The office market in Sofia is characterized by low demand in the second quarter of 2009. This decline is in line with the worsening state of the Bulgarian economy since the beginning of 2009. Substantially increased supply of new office space coincided with the rapid decrease in demand resulting from the economic crisis, a report of Forton International shows.

Many companies have already started optimizing their office expenses by renegotiating rents and leasing terms. Some tenants, trying to be more flexible are relocating their business to smaller offices, benefiting from the falling rents, while others are subleasing some of their office space to other companies. The market is dominated by tenants' requirements. In an effort to keep high occupancy landlords need to step back and renegotiate leasing terms in favor of the tenants.

Approximately 31 500 sq.m. new office space was delivered to the market in Q2 2009. Almost 75% of the newly delivered stock is located along main roads such as "Bulgaria" blvd. and the Ring road. These two locations together with "Tsarigradsko shosse" blvd. are characterized by the largest number of new speculative office projects. In view of the limited demand for office space, works on buildings under construction has been deliberately slowed or even brought to a halt.

Sofia office stock reached 966 000 sq.m. in Q2 2009. This figure includes both speculative and owner-occupied buildings. Increase in supply lead to downward pressure on rental levels as many of the new building coming on the market struggle to achieve high occupancy.

Absorption of new office space delivered to the market in 2009 is low. Approximately 20 000 sq.m. both leased and owner occupied office space was absorbed in Q2 2009.

Vacancy rates continue to increase. The average vacancy rate in Sofia for Q2 2009 is 13,30%. New office buildings coming to the market struggle to attract tenants. Most of them are characterized by much higher vacancy rate, usually between 20%-50% in the first year following their completion. This is why we expect that the average vacancy rate will further increase in the end of 2009 and beginning of 2010 when several large scale new office developments are scheduled to be completed, while at the same time business and economic activity is not expected to improve. To attract more tenants, new office buildings should offer good location (CBD or Main Boulevard), higher quality of the office environment, and competitive rent compared to the available stock on the market.

Current market conditions put strong pressure on rent levels. Rents have gone down significantly since Q3 2008. Presently prime rents in Sofia stand at 14,50-15,00 euro per sq.m. monthly, service charge excluded. Still some class A buildings in the CBD has achieved monthly rents higher than 20,00 euro per sq.m., but most of these rents were negotiated in 2007 and the beginning of 2008 when demand was strong. Rents for class B office space are more flexible. Currently, class B space is leased at 10,00-12,00 euro per sq.m. per month, service charge excluded. Central location and easy access are essential to achieving higher rent for such buildings. Class C space is rented at 6,00 euro per sq.m. per month.