Due to the well-known COVID-19 situation many of the employees work from home nowadays. Naturally, the office real estate market in Sofia is affected. Building of new property, development of office spaces as well as the maintenance and facility management.
Who will have more advantages of this situation - the outsourcing centers or the landlords?
Demand for retail and office space fell sharply during the third quarter of the year. The outlook for 2020 has worsened because working and shopping patterns change during the Covid-19 pandemic. The crisis in the demand for offices and the growing popularity of telework led to a negative net utilization of office space in the capital for the third quarter. This happens for first time in the modern history of the office real estate market in Sofia, according to the experts in the real estate market.
A survey conducted by the consulting company Cushman & Wakefield Forton for the nine months of 2020 shows that the volumes of leased office space in Bulgaria has dropped by 60% from their usual level registered in the last 5 years. Many companies not only don’t rent new space, but even try to sublease to third parties. The reason is that they already have a long-term rent contracts, but do not use the offices.
For the period July - September 2020, only 8000 m2 of new areas were put into operation and the net utilization (the difference between the actual leased areas in the current period compared to the previous one) is -15 000 m2. The decrease compared to the third quarter of 2019 is 45,000 m2. As a result, by the end of the first nine months of 2020, the share of vacant office space in Sofia was already in double digits – around 11%, with a growing tendency for the next 12 months.
84% of employers are still unclear when they will return to their office floors permanently. Only 15% intend to do so by the spring of 2021.
Nearly 60% of the landlords in the Cushman & Wakefield Forton, survey said they had no vacant space. 48% of tenants plan to reduce the occupied offices, and 44% - to keep their current size. The business expects the share of work from home to increase compared to the years before the spread of the coronavirus.
Experts point out that there is pressure on the prices of office space - it is due to the fact that about 360 000 m2 of new offices are currently under construction in Sofia. About 100 000 m2 of that new office space is planned to be ready within the next six months, with only around 20% of the areas being leased. Construction of the projects might be on time, but it is possible that some of the owners will not hurry with the commissioning of the buildings if they do not have commitments to tenants.
Currently, many companies do not take any action regarding their office space, others aggressively and quickly decide to reduce their office space on a large scale. In the past, international companies operating in the country already tested working from home. The results were: reduced efficiency of employees and difficulty building teams, so businesses decided to return to the offices as a preferred way for running their business. Companies, that are now deciding to cut space, are expected to return to the market at the end of 2021 or in 2022, as they will most probably expand and need more space.
Office rents in Sofia remain stable at 12-15 euro/sqm for Class A offices. However, the market slowdown makes landlords more inclined to offer incentives such as step rents and rent-free periods for new tenants. Growing vacancy rate is expected to put rents under downward pressure in the coming quarters, especially in areas with concentration of new office projects.
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