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Construction market in Bulgaria 2009

04-06-2009 05:30 PM CET | Industry, Real Estate & Construction

Press release from: PMR Publications

The economic slowdown, a less substantial inflow of foreign capital, limitations on mortgage lending and a weaker economic climate among construction companies will cause the construction market in Bulgaria to start to decelerate in 2009. Civil engineering, which will continue to grow slightly in 2009, will not fully redress the decline in residential and non-residential construction.

After impressive growth between 2005 and 2007, in H2 2008 the construction market in Bulgaria started to level off, and in 2009 it is expected to shrink – this is one of the conclusions in the latest report from PMR, a market research company, entitled “The construction market in Bulgaria 2009. Development forecasts for 2009-2011”. GDP growth in Bulgaria is expected to slow visibly in the next few years, with a slight reduction very likely in 2009. At the same time the economic climate in construction declined significantly in Q4 2008 and Q1 2009 and returned to the level seen in the years 2002-2004, a period of minor growth in construction. The liquidity of construction companies is very low, and barter payments are becoming common.

The construction industry will suffer from the withdrawal of many external investors from the property market. At present many projects at the point of negotiation with contractors have been brought to a halt. In addition, investors in apartments and residential areas have been delaying their payments to contractors.

On the Bulgarian residential market the slowdown became apparent in the final months of 2008. New buildings and sales of flats were strongly affected by the financial limitations imposed by the banks. At the moment the number of mortgages approved by the banks in Bulgaria is falling by 80% on an annual basis, and the banks are now offering mortgages of only up to 70% of the value of the property. Holiday homes are a prominent factor with regard to the anticipated decline in the residential arena, as most of the clients came from the countries hardest hit by the crisis, such as the UK and Ireland.

The non-residential arena will also suffer from the financial crisis, as the largest projects which were supposed to have started this year have been postponed until an improvement has been seen. Of 20 malls and shopping centres announced for Sofia, fewer than half have a realistic chance of being built, and even these are not very likely to begin in 2009. The two largest projects in the non-residential arena, worth €700m, have been cancelled, and this will definitely have an adverse effect on the market.

The situation is similar with regard to office building. There are very few projects being built at the moment, and the total area does not exceed 230,000 m², despite the fact that at the beginning of 2008 it was expected that more than 800,000 m² would be opened by the end of 2010. Another interesting trend is that of re-renting offices with the sole purpose of cutting costs.

On the other hand, the logistics and industrial areas have been much less severely affected by the crisis. With regard to logistics, there is still a deficit in the supply of modern warehouses in Bulgaria. One of the reasons for this is that some of the new premises were built by companies which need them for their own purposes, and these premises do not go to the open market.

Civil engineering construction in Bulgaria is expected to continue to grow slightly in the coming years, but only single figure growth rates are possible. The development of civil engineering construction will be aimed mainly at two areas: transport infrastructure and environmental development and protection, financed mostly from EU funds.

According to Bartlomiej Sosna, a Senior Construction Analyst at PMR: “The very limited experience of the Bulgarian government with regard to the prompt spending of EU funds will mean that civil engineering will not fully redress the decline in residential and non-residential construction. It is probable that 2010 will be worse than 2009, because in 2009 the construction companies will be completing many projects started in 2007 and 2008”.

This press release is based on information contained in the latest PMR report entitled “Construction market in Bulgaria 2009 - Development forecasts for 2009-2011”.

For more information on the report please contact:
tel. /48/ 12 618 90 00
e-mail: marketing@pmrcorporate.com

About PMR

PMR Publications (www.pmrpublications.com) is a division of PMR, a company which provides market information, advice and services to international businesses interested in Central and Eastern European countries and other emerging markets. PMR’s key areas of operation include market research (through PMR Research), consultancy (through PMR Consulting) and business publications (through PMR Publications). With over 13 years of experience, highly skilled international staff and coverage of over 20 countries, PMR is one of the largest companies of its kind in the region.

PMR
ul. Supniewskiego 9, 31-527 Krakow, Poland
tel. /48/ 12 618 90 00, fax /48/ 12 618 90 08
www.pmrcorporate.com

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