We spoke with Petar Ivanov, founder of research firm Revalue.bg about tracking the changing commercial property market in Bulgaria.
Tell us more about Revalue.bg
We are an independent research company focusing on commercial real estate. In a nutshell, we are trying to make this market in Bulgaria more transparent.
We are constantly monitoring all major segments: office, commercial, industrial, hotels and land plots. We provide both up-to-date and historical information on actual transactions (transfers and leases) through our online platform. The information is comprehensive and includes: date and value of the transaction, detailed description of the asset and its location, involved parties and more. In addition to specific deals, we also aggregate general market statistics, which we present using graphics and charts.
Our solution targets all players in the local CRE market, such as banks, appraisers, funds, and retail companies in expansion.
Why did you decide to launch Revalue.bg?
Our team have a good track record in this market. For the past decade, we have performed hundreds of valuations. We also have worked on many CRE transactions and financing projects. During this time, the main issue that we faced was that the lack of transparency and public information within the local market.
For example, how does an appraiser tend to perform a valuation of an office building? They browse the web to view rental and sales offers. We all know asking prices do not reflect real transactions. But such an assessment would be a basis for transaction, bank financing, and raising capital through the stock exchange and will reflect along the chain…
Ultimately, we launched this project because as professionals we needed more data.
What is the profile of Bulgarian property developers?
Investors are very diverse in terms of the legal form, nationality and segment in which they are active. While in residential real estate you might be able to place the average buyer as a young male with a good profession etc, such a generalisation is impossible in the commercial market.
In recent years, commercial real estate has been developing positively in all segments. Not only local but also international portfolio investors are active. There is interest in so-called ‘prime assets’ or first-class investment assets that generate regular returns. Five to ten years ago such assets were few, but now more projects of this type appear on the market.
Another characteristic of an investor profile is whether they buy for their own purposes or for periodic rent cash flow. In the case of industrial real estate and land plots, investments in recent years have been mainly for their own needs, while in offices and shopping centres, we see portfolio investments.
In other European countries, some of the largest real estate investors are pension funds. For instance, Finnish pension fund portfolios consist of 10-15 % of investments in property. What is the situation in Bulgaria?
Unfortunately, in Bulgaria, the share of pension fund direct investments in real estate is very insignificant. This is generally because of regulations. I say ‘unfortunately’, because our pension funds have huge resources, and our stock market is not very active, so they are increasingly investing outside the country.
On the other hand, our pension funds have a regulatory freedom to indirectly invest in real estate by buying shares of real estate investment trusts. However, here I see an issue again. There are simply not enough such companies with sufficiently diversified portfolios or focused in a particular segment.
The simplest example is that there is no REIT to invest in with a focus on residential properties. So at the moment, our money for retirement cannot be invested in this market, which itself has a good long term risk / return ratio. I do not want to be misunderstood here. I am not saying that our pension money should be invested solely in construction. But in retirement plans, mix and diversification are very important. So some portion must certainly be invested in real estate, as in your example in Finland. This will also help the real estate market itself. It will balance it and make it more stable. For example within bank financing, the horizon is very short, which pushes entrepreneur expectations and prices up. It is different with pension funds where the horizon is long, which can have a positive impact and balance the market.
If our retirement money is not directly invested in real estate, I see a niche for more REITs with different profiles to meet the need for this type of investment.
Do you think that the current corona crisis will modify the profile of property developers in Bulgaria?
There will be а change and I am optimistic that it will be in a positive direction. The market and investors are always changing, even without a corona crisis. This is deep within us. The pandemic and similar factors and events are just a trigger.
It is too early to say exactly how investors will change. But for now, the most affected areas are retail, hotels and offices. Strategies, models and expectations will definitely be rethought here. But again, this is nothing new. Markets are constantly changing, according to the environment and needs of market players. Investors will become more conservative and their strategies more resistant to market shocks.
How do you think the crisis will affect proptech in Bulgaria?
Proptech will certainly benefit from the current situation in the long run. The market will need more technology solutions related to cost optimization, risk calculation, project management, and sustainability.
I think changes will be in both directions. On one side, proptech firms will outpace the industry and provide new ways and technologies for better functioning of the business. On the other side, traditional industries will turn to technology to facilitate their operations and ensure sustainability.
Interesting times are to come.