Sofia Office Market: Growth in Rental Rates as New Developments Lag

Sofia's office market has experienced moderate rental activity over the first nine months of this year, with a total leased area of just over 130,000 square meters. This figure is above the five-year average, although the distribution of lease types has remained consistent. According to an analysis by Cushman&Wakefield Forton, contract renewals continue to represent approximately 40% of all deals, followed by tenant relocations. The low share of new tenants and lease extensions suggests limited opportunities for organic growth and new space absorption, even though the overall transaction volume is returning to pre-pandemic levels.

The demand for office space is primarily driven by IT and business process outsourcing (BPO) companies, though many are optimizing their space due to the rise of hybrid work and downsizing efforts. Despite this, the market remains stable, with the amount of vacant space holding steady for consecutive quarters. This stability is largely due to the limited completion of new office spaces and the muted demand in the market.

Projects under construction as of the third quarter total 178,000 square meters, with expectations for further growth in the coming months. Some new developments are planned in the areas around Paradise Center Mall and N.Y. Blvd. Vaptsarov, but in the third quarter, only one new building was completed near Bulgaria Blvd. The net absorption of office space in the third quarter was just 7,000 square meters, bringing the total for the year to slightly over 45,000 square meters—well below pre-pandemic levels.

As for rental rates, Class "A" office spaces in the most desirable locations in Sofia saw a slight increase in the third quarter, reaching 18 euros per square meter. This uptick is attributed to the high occupancy rates of high-tech buildings in prime locations. Rent for well-located office spaces along key roads remains in the range of 14 to 17 euros per square meter. Despite fluctuations in rental rates, the yield from prime office spaces in Sofia remains stable at 7.75%, consistent with the previous period.