Real estate Bulgaria Properties : optimism and pessimism 2005
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Real estate Bulgaria Properties : optimism and pessimism 2005
VIEWS both optimistic and pessimistic were aired during the seventh Real Estate and Investment Forum (RINFOR) held in Sofia between June 1 and June 3.
As one might imagine, the pessimism was related to recent developments in Western Europe, where two of the building blocks of the European Union – France and the Netherlands – voted ‘no’ in referendums on the new European constitution. A UK website – Assets Property News – said that Bulgaria remained a risky country, and if its EU accession was postponed, real estate deals would run dry overnight.
On the optimistic side, there were lots of companies and institutions from abroad that revealed ambitious plans for Bulgaria Property. Among these was the European Bank for Reconstruction and Development (EBRD), which is planning to further expand its investment programmes for Bulgaria. This was among other encouraging announcements from realtors, developers, hotel chains, private banks and other institutions looking at Bulgaria with hope and preparing to spend some of their money here.
Cautiously optimistic
French company Accor, which is among global leaders in hotels and services, said during RINFOR that it planned to bring its Ibis hotel brand to Sofia. Accor was represented in a panel discussion on “Hotel chains in South-Eastern Europe: enlargement projects, new market players”.
However, the company said it had been trying in vain to scout out a suitable downtown location. They were also bothered by the fact that the number of hotels in the Bulgarian capital had reached more than 100 in the past five years.
Bulgaria could lose a planned 10 million euro Ibis hotel that would have 200 beds and a built-up area of 6000 sq m.
The hotel overcapacity in the centre of the city has convinced several major hotel chain operators to look for locations on the outskirts of Sofia. One of them is Holiday Inn, which is building a hotel in Business Park Sofia.
It is almost impossible to find suitable hotel locations in Sofia’s centre, said Ivan Velkov of real estate consultancy company Colliers International.
Other optimists included Varna-based supermarket chain Piccadilly, which is preparing to invest 20 million euro over the next two years in 10 or more new outlets. This was announced by company director Stefan Kossev.
The funding of the project includes a 14.2 million euro loan syndicated by the EBRD and Raiffeisen Bank and the company’s own cash.
Piccadilly has modified its expansion strategy, and instead of focusing exclusively on the construction of stand-alone outlets, will start renting premises in existing retail centres.
Another Bulgarian-based company, Orchid Developments, plans to increase its investments in real property in Bulgaria after receiving a 30 million euro loan from the EBRD. The financing will be provided with the support of the UK’s banking Shore Capital Group, which has a strong interest in the real estate market in Real Estate Bulgaria and holds 2.5 per cent in Orchid Developments.
According to the British group, this is an excellent opportunity to expand the volume of alternative investments. It is of no surprise though, as the Bulgarian property market is popular in the UK. Two British funds – the Black Sea Property Fund and Bulgarian Property Developments – have already announced plans to invest in projects on the Black Sea coast.
Not only EBRD or Raiffeisen are interested in supporting real estate development in Bulgaria. DSK Bank was the first to establish a project financing department, which focuses mainly on providing funds to business and shopping centres, tourist industry, department store chains, telecommunications and infrastructure.
Cautiously pessimistic
One of the most keenly-awaited discussions during RINFOR was dedicated to “Business buildings in Bulgaria and their opportunities to attract institutional investors”. Sponsored by Froton International, a Cushman & Wakefield Healey & Baker Associate, recently set up in Bulgaria by the local realtor Address Group, the discussion was attended by Jussi Pohjanpalo, associate banker at the EBRD, Pau Rivlin, head of the Real Estate Investment Banking Europe department at the German Eurohypo AG and other top guests.
Yields on the developing Bulgarian office building market, which now stand at 11 to 12 per cent, are expected to fall in the short term due to the emergence of new projects.
“Total office stock in Bulgaria is over 350 000 sq m, with 240 000 of it built in the past three to five years,” Stefan Danailov, head of the office building department of Forton International, said. According to him, about 110 000 sq m of office space is currently being built and will come on the market soon.
Danailov said that falling yields show that the relatively small office building market in Bulgaria has started to mature.
“Office buildings, however, are unevenly spread throughout the country,” he said.
Sofia is the most developed market for office buildings. However, it still lags behind Bucharest, the capital city of neighbouring Romania, mainly because of its relatively small size.
Sofia has four or five office buildings that meet the worldwide recognised class-A standard. Rents for class-A buildings normally vary between 10 and 15 euro a sq m, but can go as high as 23 euro a sq m.
In the longer term, demand will focus more on lower-quality class-B office buildings, as many smaller companies are expected to trade up from their current offices, typically located in residential buildings, according to Forton’s analysis.
Rents for class-B offices vary between four and seven euro a sq m, but there are not many buildings of that type.
Many companies in Bulgaria own their offices, but that situation is expected to change. More and more firms are to lease offices, due to the high purchase and maintenance costs.
Another trend in the real estate market in the next two to three years is the expected strong development of the office building market in large cities outside Sofia, like the second-biggest city of Plovdiv and the Black Sea city of Varna.
Another portion of cautious pessimism during RINFOR was expressed towards the local market for new residential properties. According to Dobromir Ganev, head of the real estate broker company Foros, this segment is moving into excess.
Supply has outstripped demand by about 15 000 units, most of them vacation suites in the sea and mountain resorts and homes in non-prime urban areas, Ganev said.
About 200 000 real estate properties were transacted in Bulgaria last year, including 10 000 deals involving foreign buyers, said Ganev, adding that more than half of the foreign buyers were from the UK. As many as 90 per cent of the buyers of residential units in vacation communities required a contract with a tour operator that would ensure a fixed return, said Ganev.
Construction company Aspekti surveyed 224 of its clients and found that 38 per cent of the buyers of new apartments in Sofia were purchasing for investment purposes. Homes with floorage of up to 85 sq m are most in demand.
The yield generated by property investments was about to level off with the domestic deposit interest rates, cooling the enthusiasm of real estate investors, said Strahil Ivanov, head of the real estate company Yavlena.
An echo of regeneration
The Sofia Echo moderated the first panel discussion of RINFOR on “Regeneration – a chance to revitalise disadvantaged areas”, organised in association with the British embassy in Sofia.
“Regeneration is the process by which a used site, building or place is turned into something new and productive, usually with physical changes,” said Christine McNeill, First Secretary Trade and Investment at the embassy. In her view, the process is a chance to revitalise those areas, bring them back on track and turn them into successful civilian and business units.
McNeill, who shared the UK’s unique experience in regenerating former industrial zones and other properties, said that the programmes implemented so far in this area showed that public-private partnerships were the best tool for achieving positive results in terms of employment, social benefits, education and others in places which had been abandoned by both businesses and residents.
“There is undoubtedly a need for regeneration projects in Bulgaria and we – the embassy – recognise that this provides an opportunity for British companies to pass some of our skills and experience to the market,” she said.
A UK company, Vector Management, based in Sofia and working in the area of project management, is ready to assist the process of regeneration by all means, said Rossen Kolev, general manager of Vector Management. Kolev showed the incredible results achieved in the UK through projects like the London Old Docks.
Representatives of state bodies, municipal administrations and non-government organisations involved in the process of regeneration in Bulgaria, shared their experience and views of how the different authorities can participate in revitalising disadvantaged areas.
News came from statements by Violeta Konova, expert at the Defence Ministry, which said that lots of disused military bases would be converted into business centres in pursuance of the national programme for the conversion of army installations. It appears that the ministry is going to play a key role in the process of regeneration as it owns lots of properties in disadvantaged areas in Bulgaria. Currently, there is a project under implementation to attract investors for these properties.
The installations seeking investors are located in Kresna, Shumen, Dupnitsa, Ihtiman, Lom, Svishtov, Dulgopol, Bolyarovo, Elhovo, Sliven, Dimitrovgrad, Lyubimets, Sredets and Boyanovo, and also in many other locations all over Bulgaria.
The EU is funding two ongoing projects for the conversion of decommissioned barracks, in Razgrad and Simitli.
The State Property Agency of the Defence Ministry manages 739 military sites made redundant by the reform of the Bulgarian armed forces. About 350 of the properties will be auctioned and as many gifted to their host municipalities.
Regardless of the optimistic or pessimistic appraisals, so far expressed cautiously, it is clear that the price of premium residential and commercial real estate in Bulgaria will continue to rise over the next year and a half before the expected accession of Bulgaria to the EU.
sofiaecho.com
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