Retail Market Overview

Research & Forecast Report

Bulgaria | Retail Real Estate MarketH1 2015

Retail Market Overview | H1 2015 | Colliers International2

Bulgaria Mall Mall of So�a Mega Mall So�a Ring Mall

Serdika Center

The MallParadise Center

Low-end Middle High-end

Graph 2. Price Positioning**

**Calculations include the following categories: Fashion, Shoes & bags, Accessories, Cosmetics, Specialty store, Home décor & Houseware

*Calculations are made based on % from the overall leased space in the shopping centers

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0Bulgaria Mall Mall of Soa Mega Mall Soa Ring

MallSerdika Center

The Mall Paradise Center

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Shopping Malls High Street

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H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015

Graph 1. Share of Direct Operators*

SupplyThe retail market remained unchanged in terms of new supply in the first six months of 2015. The total stock of contemporary retail space in the country stood at 783,260 m², and for Sofia - 418,660 m². New projects openings are not expected by the end of the year. The retail activity will be concentrated on repositioning of existing shopping centers (Galeria Plovdiv and City Center Sofia) and unfreezing projects in development stage (Markovo Tepe Mall and Plaza West).

The indicator “leasable retail space in shopping centers” maintained the same levels of 345 m² per 1,000 inhabitants for Sofia and 108 m² for the country, which positions Bulgaria below the European average rate.

Colliers analyzed key retail projects in Sofia from three different perspectives. One finding is that anchors occupy approximately half of a shopping mall’s gross leasable area, regardless of its size.

The second perspective delves into the tenants’ type of operations (local, international or franchise) and their ratio in the respective shopping center. Graph 1 shows that the project with the highest share of international retailers, directly operating on the Bulgarian market, is Sofia Ring Mall (55%), followed by Mega Mall (46%) and Serdika Center (42%).

Price positioning is the third perspective from which the shopping centers were assessed. Graph 2 demonstrates the share of space leased to retailers in the low-end, middle and high-end price segment.

• Double increase in retail space absorption for the first six months of 2015 compared to the same period last year

• By adding IKEA and Comsed as its new anchor tenants, Retail Park Varna shapes as the first, modern retail park in the city

• The restructuring, optimization and replacement of big box operators marks the start of a tendency of retail zones and parks formation

• Vitosha Blvd. reached a record occupancy level since the start of its reconstruction

• 6% increase in prime rents*** in contemporary shopping centers

Retail Market Overview | H1 2015 | Colliers International3

High streets in Sofia retained stable levels of vacancy and tenant replacements for the first half of the year, respectively 8% and 7%. A mirror image of the tenant movement values was observed in two categories – Restaurants and Cafes and Fashion operators. Their shares during the first six months of 2015 were 41% and 18% respectively, while in the same period in 2014 the figures were reversed - 18% and 51%.

DemandDuring the first half of 2015 the efforts of the shopping centers to differentiate from one another entered a more mature phase. Replacements and relocations of tenants, closing of stores, new operators entries were registered throughout the period. The demand for modern retail space remained stable. The absorped space reached 9,800 m² or double the volume in the first half of 2014. During both of these periods, no shopping center was opened to public.

Tenant mix improvement was among the instruments, applied to create a competitive advantage. Colliers analysis indicates that the shopping mall with the highest percentage of turnover for the first six months of the year was Mall of Sofia (4%), followed by Serdika Center (3%) and The Mall (3%).

The new brands introduced to the Bulgarian market in the first half of the year were CCC, Brunello Cucinelli, Wycon.

As a result to the recent consolidations and ownership changes undergone in the big box segment, operators’ preferences regading way of possession changed in favor of own versus rent. In the hypermarket segment, the most active chains in terms of new openings in the last six months were Lidl (2), Kaufland (1) and Billa (1), and Lilly (4) and dm (2) from the drugstores.

Retail parks continued to further develop and modernize. With IKEA (its second store in Bulgaria) and Comsed, Retail Park Varna turned into the first modern retail park in Varna.

E-commerce started to gain speed on the Bulgarian market in the first six months of 2015, with Decathlon and H&M announcing their online stores.

Available space on Vitosha Blvd. registered 5% decline on an annual basis – the lowest value of this indicator for the last 3 years. The retailers that moved to another location shrank by half and fell from 8% to 4%. The Fashion operators continued to manifest strong interest in this high street, which is evident by the low rate of replacements on an annual basis in this category.

Rental LevelsPrime shopping centers continued to see low vacancy levels, which was reflected in a 6% growth in prime rents***. The High Street in Sofia also marked a slight increase in rents, reaching up to 41 euro per m² per month.

Forecast• Despite the lack of new major operators, the retail market demand will continue to grow as a consequence of the large supply, the repositioning of projects or change in expansion plans of retailers

• Increased activity and higher attractiveness of the retail park segment is expected as a result to improvements in the functional layouts and environment, as well as focus on synergy between operators

• The gap between rental levels in prime and non-prime shopping centers will widen further - the prime projects will continue to enjoy increasing rental levels, while the rest will need to introduce a variety of incentives to improve their market positioning

Definitions

***Prime Rent represents the average top open-market rent estimated to be achievable for a new lease of a 100 m² (net internal area) unit of the highest quality and specification in the best location, excluding service charges and taxes and not reflective tenant incentives.

****Anchor – major store (usually a chain) in a shopping centre, above 1 000 m2, being (one of) the primary draw(s) of customers.

Graph 3. Prime Rental Rates*** in Sofia (euro/m2/month)

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0Bulgaria Mall Mall of Soa Mega Mall Soa Ring

MallSerdika Center

The Mall Paradise Center

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H1 2012

Shopping Malls High Street

37 38 3941

30 3031 32

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H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015

Retail Park Varna is the first of its kind in Varna and the Northeastern part of Bulgaria. It has been established as the ultimate shopping destination, featuring some of the most prestigious local and international brands in the furniture, sports, and food segments. The project is anchored by Decathlon sports shop with its single location in Varna, the only IKEA in Eastern Bulgaria, introducing a unique store concept (IKEA Order and Collection Point) and Comsed toy store. Retail Park Varna also features a Gallery with representatives of the houseware industry, which complement the retail concept.

Retail Park Varna is easily accessible, 3km from the city center on Hemus Highway, connecting Sofia with the Black Sea Coast.

The Park has a GLA of over 12,200 m² and offers a large outdoor and underground parking. With its convenient location, efficient layouts, smart tenant mix and exciting environment, Retail Park Varna offers a unique shopping experience for the whole family.

The first Retail Park in Varna

Vladislav Varnenchik Blvd.

Vladislav Varnenchik Blvd.

Tsar Osvoboditel Blvd.Hemus Highway

ExCLuSIVE CONSuLTANT

Colliers International +359 2 976 99 76 bulgaria@colliers.com

INVESTOR

Bluehouse Capital +359 2 8165955 www.bluehousecapital.com

parking

Flexible layout to accomodate big and smaller tenants

Accelerating success.

Copyright © 2015 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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Boryana PenevaManager | Retail Services+359 2 976 9 976boryana.peneva@colliers.com

Adriana TonchevaSenior Market Researcher+359 2 976 9 976adriana.toncheva@colliers.com

Colliers International | SofiaEuropean Trade Center115K Tsarigradsko Shose Blvd.Build. B, 7th floor1784 Sofia | Bulgaria

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