Bulgarian Industrial Space Market Overview

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Bulgarian Industrial Space Market Overview

The industrial and logistics market continues the upward trend in development, though with a slower pace in comparison to the previous period, according to a report of Colliers International. The total inventory of the industrial and logistics market in the four large cities exceeds 3,000,000 sqm equal to a 3% growth.

Sofia

The logistics market in Sofia sees an insignificant increase of new stock totaling 36,900 sqm in H1 2010. Thus, by the end of June 2010, the stock of modern industrial space amounts to 1,478,000 sqm. The new supply mainly comes from Transcapital, DB Schenker, Billa Logistics centre and STAD. These projects ad another 10,300 sqm to the speculative stock, resulting in a total speculative stock of 302,000 sqm.

The pipeline slowly empties, as very few new projects start construction.

Alternative supply is appearing on the market in the form of subleasing of owner-occuped space. This becomes available as companies reduces inventory, and is often subleased to partners and suppliers. Rarely is the space actively marketed, yet it does constitute competition for regular, speculative space. More often than not, though, this space simply remains vacant.

Companies increasingly focus on their core business and outsource various logistics functions.

This boosts the activitity of the 3PL sector, which in turn is seing increasing segmentation, with providers focusing on distribution, transport, temperature-controlled logistics, etc.

Plovdiv

The second most developed industrial market in Bulgaria, Plovdiv, also sees insignificant movement in terms of growth. With a mere 2% increase in the first half of the year, the total stock reaches 907,000 sqm.

Plovdiv industrial market predominantly consists of owner-occupied and built-to-suit spaces. It has large supply of old industrial spaces that meet occupiers' needs, and in the current economic conditions the demand for new projects is small.

Varna and Bourgas

The industrial market in Varna and Bourgas follows the development of the other two large cities but with a slower pace. The total stock of modern industrial space has grown in the same beat as in the previos six-month period, with an increase in stock of 17,000 sqm for Varna and 22,000 sqm for Bourgas.

Bourgas remains an attractive logistics location with the distribution centre of Carrefour and Plus logistics facilities are situated here. Demand

Demand remains weak as many companies reduces inventory, and keeping market positions is the focus rather than expansion.

Remaining demand is driven by the distributors of FMCG (Fast Moving Consumer Goods) and fashion retailers. Pharmaceutical distributors are also very active players on the market but their specific needs can't be satisfied by the regular speculative projects diverting their real estate solutions to build-to-suit projects

The net absorption rate for the first six months of 2010 in Sofia is 15,000 sqm, mainly by Universal logistics, Transcapital and Sofia Airport Center.

Structurally and price-wise, there is a gap between supply and demand in Varna. The demand is mainly for cost-effective, new, industrial space while supply of contemporary space is limited with limited price flexibility.

As far as warehouse size requirement is concerned, the average demand in Sofia is about 1,000 sqm, which is expected to increase in the future. The typical lease agreement is closed at 3 years with a service charge in the range of EUR 0.5-0.7/sqm/month.

Rental rates

The weak demand continues to put downward pressure on the rental levels. The reduction in rental levels in Plovidv, Varna and Bourgas for the last six months is higher than in Sofia, where asking rental rates are more resilient. Despite soft demand, new supply is still scarce, which in turn curbs competition.

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