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Unicredit Bulbank: The Bulgarian and Romanian Economies are Recovering Slowly

January 06, 2011, 14:34 (PX Newswire)

Both countries were badly hit by the crisis, and their real GDP growth in the years to come will be – similar to the other CEE-17 countries – considerably less vigorous than in pre-crisis times.

In both countries, national budgets and public sector debt figures are significantly better than the EU or eurozone average.

Estimates of country risk based on CDS spreads have improved noticeably. Both countries are still, however, considered to be riskier than the likes of Poland or the Czech Republic.

Interest in the two countries on the part of international investors remains slight, and the lack of interest is only partly explained by the muted economic recovery. The property markets in both countries are still judged by Jones Lang LaSalle to be only semi-transparent. The lack
of building quality can also be an issue.

Developers who can benefit from the reduced land prices and construction costs to put up energy-efficient buildings capable of returning a profit with sustainable rents (around
12 EUR / m2 per month), will enjoy a significant competitive advantage.

In both capitals, 2010 will see a further increase in office space. By the end of the year, new office space of around 280,000 m2 will be on the market in Bucharest, and in Sofia about 200,000 m2. The already high vacancy rates of 18 % and 20 % respectively will continue to rise, and rents will come under pressure again.

Competition in the retail sector has increased. In Bucharest the opening of the Sun Plaza and the Cocor took total shopping centre space to 600,000 m2. In Sofia the 2010 openings of Serdika Center and The Mall doubled the amount of shopping centre space to about 200,000 m2. This means that the Romanian capital has 305 m2 of shopping centre space per 1,000 inhabitants – comparable to Vienna, despite the markedly lower purchasing power. In Sofia, with even lower purchasing power, the figure is roughly 140 m2 per 1,000 inhabitants.

In both countries there is a shortage of quality logistics space. Prime rents are around EUR 4 / m2 per month in Bucharest and Sofia. Some old premises are let for EUR 1.50 – 2.50 / m2.

The full text of the report is available here

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