MARKETBEAT RETAIL SNAPSHOT BULGARIA Q3 2014 A Cushman & Wakefield Research Publication Real GDP growth accelerated in the second quarter, the strongest rate for the last three years. The retail market saw a mixed picture with success and failure from both a landlord and occupier perspective. Three shopping centres have been closed so far this year and a fourth one has been sold with the aim to recapitalise and reposition it. Yet occupier demand remains healthy and new developments in Sofia are able to secure operational pre-leasing rates of up to 80%. OCCUPIER FOCUS INVESTMENT FOCUS The investment market was generally quiet but the number of distressed assets coming onto the market coupled with the successful revival of Panorama Mall Pleven and the purchase of City Center Sofia earlier this year are helping to generate investor interest. High street and convenience store units are becoming more attractive with improving fundamentals but due to their small lot size interest is driven by local buyers. Besides them, owner-occupiers are also a source of demand. ERG Capital III sold two retail warehouses in Stara Zagora to Austriaregistered entity MD Immobilien and local retailer Domco for a total of €6.7 million. Prime Rents: Stable but may be affected by new openings. Prime Yields: Yields to remain largely unchanged. Supply: Little new supply, but availability remains high outside Sofia. Demand: Demand is robust for shopping centre and prime high street units. PRIME RETAIL RENTS – SEPTEMBER 2014 HIGH STREET SHOPS Sofia (Vitosha Boulevard) € SQ.M/MTH 44.0 € SQ.M/YR 528 US$ SQ.FT/YR 62.0 GROWTH % 1YR 5YR CAGR 10.0 -10.1 PRIME RETAIL YIELDS – SEPTEMBER 2014 HIGH STREET SHOPS (FIGURES ARE NET, %) Sofia (Vitosha Boulevard) SHOPPING CENTRES (FIGURES ARE NET, %) Bulgaria CURRENT LAST QUARTER QUARTER 9.25 9.25 CURRENT LAST QUARTER QUARTER 9.25 9.25 LAST YEAR 9.25 LAST YEAR 9.25 HIGH 12.00 HIGH 10.50 10 YEAR LOW 6.00 9 YEAR LOW 7.50 With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property. RECENT PERFORMANCE 13.00% 20.0% 11.00% 10.0% 9.00% 0.0% 7.00% -10.0% 5.00% -20.0% 3.00% -30.0% Sep-04 Sep-06 Yield - Prime Sep-08 Sep-10 Sep-12 Rental growth (y/y) Demand for new space is healthy, especially from international brands who now dominate the recently opened 24,000 sq.m Mega Mall Lyulin. This trend is also evident in and outside of Sofia with Tom Taylor taking a unit at Paradise Center and LC Waikiki opening a shop at Panorama Mall in Pleven. With limited growth in the shopping centre segment, retailers are increasingly looking beyond the top-tier schemes and markets. In the big box segment, the expansion is predominantly driven by food discounters such as Kaufland and Lidl, Decathlon and home-decor and furniture concepts. New development has ground to a halt outside the capital city and there are just two projects scheduled for delivery in Sofia over the next nine months. Together with the closure of existing shopping centres such as Strand Burgas, supply has been limited further. MARKET OUTLOOK Yields OVERVIEW Sep-14 Rental Growth - Prime Source: Cushman & Wakefield OUTLOOK High-street and convenience store units let to international tenants are seen as safe assets considering the lack of alternative investments. Increases in private consumption will support dominant schemes and, more importantly, actual cash flows where rents are tied to retail turnovers. Cushman & Wakefield LLP 43-45 Portman Square London W1A 3BG www.cushmanwakefield.com/research This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. 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