MARKETBEAT BRUSSELS OFFICE MARKET H2 2018
CONTENTS
02 03 05 08 09 10 11
Executive summary
Economic overview
Brussels office market
Brussels office market // Central districts
Brussels office market // Decentralised districts
Brussels office market // Periphery
Investment market
BRUSSELS OFFICE MARKET H2 2018
OVERVIEW Solid investment market and Impressive letting activity in H2. The Brussels office market recorded a total take-up of 361,000 sq m in 2018, representing close to a 10% decrease compared to 2017 (Figure 1). Yet, thanks to the last two quarters, the total activity for the year was much higher than what was anticipated in H1 2018. The year ended with 337 deals, compared to 377 deals last year. 2019, however, is forecasted to be a successful year with take-up exceeding 400,000 sq m, mainly boosted by several public bodies looking to relocate. Coworking operators maintained their remarkable expansion and represented more than 25% of the take-up in Q4 and a fifth of the entire letting activity this year. The vacancy rate in H2 dropped to 7.98%, its lowest level since 2001. This is mainly explained by the low level of speculative developments that entered the market over the last few years, together with the demand from occupiers to relocate to more qualitative office spaces. An important pipeline of both speculative and committed projects is anticipated for 2019. The delivery of large and partly empty speculative developments is expected to increase the vacancy rate in the coming months. Nevertheless, the numerous projects in the pipeline should also increase the number of pre-letting transactions. As anticipated, prime rents in Brussels increased before the end of the year to 315€/sq m/year and are expected to remain stable throughout 2019. The second half of 2018 saw an increase in prime rents for the three most important central districts of the capital (Leopold, Centre and North). Average rents are observed between 165€ and 170€/sq m/year and are expected to remain more or less at this level in the near future.
315€/sq m/y. PRIME RENTS INCREASE IN LEOPOLD, CENTRE AND NORTH DISTRICTS
1.9B EUR BEST YEAR SINCE 2007 FOR THE BRUSSELS OFFICE INVESTMENT MARKET
Figure 1: Brussels office take-up volumes (in 000 sq m, LHS) and share per district (%, RHS)
800 700 600 500 400 300 200 100 0
80% 70% 60% 50% 40% 30% 20% 10% 0%
Take-up
CBD
Decentralised
Periphery
Source: Cushman & Wakefield
The Brussels office investment market reached an impressive EUR 1.9bn at the end of 2018, the best year in more than a decade. A remarkable 77% of the total investment volume came from foreign investors. All sectors included, approximately EUR 4.9bn has been invested in Belgium this year. The prime office yields in the CBD compressed further to a historically low level of 4.25%, and are expected to remain at this level throughout 2019. The long-term prime office yield remains unchanged at 3.65%.
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
2
ECONOMIC OVERVIEW GDP growth on the downward in 2019. Recent indicators suggest that the Belgian economy stabilised in 2018, with an industrial production and private consumption remaining robust. But consumer confidence and business confidence are now falling as geopolitical instability is growing. As such, GDP growth is expected to witness a downside in 2019, around 1.4%, compared to 1.7% in 2017. In the longer term, the GDP growth is expected to stabilise at 1.5% on a yearly basis. The evolution is forecasted to be different in Brussels in 2018 compared to the two other regions. Indeed, the Capital region is expected to witness a slight downward of its GDP growth while Flanders and Wallonia are expected to slightly increase (Figure 2). In the longer term, the path will be similar for the three regions of the country and globally in line with the evolution of the Eurozone.
Confidence indices at its lowest since 2017. After having witnessed a continuous increase since 2013, consumer and business confidence indices have slightly decreased during 2018 (Figure 3). Although domestic demand and production showed some resilience, the consumer confidence indicator is clearly no longer at its peak and is showing pronounced downward momentum. Furthermore, households expect the labour market situation to worsen and their financial situation to deteriorate. Business confidence is also waning as risks to trade are mounting. In light of the escalation of the US-China trade conflict, it now seems almost unavoidable that the US will slap tariffs on European car imports, which could have an impact on the supply chains. Uncertainties on the Brexit are also negatively impacting the confidence indices.
Unemployment rate at a record low 6% in Belgium. The unemployment rate is at a record low 6% in Belgium. However, it has remained relatively constant all over the year 2018. Despite this slight decrease, Belgium is still offering an important of vacant jobs as there are some mismatches between employers’ demand and the skills. It’s also to mention that a hard Brexit could negatively impact the labour market as more than 40,000 jobs are at risk in Belgium. Although on the decrease in the country’s three regions, important disparities are still observed, with the unemployment rate in Flanders below 5% while it should stand below 15% in Brussels before the end of the year. Wallonia is between the two with a rate around 8.5% (Figure 4).
Figure 2: GDP growth, in % 3% 2% 1% 0% -1% -2%
Brussels Source:
Flanders
Wallonia
Eurozone
Oxford Economics
Figure 3: Confidence indices 10 5 0 -5 -10 -15 -20 -25 -30
Consumer confidence Source:
Business confidence
Belgian National Bank
Figure 4: Unemployment rate, in %
20% 15% 10% 5% 0%
Brussels Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
Flanders
Wallonia
Oxford Economics
3
ECONOMIC OVERVIEW Employment growth should be driven by services firms. According to the Federal Planning Bureau and Oxford Economics in their latest forecasts, the employment growth in Belgium will be driven by administrative & support functions and jobs related to information & communication with an employment growth between 2% and 3% for 2018. In the longer term, the employment growth is expected to decelerate, though remaining positive up to 2022. Employment in the public sector is expected to remain stable while some relocations linked to the reform of the State could impact the regions differently. Employment in the finance and insurance sector will continue to decrease by around 1% per year in the coming years.
Figure 5: Employment growth, in % 6% 4% 2% 0% -2%
Public sector Information & Communication Other services
Inflation at 2.05% in 2018.
Source:
Inflation reached 2.1% in 2017, above the Eurozone average. The situation remained relatively stable in 2018 with an inflation at 2.05%. 2019 should witness a slight decrease with an inflation forecasted around 1.5%.
Figure 6: Inflation, in %
From 2020, evolutions in the Eurozone and Belgium should be similar, with an inflation expected to remain slightly below 2% between 2020 and 2022.
ECB policies remain supportive in 2019. Although the ECB ended its asset purchase programme, the policy will still remain accommodative for a long time. We don’t expect interest rate hikes before the end of 2019 or the beginning of 2020. This, along with an acceleration of aggregate demand and rising capacity utilisation will support business investment. The 5-years and 10-years government bond yields are respectively at 0% and 0.71% at the end of 2018 and should remain at this low levels all along 2019, though the elections of May could still have an impact (Figure 6).
Structural limits to medium-term growth Over the medium term, the economy faces a number of structural constraints, adding to a small negative impact from Brexit. Drags on growth will include: •
•
•
Fiscal constraints: the government has taken steps towards deficit reduction. But further improvements in public spending efficiency, such as reforming pensions, are needed to reach a balanced budget. Labour market fragmentation: employment rates vary widely across skills and age groups, with firms lacking an incentive to hire low-skilled workers, thus constraining the decline in structural unemployment.
Oxford Economics, Federal Planning Bureau
3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0%
Belgium Source:
Eurozone
Oxford Economics
Figure 7: Belgian Government bond yields, in % 6% 5% 4% 3% 2% 1% 0% -1%
OLO 5-years
Competitiveness problems: reforms to put a halt to long trend of rising labour costs appear to have worked. But the tight labour market should lead to upward pressure on labour costs.
Finance & Insurance Administrative & Support
Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
OLO 10-years
Oxford Economics
4
BRUSSELS OFFICE MARKET GLOBAL OVERVIEW A solid 224,000 sq m recorded in H2. Unlike the first two quarters of the year, H2 2018 recorded a better-than-expected take-up of approximately 224,000 sq m. As a matter of fact, H2 2018 was the best second half of the year since 2010. The gross take-up for the year amounted to 361,000 sq m, close to a 10% decrease compared to the total letting activity in 2017 (Figure 8). The Brussels office market recorded 337 deals this year. This represents an 11% decrease compared to the 377 deals registered in 2017. The biggest transaction of the year occurred in Q3 and came from the public sector with the letting of 18,000 sq m by the EEAS in the New Espace Orban in the European district. The Central districts attracted 65% of the total take-up this year, the highest proportion since 2003. The Decentralised areas registered some significant transactions such as the 12,000 sq m purchase in the Mercure Center I by Plastic Omnium in the North-East district. Nevertheless, the takeup activity in the Decentralised regions has not been this weak since 2012. The Periphery experienced the lowest take-up activity ever recorded. While the Airport district continues to perform quite well, the Ring area has suffered deeply from a very low activity this year. In fact, the takeup in the Ring district has never been this low. Coworking and serviced office spaces have gained a lot of attention in the market over the last couple of years. Yet, the expansion of the coworking sector in Brussels this year particularly was quite remarkable. With 15 deals and a take-up of 72,500 sq m, coworking operators contributed 20% of the total letting activity of 2018. Compared to last year, the number of deals doubled and the take-up more than tripled (Figure 9). Approximately 1% of the total office stock in Brussels is currently dedicated to the coworking sector. This figure is now perfectly in line with the average of main European cities (excluding the UK).
Vacancy rate decreases below 8%, its lowest level since 2001.
Figure 8: Quarterly take-up (000s sq m, LHS) and number of deals (RHS)
600
600
500
500
400
400
300
300
200
200
100
100
0
0
Q1 Source:
Q2
Q3
Q4
# Deals
Cushman & Wakefield
Figure 9: Coworking take-up (000s sq m, LHS) and number of deals (RHS) 80 70 60 50 40 30 20 10 0
16 14 12 10 8 6 4 2 0
Co-Working Take-up Source:
# Deals
Cushman & Wakefield
Figure 10: Vacancy by building grade (m sq m, LHS) and Brussels vacancy rate (%, RHS)
Over the last few years, a relatively low level of speculative new supply has entered the Brussels office market. This, combined with the increasing tendency from occupiers to (re-)locate to more qualitative and more modern office spaces, has caused the vacancy rate to decrease to 7.98%, its lowest level in 17 years (Figure 10). However, availability is forecasted to increase again due to the expected delivery of partly empty office projects in 2019.
1,6
13%
1,4
12%
1,2
11%
1,0
10%
0,8
9%
0,6
8%
0,4
7%
0,2
6%
Significant disparities in vacancy rates can still be observed between districts. The CBD districts have a low 4.9% availability rate while the Decentralised and Periphery districts have a vacancy rate around 13% and 14% respectively.
0,0
5%
Grade A Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
Grade B
Grade C
Vacancy rate
Cushman & Wakefield
5
BRUSSELS OFFICE MARKET GLOBAL OVERVIEW Significant pipeline awaited in the next three years. Approximately 80,000 sq m of new supply were delivered in 2018 in the Brussels office market. Notable deliveries in H2 include the Montoyer 63, GreenHouse BXL and Treesquare. A further 583,000 sq m of both committed and speculative office supply is currently under construction and should enter the market by 2021 (Figure 11).
Figure 11: New supply and pipeline, in 000s sq m 400 300 200 100 0
Moreover, about 180,000 sq m (11 projects) are not yet under construction but obtained a building permit and could eventually enter the market by 2021. Next to some large committed projects currently under construction, such as the Centre 58, the De Ligne, and the new HQ of BNP Paribas Fortis, about 360,000 sq m have been launched speculatively. The most significant projects are the Manhattan Center, the Quatuor, the Phoenix, Gare Maritime, The One and the Spectrum. However, from all these speculative projects, more than 145,000 sq m have already been pre-let, meaning only 215,000 sq m (including The One and the Quartz which are both currently under negotiation to be entirely let) could still be available by 2021. Taking all these potential factors into account, we can observe that the actual available future supply substantially reduces, especially in the CBD. The numerous projects should also increase the number of pre-letting transactions, which often occur closer to the building’s delivery date. Nevertheless, the vacancy in the market is still forecasted to increase again in 2019 due to the expected delivery of partly empty speculative developments. This might also negatively affect the vacancy level in grade A buildings, which currently stands at 34,000 sq m, or around 3% of the total vacancy.
Prime rents increased to 315€/sq m/year. Prime rents increased in Q4 to 315€/sq m/year and are expected to remain stable throughout 2019. Our forecasts indicate that these could further increase to reach 325€/sq m/year by the end of 2021. Average rents, too, increased slightly and are observed between 165€ and 170€/sq m/year. (Figure 12). Significant disparities can still be observed between the different districts in Brussels as the prime rental levels vary from 145€ to 315€/sq m/year. Average rents are to be found between 115€ and 200€/sq m/year (Figure 13). Over the last five years, huge disparities have also been observed within districts as rents can vary between 70€ and 315€/sq m/year in the Leopold area and even between 75€ and 345€/sq m/year in the Centre (Figure 13).
Completed Under Construction | Pre-let Project Without Building Permit Source:
Under Construction | Available Project With Building Permit
Cushman & Wakefield
Figure 12: Prime and average rents, in €/sq m/year 325 300 275 250 225 200 175 150 125
Prime Rents Source:
Average Rents
Cushman & Wakefield
Figure 13: Rents bands by district, in €/sq m/year (20132018) 340 290 240 190 140 90 40
Prime rent 2018 Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
Average rent 2018
Cushman & Wakefield
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BRUSSELS OFFICE MARKET DASHBOARD
Take-up 2018 (sq m)
Office stock End 18 (sq m)
Vacancy rate End 18 (%)
Prime rents (€/sq m/year)
Average rents (€/sq m/year)
Leopold
85,728
3,338,082
4.52%
315
197
Centre
60,339
2,457,611
4.37%
275
184
North
56,546
1,470,085
3.72%
210
125
Louise
23,469
861,498
7.19%
245
183
Midi
8,672
571,446
8.97%
195
144
North-East
30,746
1,257,721
12.03%
145
124
South
26,688
1,139,194
12.98%
185
154
West
2,152
313,973
19.95%
175
137
Airport
37,079
1,144,140
18.44%
185
131
Ring
7,871
484,740
11.88%
145
115
Walloon Brabant
21,452
429,396
4.28%
155
132
District
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
7
BRUSSELS OFFICE MARKET CENTRAL DISTRICTS Healthy H2 for Central Districts. Overall, the year ended with 235,000 sq m of take-up in the central districts, an 8% increase compared to 2017 (Figure 14). 65% of the total take-up was registered in the central areas, which is the highest proportion since 2003. Four out of the five biggest transactions of the year occurred in the CBD, with the largest being the 18,000 sq m letting by the EEAS in the New Espace Orban in the Leopold region. Coworking operators had a combined take-up of 60,500 sq m in central districts this year. Notable transactions include SilverSquare in the Quatuor Building (North district), Fosbury & Sons in The Dome (Centre district) and WeWork in the Belmont Court and Light-On (Both in the Leopold district). Activity next year is forecasted to boost in the CBD mainly thanks to the expected (re-)location of many public organisations including the European Commission, the Flemish administration, the Brussels administration and the National Bank of Belgium. Furthermore, the vast majority of significant projects currently under construction and expected to be delivered before 2022 are located in the CBD and should be able to attract important private and/or public tenants in the near future.
Figure 14: Quarterly take-up by district, in 000s sq m 160 120
The North district continues to witnesses the lowest vacancy rate of the entire Brussels office market at 3.7%. However, the situation could change in the coming months with the delivery of partly empty projects such as the Manhattan Centre, the Phoenix, Gare Maritime, and the remaining part of the Quatuor, which might impact the availability in that area.
Prime rents at 315€/sq m/year and expected to remain stable. Prime rents in the Brussels office market have increased before the end of the year to a historically high level of 315€/sq m/year. In fact, the prime rental levels for the three most important central districts of the capital, namely the Leopold, Centre and North districts, experienced an increase in the last two quarters. No changes are to mention regarding the average rents currently recorded around 200€/sq m/year.
280 225
235 217
100 80
138
60 40 20 0
Leopold Source:
Midi
Centre
North
Louise
Cushman & Wakefield
Figure 15: Vacancy rate by district, in % 16% 14% 12% 10% 8% 6% 4%
Vacancy still decreasing. The vacancy rate in the central districts reached its lowest level since 2001 at 4.90%. Availability rate in all central districts experienced a decreased in the last two quarters with the exception of the Midi district which remained stable since the beginning of the year (Figure 15).
286
140
2%
Leopold North Source:
Midi Louise
Centre Central districts
Cushman & Wakefield
Figure 16: Prime and average rents, in €/sq m/year 325 300 275 250 225 200 175 150 125
Leopold Centre Louise Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
Midi North Avg weighted rent Central
Cushman & Wakefield
8
BRUSSELS OFFICE MARKET DECENTRALISED DISTRICTS Total of 59,500 sq m in Decentralised districts. Take-up volumes in the Decentralised regions were at their lowest levels since 2012. Activity in Decentralised districts mainly slowed down in H2 after a good H1 and attained a total take-up of 59,500 sq m for the year. While the North-East and South districts increasingly gain interest from occupiers, we can observe that the West continues to suffer from a lack of attractiveness and remains the district with the lowest take-up activity in the entire Brussels office market. This year, only four transactions were recorded with a total of 2,152 sq m. The largest transaction in the Decentralised district remains the purchase of 12,000 sq m by Plastic Omnium in the Mercure Center I (North-East district) during Q1.
Decentralised districts continue their slow decrease in vacancy rate. The availability rate in the three Decentralised districts decreased during the second half of the year and the global vacancy rate for the Decentralised areas currently stands at 13.3%. (Figure 18).
Figure 17: Quarterly take-up by district, in 000s sq m
40
71
68 69
30
64
80
60
20 10 0
South Source:
North-East
West
Cushman & Wakefield
Figure 18: Vacancy rate by district, in %
25% 20% 15%
The North-East district records the lowest vacancy rate of the Decentralised areas with a rate of 12%. This is the lowest level observed for this district since 2005. The South district attained an availability rate of 13% while the West still suffers from the highest vacancy rate in the entire Brussels office market at 20%. A slight decrease can be observed in the availability rate in the West district. The high vacancy rate in that district largely stems from the lack of interest in the area and the shortage of qualitative office spaces, which negatively affects the activity of the district. In fact, no grade A buildings can be found in that area and more than 60% of the stock is considered grade C.
10% 5%
South West Source:
North-East Decentralised districts
Cushman & Wakefield
Figure 19: Prime and average rents, in €/sq m/year
210
Prime rents in the South district decrease to 185€/sq m/year.
190
The South district experienced a decrease in its prime rents this year to 185€/sq m/year. Interestingly, this means that globally the prime rents for the Decentralised district and the Periphery are at the same level. No changes are to mention regarding prime rents in the West nor the North-East (Figure 19).
150
The average rents remain quite stable and currently stand around 140€/sq m/year. Significant disparities are still observed between the West and the two other districts.
170
130 110
South West Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
North-East Avg weighted rent Dec.
Cushman & Wakefield
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BRUSSELS OFFICE MARKET PERIPHERY Lowest take-up ever recorded for the Periphery The Periphery recorded a take-up of approximately 66,500 sq m this year, the lowest level ever registered. This represents a 40% decrease compared to last year. Only 86 transactions were recorded this year compared to 133 in 2017. The largest transaction in the Periphery was the 5,850 sq m letting by Ingenico in the Corporate Village B (Airport district). Nevertheless the Airport district continues to perform quite well and remains the most successful area in the Periphery in terms of take-up activity. The Ring district, on the other hand, continues to suffer from a declining activity. This was particularly the case this year as the Ring district registered its lowest take-up ever. This could partly be explained by the lack of qualitative office spaces in the Ring area, but also by the better accessibility in the Airport district. Over the years, these two factors have created some sort of office hub around the Airport area which also seems to attract numerous tenants. This year, Roche Diagnostics is a prime example of the increasing trend for large corporations wishing to remain in the Periphery to relocate from the Ring region to the Airport district. The Walloon Brabant district recorded a lower take-up than the levels witnessed in the last couple of years. This district, however, remains an interesting alternative for corporate occupiers with a Walloon workforce.
Figure 20: Quarterly take-up by district, in 000s sq m
60 50
94
40
111
102
66
75
30 20 10 0
Airport Source:
Ring
Walloon Brabant
Cushman & Wakefield
Figure 21: Vacancy rate by district, in % 25% 20% 15% 10% 5% 0%
Vacancy rate continues its downwards trend. The Periphery continues to record slight but persistent downward movements and reached its lowest level since 2001, around 13.94% (Figure 21). Walloon Brabant is by far the district with the lowest vacancy rate in the Periphery, currently recorded at 4.28%. Although decreasing, the Airport district still suffers from a high vacancy rate, recorded around 18.45%. Meanwhile, the lack of new developments in the Ring district has reduced the vacancy rate to 11.88%.
102
Airport Walloon Brabant Source:
Ring Periphery
Cushman & Wakefield
Figure 22: Prime and average rents, in €/sq m/year 200 180
Prime rents remain unchanged
160
Prime rents in the Airport district remain at €185/sq m/year. In fact, no changes have been observed since the notable increase that took place in 2016 (Figure 22).
140 120 100
The prime rental levels in the Walloon Brabant district increased to 155€/sq m/year earlier this year and are expected to remain at this level. In the Ring district, the prime rents remain unchanged at 140€/sq m/year. The average rental levels have not experienced any drastic changes and still remain between 125€ and 130€/sq m/year.
Airport Walloon Brabant Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
Ring Avg weighted rent Per.
Cushman & Wakefield
10
EUR 1.9 bn Brussels office investment market experiences best year in more than a decade.
INVESTMENT MARKET GLOBAL OVERVIEW A total of EUR 4.9bn invested in Belgium in 2018. All sectors included, approximately EUR 4.9bn was invested in Belgium in 2018 (Figure 23). This volume was boosted by some significant transactions, both in the office and in the retail sectors, mainly during the first half of the year. In fact, Q1 2018 saw the highest investment volumes ever recorded in any first quarter. The most notable commercial acquisitions of the second half of the year (excluding portfolio deals) were The One, the Loi 15 and Tour de l’Hopital. Interestingly, these were all office deals and they all occurred in the CBD of Brussels.
Figure 23: Quarterly invested volumes, EUR bn 5,0 4,0 3,0 2,0 1,0 0,0
Q1 Source:
Q2
Q3
Q4
Cushman & Wakefield
Office sector represents 44% of the investment volume. The retail sector represented 40% of the total investment volume in 2018. This was mainly due to some significant acquisitions that took place in H1 such as the Woluwe Shopping Centre (468 MEUR), the Rive Gauche (around 300 MEUR) and Docks Bruxsel (around 300 MEUR).
Figure 24: Distribution of the invested volumes by sector 100% 80% 60%
As anticipated, the office sector overtook the volumes invested in the retail sector. A total of EUR 2.12bn was invested in the Belgian office sector (wherefrom EUR 1.9bn in the Brussels office market), which represents a 44% share of the total investment quantity. The industrial investment market had its best performance since 2008 with a total investment volume of 315 MEUR. This was mainly boosted by the sale of two portfolios in Flanders. The healthcare segment recorded an investment volume of approximately 97 MEUR, which represents a 23% increase compared to 2017.
40% 20% 0%
Brussels office Industrial Source:
Regional office Healthcare
Retail Other
Cushman & Wakefield
Figure 25: Prime yields by sector
Prime yields still under pressure. For a while now, the European market has experienced a continuous compression of its prime yields in all sectors largely due to the intense appetite coming from investors, both domestic and foreign. This was also the case in Belgium where its prime yields decreased to record lows all in all sectors.
8% 7% 6% 5% 4% 3%
Prime yields in the office sector compressed further towards the end of the year to an historically low 4.25%. Similarly, in the logistics segment, prime yields decreased from 5.90% to 5.25%. The nursing homes sector, too, experienced a slight compression and currently stands at 4.90%. Prime yields in the retail sector, on the other hand, remained stable this year at 3.15%.
2%
LT Office High Street Retail Nursing Homes
Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
Office Industrial
Cushman & Wakefield
12
INVESTMENT MARKET BRUSSELS OFFICE INVESTMENT MARKET Best year since 2007 for the Brussels Office investment market.
The largest transaction of the year was by far the sale of the Egmont (369 MEUR, Centre). Other significant transactions include the second part of the sale of the Engie HQ (140 MEUR, North), the PassPort (131 MEUR, Airport) and the Arts 56 (116 MEUR, Leopold), which all took place in Q1. The largest transaction of H2 was the sale of The One in the Leopold district.
Most investment transactions ever recorded. 2018 witnessed the highest number of investment deals ever recorded with a total of 56 transactions (20 in H1 and 36 in H2). (Figure 27). The first half of the year was characterised by the sale of several large assets, with four deals above 100 MEUR, and attained a total investment volume over a 1 billion EUR. The second semester, on the other hand, recorded almost twice as many deals and achieved a total investment volume of approximately 858 MEUR. The average deal size in the first half of the year was around 60 MEUR. Due to the large number of small transactions that took place H2, the average deal size for 2018 almost halved to 33 MEUR.
Foreign investors represent 77% of the total investment volume. An impressive 77% of the total investment volume came from foreign investors, one of the highest proportions ever recorded (Figure 28). European investors dominated the investment market this year with a share of 48%. Despite being involved in two transactions above 100 MEUR (PassPort and The One), the majority of the investment volume from European investors came from the numerous transactions between 20 MEUR and 90 MEUR. With only two deals, Korean investors attained a share of 27% and managed to maintain their important position as being one of most active players in the Brussels investment market. This was mainly attributable to the acquisition of the Egmont I & II in Q1. Belgian investors continue to struggle to purchase prime assets as the international competition is still fierce. Except for Befimmo, which acquired the Arts 56 for 114 MEUR, Belgian players were only active in deals below 35 MEUR.
Thousands
The year ended with close to 1.9 billion EUR invested in the Brussels office market, the best year since 2007 (Figure 26). This was mainly boosted by an exceptional first quarter with a volume of approximately 973 MEUR.
Figure 26: Annual invested in EUR bn (LHS) and prime yields (RHS)
2
7,0% 6,5% 6,0% 5,5% 5,0% 4,5% 4,0% 3,5% 3,0%
1,5 1 0,5 0
Invested volumes Source:
Prime yields
Cushman & Wakefield
Figure 27: Investments by lot size (LHS) and number of deals (RHS) 100%
60
80%
50
60% 40 40% 20%
30
0%
20
Under EUR10m EUR50-100m # Deals Source:
EUR10-20m EUR100-200m
EUR20-50m Over EUR200m
Cushman & Wakefield
Figure 28: Investments by purchaser origin 100% 80% 60% 40% 20% 0%
Belgium Middle-East Source:
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
Europe Middle-East
North Americas Other
Cushman & Wakefield
13
INVESTMENT MARKET BRUSSELS OFFICE INVESTMENT MARKET Office prime yields compressed to record low at 4.25%.
Figure 29: Prime office yields 9,0%
The prime office yields in the CBD decreased during Q3 and again in Q4 to a record level of 4.25%. The prime yields are forecasted to remain stable at the current level throughout 2019 (Figure 29). The long-term prime office yields remain unchanged at 3.65%. The 3.50% mark seems to be the psychological threshold for investors in Belgium, although strong interest for these very secured assets is still observed in Brussels and could lead to a further slight compression. Prime yields in the Decentralised district and in the Periphery have not witnessed any compression this year. However, a slight compression in the Decentralised district is forecasted for 2019. Currently, prime yields are to be found at 7.25%, both in the Decentralised district and in the Periphery.
8,0% 7,0% 6,0% 5,0% 4,0% 3,0%
Prime Source:
Decentralised
Periphery
LT Prime
Cushman & Wakefield
Foreign investors are mostly competing for assets in the Central locations. However, they are increasingly looking for investment opportunities in decentralised and peripheral areas, proving there is appetite for every segment.
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
14
BRUSSELS OFFICE MARKET DEFINITIONS Availability:
Represents the total floor space in existing properties, which are physically vacant, ready for occupation and being actively marketed as known on the last day of the quarter (with a margin of error of 5%). The vacancy rate represents the total vacant floor space divided by the total stock at the survey date.
Building grade:
Grade A: newly developed or comprehensively refurbished to new standard, including sublet space in new/refurbished buildings not previously occupied. Grade B: buildings of good specification, floor plate efficiency and image usually but not exclusively ten years old or less. Grade C: remaining poorer quality stock.
New supply:
Represents the total amount of floor space that has reached practical completion as known on the last day of the quarter (including major refurbishments) regardless whether the space is occupied or still available on the market
Prime rent:
Represents the attainable average prime rent that could be expected for an office unit (min. 500 sq m) commensurate with demand in each location, highest quality and specification in the best location in a market at the survey date. The rent is given as a base rent, i.e. no service charge or tax is included.
Square meters:
Unless stated otherwise, the square meters used in this publication refer to the Gross Leasable Area definition for Brussels.
Stock:
The office property stock is the sum of office properties which are in use and office properties standing empty at the time of analysis. The office property stock is not a static amount. Due to new-build or totally refurbished operations it increases (new supply), due to demolition, change of use or even larger refurbishments that make the space not usable for a significant amount of time, it decreases.
Take-up:
Represents the total office floor space known to have been either let, pre-let or developed for tenants as well as sold or pre-sold to owner-occupiers as known on the last day of the quarter. Pure contract renewals, sales and leasebacks and sub-lettings are not included.
Effective take-up:
Turnover ratio:
Net absorption:
Represents the difference between the office space let or purchased by an occupier and the office space known to have been released by the same occupier in building(s) previously located in the considered office market. Space reduction by other tenants within their current office is not included in the calculation. The turnover ratio is defined as the 12-months take-up moving average as a proportion of the stock size. It indicates where real growth continues to develop. Is equal to the stock occupied at the end of a period minus the stock occupied at the beginning of a period and takes into consideration space vacated or vacant space delivered during the period.
Development:
Refers to the purchase of commercial real estate during the development /construction / comprehensive refurbishment phase where the completion date is known. The price of development deals refers to the acquisition price rather than the end value of the building/project.
Investment:
Refers to the purchase of commercial real estate for the purpose of receiving an income or rent.
Owner Occupation:
Refers to the purchase of commercial real estate for the sole purpose of occupation.
Prime yields:
Represents the initial yield estimated to be achievable for a notional office property of highest quality and specification in the best location fully let and immediately income producing in a market at the survey date.
Cushman & Wakefield | Marketbeat Brussels Office Market H2 2018
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Research EMEA
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Disclaimer This report has been produced by Cushman & Wakefield for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. The data contained in this report is based upon that collected by Cushman & Wakefield. Our prior written consent is required before this report can be reproduced in whole or in part.
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