MARKETBEAT
Q3 2023
MARKETBEAT BRUSSELS / Office Q3 2023
214K
YoY Chg
12-Mo. Forecast
Take-up (000s sq m)
7.55%
YoY Chg
12-Mo. Forecast
YoY Chg
12-Mo. Forecast
YoY Chg
12-Mo. Forecast
Vacancy rate
340€ Prime rent (EUR/sq m/year)
5.00% Prime yield (3/6/9 lease)
A slow ride in 2023 and early 2024 Given the global economic condition, Belgium’s economy is in for a slow ride for 2023 and early 2024. A range of factors, including high core prices, tighter borrowing conditions, still-low consumer sentiment, and business competitiveness weigh and will continue to weigh on growth. The GDP experienced a modest 0.1% quarter-onquarter growth, and the projected annualized growth is estimated at 0.91%. The Belgian economy is anticipated to undergo a gradual expansion, with a projected GDP growth of approximately 1.7% in 2024 and exceeding 2.5% in 2025. Nevertheless, there is a higher-than-anticipated public deficit in Belgium, amounting to an additional EUR 1.2 billion in 2024. Given the recent surge in interest rates and the upcoming 2024 elections, this deficit could potentially impede the Belgian recovery. Without a doubt, inflation has been the most significant driver of economic conditions. After reaching a peak of 12% last year, the ECB has had to persist in tightening its policy. In September, the ECB implemented its tenth consecutive rate hike, bringing rates to 4.5%, marking the highest level since euro launch. As a consequence, Belgium’s inflation rate took several steps back in the past months. As of September, the consumer price index decelerates from 4.09% to 2.39% in September, this is the lowest level since July 2021. Meanwhile, in 2023, the unemployment rate remains under 6%, but it is projected to rise to 7% by the close of 2024, and further to 7.2% in 2025. From the start of 2023, business courts have declared 7,163 bankruptcies, marking a 9.5% increase compared to the corresponding period last year, albeit 5.3% lower than in 2019. Job losses in 2023 have totalled 20,090, reflecting a 30.4% surge from the figures in 2022.
Economic Indicators Q3 2023 YoY Chg
12-Mo. Forecast
0.91%
GDP Growth and unemployment rate
Inflation rate
2023 GDP Growth 8%
5.90%
2023 Unemployment Rate
4.40%
2023 Consumer Price Index
6% 4% 2% 0% -2% -4% -6%
Sources: Moody’s Analytics, BNB, Eurostat, Federal Planning Bureau, September 2023 Please note the economic data can vary significantly from one source to the other. Therefore, the figures provided should merely be used as an indication or trend.
20 18
20 19
20 20 GDP Gro wth
20 21
20 22
20 23
20 24
Un empl oymen t Ra te
20 25
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2018
2019
2020
2021
2022
2023
2024
2025
MARKETBEAT BRUSSELS / Office Q3 2023
A moribund occupational market In the third quarter of 2023, the Brussels’ office market saw 66 transactions, resulting in a take-up of 57,604 sq m. This brings the total take-up for 2023 to 214,226 sq m. While one might have expected a further slowdown in activity following 2022, demand has only experienced a 2.5% decline compared to the same period in 2022. However, it is worth noting that demand has dipped by over 15% when measured against the five-year average. This drop can be primarily attributed to reduced interest from the private sector, where the consideration of new office spaces is not currently a top priority. Due to challenging economic circumstances, the current level take-up, amongst one of the lowest in six years, closely mirrors that of 2020, a year defined by the COVID-19 pandemic and its ensuing restrictions.
Public sector continues to drive the demand After driving demand up in the previous quarter, the public sector has done it again this quarter by finalising the two largest transactions of Q3. The EU Commission recently confirmed the 14,200 sq m lease in Commerce 46, while Paradigm also confirmed a 5,500 sq m letting in the North district. Since the beginning of the year, the public sector has accounted for 40% of overall demand, mostly through large transactions. In fact, the public sector carried out the four largest transactions of the year. The proportion may increase in Q4, given that the EU still requires at least an additional 50,000 sq m in the upcoming months. Therefore, discussions regarding the lease of new buildings or projects are still in progress, with Montgomery Square being one of them.
ESG continue to exert upward pressure on prime rents
Take-up by quarter (000s sq m) 60 0,000 50 0,000 40 0,000 30 0,000 20 0,000 10 0,000 0 20 18
20 19
20 20 Q1
Q2
20 21 Q3
20 22
20 23
Q4
Take-up: Public and private split (000s sq m) 60 0,000 50 0,000 40 0,000 30 0,000 20 0,000 10 0,000 0 20 18
20 19
20 20 Priva te
20 21
20 22
20 23
20 23
20 24
Pub lic
Prime rents (€/sq m/year)
Although prime rents have held steady in the majority of submarkets, there has been a significant uptick in the North district. Notably, L’Oréal has recently secured a lease for 2,600 sq m in Befimmo's new Quatuor development.
40 0
Despite a decrease in activity, prime rents have remained on an upward trajectory. This particular transaction, along with previous ones at new prime rents, underscores the growing significance of ESG factors in shaping the future of corporate office spaces.
25 0
Prime rents are poised to keep climbing in the upcoming months, potentially reaching 360€/sq m/year as the new prime rent for the Brussels office market by the close of 2024.
10 0
35 0 30 0
20 0 15 0 20 18 CBD
20 19
20 20
De central ised
20 21
20 22
Peri phe ry
Avg. We igh te d rent
MARKETBEAT BRUSSELS / Office Q3 2023 The end of interest rate hikes? As time passes, the European Central Bank persistently raises interest rates. With the tenth consecutive hike this quarter, ECB interest rates have now reached 4.5%, marking their highest point since the introduction of the euro. Consequently, prime yields have once more been adjusted upward, and it is projected that by the end of Q3, they theoretically stand at 5.00% for standard leases. Yet, as Christine Lagarde, President of the ECB, asserts, ECB interest rates have reached levels that will make ‘a substantial contribution to the rapid return of inflation to the target’, this may be the peak for rates in drive to bring down stubborn inflation. Consequently, prime yields might experience further ascension in the upcoming months, but it is anticipated that a plateau will be reached in 2024.
The half-billion-euro mark has finally been reached Even in the face of challenging circumstances, the investment market remained active throughout the summer. The third quarter saw a notable surge of over 220 MEUR in investment, a figure twice that of the total of the first half of 2023. Although prime yields continued their upward trend, two major transactions heavily boosted investment volumes in Q3. MEAG’s acquisition of City Center for slightly over 100 MEUR marked a record amount for the year, while Ghelamco’s 70 MEUR purchase of Boreal also made a noteworthy contribution. While investment volumes are presently at their lowest, the year-end may prove to be exceptionally bustling. There are several transactions in the works, notably Cityforward's potential acquisition of the EU's portfolio of 23 buildings, a deal that could inject a billiondollar surge into the market.
Uncertainty hampers the investment market
Prime yields 6% 5% 4% 3% 2% 1% 0% -1% 20 18
20 20
20 21
20 22
Prime
Q3 23
20 24
LT Prime
20 25
20 26
10 y. Bon d
Investment volumes by quarter (MEUR) 4,00 0 3,50 0 3,00 0 2,50 0 2,00 0 1,50 0 1,00 0 50 0 0 20 18
20 19
20 20 Q1
Q2
20 21 Q3
20 22
20 23
Q4
Investment volumes by investor nationality
Due to persistently high inflation and increasing interest rates, the ”cost-of-money” is on the upswing, causing a shift in the underlying dynamics of the commercial real estate market. These shifts are reflected in high yield expectations and lower investment volumes. In the first three quarters of 2023, the average transaction volume stands at approximately 20 MEUR, a notable contrast to the 60 MEUR recorded in 2022. Furthermore, there has been a significant decline in international investment. Americans have notably scaled back their involvement in European real estate, and likewise, Asian investors have redirected their investments from Europe towards North America.
20 19
5% 6%
4%
57%
26%
Bel giu m
German y
Austria
France
Ne th erla nds
Lu xembo urg
MARKETBEAT BRUSSELS / Office Q3 2023
The coming months: a milestone in office deliveries The Brussels office market is poised for substantial expansion, indicating a shift towards more ESG-efficient work environments. It is projected that the total office space will grow by approximately 420,000 sq m by the end of 2025, reaching a total of 14 million sq m. Despite this considerable increase in supply, there are no indications of the market going wrong. The yearly addition of over 150,000 sq m represents only half of the average annual occupancy in previous years. Furthermore, nearly half of the upcoming supply has already been pre-let. Over the past few years, there has been a substantial rise in pre-let transactions. It is anticipated that as the economic condition settles down, the delivery of new projects will infuse greater dynamism, matching demand with supply.
A polarised vacancy
Office pipeline (000s sq m) 25 0 20 0 15 0 10 0 50 0 20 22
After the ECB's latest interest rate hike in September, marking one in a series of increases, the correction in CRE, which started in mid-2022, persists. According to Cushman & Wakefield’s forecasting, the European Central Bank (ECB) will pause after the recent hike, bringing it to 4.5% in the September 2023 meeting. The increases in interest rates and ongoing credit tightening is expected to be sufficient to slow the economy and bring inflation back to target, allowing both the ECB and the National Bank of Belgium (NBB) to pivot in Q3 2024. Simultaneously, commercial property values are predicted to decline further, ultimately experiencing a total peak-to-trough decrease of 25-35% by mid-2024.
20 24
Pre-l et
20 25
Avai lab le
20 26
20 27
Co mple te d
Vacancy rate by grade
Despite a decline in demand, the vacancy rate held steady at 7.2% in the third quarter. This stability is a result of a rise in residential conversion projects. Over 200,000 sq m of office space in twenty buildings are undergoing conversion into residential units, driven by more stringent energy regulations. Despite the anticipation of a substantial influx of projects into the vacant market, it is projected that the vacancy rate will maintain its stability. Nevertheless, this stability will not be uniform across the market. The high-end segment (Grade A) is expected to remain unaffected, while there may be an increase in vacancy rates in Grade B and particularly in Grade C, as tenants transition from older offices to more contemporary workspaces.
Glide path to clearer skies
20 23
10%
33%
57%
A
B
C
Office property index value 12 0 10 0 80 60 40 20 0 20 21
20 22 Base lin e
20 23 Up side
20 24
20 25 Do wnsi de
MARKETBEAT BRUSSELS / Office Q3 2023 Market Statistics SUBMARKET
STOCK (SQ M)
AVAILABILITY (SQ M)
VACANCY RATE
Q3 2023 TAKE-UP
2023 TAKE-UP
UNDER CONSTRUCTION (SQ M)
PRIME RENT (€/sq m/year)
PRIME YIELD
Leopold
3,406,314
111,391
3.27%
22,709
43,600
14,257
€340
5.00%
Centre
2,503,715
117,040
4.67%
1,842
12,084
105,813
€270
5.15%
North
1,522,992
98,909
6.49%
11,419
53,254
78,786
€270
5.70%
Louise
843,908
38,560
4.57%
3,585
24,053
49,839
€340
5.20%
Midi
599,938
18,829
3.14%
-
-
-
€195
5.90%
Decentralised
2,464,974
273,592
11.10%
9,562
20,411
142,310
€200
7.25%
Periphery
2,170,506
310,046
14.28%
8,487
60,824
136,559
€185
6.75%
Brussels (Overall)
13,513,627
968,367
7.17%
57,604
214,226
527,564
€340
5.00%
Key Lease Transactions Q3 2023 PROPERTY
SUBMARKET
TENANT
SQ M
TYPE
Commerce 46
Leopold
EU Commission
14,200
Letting
IRIS Tower
North
Paradigm
5,540
Letting
Manhattan Center
North
Mensura SEPP
3,000
Letting
C72
Leopold
Sustainable Public Affairs
2,716
Letting
Key Investment Transactions Q3 2023 PROPERTY
SUBMARKET
BUYER / SELLER
VOLUME (in MEUR)
YIELD
City Center
Centre
MEAG / AG Real Estate
101
6.00%
Boreal
North
Ghelamco / DEKA
70
-
Cortenbergh 71
Leopold
IG Immobilien / M&G Real Estate
31.60
6.25%
Nerviens 105
Leopold
Revive / Cofinimmo
20
-
Benjamin DEVIE Research Analyst | Belgium & Luxembourg +32 492 11 35 10 benjamin.devie@cushwake.com Cédric VAN MEERBEECK Head of Research & Marketing | Belgium & Luxembourg +32 2 629 02 86 cedric.vanmeerbeeck@cushwake.com Maximilien MANDART Head of Occupier Services | Belgium +32 478 24 08 02 maximilien.mandart@cushwake.com Michael DESPIEGELAERE Head of Capital Markets | Belgium & Luxembourg +32 476 82 08 59 michael.despiegelaere@cushwake.com
A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION ©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.
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