Eurozone signal strengthens, year-end price firm

The fourth quarter validated what the previous three had signalled. Bulgarian real GDP growth printed at ~3.5% year-on-year, accelerating modestly from Q3. Harmonised inflation fell below +2.7%, comfortably within the range that supports continued convergence to the ECB target. The Bulgarian National Bank held its base rate. Labour markets stayed tight. None of these are coincidences — they are the profile a country assembles when it is genuinely approaching euro adoption.

The rolling-12-month FDI figure of ~€2.1B was the quarter's most meaningful macro signal. The mix mattered: manufacturing capex from Western European industrials dominated, but real estate — both commercial and residential developer-side — remained a visible share. Foreign capital into Bulgarian property is not a one-sector story in 2025; it is the broad tailwind that keeps absolute euros rising even when any single segment cools.

On convergence, Q4 2025 was the third consecutive reading in which Bulgaria met all Maastricht criteria for eurozone accession: inflation, fiscal deficit, debt-to-GDP, long-term interest rates, and ERM II exchange-rate stability. That does not set a specific accession date — that is a political and technical process in its own right — but it removes the convergence argument as a reason for delay.

Sofia residential closed 2025 at an average of ~€1,712/m² on VIG's weighted compilation, a ~1.9% quarter-on-quarter gain and ~8.2% full-year. The Q4 pace was slower than Q2 or Q3 — consistent with the typical seasonal pattern — but the direction held. Prime districts continued to lead, with Lozenets and Vitosha seeing the widest month-to-month dispersion as discrete transaction sizes moved averages more than trend did.

Rental yields ticked up marginally in the quarter. This was not a rental-growth story; it was a transaction-mix story. Q4 closings weighted toward outer districts where yield is structurally higher. The trend direction (yields compressing as prices outrun rents) remains our base case for 2026.

Permit issuance was the quarter's subtle tell. Full-year Sofia housing permits landed +11% year-on-year, but the quarter-on-quarter pace decelerated as contractors closed the autumn window. Read this as supply responding — not collapsing. Outer-belt inventory will continue to arrive; prime-location supply will continue to be thin.

Construction cost inflation decelerated materially through the quarter. After two years of double-digit prints on the NSI construction cost index, Q4 read in the mid-single digits. For any operator starting projects in 2026, this is the single most important bottom-up data point: underwriting margin is recovering.

Q4 visible Sofia transaction flow continued the patterns set in Q3. Land trades concentrated on partially-permitted plots with infrastructure clarity. Class-A built residential remained thin. Class-B was liquid but selective; the spread between well-located Class-B and peripheral Class-B widened.

VIG reviewed 54 opportunities in the quarter, accepted 1, and declined 53. The accepted opportunity was a prime Vitosha plot with permits in hand, priced below our base-case underwriting threshold — the kind of deal that justifies the "<5% accepted" discipline metric on the platform page.

A persistent structural pattern continues to compound: operators with in-house construction capability are taking share of the 2025 deal flow. The reason is not ideological — it is margin. With construction cost inflation moderating but still material and contractor bench competition stiff, owning the construction relationship is a ~200–300 bps margin advantage on a typical Sofia residential underwrite. This is the core economic logic behind VIG&apos;s VITERRA / VIBRIX integration, and it did not become less true in 2025.

Q4 2025 was a quiet policy quarter. No tax changes, no AIFMD framework changes, no municipal-level Sofia rule changes material to residential development. The investor-residency programme remained in its narrower post-reform form.

The one live story is convergence. Annual convergence reports from the European Central Bank and European Commission are typically drafted in Q1 and published in Q2 of the following year. A Q2 2026 convergence report confirming Bulgarian eligibility would reset the political timeline for accession. Watch the Q1 drafts.