BRUSSELS / Office Q2 2023

Towards a cap on prime yields?

The closing of the Treesquare acquisition in the early stages of the quarter made it possible to set a number on prime yields at somewhere around 4.30%. However, circumstances have changed since then, and ECB (European Central Bank) rate hikes, now in their eighth straight raise, have driven prime yields even higher. Therefore, prime office yields have been revised upwards again in the second quarter of 2023 to a new theoretical level of 4.60% for standard leases.

Christine Lagarde, President of the ECB, has stated that “stubbornly high inflation all but guaranteed another move next month and likely beyond that too”, which would have the effect of increasing prime yields even further, to 4.80% by the end of the year.

The investment market is still ice cold

The market was already investing more than a billion euros in the Brussels market at this time last year, but the volume invested currently totals only 305 MEUR. “Big tickets” that fuelled the investment market last year are already a thing of the past, with current volumes peaking at 44 MEUR

The continuing rise in yields and tightening financing conditions has significantly impacted the investment market in the first half of the year, and trading volumes currently being lower. This semester's average transaction volume is at 15 MEUR, compared to 53 MEUR last year. The largest transactions recorded this quarter are the purchase of Treesquare by KGAL and the sale of Liberty House to Alides for 43.7 and 36 MEUR, respectively.

Exclusively Belgian players

Due to uncertain economic conditions, some investors have adopted a more cautious approach and have paused their investments. The market is no longer attracting investments from beyond Europe, and now relies solely on local investors. Almost a third of the volume recorded since the beginning of the year has come from Belgian players, with the rest of the volume coming from neighbouring countries.

Furthermore, ten of the nineteen transactions recorded were in the Valueadd/Redevelopment field, demonstrating the opportunism of investors striving to create value in renovation projects