and combined ownership land is consolidated in industrial zones in Bulgaria. These provide a diversity of locations, cost optimization and potential business synergies for new and expanding production and logistics operations.
The zones can offer occupiers pure land acquisition or BTS for purchase models. Globally recognized companies ready to sign longer-term leases can also source developers for tailored facilities in less liquid destinations where specific occupier labour requirements can however, be fulfilled.
The most developed region in Bulgaria in terms of active modern production facilities remains to be Plovdiv with a focus on the Trakia Economic Zone (TEZ) consisting of 6 major industrial areas. There is a proven need in this area for speculatively built A Class industrial logistics space. New construction of space in the region can release the burden from companies stuck within the limitations of owning facilities that are already too small for them, to easily restructure them into additional production space.
Supply, demand & vacancy
At the end of H1 2020, the total stock of modern I&L space in Sofia was 695,800 m2. During the first half of the year, ca. 31,600 m2 of new space was delivered. Overall, the logistics market in Bulgaria is characterized by an undersupply of speculative space.
Current construction of major A Class projects is concentrated mainly in the capital city market (108,000 m2) with some facilities in the pipeline for Plovdiv and Varna.
The demand for modern I&L space in Sofia has been relatively stable since the beginning of 2018 and the total transaction volume in H1 2020 was 31,850 m2.
In the leasing structure, expansions and pre-lease agreements dominated and constituted 39% and 36% respectively. Industry sectors in terms of operation were dominated by retail (73%). Across the country, the main cities with stable demand from 3PL operators and retailers are Sofia, Plovdiv, Varna, Burgas and Veliko Tarnovo.
The vacancy rate observed in Sofia since 2018 is stable. At the end of June 2020, it was at the level of 7.4%.
Rental rates & lease conditions
Prime monthly rental rates for the capital city market are stable for modern logistics space (EUR 5.2/m2) and for warehouse space (EUR 4.7/m2). Average lease lengths in Sofia are 3-5 years (logistics/warehousing) and 5-10 years for production/manufacturing. Developers offer some incentives to tenants, which are up to 3 months’ rent free per year of lease.
The trend of sale-lease back conversions is currently more visible and production companies are not perceiving it as a negative sign on their business performance, but rather as a boost to their future growth, and focus on the core objectives of their operations and further investment in industrial automatization.
Last-mile logistics is a model still to be explored in Bulgaria, with some speculative projects under construction around the ring road of Sofia. There is a lack of consolidated urban logistics space ready to answer the immediate needs of courier companies and as such, is mainly concentrated around the Airport area.
Due to COVID-19, more logistics operators driven by the rise of e-commerce of groceries, electronics, pharmaceutics and related products, are looking to diversify locations with smaller operations in the inner city and bigger distribution hubs around the ring of the city. There is also an increased need for cross-dock and cold storage space.
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