Bulgaria’s location is extremely favorable for investment in logistics projects, although we have not yet observed the rapid growth typical for countries like Poland and the Czech Republic. Certainly, this is because of the fact that Bulgaria’s real estate development lags behind Central Europe’s. However, this does not explain why Romania has outstripped Bulgaria in logistic development, while in regard to all other segments the two countries are on equal levels.
Most industry professionals, however, say that new retailers, which are entering the market, actually accelerate the development of logistic centers. Twenty malls have been projected in Bucharest alone and there are at least twenty more in other cities in the country. But malls are being built in Bulgaria as well.
"The main advantage of Romania is its size", Vlad Dimitrescu, of the Romanian unit of Prologis, assumes. Since 2006, the Romanian logistic sector has been making rapid progress. Demand for logistic space in some areas has seen huge increase and supply is respectively trying to respond to the new requirements. Three hundred thousand sq m of new logistic space is due to for delivery in Romania in 2008.
Excessively high prices of land are one of the main problems investors face in Bulgaria. There is huge disparity between land values and rental levels, the Managing Director of Elta Consult CBRE, Valeri Leviev, said. Some areas, which have seen investment in other market segments, have higher prices of land, which makes these locations inappropriate for logistics development. Prices for land, suitable for logistic activities in Sofia, average between EUR 50 and 60 per sq m, twice the values found in Bucharest, which range from EUR 25 to EUR 35 per sq m. This adds to higher construction outlays (which increased by 10 to 12% in 2007) and additionally raises the expenses for projects, turning Bulgaria into one of the most expensive countries in the central and eastern-European region in terms of costs for logistics developments.
Another drawback for developers is the fact that the process takes too much time from land purchase, provision of public utilities to obtaining construction permits, said Rory Mepham, of Pinnacle, and commercial real estate developer in the CEE.
Nevertheless, developers have great interest in this market. The whole area from Sofia to Plovdiv has the potential to be developed as a real transport hub.
Light industry is intensely advancing and more Austrian and German companies tend to take interest in Bulgaria and to get their plans in the pipeline, Elta Conslut CBRE’s Leviev notes. There is a tendency for large logistics operators to shift to villages in Sofia’s metropolitan area like Elin Pelin and Bozhurishte for instance. The Northeastern part of the capital (around Kremikovtsi, the metallurgic plant) is also considered attractive. Probably rents in Bulgaria will not rise this year as they have already reached a certain limit, while the central-European levels are likely to see a sort of rise, Mr. Mepham said.
Despite the problems in the logistics sector, developers are still heading for Bulgaria and there are several international companies, which are now planning their first projects, the participants in the Balkan Real Estate Conference (BalREC) commented.
Rory Mepham, Pinnacle: There are several factors, which determine the quality of logistics projects in a region - the proper infrastructure, positive demographics and access to labor. Some markets feature really low unemployment rates. But if you purchase a really good plot now and labor force turns out to be insufficient, the quality of this plot may drop significantly. Possibly, rents in Bulgaria will not go up this year as they have already reached their limits. Central Europe, however, might see a sort of increase in rental levels.
Valeri Leviev, Elta Consult CBRE: Developers of logistics projects follow the progress of other sectors. The whole area from Sofia to Plovdiv has the potential to be developed as a transport hub. The cost of logistics plots in Bulgaria is one of the highest in the CEE region.
Vlad Dimitrescu, Prologis: Poland is the largest commercial center in Central Europe while Romania is the largest one in the Southeast. Investors in Romania like to acquire land quickly but this is possible on rare occasions. In 2008 demand in Romania has rapidly gone up and has even increased three-fold in some regions. This sudden leap cannot be maintained simply by existing supply.
Simeon Mitev, Re/Max Chance Group: Developers are looking for spacious areas and good locations close to transport corridors. Once new logistics parks have come onto the market rental levels will fall down.
Galina Dimitrova, Colliers International: Developers should be able to show flexibility as demand is constantly surging. They have to find the proper correlation between different types of space they provide. Warehouses for high tech products tend to be in greatest demand in Bulgaria.
Jaap Wind, Immo Industry Group: Investors and developers follow the economic activity. The market is developing at stages. The logistics sector in Central Europe is perfectly developed. The next hot location is highly likely to be Turkey. Investors and developers have to be swift enough and work everything out in advance.
