Andrew Jardine in Sofia -

A common sight for visitors to Sofia and its surrounds is the trail of half-finished building sites, remnants of projects left abandoned as the 2008 global crisis struck. As the Bulgarian economy began to recover there were hopes these projects might be completed, but as markets brace themselves for another, perhaps even deeper recession, the feeling locally is more needs to be less.

European office markets recovered modestly in the second quarter, but the Bulgarian retail and prime office rental markets appear to be bumping along the bottom, according to Forton International. Total built-up office space available in Sofia reached 1.367m square metres (sqm) at the end of June and only two new projects with a combined area of 12,900 sqm actually completed in the April-June period.

This contrasts sharply with the record volume of new office space completed in 2010, 287 000 sqm, but still the market is over-saturated and completions on many major projects have been postponed again to ensure a more substantial level of occupancy. Office space under construction in Sofia stood at around 580,000 sqm at the end of June, of which another 140,000 sqm is expected to be completed by the end of 2011. The office markets' main driver is for tenants to move to a prime site office space and at a more attractive price, which at best produces a transient user base as opposed to the much required new demand for the ever growing supply.

Shopped

The story is much the same in the retail property market. 2010 was characterised by a record amount of shopping centre projects being completed, with CB Richard Ellis quoting an annual increase of 123% as retail space hit 627,000 sqm. Available retail space occupancy is currently being shaken by the 237,000 sqm under construction and further delays and cancelations are expected as demand for this new space continues to struggle.

"The real estate market in Bulgaria is on hold. Supply is huge and tenants are looking for the best place and the best price. Tenants have different choices and new offices are flooding the market," says Teodor Georgiev, economist at the Management and Business Academy of Sofia. "A lot of commercial property suffers with low occupancy, so expect a serious drop for rentals with potential tenants and buyers waiting for lower prices."

Zlatan Enchev of Land Consulting, an expert in industrial space, is equally downbeat: "Growth in demand is expected when the economy turns upwards. Economic growth is too slow and the Bulgarian economy is also too bound by the European economy. The real estate market is not independent enough to keep growing steadily."

Concerns with the amount of unfinished projects were raised recently by the president of the Chamber of Builders in Bulgaria, Svetoslav Glosov. At the Chambers' roundtable event in Sofia, "Construction in 2012 - Prospects and Challenges", Glosov commented on the steady fall in building permits being issued and that the estimated value of unfinished construction stood in the region of BGN392m (over €200m). He also made reference to the decline of registered developers and investors on the Bulgarian Chamber Central Construction Registry - down from 5,225 in August 2010 to just 4,000 at present - while National Statistical Office data shows that construction output had suffered a falls of over 13% during 2011.

Also in attendance at the Sofia event was the minister in charge of the management of EU funds, Tomislav Donchev. His comments offered very little light at the end of the tunnel and were a sobering assessment on EU fund management and its changing priorities and conditions - the glory days of firms drawing down generous EU funding for projects are over, he said. The minister highlighted that EU priorities for construction after 2012 would be focused on energy efficiency and the water sector and put a figure on the estimated growth for the next period of funding at 15-20%.

Foundations

But it's not all doom and gloom, as a few die-hard developers that have succeeded in securing financial resource to revive their projects in the last 12 months shows.

Projects such as Bulgaria Mall and San Stefano Plaza have been re-ignited and stylish home owners (and Greek investor Fourlis) will be pleased with the recent grand opening of Bulgaria's first Ikea store in Sofia on September 20. And even after years of delay to their €50m investment, Fourlis look set to expand their franchise even further with two more Bulgaria stores being considered over the next five years.

While some significant retail projects are not proving so lucky - eg. Mega Mall and Evropa Center in Sofia, the Markovo Tepe Mall in Plovdiv, Sun City Center in Burgas, Mall Pleven in Pleven and the Danube Mall in Russe - some enterprising investors are looking to change the function of projects, say sources. For example, one of Bulgaria's biggest developers is considering transforming an unfinished office space into an exclusive private hospital if no interest is forthcoming in the near future.