For sellers

Sofia Market in 2020 – Impact of Covid-19 Pandemic

14 December 20

2020 is almost over, we can now look back and try to make sense of it all

…so what happened on the Sofia property market in 2020?


Author: Tony Vidolov

Rental Properties


Rental properties were the first to take a hit.


During the first wave we saw many apartments vacated due to the inability of tenants to earn during the restrictions of the lockdown. Nearly half of our tenants requested temporary rent reductions to live through the quarantine, and while no one still knew what exactly we were facing, their plans for upgrading their accommodation were put on hold.


With the introduction of online studying, Studentski Grad rentals suffered the most whilst all Universities closed and naturally students vacated their accommodations and returned home. We witnessed this process throughout the city, but overwhelmingly so in Studentski.


With a total lock down and lack of international travel, all central short-term lets remained empty, which drove many landlords to switch their night by night rental to a long-term residential letting, thus drastically increased the city’s supply resulting in more vacant apartments on the market in premium parts of Sofia.


By summer we saw rental prices fall by an average of 10-20%, particularly clearly whilst attempting to fill vacated apartments with new tenants. 2020 has seen the highest vacancy rates in our 15-year history.


Placing new tenants, which typically takes 0-3 weeks, now has extended to an average of 6-8 weeks. In cases where landlords have not adjusted their pricing according to the new reality, they have simply remained empty. Landlords who granted 30-50% rent reductions over 1-3 months during the first wave typically kept their tenants, and after the optimistic summer with Bulgaria being amongst the lowest infection rates in Europe, things seemed to be heading back towards a new normal.


However, the second wave arrived in late October and by mid November had overwhelmed the health services; a tenfold escalation in cases and a new lock down resulted. Anti-Covid measures closed restaurants, bars, schools and Universities and these measures remain in place at the time of writing.


As with the first wave, the rental properties began vacating once again and rent reductions requests returned.


What does this mean for me as Sofia landlord?

If you still have tenants in your property you should act decisively and generously to hold on to them, do cater for their needs and do your best to keep the apartment rented. This is not the time to consider breakeven figures, choices have become between ‘some income’ or ‘no income’.


If they request rent reduction for a few months to help their cashflow, a new fridge for instance or repainting etc, indulge these normally untypical requests. Small motivations to keep them in place have proven to go a long way, the list of landlords who said no and then experienced months of no income will testify to this.


Replacing tenants in this climate will result in 2-4 months vacancy and lost rent, mostly likely refreshing of the apartment will be necessary at additional a cost to you. In short, aim only at keeping your tenants by keeping them happy during the pandemic.


What is the outlook?

Our expectations are that once mass vaccinations have been successful we will see a slow return to normal in the rental market, but we do not foresee this being a reality in Bulgaria until summer 2021.


What about property prices?

Property prices have taken a hit, but not nearly as much as first feared. Lifestyle properties in central and fashionable locations have been impacted considerably with some examples selling for 15% less (central, Iztok etc). Areas that are less desirable have been far more stable, (such as Ovcha Kupel or Mladost) buyers for which are purchasing for more fundamental reasons and not because of a whim or societal influence. This has helped the less valuable areas better hold their prices, although still at around 5% below what was achievable a year ago.  


In 2009 we saw a very delayed price reaction to the crisis, for different reasons owners held onto their assets and tried to ride out the pending storm, as such it was only in 2011 that prices really shifted downwards as mass distressed stock landed on the market and reality sunk in. Whilst we do not foresee a repeat, we also do not see any realistic prospect of prices increasing within the year ahead. There is no furlough scheme or alike in Bulgaria, no state protection of jobs beyond the standard welfare benefits and most are surviving from personal savings; one of which isn’t sufficient to exist and the other is finite. As such, we believe the distressed sellers are still to come.


The best case scenario is to maintain the reduced values of today, but the general expectation is that prices will stay dipped in 2021 and recovery back to 2019 levels will only be in 2022.


Who is buying?

During the pandemic many of the buyers and the sellers took holding positions, meanwhile cash rich investors circled waiting for bargains to appear. Yet, the flurry of low-ball offers in anticipation hugely discounted apartments never resulted in completed sales in our experience. Sellers simply haven’t been that desperate, at least not yet.


Official statistics show that the number of completed transactions in Sofia this year has drooped considerably, as have the volume of newly completed constructions.


In addition to the standard factors feeding any free property market; death, divorce and debt, the most active buyers on the market were first time buyers and families who needed to solve their housing problems. Buyer demand has shifted towards bigger apartments that can facilitate working from home, which has meant less demand for studios and generously sized properties to be the main focus.


Lunches, parking and commuting costs have been quick savings. These have provided 100-200 Euros / household / month more disposable income to put towards a mortgage, which translates to buying a 25-40,000 Euros larger property in Sofia, or rather an extra 20-30sqm.  


Recent study showed that 40 % of employers in Sofia will maintain a work from home policy for more than 20% of their employees in 2021. The shift in demand away from smaller and compact properties is likely to become a cultural standard for the foreseeable future.


As a landlord, should I consider selling?

If you own a property in Sofia and have been considering exiting the investment in the near future, now is an opportune time to sell, particularly if you are based in the UK.


*A special note to British owners.

If you invested in Bulgaria before 2008 you probably exchanged you Pounds Sterling at 1 Pounds to 1.40-1.45 Euros. With the current weak rate of Sterling, selling now and exchanging at 1.09-1.11 you will gain up to 25% from the exchange rate. In other words, even if you sold your apartment and made a net loss in Euros from the property market, bringing the money back to UK in Pounds Sterling might result in a net gain from the currency market.


With Brexit around the corner, analysts bet that the Sterling will rebound and begin its recovery once the deed is done, as such the window of opportunity to benefit from the favourable exchange rate might not be around for too long.