Karl Brinker - we see potential for development of logistic facilities in Bulgaria

Karl Brinker is a director of Project development in Erste Group Immorent AG, along with this for two years from 2009 is a chairman of the company for Serbia.

Before 2008 he was a chairman of the board of the directors in the Austrian real estate company Suba Bau und Baubetreuung AG.

Between 1990 and 2006 he was a director of Development in McDonald's where he was responsible for the establishment and the development of the chain in 18 countries in central and eastern Europe, such as Austria, Switzerland and Italy. He was also a project manager for Voest Alpine in Kuala Lumpur.

Brineker shared his opinion about the perspective segments of the real estate market in central and eastern Europe and Bulgaria in particular.

- How would you define the current state of the real estate market for development of projects in central and eastern Europe? At which stage is it now?

- I do not think that there is a general answer to this question. What we see at the moment is the differentiation between the separate markets. Some of the countries are a bit behind some are a bit ahead.

As far as Bulgaria - according to our analyzes there are two sides, which are coming back on the property market. One of them is Bulgaria and the other one is Serbia.

The reason for this conclusion is that the balloon which we witnessed on the markets in Romania, Hungary, Poland and other countries was not as big as the one in Bulgaria.

The first country which is coming out of the crisis is Poland, followed by the Check Republic. The next ones are Serbia and Bulgaria.

We are communicating with different entrepreneurs, with banks, as well as German funds. They are following the real estate market in Bulgaria and Serbia and are preparing to invest.

The difference now and before the crisis is that it is harder to get financing. Before the funds were investing in off plan projects, projects under construction and risk products. The current directors of the investment companies receive very strict guidelines from the owners of their companies to avoid investing in off plan projects and other risk products. They are looking for high quality projects which are already rented, by rented I mean at least 90%. If you have such product, then you can attract interest.

So we consider that Serbia and Bulgaria are the next two countries and that is why we concentrate our efforts to these two markets.

- As far as the separate segments of the real estate market, according to you which do you believe that will be more interesting in the future.

This is a very hard question. This to a very large extend depends on the banks in each country.

As far as the residential property segment in Bulgaria there is a great demand for good projects, the customers expect, but at the moment it is very difficult for the normal people to get financing. It is caused by the extraordinarily high interest rates. So I see a development for this product, but in the future.

The other product are the logistics projects. If we compare the population and the availability of the logistic facilities from one side, or if we compare GDP with the availability of the facilities on the other hand , we will see, that Bulgaria is at the bottom of the chart in Europe.

This indicates that there is a great demand for modern logistics facilities.

The same could be seen if we compare the rents of these facilities in Europe, which are between 3 and 5.5 euro per sq.m. with these in Bulgaria, which are above these levels. This indicates also the great demand. Furthermore Sofia is on the main European transport corridors.

I consider that this is a product which will be very strong in the future. There are many logistics operators which knock on the door in Bulgaria.

For the offices - I do not consider that at the moment there are many opportunities, due to the fact that the market outside Sofia city center is flooded. In the center though there is good demand for quality offices. Over the last 3 years there is almost no new products.

This is a very small segment. They are mainly small projects, for local companies which are looking for small offices. The international companies are looking for the best opportunities at the lowest possible rates.

Along with this we consider that some trade formats have a chance to develop in the towns and cities outside of Sofia. There are a few projects in Sofia together with these, which are already planned, so the market achieved a certain level of development.

We consider that these products will develop. For the rest we do not believe that there is a good perspective at the moment nor in the next five years.

- Speaking about the towns and cities outside of the capital - are there other regions like Varna, in which the concentration of retail areas is very high already. May there are other cities in which there is still demand?

Yes, there so many beautiful large cities in Bulgaria, which have only one or two trade centers for high class retail. For the low and middle class though there are only normal shops. There are no modern formats such as trade parks and others.

- As far as the logistics projects - they depend on the prices of the land, which were very high in the past. Do you think that they decreased enough already, in order to support the development of such projects?

Yes, indeed this is the problem. You touched the right spot. The prices are still not at the necessary levels.

Everything is simple: you know in long term perspective what incomes you can reach - between 4 and 5 euro per sq.m., you know what are the expenses for the construction, which are fixed; you also know what are the expenses for the land.

At the moment though the expectations for the prices of the land are too high.

The opportunities, which we have at the moment are logistics, combined with cargo. This is supported bu the desire of EU to subsidize the development of the railway transport.

The operators have exclusively good opportunities for financing, if they fulfill certain criteria. There are not many developed cargo projects in Bulgaria at the moment, and the country location is really significant.

For this purpose though the land prices should be significantly lower.

- Do you consider that this will happen in the near future or we could only guess.

It is very difficult to make a certain guess.