City Report H2 2020

City Report H2 2020 COPYRIGHT © JONES LANG LASALLE IP, INC. 2019 Bucharest City Report Q1 2019 Capital Fort Business Center, Sofia -5.2% 0.4% 6.7% 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 COPYRIGHTCOPYRIGHT © JONES LANGLANG LASALLE LASALLE IP, IP, INC. INC. 201 20219 BucharestSofia City ReportCity Report H2 2020 Q1 2019 Demand 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 COPYRIGHTCOPYRIGHT © JONES LANGLANG LASALLE LASALLE IP, IP, INC. INC. 201 20219 BucharestSofia City ReportCity Report H2 2020 Q1 2019 €15.0 51,200 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 COPYRIGHTCOPYRIGHT © JONES LANGLANG LASALLE LASALLE IP, IP, INC. INC. 201 20219 Sofia BucharestCity Report City H2 Report2020 Q1 2019 Deliveries New offices totaling 72,000 m² were delivered in Sofia in H1 2020 and another 57,500 m² in H2 2020.

Load more