In the initial quarter of the year, the office market in Sofia maintains a relatively subdued pace. Occupancy rates linger around 15-16%, with finalized transactions declining by 10-15% compared to the same periods in the preceding years.
From January to March, office rental agreements only covered 37,200 sq.m. Most of these transactions stemmed from lease renewals or relocations from non-competitive or Class B premises, as reported by commercial real estate consultancy Cushman&Wakefield Forton.
Insights into the data suggest that IT firms in the outsourcing sector are tapering their expansion, continuing to embrace hybrid work models. "This trend underscores the ongoing optimization of office spaces," notes Yoanna Dimitrova, Office Areas Manager. She underscores that the IT sector remains the primary force driving the rental market this year.
Despite lingering vacancies in the premium segment, new office spaces are scarce, further accentuating the dichotomy within the market. Premium modern projects continue to allure tenants, while older buildings struggle to maintain competitiveness, per the company's analysis.
The proliferation of co-working spaces persists, with their footprint surpassing 67,000 square meters in early 2024. A significant portion of this new space is integrated into office buildings, reflecting the trend towards synergy between flexible and traditional workspaces.
"Having flexible workspaces within an office project facilitates the attraction of small or burgeoning businesses with growth potential," Dimitrova highlights.
There have been no new developments, and rental rates are on the rise. The aggregate volume of Class A and B offices in the first quarter of 2024 remained steady at 2.245 million sq.m. Construction projects underway remain below 200,000 square meters, largely due to the absence of new commencements. These patterns reflect the sluggish absorption of vacant office space amidst an uncertain business landscape.
Rent escalation, initiated in 2023, persists. First-class office rents now climb to 17.5 euros per sq.m., with Class A buildings along major thoroughfares priced between 15-16.50 euros per square meter.
The outlook suggests that the prime office market's 8% yield level will endure into the second quarter.
