Commercial Property Expert Konstantin Kaffedzhiyski: Bulgaria’s Real Estate Market Still Has Untapped Niches

Commercial Property Expert Konstantin Kaffedzhiyski: Bulgaria’s Real Estate Market Still Has Untapped Niches

Interview with Bulgarian commercial property expert Konstantin Kaffedzhiyski.

Konstantin Kaffedzhiyski has a Master’s Degree in Economics from the University of National and World Economy (UNWE) in Sofia. He is a former lecturer in economic planning and prognosis at the UNWE Department of Marketing and Management Department.

He has more than 15 years of experience in the real estate sector, including in property and facilities management for Spanish investment holding Bogaris and in the expansion and real estate development departments of German food retail chains Kaufland, Billa, and Penny Market.


We are at the start of a new decade, still in the midst of the COVID-19 pandemic but with its winding down in sight. What is the situation on the real estate market in Bulgaria as a whole?

The residential sector of the Bulgarian real estate market has surprised us amidst the rage of the pandemic with the continuing climbing of purchase prices, at least as far as the large cities in the country are concerned.

In this uncertain situation, this price hike has been partly brought about by basic psychological necessities such as the need for security which is offered by home ownership.

What has also been particularly astonishing is the decline in demand for rental properties and the slump in rent prices.

Considering the uncertainty in a number of sectors of the economy, tenants are probably seeking to avoid the risk of being unable to finance the payments under their rent contracts.

Bulgaria’s residential properties situation is in unison with the global real estate market trends. Of course, in the event of a new big crisis in the USA such as the one from 2007 – 2008, this once again potentially carries great risks.

The office space sector of the Bulgarian real estate market is presently characterized by oversupply caused by the increased usage of home office during the pandemic, the inauguration of new office spaces, and the absence of new business entities seeking office space.

You have more than 15 years of experience with large-scale business and commercial properties. What have been the trends in the market of business properties in Bulgaria in the past decade?

The prices for purchasing apartments and zone properties in cities with greater demand and promising locations started at crisis price levels a decade ago, and have been growing ever since at different rates of intensity.

Over the past decade, we have seen the intensive expansion of the five largest food retail chains in Bulgaria (in terms of turnover). The number of individual stores of supermarkets, discounters and hypermarkets has grown.

The leading food retail chain in Bulgaria has reduced the number of new openings of its hypermarkets. The rest — led by their expansion plans — have kept opening new stores. I think the top five chains (in terms of turnover) also include a regional supermarket chain based in Sofia, which has now started to expand in the satellite towns in Sofia’s metropolitan area.

With respect to the shopping malls (i.e. venues of several floors which also host various retail chains outside the food sector), the last the decade has seen the end of the intensive phase of their development in Bulgaria.

The third largest food retail chain in the country has managed to position itself in all shopping malls. This has been largely thanks to a colleague of mine in this field, an experienced manager from whom I’ve learned a great deal about team management and team motivation.

We have also witnessed the construction of retail parks in Bulgaria. Their development has also reached a “saturation” point.

The previously negligible share of online trade has been a favorable factor for the development of all commercial venues.

What have been the big changes within property during COVID-19 pandemic?

The administrative measures imposed by the Bulgarian government because of the coronavirus pandemic have led to the shutting down of some venues, and to working hour restrictions for certain age groups in other venues. That has decreased or “frozen” the turnover of entire retail chains.

In spite of the pandemic, the purchasing of homes has continued, albeit at a reduced pace, judging by the number of real estate property deals in Bulgaria’s five largest cities.

The COVID-19 pandemic has forced some of the banks in Bulgaria to reduce the number of their branch officers which has actually been a long delayed optimization.

It is their oversight, however, that they have failed to preserve their ATMs at the spots of their former branch offices (the respective landlords would have hardly refused such offers) since the income per square meters from ATMs is actually very good. That is a loss the banks have suffered due to oversight. They have thus also broken a tradition, and some of their clients have been forced to go to the competition.

We have seen a flourishing of the use of mobile apps and websites for online banking so the share of online trade has grown substantially in this market sector.

Every investor who intends to open a new commercial venue will have to take into account the share of online trade in the respective region, a new factor influencing the analysis of a certain location.

Part of the banks in Bulgaria have faced criticism for having constructed large office buildings for themselves, and for maintaining in them large administrative staff which isn’t efficient enough. As a result of that, however, they have freed up other buildings that they used to rent. This has also had a considerable impact on Bulgaria’s property market.

A large number of buildings constructed in Bulgaria’s communist period (1944 – 1989 – editor’s note) have needlessly been granted the status of cultural heritage monuments. The current bureaucracy is delaying for years and is hindering the abolition of their cultural heritage status.

Are there parts of Bulgaria’s legislative framework which you think should be changed in order to boost investment and commercial activity in the real estate sector?

As a principle, legislative frameworks should be sustainable and shouldn’t have to be changed for long periods of times. Of course, individual provisions need to be reconsidered but not in a parrot-like fashion. In particular, this is true of the norm in Bulgarian legislation regulating the issuing of technical passports for buildings. (This is applicable to the buildings in almost all of the larger cities in Bulgaria.)

I would like to clarify that the Bulgarian parliament has set all buildings under the same standard based on their total built-up area. The legislators, however, should also take into account the year of construction as a factor. Thus, for example, all buildings from the period before 1960 should be in a group of their own, and they should then be prioritized based again on their total built-up area; the same should apply to all buildings constructed between 1960 and 1980 as a separate group, and so on.

The bigger problem is that building, respectively apartment owners do not realize the feasibility of the above-mentioned document, and would prefer to save the expenses for receiving it.

Furthermore, there is definitely a risk that part of the firms tasked with the technical surveying of the buildings would do their job as a sheer formality. I do categorically emphasize that the issuing of technical passports for buildings must be carried out with the respective high degree of responsibility, competence, and precision.

It’s important not to omit the fact that apartments in buildings without this certificate would find themselves out of the property market until the respective building receives it.

What is your guiding principle in the managing and/or marketing of diverse real estate properties in order to achieve greater return on investment?

In the drawing up of a business plan for any development, the most essential things are that it should be realistic for the respective location, and that the investor’s interests should be protected by minimizing the risks. For me, the guiding principle is loyalty to the investor.

In order to gain experience in the early years of my career, I worked for several leading companies with portfolios in various spheres. A good theoretical foundation isn’t sufficient for striking a good deal. Only after you have bumped your head into various cases, calculated the ROI in various segments of real estate market, and negotiated with owners from various parts of the country with diverse culture, lifestyle, upbringing, traditions, customs, habits, and views – and you’ve managed to speak their language – only then would you be able to achieve better results.

For me, it was especially important to gain practical experience in all sectors of the property market before the bursting of the real estate bubble in 2007 – 2008. It was partly because of this why at the time I left a German grocery store chain retailer for a Spanish investment holding with projects in all real estate spheres.

The second strong motive for this change was that as a graduate of the University of National and World Economy, based on my knowledge and market research about the population’s purchasing power at the time, back then I was able to forecast that the German company in question was applying a wrong development strategy on the Bulgarian market.

My forecast was proven correct years later and the chain in question pulled out of the Bulgarian market precisely because of its flawed target setting. Unfortunately, however, at that time I had no means of stopping and rectifying their flawed mechanism.

With respect to the period after 2012, I would like to point out that even though expansion is individual work, apart from moving their own projects forward, every senior expansionist also supports their junior colleagues so they can accelerate the development of their own projects. The reason for that is that the good teamwork atmosphere creates a favorable environment for achieving better joints results.

When can better investment opportunities be expected on the Bulgarian property market?

There will be better investment opportunities in Bulgaria, in the real estate market and not only, when corruption is reduced and the administrative capacity is improved substantially. And also when the investors are no longer treated as “ours” and “others” in some places in the country.

There are still untapped niches on the Bulgarian property market that stand to be filled.

You have been the top expansionist for two of the largest international retail chains in Bulgaria. What has been your approach to location selection? Are the most important factors for location selection a secret?

There are no secrets in the selection of locations. You start off with the best location, the one that is going to generate the highest revenues, the place where consumers will be going through, and where they will generously open up their wallets (or swipe their credit cards). That is where the revenues for the company will be the highest.

To follow up on that, when you have your “heart set” on a certain location, how do you make the project happen from there considering the potential challengers, the complexity and the sheer number of actors involved?

There is no question that I have had my heart “set” on certain properties but after the initial surveying phase it could be established that the property in question cannot be bought for any of a wide range of reasons.

Then, without wasting any time, you head out for negotiations over the second or third best location in terms of market power.

Depending on the investor firm’s deadlines, you can negotiate directly with the owners of all three locations simultaneously but property owners usually know one another so they could engage in dumping and the investment opportunity could fail for all three locations. That is why I try – even though it is hard – not to invest emotions in my work. I focus on sober and realistic analysis.

Do you prefer working on new commercial developments or with already existing properties? Or it does really matter for the seasoned real estate professional?

What matters for the junction of the interests of both parties (vendor and vendee) and with respect to the conducted surveys (architectural, urban planning, geodesy, geological) is the total concurrence of the initial forecast in the business plan (ROI) and the other parameters.

For the companies in which I’ve done this, I’m happy to say that the forecasts have proven to be 3-4% better than my original prognostication. This shows that I prefer to bet on realistic-conservative parameters. So, as a follow-up on your previous question, when these are my results, that’s when I have my heart set on the respective projects.

In the development of business properties, with so many actors (from clients to auxiliary services to government institutions) involved, what should be the common thread for a capable properties manager?

I’m not going to pretend as though this isn’t an extremely interesting question. Any property could be purchased after an internal company decision affirmed by the board of directors. That should predate the signing of the preliminary sale contract. Every expert in the property sector builds up their reputation among the several thousand real estate owners in Bulgaria, and if they don’t get their project approved, that would mean they would mislead the owners and their reputation would be damaged. The only possible common thread is honesty in communication.

What is your approach or your guiding principle to team building in the real estate sector? How do you make a network of diverse professionals – from appraisers to marketers, to brokers – bond?

If I may, I am going to expand your question and go back in time a little bit.

When I was 5, I spent a day in the bank where my mother was in charge of payment operations for architectural bureaus and construction firms. The bank was guarded by police officers, and apparently I was impressed with their presence. One of my mother’s colleagues asked what I wanted to do when I grew up. I replied without hesitation: “I want to be the police chief!”

My next point in this answer is my university application. Most of my peers were after the accounting major. I chose marketing and management, and graduated with a high GPA in 2000.

With respect to engineering topics, I’ve learned from my father who is a builder, and later became an engineer, and was also in charge of investment control.

I also learned from Mr. Werner Nowotni in the period around 2005. I’ve built up my data collection skills; my skills for outlining an idea project in accordance with the legal requirements; my skills for improving of work habits and optimization of the work process. In my negotiations with more than 1,500 property owners throughout Bulgaria so far, my hobby, which is psychology, has been a great asset.

When I worked for the Spanish investment holding, I was lucky to be in the team of Mr. Raul Garcia, who showed me how to build a team, how to set everyday common goals, how to create the necessary atmosphere, among others. Of course, I am grateful to him for that.

Against the backdrop of Bulgaria’s environment, however, my best example has been Mr. Dragiya Dragiev with his skills for efficient work and his approach to the team, which he perfects by the minute – that’s the best I’ve seen so far. It cannot be explained in a single question, or even a single interview, it deserve an entire book dedicated to that.

You have a strong academic background, including as a university lecturer in economic management. How much of academic theory have you applied directly into your work as a real estate professional?

A lot.

What are the new challenges in your career from this point onwards?

I have a strong desire and the confidence to cope with the challenge of being a manager but not of subcontractors and external contractors, as I have been until now, but to assume the responsibility of managing a team, and the role of a Deputy Managing Director. I hope to achieve this goal, and I will emphasize again that it would be great to have a mentor at first, and that I would like to be in the financial nonbanking sphere.

*This interview was published jointly by, HeartlandHinterland, and