Atanas Garov is Managing Director at Colliers International Bulgaria. He holds a BA in Economics from the Colorado College and an MBA in International Business from Thunderbird, AGSIM, USA. He joined Colliers in 2000 as Director of Commercial Brokerage Services and Investment and Corporate Advisory Services. After one and a half years, he was promoted to Managing Director of Colliers International Bulgaria.
Ivan Velkov is General Manager at Colliers International Bulgaria. He has EMBA from CUEB, Beijing and 12 years of managerial experience in dynamic and multicultural environments in his record. He joined Colliers in 2002 and became General Manager in 2004.
Sofia News Agency Editor-in-Chief Milena Hristova talked to Atanas Garov and Ivan Velkov.
Q: Do you predict the property market in Bulgaria, which has seen a confident growth over recent years, to see more surge in prices? Can we say the euphoria has already passed?
Atanas Garov: Real estate definitely became a dinner topic in the country over the last few years. In the last couple of years we have witnessed segmentation of the market and strong developments in each of the niches. 2004 was one of the most hectic years in terms of talks about real estate and the potential of the market. But we can say that the euphoria has passed away.
The residential segment has been the most talked about and the most quoted in increasing values and numbers. Our research shows that in 2005 construction permits of approximately 1 million square meters of residential buildings have been issued.
I would separate the residential market in the resort areas from those in the cities and especially in Sofia as they have different demand. Demand in the resorts is mainly from small or portfolio investors, who are looking to put their money into real estate that will generate income for them and hopefully appreciate in value. In Sofia the demand is determined by local users. Small investors who buy to rent it out and generate income is decreasing as a percentage. Naturally as demand is limited you could forecast what is going to happen when supply continued to grow at such a rapid pace.
The office market has been stable for more that two years in terms of prices, while demand has been growing faster than supply. This has resulted in much lower vacancy rates at the end of 2005. The overall vacancy rate for Class A and Class B offices in Sofia has fallen in the second half of 2005. Mirroring higher demand for quality premises throughout the second half of 2005, the overall Class A vacancy rate marks a decrease to 10.6%. This gives very good prospects for developers in 2006.
We are expecting more new developments on the retail segment both in Sofia and outside Sofia. Mall of Sofia, the biggest shopping, entertainment and business center, can be said to be our success story, although it is not opened yet. We had given away a hundred percent of the rentals, and very strong at that, three months before Bulgaria sees the inauguration of the first international style shopping mall.
Ivan Velkov: The real estate market, especially the residential segment, saw a lot of interest and newcomers in 2004. In the recent months we have been witnessing not only the professionalization of the market, but also the interest of solid and long-term professional developers and investors. They can be serious players not only in the region, but also on the continent.
Q: What impact on the real estate market in December had the increase in property tax valuations as of the beginning of 2006?
Atanas Garov: If I have to be very short – no effect.
Ivan Velkov: We as a company are working in segments, which are not directly related with changes that local authorities are applying towards certain properties. When we talk about statistics the changes were insignificant compared to actual sales. The business of some companies may have shrunk as a result of the increase in property tax valuations, but that does not change the market conditions for the actual clients and actual sellers.
Q: How will the slow-down in bank crediting impact the market? Which are the other external factors that will play a role in property trade this year?
Atanas Garov: External factors that would influence the demand are more new companies coming in with more search for bigger space and more people coming to live in Bulgaria. This will definitely have a positive effect on the property values and prices. Our analysis shows that sales prices in prime residential areas during the second half of 2005 were in the range of EUR 820-1650 per square meter, marking an increase in the upper part of the range as compared to the first half of 2005.
Ivan Velkov: We do not expect major change into the activities related to purchasing properties with mortgages and bank crediting. In fact the restrictions, which some institutions want to impose, won’t prevent the active demand for those financial tools.
I would welcome any factor that will help bring more transparency, more clear procedures for the newcomers – either ex-pats or Bulgarians who worked or studied abroad and came back to the country to utilize the resources and ideas.
Q: How would you describe the market for office premises in Sofia at the moment? What are the rental and sale rates achieved for office premises, depending on their class and location?
Ivan Velkov: Sofia is at a stage that any client might be able to find suitable premises or expect those to appear at a suitable time. The total available amount of premises is not that scary as a number to any international company or multinational tenant, especially those with whom we have been working for years. Overall supply of Class A and Class B office space in Sofia has increased by approximately 10% in the second half of 2005 and is now 250,000 m2. Rental levels for Class A office premises average EUR 12.5/m2/month.
It is worth mentioning that there are several other projects that will bring quality product to the market in other cities, apart of Sofia. Varna, a very lively city, both economically and socially, and is attracting a lot of interest. With the appearance of the second business park in Bulgaria Business Park Varna, we expect that to create yet another target group of interesting partners to go into the synergy of companies.
Burgas, Plovdiv, Veliko Tarnovo and a few other cities will be following soon into the same steps. The office market is the most predictable and most solid, based on business logic.
Atanas Garov: The office market and real estate in general is very linked to the overall performance of the economy in the region. If the economy grows, the need for more office space grows. The same will be true for every single city.
Q: Can you distinguish different types of demand on this market in Sofia?
Atanas Garov: Price sensitivity is one way to distinguish the demand for office premises. Not everyone can afford to be in a quality office because of the financial limitations. Class A and B are quality type of office premises, Class C and D substandard offices and converted space. The most economic, at least in nominal values, is the converted space. There are still a lot of companies whose offices are in apartments because the rent is lower than that of an office or because the need for space is less than the minimum required in an office building. However, our research shows that demand for quality office space has increased significantly in the end of 2005.
Ivan Velkov: Some of our major clients are those looking for office space in an environment that helps their business to grow and feel secure. These companies are companies looking into office spaces in business parks and business buildings that offer certain services to all the tenants.
Another group of demand are those who are looking for a corporate building. These are companies that have large number of employees that have to be in a certain space, for example a bank. Those companies are active in Bulgaria and are looking for expansion because they believe the city can support their growth.
Q: Which are the more interesting projects for administrative buildings and complexes, which will be completed this year?
Ivan Velkov: Two buildings are coming up into the market in Business Park Sofia this year. Sofia Tower, Class A office space, which is an independent part of Mall of Sofia, will also been unveiled this year. Business Park Varna will have its first building completed this year. All these will offer the highest possible standards available in Bulgaria.