"Bulgaria Real Estate Report 2016" is now available at Fast Market Research

We expect occupier demand and rental values to improve in all three sub- markets of the commercial real estate sector that we cover, in line with economic growth . New development is taking place in the office sub- sector, which should increase the amount of new supply and offer greater investment grade assets to investors .

We forecast steady economic growth over the next five years, and se GDP rising by an average rate of 2.0% between 2015 and 2020, driven by robust growth in private consumption, rising consumer spending and improvements in trade.

The office market in Sofia and the key second-tier cities of Varna and Bourgas remains active in terms of leasing. Pre-lets are a prominent feature of the market, accounting for around half of all lettings, reflecting the limited availability of high quality space. Rents are expected to continue on an upward trend in 2016. As the capital city, Sofia is likely to benefit most from the growth in the services sector and hence occupier demand, but the prospects are also positive for key regional centres, and we are seeing higher levels of absorption in cities such as Varna and Bourgas as companies relocate from Sofia, enticed by available space and lower rents.

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The outlook is also positive for retail rents, which are expect to continue rising in 2016 and 2017 on the back of rising household spending, strengthening consumer confidence and higher purchasing power. With demand rising, the supply of prime space is falling, and in the medium term retailers looking to expand are likely to diversify into key regional centres and smaller towns, where rental costs are lower and the retail market is less saturated than in Sofia.

In the industrial real estate market international companies are increasingly interested in Bulgaria as a hub for outsourced production facilities, with the automotive sector expected to be a strong driver of occupational demand. Growth in online retail will also bolster demand for warehouse space from retailers and third party logistics companies (3PLs). However, the amount of high quality space is in short supply, which is hampering the leasing market. With little speculative development taking place, the situation is unlikely to change in the short term. We expect build to suit and owner-occupation to remain key features of the industrial market in 2016 at least. There is evidence of more speculative development starting, but these will take time to reach the market. Moreover, there is a strong likelihood that a significant proportion of such space will be pre-leased, leaving supply tight.

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