TRANSFORMING REAL ESTATE INTO REAL ADVANTAGE

BULGARIA | Q4 2019

RETAIL SPACEMARKET OVERVIEW

RETAIL SPACEBULGARIA | Q4 2019

VACANCY

In Q4 2019, the overall vacancy fell to 9.3% from 9.7% in the previous quarter. The vacancy rate in Sofia fell from 9.1% to 8.4%, while the vacancy outside of Sofia – from 10.3% to 10.1%. This decrease in the vacancy rate is due to new tenants such as PEPCO, JYSK, CCC and Billa opening large-sized stores in certain shopping malls in Sofia. In other cities the small decrease in the vacancy rate was due to expanding local retailers.

STOCK

This year was marked by the opening of a new shopping center in Varna which increased the retail stock in the city to 123,000 sq. m., making Varna the city with the highest retail space provision rate in the country. There were no other deliveries of shopping centers in 2019 and none are planned for 2020. Currently, in Bulgaria there is only one shopping center in the pipeline – Promenada Plovdiv. The construction works are believed to start in 2020. In Q4 2019, the stock of retail space in modern shopping centers in Bulgaria is 817,200 sq. m., of which 411,400 sq. m. are in Sofia.

TOTAL STOCK AND VACANCY RATE IN SHOPPING CENTERS

Sofia Total Stock in sq. m. Bulgaria (excl. Sofia) Total Stock in sq. m.Vacant space in Sofia in % Vacant space in Bulgaria (excl. Sofia) in %

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

14,00%

12,00%

16,00%

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

450 000

400 000

500 000

2018 2018 2019201820182017 2019 2019 2019Q4 Q1 Q2 Q4 Q2 Q3 Q4Q1Q3

MARKET HIGHLIGHTS

TOTAL STOCK vacancy rate Provision Rate

per 1,000 people 341 m2

Varna

285 m2

Sofia

208 m2

Plovdiv

817,200 m2 9.3%

q4 2019

sq. m sq. m sq. m sq. m sq. m sq. m sq. m sq. m0 50 100 150 200 250 300 350

Bulgaria

Pleven

Veliko Turnovo

Plovdiv

Ruse

Burgas

Stara Zagora

Sofia

Varna

RETAIL SPACE PROVISION RATE BY CITY

RETAIL SPACEBULGARIA | Q4 2019

For many years Vitosha Boulevard and Sveta Nedelya Square have been known as the main shopping area of the capital. However, in recent years the zone is dominated by cafes, restaurants and snack bars as many retailers prefer to open units in shopping malls. Nevertheless,

the High Street area is still the most preferred by tenants looking for space outside shopping malls. In Q4, there were two transactions for retail space in the area. One is on Vitosha blvd. and will accommodate a steakhouse while the other is on Sveta Nedelya Square and will accommodate a

high-end fashion brand. The highest rental rates in the capital remain on the pedestrian zone of Vitosha Boulevard and Sveta Nedelya Square and are about €70 per sq. m. Rents on alternative locations such as Graff Ignatiev and Vitosha around NDK are around €50 per sq. m.

HIGH STREET

The expansion of the food retailers continued throughout 2019. In Q4, the most notable openings were from T-Market which added 8 new units this quarter. That was mainly due to their acquisition of Triumph – a former big box retailer in Plovdiv with 6 stores in the city. They also opened new units in Sofia and Vidin. Billa opened two new units this quarter – in Mall Galleria Stara Zagora and in Varna. Lidl have finished the year with 98 units and are expecting to open

their 100th unit in January 2020. In Q4, PEPCO continued their expansion. In this quarter they have opened 12 new units and have finished the year with 32 units in the country. In Sofia, new retail areas in shopping malls were rented by Billa, CCC, JYSK and PEPCO. In December, IKEA announced that they will open a new store in Delta Planet Varna in 2020 with a size of 8,000 sq. m. For next year big box retailers such as Billa, Lidl and Fantastico have strong intentions

to further expand mainly in Sofia. In 2020, the German discount retailer KIK plans to open new stores in the country and the polish PEPCO will continue with their nationwide expansion. In 2018, two new retail parks have been opened in Plovdiv. Both are located in the south region of the city and are fully occupied. We believe that in Bulgarian cities excluding Sofia retail parks will continue to be a viable option for tenants looking for new retail areas.

0

20

40

60

80

100

120

140

Billa

130

98

82

5942

Lidl KauflandT-Market Fantastiko

RETAIL CHAINS

TOP 5 FOOD RETAILERS ON THE MARKETS /NUMBER OF STORES/

RETAIL SENTIMENT

The volume of retail sales in Q4 is higher than the one registered in Q3 and thus is the highest for the

last couple of years. However, the confidence indicator expressed by retailers and their expected

business situation over the next 6 months are lower than the one recorded in Q3.

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q4Q32017 2017 2018 2018 2018 2018 2019 2019 20192019

Volume of sales over the last 3 months Expected business situa�on over the next 6 months Confidence indicator in retail trade

RETAIL MARKET OVERVIEW

The business survey in retail trade, conducted by the National Statistical Institute, gathers information about the entrepreneurs’ opinions about the situation and development of their business. The replies to the questions included in the questionnaires are presented in a three-option ordinal scale. The results are in the form of balances which are the difference between the positive and negative answering options.

Source: NSI

RETAIL SPACEBULGARIA | Q4 2019

Georgi Djibov Head Land and Industrial SpaceT: +359 2 9888 650T: +359 2 9888 651M: +359 888 664 395E: gdjibov@mbl.bg

MBL1 Kuzman Shapkarev Str.Sofia 1000, BulgariaT: +359 2 9888 650T: +359 2 9888 651E: office@mbl.bgwww.mbl.bg

Georgi Dimitrov MRICS DirectorAdvisory Services and Capital MarketsT: +359 2 9888 650T: +359 2 9888 651M: +359 886 292 081E: gdimitrov@mbl.bg

This research report has been prepared for general information only. The data herein was obtained from various sources; we do not guarantee its accuracy or completeness.

© 2020 MBL. All rights reserved. Any unauthorized use or disclosure is prohibited.

ECONOMIC HIGHLIGHTS

CONTACT INFORMATION:

As of November, the inflation rate based on the Consumer Price Index (CPI) increased with 3.0% on a Y-o-Y basis, slightly up from the summer months when it ranged between 2.3-2.9%.

The average unemployment rate stood at 5.8% as of November, up from 5.3% in Q3.

In Q3 2019, the GDP growth slowed down to 3.1% on an annual basis. The Bulgarian Economy realized a GDP growth of 0.8% on a quarterly basis.

Total volume for commercial real estate transactions in 2019 slightly exceeded €220M and is the lowest in the past 3 years. The office segment maintains a reasonable risk-return profile accounting

for almost half of all deals, while the hotel segment turns out to be a good alternative to experienced domestic buyers. International investors still claim they have a preference for

other markets due to limited liquidity and unfavorable loan amortization in Bulgaria, while local buyers are also restrained by the 50 to 100 bps bid-ask gap for investment grade products.

INVESTMENT ACTIVITY

FDI are growing at a moderate pace, reaching €953 million as of October, exceeding the level of 2018, however, remaining much lower than in 2017 (€1.6 billion).

Source: Bulgarian National Bank and NSI