In view of the continuing economic decline, new supply in the logistics and industrial segment in Bulgaria increased only gradually, according to Colliers International's Industrial Market Overview. The market, however, remains underdeveloped and was the least impacted real estate sector in 2009.
In the second half of 2009, the flourishing activity of discount retailers significantly influenced the demand for new space, helping to sustain new development.
Meanwhile, banks maintained their conservative policy, keeping interest rates high and Loan-to-Value ratios low, covering only 50% of development costs.
Sofia The total stock of modern speculative and owner-occupied industrial and logistics space in Sofia reached 1,441,000 sqm by the end of 2009, increasing 100,000 sqm in the second half of the year. The main new supply comes from the completion of Penny Market's logistic centre, Sofia Airport Centre buildings 03, Universal phase 1 as well as smaller projects like Logistic Park Bozhurishte. More than 60% of these new developments are owneroccupied and built-to-suit while speculative projects are being pushed back in time due to the uncertain market conditions. Nevertheless, the stock of speculative space has grown steadily over the last six months, adding another 38,000 sqm. Now, 20% of the total contemporary industrial and logistics inventory, equal to 289,000 sqm, is speculative.
Currently 156,000 sqm of space is under active construction. Compared to the first half of the year this number has increased by 57,000 sqm, mostly as a result of discount retailers' constructing logistics centres. With the rapid development of the discount sector, this segment now occupies approximately 8% of total stock ca. 100,000 sqm.
The triangle between Ravno Pole, Novi Han and Elin Pelin has formed a new industrial zone, comprising of several logistic projects.
In the autumn of 2009, Penny Market completed its own logistic centre near Elin Pelin. Billa, Lidl, and Univeg have also started the construction of logistics centres scheduled for completion in the first half of 2010. Proximity to the two main highways in Bulgaria as well as the reasonable land prices makes this area attractive.
Plovdiv is the second-most developed industrial market in Bulgaria comprising 888,000 sqm tal stock increased by 35,000 sqm in H2 2009, mainly driven by new manufacturing facilities such as ABB in Rakovski Industrial Zone and Fresh Logic in the Radinovo Industrial Zone.
Despite few new projects breaking ground in the second half of the year, 49,000 sqm remain under construction going into 2010. A number of local and international investors have announced plans to develop logistics projects intended primarily for the leasing market. With the onset of the economic crisis in Bulgaria it is clear that many of these announced projects will be suspended or possibly delayed in expectation of better market conditions.
Varna registered a modest increase in stock - 4% (15,000 sqm) in the second half of
2009. Thus the total inventory of modern industrial and logistics premises amounted to 390,000 sqm by year end.
About 6,000 sqm of new space started construction in the second half of the year, mainly in the Aksakovo area. The pipeline at the start of 2010 is now a modest 14,000 sqm.
As in Varna, the Bourgas industrial market did not see any significant movement in the second half of 2009. Over 2009, the total stock of industrial and logistics space in Bourgas increased by 13,000 sqm (7%) reaching 205,000 sqm at year end. The pipeline, which was significantly depleted in the first half of the year (to 2,000 sqm by June 2009), saw a small growth of 3,600 sqm making total pipeline of 5,600 sqm.
The market has been significantly affected by reduced exports and the economic downturn in general. In a situation of lower industrial activity and decreased consumption, the main factor driving demand has been the market entry of discount retailers. None of the current occupiers have opted for increasing the size of their current premises.
Manufacturing companies are experiencing reduced demand for their products; this has resulted in lower levels of take-up as occupiers are becoming increasingly concerned with managing costs. The remaining demand for modern logistic premises in the second half of 2009 in Sofia is generated by discount retailers, distributors of FMCG and pharmaceutical companies. This demand is primarily focused on build-to-suit.
The completion of large, speculative spaces and the lower demand in Sofia created an upward trend in vacancy. Thus, the availability of new logistics speculative space reached in excess of 55,000 sqm which is the highest ever level compared to previous years.
Asking prime rental levels decreased slightly in the second half of 2009. There is no significant decline of the rental levels of prime space as supply and demand is close to equilibrium.
Transactions are typically completed at levels 10-15% below the asking rent.
In the first half of 2010, several large-scale projects are expected to be completed including the logistics centres of DB Schenker, Billa, Lidl, and Univeg.
Prime rents will decrease slightly in the following six months due to softdemand, according to Colliers.
In the mid-term demand from fashion retailers is expected to increase. The demand from F&B retailers and the pharmaceutical industry for temperature-controlled spaces is expected to grow.