MARKETBEAT WALLONIA OFFICE MARKET H2 2018
CONTENTS
01 02 03 04 05 08
Executive summary
Economic overview
Belgian regional office markets
Walloon office markets: Liège, Namur, and Charleroi
Walloon Brabant
Regional office investment market
WALLONIA OFFICE MARKET H2 2018
EXECUTIVE SUMMARY •
H2 take-up across regional markets amounted to 221,000 sq m, including 19,000 sq m in Wallonia and a record-breaking 156,000 sq m in Flanders.
•
Demand in 2018 propelled take-up to its strongest year this century with a total of 354,000 sq m. Take-up in Wallonia amounted to more than 63,000 sq m (Figure 1), and 290,000 sq m in Flanders.
•
Highlight deals across Wallonia in H2 were led by Belfius’ 6,000 sq m purchase for own occupation of the Combattants project in Namur, where the usual suspects (public and finance sectors) have played a key role once again.
•
•
•
•
Close to 70,000 sq m of new spaces were delivered in the latter half of 2018 while as much as 226,000 sq m could be added to the stock in 2019, including 60,000 sq m which are being developed speculatively. The global vacancy rate for regional markets is 4.80% Flanders vacancy is 5.20% and in Wallonia vacancy is 3.55% with very few Grade A spaces available. Regional prime rents are still led by Namur in Wallonia and overall (EUR 160/sq m/year). The Flanders prime rent is EUR 155/sq m/year in Antwerp. Investment volumes in regional office markets picked up substantially in H2, clocking up EUR 188 million, bringing the total for 2018 to EUR 215 million, in line with levels of the previous three years. All investments were carried out by Belgian buyers.
63,000 sq m TOTAL WALLONIA TAKE-UP IN 2018, THE REGION’S STRONGEST LEVEL SINCE 2012
3.55% WALLONIA VACANCY RATE.
Figure 1 Walloon office markets take-up, sq m 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2014
Liège
2015
Namur
2016
Charleroi
2017
2018
5Y Avg 2014-18
Source: Cushman & Wakefield
Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2018
2
ECONOMIC OVERVIEW GDP growth on the downward in 2019. Recent indicators suggest that the Belgian economy is stabilising 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 Wallonia 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 Wallonia Office Market H2 2018
OLO 10-years
Oxford Economics
4
BELGIAN REGIONAL OFFICE MARKETS Record take-up year in regional markets. Figure 8 Take-up in regional markets, sq m
Demand in 2018 was bookended by strong first and last quarters to propel take-up to its strongest year this century with a total of 354,000 sq m (Figure 8). Take-up in Wallonia amounted to more than 63,000 sq m, and 290,000 sq m in Flanders.
400,000 350,000
300,000 250,000
In Q4, demand rebounded in style after a lacklustre Q3 to register a record quarter as take-up amounted to 165,000 sq m (221,000 sq m over H2). This is mainly attributed to a record quarter in Flanders (156,000 sq m; 202,000 over H2); Wallonia recorded 9,000 sq m (19,000 over H2).
200,000 150,000 100,000 50,000
In Wallonia, key deals were mainly located in Namur and included Belfius’ purchase of the Combattants project (6,000 sq m), the SPW (Walloon public sector)’s 2,200 letting of Rue Marie Henriette 60, and the 1,200 sq m letting by the Forem in the Namur Office Park.
0 2014
Q1
2015
Q2
2016
Q3
Q4
2017
2018
5Y Avg 2014-18
Source: Cushman & Wakefield
Demand was once more especially oriented towards Grade C products which accounted for 54% of take-up in 2018 (Figure 9). There was indeed a regression of Grade A take-up compared to 2017 (39% in 2018 against 52% in 2017).
Figure 9 Take-up distribution by building grade, Belgian regional office markets, 2018
Due to lack of new stock, some Grade B- and C products priced at Grade A levels in certain markets; new speculative projects are therefore eagerly awaited to regulate the supply.
A 39% C 54%
Strong (speculative) pipeline for 2019.
354,000 sq m
Approximately 70,000 sq m of new spaces were delivered in H2 including the 5,600 sq m Sonaca Green building in Charleroi and the speculatively built 4,700 sq m Business Park Loncin in Liège.
B 7%
As much as 226,000 sq m are under construction across regional markets and could be added to the stock in 2019, including 60,000 sq m which are being developed speculatively.
Source: Cushman & Wakefield
Figure 10 Belgian regional office prime rents, EUR/sq m/year
The global vacancy rate for regional markets is 4.80% Flanders vacancy is 5.20% and in Wallonia vacancy is 3.55%.
170 160 150
Highest prime rents in Namur and Antwerp.
140
As far as prime rents are concerned, Namur has the highest among regional markets with EUR 160/sq m/year; in Flanders, the highest is Antwerp with EUR 155/sq m/year (Figure 10).
120
130
110 2014
2015
Antwerp Leuven Charleroi
2016 Ghent Liège
2017
2018 Mechelen Namur
Source: Cushman & Wakefield
Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2018
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WALLOON OFFICE MARKETS LIÈGE, NAMUR, AND CHARLEROI Best year since 2012.
Namur has highest rent in Wallonia.
H2 take-up in Wallonia was in line with average levels of activity with 19,000 sq m of take-up, enough to bring the year’s total to more than 63,000 sq m (Figure 11). This means 2018 was the most dynamic year in terms of demand since 2012.
The highest prime rent (EUR 160/sq m/year) is located in Namur, the result of pressure from the lack of availability. Liège’s prime rent is stable at EUR 150/sq m/year, as is Charleroi’s (EUR 130/sq m/year) (Figure 12).
Namur (10,000 sq m in H2) was the most popular Walloon destination in H2 for large office deals as underlined by Belfius’ purchase of Artone’s 6,000 sq m Combattants project near Namur train station. Further deals involving the Forem (1,200 sq m letting in the Namur Office Park) and regional authorities (SPW let 2,200 sq m at Rue Marie Henriette 60) once again demonstrate how essential the banking and public sectors are to Wallonia’s administrative capital. Liège (6,500 sq in H2) and Charleroi (2,100 sq m) also recorded some noteworthy movements. Indeed there was a 1,000 sq m letting by ArcelorMittal in Liège, and a 1,100 sq m letting by AVIQ in the Grade A Soleo in the centre of Charleroi, as well as a 900 sqm purchase by Oxysphair in Courcelles.
Figure 11 Walloon office markets take-up, sq m 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2014
Liège
Liège projects at forefront of pipeline.
2015
Namur
2016
Charleroi
2017
2018
5Y Avg 2014-18
Source: Cushman & Wakefield
A myriad of schemes are afoot to continue to renew the office stock in Wallonia and provide quality outlets for the record level of demand witnessed in recent years. In Liège, Befimmo’s Paradis Express is expected to soon be speculatively launched, adding 21,000 sq m near the Guillemins station. En Féronstrée works are underway with delivery expected in 2019, adding 11,500 sq m of available space to the stock. Upcoming projects in the centre will benefit from the tram project which will function from 2022. Long term projects will also benefit the periphery, indeed Liège Airport has announced a masterplan for its 50,000 sq m Liège Airport Business Park, to be developed next to the terminal building over several phases, the first commencing in 2019. This comes in addition to Project²’s L’Escale project on the other side of the E42. In Herstal a masterplan for the former ACEC-site is being drafted, the 26 hectare site will include offices as well as other functions.
Figure 12 Walloon office rents, EUR/sq m/year 180 160
140 120 100
80 60 2014
2015
Liège prime Namur prime Charleroi prime
2016
2017
2018
Liège average Namur average Charleroi average
Source: Cushman & Wakefield
In Namur, Belfius’ Combattants offices will be delivered by Artone in 2021. Also near the Namur train station, Baltisse has acquired a 1 hectare plot of land to develop a mixeduse project expected to include some offices. In Charleroi, I-Tech 6 a new 25,000 sq m incubator and business centre will be developed for the Biopark in Gosselies, a major Walloon R&D hub. The overall vacancy rate in Walloon markets has decreased to 3.55%, a figure mainly attributed to Grade C availabilities. Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2018
6
WALLOON BRABANT Subdued 2018.
Figure 13 Walloon Brabant office take-up, sq m
Walloon Brabant recorded one of its weakest years in recent memory with a total of 21,000 sq m. Having started of well, H2 take-up was no improvement on the first half of the year and totalled 11,000 sq m (Figure 13).
40,000
35,000 30,000
Indeed, among 20 deals, only one was over the 1,000 sq m mark, a purchase by the Walloon Brabant province in the Collines de Wavre.
25,000 20,000 15,000
Most deals in H2 took place in Mont-Saint-Guibert, just outside of Louvain-la-Neuve, either in the Axis Parc or the Watson & Crick Park. The low transactional volume can surely be in part attributed to a lack of alternatives stemming from available supply as few new schemes have been entering a market which is in direct competition with Brussels’ Ring and Airport districts for some deals.
10,000 5,000 0 2014
Q1
2015
Q2
2016
Q3
2017
2018
Q4
Source: Cushman & Wakefield
Figure 14 Walloon Brabant prime office rents, EUR/sq m/year
Lack of alternatives in pipeline.
180
Walloon Brabant’s lack of alternatives is further underlined by its ever decreasing availability rate which now stands at 4.28%.
160 140
120
Furthermore, the pipeline continues to be characterised by a lack of new projects and risk taking. Nevertheless, 2019 will see the delivery of CBTC Smart Valley in Louvain-laNeuve (20,000 sq m) which can provide some oxygen to the market, which requires further substantial competition from its various poles including Waterloo and Brainel’Alleud..
100 80 60 40 20
0 2014
2015
2016
2017
2018
Source: Cushman & Wakefield
Prime rent recorded in various locations. Following an increase at the beginning of the year, the prime rent has stabilised at its currrent level of EUR 155/sq m/year (Figure 14). This has been recorded in several locations including Braine-l’Alleud and Mont-Saint-Guibert. Average rents vary between EUR 125- and EUR 135/sq m/year.
Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2018
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188 MEUR Invested volumes in H2 2018 in regional office markets
INVESTMENT MARKET REGIONAL OFFICES Large deals, small deals, regular volume. Investment volumes in regional office markets picked up substantially in H2, clocking up EUR 188 million, bringing the total for 2018 to EUR 215 million, in line with levels of the previous three years (Figure 15).
Figure 15 Annual invested volumes, EUR m 300
30
250
25
Alinso’s purchase of The Crescent and several units of Axxes in Ghent for EUR 48 million right at the end of the year was the largest deal in 2018. Encouragingly, further large Flanders investments involved Belgian REITs as Intervest Offices & Warehouses purchased the Ubicenter in Leuven for close the EUR 34 million, while Leasinvest acquired Hangar 26 & 27 in Antwerp at the end of the year – possibly as a result of attractive yields on offer in regional markets
200
20
150
15
100
10
50
5
In Wallonia, the standout transaction in H2 was Belfius’ purchase for own occupation of the Combattants project in Namur (EUR 20 million).
Source: Cushman & Wakefield
The increased number of deals points to a greater liquidity for smaller tickets (under EUR 10 million typically) being transacted.
0
0 2014
2015
2016
Wallonia regional markets
2017
2018
Flanders regional markets
# deals (RHS)
Figure 16 Investments by origin 100% 80%
Blanc-bleu belge.
60%
Regional markets are perceived as something of a specialty market (compared to Brussels) from abroad and 2018 was no exception as all verified buyers are of local extraction (Figure 16). Indeed, international investors are more likely to be involved in large tickets such as Ghent’s Zuiderpoort in recent years.
Prime yields under pressure in Flanders.
40% 20% 0% 2014 2015 Belgium United States
2017 China
2018 Other
Source: Cushman & Wakefield
Wallonia prime yields have remained stable at 6.75% throughout the year, while Flanders yields have undergone a slight compression to 6.15% (Figure 17). With further top-class assets expected to be traded in Flanders in 2019, this level is anticipated to further decrease.
2016 Europe
Figure 17 Prime office yields 8.50% 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
5.00%
Prime yield Flanders
Prime yield Wallonia
Source: Cushman & Wakefield
Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2018
9
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 metres:
Unless stated otherwise, the square meters used in this publication refer to the Gross Leasable Area definition for Brussels. For more information, see our Insight: Office Lease Area Comparison.
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. Adjacent office spaces, when known, are not included. Pure contract renewals, sales and leasebacks and sub-lettings are not included.
Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2018
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CONTACT DETAILS
AUTHOR Shane O’Neill Senior Research Analyst +32 510 08 33 shane.oneill@cushwake.com
Koen Nevens
Antoine Brusselmans
Marc-Antoine Buysschaert
Northern Region Leader
Head of Office Agency
Head of Capital Markets Office
Head of Belgium & Luxembourg
+32 2 546 08 86
+32 2 546 08 75
+32 2 546 08 63
antoine.brusselmans@cushwake.com
marc-antoine.buysschaert@cushwake.com
Christophe Ackermans
Kris Peetermans
Haike De Vogelaere
Head of Valuation & Advisory
Head of Valuation & Advisory
Head of Asset Services
+32 2 629 02 87
+32 2 546 08 76
+32 2 629 02 43
christophe.ackermans@cushwake.com
kris.peetermans@cushwake.com
haike.devogelaere@cushwake.com
koen.nevens@cushwake.com
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