As incomes rose and consumers became more discerning with their disposable income, Bulgaria's retail sector continued to grow. This year saw a sharp increase in the construction of shopping centres as the country's retail sector continued to gain maturity, after lagging behind Central Europe for several years.

In August, an international real estate consultancy firm reported that by the end of the first half of 2007, the gross  area of shopping centres under construction, that were available for lease, increased by 138 500 sq m to 201 000 sq m, making retail the most active sector of commercial real estate.

There are currently six malls in Bulgaria with a total gross area for leasing of 105 000 sq m. Take-up of units is high: "except for a few schemes with poor concept design and management, all major shopping centres have full occupancy", the consulting firm said.

There has been a glut of announcements of shopping centre investments over the past year, filling a gap in the market that emerged as Bulgarian consumers became more affluent and discerning. Countries in Central Europe such as the Czech Republic and Hungary led the way in retail development among the former communist states of the region, but as these markets became saturated, foreign retailers and mall developers turned their attention to the south-east. Bulgaria's gross domestic product (GDP) growth rate, which averaged six per cent for the past three years and is expected to achieve at least this rate in 2007, and open markets have created a new consumer class.

While existing malls and planned developments were clustered in Sofia, attention has turned to other cities. Bulgaria's third largest city, Varna, was singled out by the consulting firm, which said the Black Sea port was "shaping up as a very competitive market with five projects within a one km radius".

Varna is the centre of Bulgaria's summer tourism industry, with resorts stretching north and south along the coast. Sector analysts see tourists as a growth retail market. In the past year, a total of 5.2m foreign visitors came to Bulgaria and the government predicted a rise of 6.4 to seven per cent this year.

The development of shopping centres was matched by, and increasingly went hand in hand with, the entry of hypermarkets and discount food retailers into the country.

There was much anticipation about which major retailers might start operations in Bulgaria, to follow competitors such as Germany's Metro, Kaufland and HIT, Hungary's CBA and Austrian chain Billa, among others. While over the past few years, the German firm Lidl, part of the same Schwartz holding company as Kaufland, has flirted with the idea of entering the market, it has not done so yet. However, there are rumours among industry insiders that it may once again be considering opening shops in the country. Slovenia's Mercator announced it will open shops in Bulgaria by 2010.

The potential of malls has drawn in Europe's largest retailer by sales, Carrefour, which will base its first hypermarket in Bulgaria at the heart of these shopping centres. The chain is the developer of a new 90 000 sq m Sofia mall, where it will open its first store in Bulgaria within the next 12 months. The total investment of $109.3m will create the largest retail centre in the region. The mall is expected to employ around 2300 people, according to Carrefour.

Jerome Louber, CEO of Carrefour Bulgaria, said several of the company's hypermarkets would follow the model used in Sofia and would be incorporated into mall projects, adding that "the next 15-20 years look very promising".

However, Carrefour will have to contend with strong competition from Bulgarian supermarkets such as Piccadilly, which also often bases its shops in malls and shopping centres. It has announced plans to extend its network of stores to 16 by the end of 2008 -  up from 10 at the end of last year. Piccadilly found its niche among middle-class shoppers looking for a range of foods from essentials to more boutique products.

However, there was some scepticism about Bulgaria's short-term ability to absorb all the mall projects currently being floated, given the relatively small population and still low incomes. It is likely that not all those on the drawing board will be built in the near future. Some large foreign retailers have decided the Bulgarian market is not for them. Few industry observers expect an entry from the UK's Tesco, which has thrived in Central Europe. This February Ramstore, a branch of the Turkish firm Migros Turk, pulled out of Bulgaria with company representatives telling OBG the firm intended to concentrate its resources in the Commonwealth of Independent States in a move to realign the company's priorities.

Even so, the number of mall developments and the entry of serious players such as Carrefour are indicative that confidence is not only robust, but also growing.