Q3 2022 | Regional Office Marketbeat | Belgium

BELGIUM REGIONAL

(EUR/sq m/year)

Belgian economy braces for choppy waters.

The Russian invasion of Ukraine and its repercussions have significantly deteriorated economic conditions Due to its reliance on energy imports, Europe is severely affected, and Belgium is no exception While GDP held up well in the first three quarters of this year, continued high inflation is expected to cause GDP to stagnate in the final quarter of the year and the first quarter of 2023. The most recent figures indicate annual GDP growth is expected to be 2.44% in 2022, decelerating sharply to 1.03% in 2023. GVA (gross value added) in office-using industries in Flanders and Wallonia (+3 83% in 2022) should face a more downbeat 2023, with 1 71% growth forecasted

In Moody’s Analytics’ baseline scenario, unemployment is expected to reduce to 2 01% (Flanders), and 7 73% (Wallonia) in 2023 before increasing in the following years.

(3/6/9

The high cost of energy has led some pundits to suggest office workers may return to the office more often in a bid to reduce household expenditure. Indeed, inflation has reached its highest level since 1976. Following a brief pause in July, inflation increased again in August and September. As a result, inflation has been revised upwards to reach a sky-high 9.35% for 2022. This level will decelerate in 2023 to 6 40% before broadly closing in on the ECB’s 2% target from 2024 It should be noted that the Federal Planning Bureau’s forecasts are more downcast

Regarding our outlook, Cushman & Wakefield forecasting has elaborated a baseline short term mild recession scenario for the Eurozone (50% probability). In this scenario, persistent inflationary pressures push the ECB to raise rates aggressively, stalling business investment and consumer spending. The Euro area economy would enter a mild recession beginning in Q4 2022 with threequarters of negative growth, before returning to moderate growth in the second half of next year

GROWTH AND UNEMPLOYMENT RATE INFLATION RATE

BELGIUM REGIONAL

Office Q3 2022

Flanders - Robust take-up backed by consistent demand, and a little help from the public sector.

Office demand in Flanders has been in line with its average levels in Q3 with 56,000 sq m of take-up recorded, which brings the current total in 2022 to 134,000 sq m Deals in Antwerp and Ghent alone constitute the ranking of the 10 largest transactions in Q3, with the public sector perhaps playing a more prominent role than usual (more on this occupier class below), led by Farys’ purchase of a 9,500 sq m of a project to be developed by Banimmo next to its Networks Ghent developments in The Loop area, in Ghent’s Zuid district. In Antwerp, the local police pre-lets 2,800 sq m in Novo, part of the Century Center renovations

In a nutshell, occupier demand in Flanders has not suffered much in the aftermath of the pandemic, except perhaps in the case of smaller, financially vulnerable occupiers, including start-ups Demand in Flanders can be broadly characterised as existing users on the market (little to no net demand is noted) in search of quality offices demand for these types of products is reinforced by companies’ ESG requirements. Well located prime products are therefore unlikely to struggle with availability issues Indeed, in Q3, approximately one third of all take up across Flanders was in Grade A offices.

In Antwerp, demand is strong across all types of occupier sectors. Some large deals involving a couple of public sector occupiers including FPD (Belgian pensions administration) and the banking sector should ensure strong take-up numbers over the next couple of quarters Meanwhile Ghent is seeing large demand from R&D occupiers spike, in addition to demand from regular types of occupiers.

70,000 sq m of speculative developments to meet demand up to 2024.

As far as deliveries are concerned, Q3 was very quiet, with only 7,000 sq m delivered in Ghent (MG Square). Upwards of 307,000 sq m could however be delivered by the end of 2024, including a decent (but perhaps insufficient) 70,000 sq m of speculative spaces required to meet the constant demand for new spaces.

Prime rents will increase in Q4.

The prime rent of EUR 165/sq m/year (found in Antwerp and Ghent) remained stable in Q3, ahead of a likely increase to EUR 170/sq m/year in Q4. Indeed, some projects are even demand as much as EUR 185 to 200/sq m/year, but it remains to be seen whether these can materialise as a trend, rather than an exception

The average weighted rent in Flanders is EUR 131/sq m/year, against EUR 129/sq m/year in 2021

FLANDERS TAKE-UP PER DISTRICT, 000s SQ M

FLANDERS NEW DEVELOPMENTS AND PIPELINE, 000s SQ M

FLANDERS RENTS, EUR/SQ M/YEAR

BELGIUM REGIONAL

Office Q3 2022

Wallonia - Muted demand in 2022.

At the current rate of take up, 2022 might end up being the quietest year since 2015 (26,000 sq m). Indeed, Q3 added slightly more than 6,000 sq m to the total, currently at 21,000 sq m this year Only a handful of deals took place, including nevertheless a deal above 1,000 sq m in each of Wallonia’s three markets, the largest being a 2,100 sq m letting in Namur Office Park, just off the E411 motorway on the outskirts of Namur Outside of Wallonia’s regional markets, Noshaq’s purchase of a 1,200 sq m space in Verviers warrants a mention.

Employment prospects in Wallonia are in their usual bracket of 7,000 office-based jobs which will have been created in 2022, and another 7,000 in 2023 (close to 3,000 jobs disappeared in 2020). However, the lower population density than in the rest of Belgium may mean that employees prefer to work from home rather than subject themselves to long commutes.

Clearly, the public sector, a muted player this year, dictates whether the Walloon office market will have a good year or otherwise. It has enjoyed a colossal 41% share of take up over the 2012 2021 period, corresponding to more than 26,000 sq m per year, against 34,000 for private sector occupiers This year, both are currently underperforming against their past averages. This may help to understand why developers have been so reserved in announcing new projects this year.

No new major projects added to the pipeline so far in 2022.

Indeed, no new major projects with permits have been announced in Wallonia this year, let alone speculative ones. Furthermore only 2,000 sq m of additional offices will be added to the stock by the end of 2022, which will result in 66,000 sq m of deliveries in total over the year

Over the 2023 2024 period, more than 194,000 sq m of new offices will be delivered, including up to 76,000 sq m which will have been launched speculatively.

In Liège, the mayor recently denounced mobility issues around the Airport, perhaps as an excuse to further develop projects in the city centre.

Grade C share increases, putting average rents under pressure.

The Walloon prime rent is stable at EUR 160/sq m/year (in Liège and Namur) and could well increase in coming quarters, althoug demand is not as strong as in Belgium’s two other regions.

In fact, the average weighted rent is trending downards at EUR 133/sq m/year, against EUR 135/sq m/year in 2021, due to the sheer weight of Grade C take up: close to 60% so far this year.

WALLONIA TAKE-UP PER DISTRICT, 000s SQ M

WALLONIA NEW DEVELOPMENTS AND PIPELINE,

SQ

WALLONIA RENTS, EUR/SQ M/YEAR

Charleroi

Wallonia

BELGIUM REGIONAL

Office Q3 2022

Life sciences and quality offices are attractive investments.

A volume superior to EUR 103 million has been invested in Flanders exclusively in Q3 This figure is exactly in line with the quarterly average for the regional markets The current invested total after three quarters therefore amounts to a respectable EUR 319 million.

This quarter’s largest investment was TPG’s EUR 60 million purchase of the Bio Accelerator in the Ghent market. R&D and life sciences assets are difficult to come by but remain highly sought after since the global health crisis as they are more driven by demographics and offer protection from the volatility of the economy

For more on this sector, please refer to our Life Sciences in Belgium report.

Elsewhere, a rare investment in Leuven is worth mentioning – Growners acquired Greenhill Campus (19,000 sq m) in Researchpark Haasrode in an add value deal.

In Wallonia, Cores Development purchases the E.Lyge project in the Cadran area of Liège for an undisclosed amount The project had thus far been awaiting a tenant before starting construction works Purchasers remain and are expected to remain broadly Belgian, as regional assets are viewed as requiring a deeper knowledge of the market, as well as local market presence

Cushman & Wakefield’s recent Where Do European Property Values Go From Here? examines investment ideas for the rest of 2022 and 2023 In its mild recession baseline scenario (see page one of this report), highquality offices constitute a somewhat attractive (mainly long term) investment, while trading at a discount (see below) due to occupiers adjusting their needs in the aftermath of the pandemic Low-quality offices are to be reconsidered as investments due to remote working, ESG standards, cost of living and rising interest rates.

Prime yields increase but spread with bonds reduces.

To counter inflation in the Eurozone, the ECB has raised its policy rate by 50 bps in July, followed by another 75 bps in September, with further raises expected by its President. The pressure on European property values is evident. Indeed, prime yields have increased by 25 bps in Flanders (now 5.50%) and Wallonia (7.00%) in Q3, a slower pace than 10-year government bond yields (OLO) The spread between the OLO and the Flanders prime yield has therefore decreased by 11 bps since the beginning of the year.

As a result of continued rate hikes, further prime yield increases (beyond 6 00% in Flanders) are inevitably expected in 2023. However, according to Where Do European Property Vales Go From Here? the report’s baseline forecast (50% probability) envisages ten-year government bond yields to trend down from 2023/2024, and office yields to follow suit.

The same report, and early market evidence in Belgium suggest that a flight to quality office buildings by both occupiers and investors will increasingly bifurcate the price gap with lesser quality buildings.

ANNUAL INVESTED VOLUMES, EUR M

PRIME YIELDS

Prime yield Flanders Prime yield Wallonia

Office

MARKET STATISTICS

Wallonia

SHANE O’NEILL

Associate Director | Research Belgium +32 2 510 08 33 shane.oneill@cushwake.com

CÉDRIC VAN MEERBEECK

Head of Research & Marketing | Belgium & Luxembourg +32 2 629 02 86 cedric.vanmeerbeeck@cushwake.com

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Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.

©2022 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.