Mitigated economic outlook in 2023 but a more robust 2024 awaited
After a challenging year in 2022, economic recovery will be modest in 2023, with GDP growth predicted to be about 0.6% for the whole year. The Belgian economic outlook is therefore tempered, whereas stronger GDP growth is predicted beginning in 2024 and notably in 2025. GDP growth is expected to be approximately 2.6% in 2025 and 2026. However, the Belgian public deficit will remain substantial in 2023, while public debt may continue to rise as a result of successive interest rate hikes.
The Belgian political scene is becoming increasingly tense as everyone has already the different 2024 elections in mind. In this environment, the Federal Government has many difficulties to finalize certain major changes that might have a negative impact on the global economy and/or the country's attractiveness.
This year, the unemployment rate is expected to grow to 6.17%. According to the most recent projections, it will rise even more to 7.3% in 2026. Significant regional discrepancies remain, with Flanders scoring best and Brussels performing worst.
After reaching an all-time high last year, inflation in Europe and Belgium is gradually declining. It is now 5.2% in Belgium (as of May), compared to 6.1% throughout the Eurozone. Despite the drop in energy costs, inflation remains much above the European Central Bank's 2% target, owing mostly to high food price inflation. To combat inflation, the ECB tightened its European monetary policy through repeated interest rate hikes. In this context, the 400-basis point gain over the previous eleven months is extraordinary. As a result, the pace of economic growth is slowing However, in order to meet its 2024 target, the ECB needs hike interest rates by 25 basis points in July.
GDP Growth and unemployment rate Inflation rate
Below-average take-up in a uncertain environment
Office take-up in Flanders has been lower than its average levels in H1 with 61,000 sq m of take-up recorded. In Q2, 69 transactions totaling 30,500 sq m have been recorded, similar figures to Q1. Deals in Antwerp and Ghent alone constitute the ranking of the top ten largest transactions in H1, led by Trescal’s letting of 4,500 sq m in Nijverheidsstraat 70 in Antwerp, while the public sector being muted in the start of the year In Ghent, Perrigo lets 2,500 sq m in Zuiderpoort, the large 62,000 sq m office complex.
In a nutshell, occupier demand in Flanders is experiencing hesitation, as it is in the rest of the country as well. Tenants are taking a wait-and-see strategy and choosing to renew their leases in this uncertain environment.
Promising pipeline for the upcoming years
So far, 30,000 sq m of much sought-after new spaces have been delivered this year, including close to 12,000 sq m in Ghent and 7,500 in Antwerp. Furthermore, as much as 60,000 sq m should be delivered in H2.
Many key deliveries will take place in Antwerp and Ghent in H2 including the third phases of the refurbishment of Century Center (named Pelican, in Antwerp) and Upofizz (in Ghent).
Overall, almost 90,000 sq m will be delivered this year, and as much next year, meaning that 2023 and 2024 will be landmark years for new deliveries.
Stable prime rents ahead of a likely increase by the end of the year
Prime rents remain stable, at 165€/sq m/year in Antwerp and Ghent, ahead of a likely increase by the end of the year with the arrival of new developments and the high-inflation context where increased costs will be transferred to occupier to an extent.
Ethias has confirmed the 2,150 sq m pre-letting of the Alides’ development located at Frankrijklei 121, the first transaction at a higher rent. However, because this is a build-tosuit, the rent will most likely include some of the fit-out work.
It remains to be seen whether such rents can materialise as a trend, rather than an exception
Flanders take-up per district (000s sq m)
Flanders pipeline (000s sq m)
Flanders rents (EUR/sq m/year)
Wallonia’s worst semester of take-up in 20 years
Following an already slow year for the occupational market in Wallonia, the first half of 2023 is on with a total take-up of 5,118 sq m, the worst start of the year since 2023. Two transactions totaling 3,576 sq m were recorded this quarter.
The largest deal is the opening of 3,823 sq m co-working space in Liège’s Paradis Express. This is Silversquare’s first co-working location in Wallonia, and the company intend to develop further in the region soon with the opening of a new location in Louvain-la-Neuve.
2023, a key year for new deliveries
By the mid-year mark, no less than 21,000 sq m of (re-)developed office space had been delivered in Wallonia, including Cité Administrative in Liège and Devreux 36 in Charleroi, two projects already pre-let.
The second half of the year will be a dynamic period which will see as much as 123,000 sq m of new projects delivered including a number of speculative deliveries These will include Legia Park B and Tour de l’Escale, both projects located in Liège.
On the other hand, in an uncertain context, tenants are adopting a wait-and-see approach. As a result, we could observe a longer commercialisation process for ongoing projects with a potential negative impact on the vacancy rate.
Stability amidst a challenging market
As in Flanders, prime rents in Wallonia remain unchanged this quarter. The highest prime rents are to be found in Liège and Namur, both 160€/sq m/year, while Charleroi is still at 145€/sq m/year.
Average rentals have likewise remained steady at €131/sq m/year, owing in part to the market's lack of activity.
However, the numerous new developments in the pipeline may drive up prime rents in the coming months.
Wallonia take-up per district (000s sq m)
Wallonia pipeline (000s sq m)
Wallonia rents (EUR/sq m/year)
Regional cities winning ground
While the Brussels-Capital Region has historically led the occupational market in terms of activity, with more than 60% of take-up, the trend has shifted in recent years, and we are now witnessing just as much take-up in Brussels as in the regions.
We are no longer in a centralised market around Brussels, but in a decentralised market, with secondary towns gaining in importance. Satellite offices assist companies to not only recruit but also retain talent, as well as offer employees with a better work-life balance.
Investment market revives in the second quarter
Following a barren quarter for the investment market, and despite yields continuing on their upward trend, the second quarter witnessed a resurgence of the regional investment market, with no fewer than four transactions recorded.
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 are currently lower The largest transaction recorded this quarter was the sale of Vital to Leoville Properties for 25 MEUR, which will redevelop the 12,000 sq m site in Charleroi.
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 solely relies on local investors 100% of the volume recorded in Q2 has come from Belgian players.
Towards a cap in prime yields?
As months go by, the European Central Bank (ECB) continues to hike interest rates in order to fight persistent inflation. With its latest hike in June, the eight in a row, the ECB raised rates by 400 bps overall, and as a result prime yields have also been revised upwards Prime yields are estimated at 6 15% in Flanders and 7 25% in Wallonia for standard leases in Q2.
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 effect of increasing prime yields even further, to 6.25% in Flanders and 7.50% in Wallonia by the end of the year.
