Inflation still under pressure. Inflation in Luxembourg rose to an all time high of 7% in April but eased to 6 8% in May 2022 As a result, inflation is currently expected to reach a sky high 6.04% for the whole year 2022, before decelerating sharply as from 2023 to finally reach the ECB objective of 2% by 2025 Recent political evolutions shows no signs of a short term resolution to the Ukrainian crisis. Furthermore, growing tensions between China and Taiwan could potentially have an important impact on the global economy in the mediumterm. With rising uncertainties, central banks across the globe have taken the decision to increase interest rates to fight inflation, with a negative effect on public debt and a potential negative output for the economy
3.40% Prime Yield (3/6/9 Lease) 2.95% 2022 GDP Growth 4.46% RateUnemployment 6.04% Consumer Price Index ECONOMIC INDICATORS Q 2 20 22 12 ForecastMo.12-Mo.ForecastChgYoY ChgYoY GDP GROWTH AND UNEMPLOYMENT RATE INFLATION RATE 114,230 H1 2022 Take Up (sq m) 52 Prime Rent, (EUR/sq m/ month) 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. Source: Moody’s Analytics, STATEC Lux, Eurostat 4.07% Vacancy Rate -1%-2%0%1%2%3%4%5%6%7%8% 2017 2018 2019 2020 2021 2022 2023 2024 2025 GDP Growth Unemployment rate 7%6%5%4%3%2%1%0% 2017 2018 2019 2020 2021 2022 2023 2024 2025 Inflation
M A R K E T B E AT Office Q2 2022 LUXEMBOURG
In these challenging times, GDP growth has been revised on the downward and should stand around 2.29% for 2023 before experiencing a rebound due to low inflation of 1.3% in 2024. This could potentially weigh on the unemployment rate which is still expected to decrease by the end of 2022 to reach 4.5% in Luxembourg before rising again to 4.8% by 2025 Uncertainties will certainly continue to shape the year 2022.
Office Q2 2022 LUXEMBOURGMARKETBEAT TAKE - UP (in 000s sq m, LHS) & NO. OF DEALS (RHS) OFFICE PIPELINE (in 000s sq m, LHS) & VACANCY RATE (RHS) PRIME AND AVERAGE RENTS (EUR/sq m/month)
4.50%4.00%3.50%3.00%2.50%2.00%300250200150100500 2021 2022 2023 2024 Delivered Available Pre-let Vacancy rate 5550454035302520 2015 2016 2017 2018 2019 2020 2021 2022 CBD Kirchberg Station Cloche d'Or Other inner districts Decentralised Periphery 300250200150100500350300250200150100500 2018 2019 2020 2021 2022 Q1 Q2 Q3 Q4 # Deals
Small transactions drive the market.
In the second quarter, 43,000 sq m of take-up was recorded on the Luxembourg office market. The total take-up in Luxembourg at the half-year mark is 114,230 sq m
Although an important development pipeline is foreseen for the coming years, 50% of this is already pre let This shows the interest of occupiers in ESG buildings For the coming years, more than 230,000 sq m will enter the market on a speculative basis, some of the largest deliveries being the Skypark Business Center in the Airport submarket, Connection in Hamm and Wave in Bertrange
Although mid year take up is decreasing, the higher number of deals (a 15% increase compared to H1 21) reflects an undeniably dynamic market, currently based essentially on small transactions. Indeed, 63% of the transactions recorded this semester were for surfaces of less than 500 sq m. Due to the period of uncertainty caused by the war in Ukraine and rising inflation, the occupational market is experiencing hesitation and some occupiers opt for space reductions. Speculative pipeline required for the market to thrive.
At the end of Q1, the vacancy rate stood at 4.07%, a slight decrease compared to Q1 2022. Speculative projects, combined to the existing and future subleases and space reductions will lead to increase of the vacancy rate. Indeed, by 2023, the vacancy rate could reach 4.3% before experiencing a new decrease thanks to robust activity observed on the occupational market By the end of 2024, the vacancy should stand at 4.2%. Prime rents are on the rise. Due to an intense competition for the best buildings and best locations as well as rents indexation, some districts such as CBD, Cloche d’Or and Kircherg record a rise in their prime rents. In the CBD, CVC Capital Partners just confirmed the 3,000 sq m pre let of the Royal Park, setting the prime rent to a record level of €54/sq m/month. Likewise, the Kirchberg and Cloche d’Or saw an increase in their prime rents from respectively €41/sq m/month and €35/sq m/month to €42/sq m/month and €37/sq m/month.
The other districts should follow a similar evolution in the coming months. In the Periphery, new developments such as Gravity tend to dive the rents upwards. Prime rents could reach new levels of €26.5/sq m/month by 2023 in the Periphery.
In Central districts, an increase of 10 bps is expected by the end of the year, while in Decentralised districts and in the Periphery, an increase of 25 bps is expected.
Prime office yield evolution
In February 2022, the Russian invasion of Ukraine has had an exacerbating effect on the record level of inflation in Luxembourg. If the conflict persists, the global economy could be further severely affected.
Recent measures taken by central banks to fight inflation, including the increase of interest rates, should have an impact on the prime yields. The office market should adapt to this new economic pressure and although the spread between government bonds and yields is narrowing, prime office yields are expected to rise by the end of the year.
After a strong first Q1 for the investment market, the second quarter witnesses slower activity with only 190 MEUR invested across three transactions This brings the total to 513 MEUR invested on the Luxembourg office market in the first semester of 2022 The second half of the year should record a strong performance as large deals are in the pipeline including Baltisse which is keen to sell the Royal Park, a 10,000 sqm development in the CBD
After a period of compression in the past few years, prime yields in the CBD remain stable in the first half of the year and stands at 3 40% for buildings with standard lease terms
A slowdown on the investment market.
Office deals by size (LHS) and average size (MEUR, RHS)
The recent increase in interest rates decided by central banks, in order to fight inflation, had led some investors to adopt a wait-and-see position and to postpone the closing of their deals
All the other districts preserved their prime yields in Q1, ranging from 5.75% in the Periphery to 3.60% in the Kirchberg.
Office Q2 2022 LUXEMBOURGMARKETBEAT
Total invested volumes by quarter (MEUR)
A large transaction played a key part in boosting the Q2 investment volume Indeed, Acron Group acquired Wooden, the future headquarters of Baloise Assurances. The property is the largest wooden office building in Luxembourg developed by IKO Real Estate and BPI and represents a volume of 80 MEUR Prime yields stable with a possible rise by the end of 2022.
6%5%4%3% 2018 2019 2020 2021 Q2 22 Q4 2022 CBD Kirchberg Station Cloche d'Or Other inner districts Decentralised Periphery 2,5002,0001,5001,0005000 2018 2019 2020 2021 2022 Q1 Q2 Q3 Q4 100806040200100%80%60%40%20%0% 2018 2019 2020 2021 2022 Under €10m €10 20m €20 50m €50 100m €100 200m €200m+ Average size
Office Q2 2022 LUXEMBOURGMARKETBEAT A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION 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 50,000 employees in over 400 offices and approximately 60 countries. In 2021, the firm had revenue of $9.4 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. MARKET STATISTICS cushmanwakefield.com CÉDRIC VAN MEERBEECK Head of Research & Marketing | Belgium & Luxembourg +32 477 98 11 cedric.vanmeerbeeck@cushwake.com83 SEBASTIEN BEQUET Head of Luxembourg +352 27 21 33 sebastien.bequet@cushwake.com07 KEY INVESTMENT TRANSACTIONS Q2 2022 KEY LEASE TRANSACTIONS Q2 2022 *Renewals not included in leasing statistics SUBMARKET STOCK (SQM) AVAILABILITY(SQM) VACANCY RATE Q2 TAKE2022UP H1 TAKE2022UP CURENTLYCONSTRUCTIONUNDER(SQM) PRIME RENT (EUR/sq m/month) PRIME YIELD CBD 870,500 16,000 1.84% 7,242 12,201 34,300 €54 3.40% Kirchberg 1,360,000 13,700 1.01% 2,636 7,343 129,600 €42 3.60% Station 431,200 11,200 2.60% 6,341 8,462 17,600 €36 3.90% Cloche d’Or 482,500 10,200 2.11% 2,807 43,729 36,200 €37 3.90% Other inner districts 259,000 15,600 6.02% 681 1,206 22,200 €33 5.00% Decentralised districts 475,000 49,000 10.33% 16,243 24,302 66,200 €28.5 5.50% Periphery 590,000 66,000 11.19% 7,022 18,696 175,000 €25.5 5.50% Luxembourg (Overall) 4,467,000 181,700 4.07% 42,972 114,230 481,100 €54 3.40% PROPERTY SUBMARKET TENANT SIZE (SQ.M) TRANSACTION TYPE AXS The Edge Decentralised Cardif Lux Vie 6,302 Purchase Central Park Station CMCM 3,624 Purchase Royal Park CBD CVC Capital Partners 2,972 Pre letting CND Decentralised ARTEC 3D 1,860 Letting H2O Decentralised Etat du GDL 1,739 Letting BENJAMIN DEVIE Research Analyst | Belgium & Luxembourg +32 492 11 35 benjamin.devie@cushwake.com10 PROPERTY SUBMARKET SELLER / BUYER YIELD PRICE € MILLIONS Wooden Periphery IKO Real Estate / Acron Group 4.20% 80 AXS The Corner Decentralised Monceau Assurances / Baltisse 4.50% 55 AXS The Edge Decentralised Cardif Lux Vie / Baltisse 55