10 53

Shopping centres Retail Parks High street 0 104,750

*Prime rents relate to a well located 100 m² unit shop from the fashion and accessories category. The unit is part of leading retail assets in the capital city (for retail parks – *Including all retail formats 2,000 m² units).

Project Format Developer Size (m²) Paradise Center existing NEPI Rockcastle 80,000 Sofia Ring Mall existing Danaos Corporation and Found Group 69,000 The Mall existing PDI Investment Holdings 66,000 Serdica Center existing NEPI Rockcastle 51,500 Bulgaria Mall existing Squircle Capital 34,000 Mega Mall existing Real 4 you 24,000 Mall of Sofia existing GTC 23,500 Park Center existing REVETAS 22,500 TSUM existing Georgy Gerov 19,000 Sky City Center existing RNS 15,600 San Stefano Plaza existing San Stefano Property Development EAD 12,000 Pearl Park existing Pearl 13 Ltd 8,700 Galaxy Trade Center existing Sid Stoy AD 5,000

Retail Projects in Sofia by Size

32% 40% Total Stock 542,800 m²

19% 9%

Small (5,000 - 19,999 m²) Medium (20,000 - 39,999 m²) Large (40,000 - 59,999 m²) Very Large (>60,000 m²)

COPYRIGHTCOPYRIGHT © JONES LANGLANG LASALLE LASALLE IP, IP, INC. INC. 201 20219 BucharestBucharest CityCity Report Report Q1H2 20192020 Demand 2020 was marked by the COVID-19 crisis and its adverse effect on the different segments of the economy. The industrial market had a challenging year but, in the end, 2020 was a fairly good year for the market. Total take-up reached almost 62,000 m² in H2 2020, out of which net take-up accounted for about38,000 m². Demand in H2 2020

The COVID-19 crisis and the lockdowns of many physical shops increased online trade and thus increased the demand for warehouses from e-commerce companies. Their main interest is for premisesof 1,000-2,000 m² within the city boundariesof Sofia.

However, 2020 was difficult for the manufacturing segment, as the COVID-19 crisis hit both international supply chains and the international demand as a whole. The industrial production and exports have been declining throughout the year. However, Bulgaria is keeping its attractiveness as an investment destination and can benefit from the revised supply chainsworldwide. 38,000 m²

Demand in Sofia is focused on warehouses with sizes from 1,000 m² to 5,000 m². The majority of companies planning to open logistic centers in Sofia are global players, looking for modern warehouses. Since there was a lack of existing options, they all preferred built- to-suit projects or to own their facilities. Now there is some significant supply coming to the market, so there will be more alternatives for the tenants. Although the Sofia logistics market registered weak activity in H1, driven mostly by renewals and deliveries of owner- occupied space, H2 was significantly better and recorded the best performance for the past Net take-up (m²) few years. The logistics market is currently the most attractive segment for investors. The healthy levels of demand, vacancy rates, rents and yields of the logistics market around Sofia led to several notable investments in land plots. One of them was the purchase of 175,000 m² land plot by CTP, who is planning to develop a 100,000 m² logistics park by the end of 2021. There have been a few deals with land in the industrial zones around Sofia as well. Key Transactions in H2 2020

Tenant Property Size (m²) Deal Type Industrial Park Confidential 4,360 Relocation Sofia East DSV Road l DSV Road logistics 11,600 Sale & leaseback Pipeline for 2021 (Selection)

Project Location Size (m²) Owner/Developer

CTParkBeta Sofia - East 100,000 CTP

BPD West Sofia - Bozhurishte 13,000 BPD Ltd.

Logistic Park Sofia - Bozhurishte 35,000 Local investor

DT Logistic Park Sofia - Bozhurishte 12,700 Dreams Trans EOOD

BTS Logistic Center Sofia – Bozhurishte 32,000 Cordeel Group Ltd

Sofia East Industrial Park Elin - Pelin 33,000 Confidential

The Sofia industrial property market ended 2019 with a supply increase, due to some large deliveries of production and logistics spaces. Over 260,000 m² were delivered for the entire year, total industrial stock reaching almost 1.3 million m². However, activity in H1 2020 was weak and only about 60,000 m² were delivered during the period. In H2 2020, an additional 66,500 m² were delivered. Thus, the total stock reached approximately 1.4 million m² at the end of 2020. Another 298,560 m² are under construction, out of which approximately 70,000 m² are for rent.

Key Completions in H2 2020

Project Location Size (m²) Owner/Developer

Park Industria – Industrial Park Sofia East Sofia – suburbs 30,930 Sofia Iztok Industrial Park Sofia East – Park Industria – Sofia – Elin Pelin 13,100 Building 3.1 Sofia Iztok Logistic Park Transcapital – Sofia – suburbs 9,230 Transcapital Building 6

Prime industrial rental levels in Sofia remained stable during H2, between €4.2 - €4.4 per m² per month. The most popular area is still Sofia Airport, where vacancy rate is very low and asking rents are generally higher. At the outskirts, newly-built modern warehouses are offered at slightly lower rents, ranging between €4 and €4.50 per m². In the northern and western parts of Sofia, properties are also becoming more attractive and are available between €3 and €4 per m². The rent for old units remains stable at around €2.50 per m².

No significant changes in rents were recorded throughout 2020.

Vacancy in industrial projects is around 5% in Sofia and is projected to remain at this level or slightly higher during 2021, as most of the new schemes open with a high percentage of pre-let space. However, the pipeline is alsosignificant.

Rents in the main sub-markets in Sofia H2 2020

BCBD Sofia Bozhurishte Rents: 4.5 €/m²/ month Bozhurishte Rents: 4.5 – 5.0 €/m²/ month

Airport Rents: 4.5 – 5.0 €/m²/month Rents: 5.0 – 6.0 €/m²/month

Rents: 3.1 – 3.5 €/m²/month

South-East Rent: 4.0 – 4.5 €/m²/month

COPYRIGHTCOPYRIGHT © JONES LANGLANG LASALLE LASALLE IP, IP, INC. INC. 201 20219 SofiaBucharest City Report City Report H2 2020 Q1 2019 Jones Lang LaSalle Services SRL Victoria Center 145 Calea Victoriei, 10th Floor Bucharest, Romania Tel: +40 (0) 21 302 3400 ______www.jll.ro www.jll.com www.officefinder.ro www.cautabirouri.ro

Meet the team

Managing Director Office Department & Tenant Industrial Agency Representation Silviana Petre-Badea Costin Bănică [email protected] Marius Șcuta, MRICS Head of Industrial Agency Head of Office Department & Tenant [email protected] Representation Capital Markets [email protected] Living

Andrei Văcaru Maria Florea Andreea Hamza Head of Capital Markets Key Client Director Senior Director Living [email protected] [email protected] [email protected]

Business Development Valuation Development & Land

Viorel Opaiț Alina Cojocaru, MRICS Attila Peli Business Development Director Head of Valuation Advisory Head of Development& Land [email protected] [email protected] [email protected]

Project & Development Services Research& Consultancy IPC Partners, Bulgaria

Cezar Florea AlexandruDavid Maya Baltadjieva LEED Green Associate & BREEM Research Consultant Managing Partner International Assessor [email protected] [email protected] Head of Project&Development Services [email protected]

© 2021 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such er rors in order to correct them.