The inventory of class A and B offices in Sofia continues to grow as another 73,650 sq. m of new office space, mostly located in suburban areas, was delivered during the last quarter of 2008, data of consultancy CB Richard Ellis showed. Thus the total existing office area grew to 947,750 sq. m. by the end of the year.

The inventory rose by 163,750 sq. m on an annual basis, which almost matched the increase of 2007.

The global economic slowdown started to affect considerably the local real estate market bringing to a halt many office projects in different stages of the development process. Construction works remain active on 680 000 sq. m., while many planned office projects have been put on hold and some 100 000 sq. m. were frozen during the rough construction process.

Suburban areas account for most of the office space currently under construction, or 76% of the overall figure, followed by midtown areas with 19% and CBD with 5%.

The overall market vacancy level for class A and B class properties rose to 9.1% (86,400 sq. m.) by last year's end, driven entirely by the growing vacancy in suburban areas.

Similar to previous quarter the increase in vacancy levels was more notable in suburban locations. The percentage there reached 12.9% from 9.2% three months earlier. CBD vacancy rate also went up reaching 2.8% from 2.1% in the third quarter of 2008.

The growing vacancy started to put pressure on rents in the fourth quarter of 2008 and the speculative rent hike, especially in CBD, proved to be short-lived.

The net absorption of class A and B office space was strong in the fourth quarter if 2008 with 44 800 sq. m. mainly due to pre-leases and pre-sales.

Rental rates were falling in the last three months of 2008. The average asking rent for class A offices in suburban locations continued to decrease further and stood at 14.65 euros/sq. m. by the end of December. The growing supply of new office space and the increasing vacancy is putting a downward pressure on asking rents.

Landlords in central locations are also slowly coming to terms with reality. The average asking rent in the CBD dropped by 11%, reaching 21.15 euros/sq. m.

Class B rents continued to decrease as well, ranging between 8 euros/sq. m. and 15 euros/sq. m., depending on location and other factors.