Boston, MA -- (SBWIRE) -- 03/07/2014 -- Bulgaria's commercial real estate market is showing signs of life in 2014, with the latest industry indicators pointing to an uptick in demand and rental activity across the retail and industrial subsectors in particular. A gradually improving macroeconomic backdrop should provide some stimulus to investment and growth in rental rates in 2014. However, the real estate sector faces a number of headwinds in 2014, including oversupply, weak consumer spending and deflationary pressures.

With a focus on the country's principal cities of Sofia, Varna and Burgas, the report covers rental market performance in terms of rates and yields across the commercial office, retail, industrial and construction sectors.

A number of key economic indicators support our view that the real estate segment will enjoy a return to growth in 2014. At the top of the list, the country will see a significant acceleration in economic growth, with GDP forecast to expand by 1.6% in 2014, compared with just 0.5% in 2013. We expect the most positive impact from this to be in the retail and industrial real estate sub-sectors, which will benefit from a continued improvement in consumer spending and industrial and manufacturing activity, respectively. Bulgaria is benefiting from improving external demand, and we expect public spending and a positive contribution of net exports to continue to support real estate investment and growth in 2014.

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On the other hand, according to our in-country sources, the office rental sector will continue to struggle due to an ongoing supply-demand issue.

In addition, the deflationary environment in Bulgaria poses a further risk to the real estate sector, with falling prices threatening to feed through into a drop in property prices and yield levels. Conversely, falling inflation levels would likely ensure that interest rates remain low, supporting lending.

Recent Developments

- US-based Tishman International has completed construction of the Sofia Airport Center (SAC) development, a 2.1mn square-foot commercial, mixed-use development project in the capital. The development includes a 18,000-square-foot Class A office component, which in January 2014 was awarded a 'Gold' Certification by the US Green Building Council's (USGBC) green building rating system.
- A new Bulgarian trade association, which represents commercial office building owners and managers, has been established. The Association of Commercial Building Owners aims to advance the interest of commercial real estate players through 'advocacy, education, research, standards and information'.

Key BMI Forecasts

- The retail segment will continue to outperform both the office and industrial real estate sectors in terms of average rental rates over 2014.

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