Office And Residential Property In Bulgaria

The Bulgarian property market began to come alive a couple of years prior to the nation’s 2007 EU accession and has quickly moved from emerging hotspot where massive property fortunes could be won, (or lost!), to a mature market where there are factors and fundamentals supporting it - but also realistic levels of supply and demand that restrict pricing expansion.

As a result of these facts, gone are the days of tiny property prices and huge Bulgarian real estate gains – at least according to Deyan Kavrukov, the head of an equity fund investing in the region.  But contrasting his opinion is word from a British based property agency that states that office and residential property in Bulgaria’s capital city of Sofia remains very much in demand and highly profitable.   

So, where is the truth in amongst these confusing statements and strong opinions?

Sofia’s property market is probably one of the most robust and mature markets in Bulgaria and it does have excellent long term factors in its favour – so this supports the property agency view.  However, Bulgaria also has an oversupply of office stock coming to the market which ever increases vacancy rates.  On the residential side of things there has been steady growth in yields throughout 2007 and there is talk that the high-end luxury market is enjoying a period of intense international interest…so buyers today can still be relatively well assured of profits.

But as with any market at the moment, you have to tread very carefully and take a far longer term view of your real estate assets.

Sofia is an interesting choice for property investors because it is a European capital city with charm, attraction and appeal for tourists.  It is a capital city developing, advancing and continuing to attract inward investment and inward business creation and expansion commitment.  This naturally draws in professionals seeking employment who require real estate, and it draws in companies seeking premises which also opens up demand in the office sector.  However, according to our aforementioned friend Deyan Kavrukov, 150,000 square meters of new office property in Bulgaria is coming to completion annually whilst demand is only expanding by about 50 – 60,000 square meters.  Naturally this makes it much harder for an investor to make a profitable purchase.  The base fundamentals of location, infrastructure and amenities apply when it comes to picking office stock that will lease well…but it’s getting to be a tougher market!

In terms of residential property in Bulgaria – the sector enjoyed healthy gains last year with average prices across the nation rising by as much as 36%, (depending on which property companies’ statistics you choose to believe!).  Added to this was the fact average yields increased to as much as 10% and you still clearly have a market that is robust and of interest.  But, because gone are the days when you could buy a summer holiday apartment on the coast for GBP 30,000 or a condo in the mountains next to a ski gondola for GBP 50,000, Bulgaria has fallen in favour with many wanna-be property moguls who sought a low cost entry point for their ambitions.

Now Sofia is the only viable target in Bulgaria for those seeking profits – well, that’s the feeling you get from many agencies, (but then they are selling their wares…in Sofia…of course).  Apparently Sofia is becoming more cosmopolitan, it has attracted Hollywood A list interest, it is receiving concert commitments from global stars and it is really raising its profile as an attractive location to live, work, visit and own high-end property.

The luxury sector starts from just GBP 100,000 for a well located apartment with major appeal – so yes, it’s an affordable luxury buy in and we can see that this is appealing.  But buyers have to be convinced of the ongoing, increasing and lasting appeal of the city before they part with their cold hard cash – and when you realise that one of the reasons Sofia cannot pack out its office space is because the city, and indeed the nation of Bulgaria has lost out repeatedly to Bucharest and Romania for new investment and inward business flow – perhaps there is a more attractive capital city in Europe in which to invest?