Unsurprisingly, 2020 saw a reduction in the A-listers on the Bulgarian real estate market, including investors in office, retail, and hospitality properties. The lockdown sent IT companies, which had been dictating the local office space market, into home office. The future of commercial and entertainment properties like shopping malls, cinemas, concert venues, and sports arenas remains uncertain – but tourism remains the hardest hit.
After a year of arrested development, a few trends have taken form in the Bulgarian real estate market that we believe will probably continue in 2021.
Second Homes to Replace City Residences and Offices
The imposition of restrictions on free movement and the “forced” home office increased the demand for suburban properties, while at the same time significantly decreasing the interest in new office buildings. Most employees with families who had to spend a lot of time working from home had to adapt to the extraordinary circumstances. Thus, the most desirable combination is a detached house with two or three bedrooms and a yard within a radius of 30-60 kilometres of the big cities.
Many homeowners are also choosing to upgrade their second home to a permanent one, assessing as positive the tranquillity and closeness to nature that their holiday properties provide. The outflow from the central urban areas and areas with densely built residential buildings led to an increase in the prices of so-called “weekend properties,” and the relocation of some businesses to the suburbs (for example, there is an increased interest in warehouses for courier companies or e-commerce businesses).
So far there has been no increase in the availability of residential properties in the central urban areas or a decrease in their price, but if the trend continues, such consequences are reasonable assumptions.
The office market, however, took a big hit. The pandemic lead to a severe decrease in office rent as well as showing to investors that the trend of open space office areas probably is at an end.
Decreased Value of Retail Properties
Due to the anti-epidemic measures imposed by the Bulgarian government, indoor shop-ping centers were partially closed. Only a few of their tenants – primarily pharmacies, grocery stores, pet food stores, customer centers of mobile operators, and banks - were allowed to stay open. The owners of shopping centres are trying their best to keep ten-ants who are not allowed to operate.
Our expectation is that if there is no change in the measures imposed by the government, the price of retail space in shopping centers is likely to decrease, as shops there will be seen as less attractive than the “on street shops,” which are not affected by the measures. Nevertheless, at this stage it is difficult to predict how the market will react in this particular area since the government constantly tries to “soften” the restrictive measures and allow the operation of the malls.
Hospitality Business Reformed
Restaurants remain closed, with most of their kitchens working by delivering food to customers. If the situation continues as it is, many restaurants with large seating areas will be forced to relocate.
As for the hotels, an interesting trend is that most of them are offering post-Covid retreat programs, including special menus and consultations with nutritionists and physiotherapists, in addition to the usual spa and wellness procedures. Given the development of the pandemic and the vaccination process, our expectation is that many hotels located in spa resorts will add programs to their portfolios to deal with the effects of COVID-19 and will likely evolve in modern sanatoriums.
Location remains a major driving force in real estate demand, although which locations are preferable appears to be changing. Buyers are now demanding a stable Internet connection as a first priority, even in locations where the requirement was considered unusual 12 months ago, such as mountain huts and coastal villas. The other trend that is emerging is the requirement that the property/building share ecological value (such as small smart green buildings, constructed with locally obtained or recycled materials, minimizing the environmental footprint).
By Elena Todorova, Attorney, and Dimitar Vlaevsky, Attorney, Schoenherr