M A R K E T B E AT
LUXEMBOURG Office Q3 2021
YoY Chg
12-Mo. Forecast
320,081
Luxembourg economic growth returning as expected to pre crisis level.
Take-Up YTD (sq m)
Economic growth is set to increase by 6.92% in 2021, one of the most important economic recoveries across Europe. In longer term, growth levels will decelerate, though remaining robust, to reach 2.50% in 2025.
52 With the GDP growth beyond expectations, there is a decrease in the unemployment rate this year. In Q3 2021, the unemployment rate has declined to 5.88% and it should continue to decrease to around 5.20% in 2022 and 2023. Employment grew substantially in 2021, up to 3.3% representing 8,600 new jobs this year.
Prime Rent, (EUR/sq m/ month)
3.57% Vacancy Rate
Core inflation in Luxembourg stands at 2.25% in Q3 2021. It is projected at 1.56% in 2022 and 1.35% in 2023.
3.50%
Predicting the return to the office.
Prime Yield (3/6/9 Lease)
According to Cushman & Wakefield’s Predicting the return to the office report1, in Europe 40% of the workforce had returned to the office as of September, and it is expected that the majority will return in early 2022 with potential positive impact on the office occupational market.
ECONOMIC INDICATORS Q3 2021 YoY Chg
12-Mo. Forecast
5.88%
1. https://www.cushmanwakefield.com/en/insights/predicting-the-return-to-the-office
Unemployment Rate 2021
6.92% GDP Growth for 2021
2.25% Inflation for 2021
Source: Moody’s Analytics, STATEC Lux, Eurostat 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.
GDP GROWTH AND UNEMPLOYMENT RATE
EVOLUTION RATE OF OFFICE EMPLOYMENT
8%
5.0%
7%
4.5%
6%
4.0%
5%
3.5%
4%
3.0%
3%
2.5%
2%
2.0%
1%
1.5%
0%
1.0%
-1%
0.5%
-2% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 GDP Growth
Unemployment rate
0.0% 2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
M A R K E T B E AT
LUXEMBOURG Office Q3 2021 Demand during Q3 in line with the year.
Take-up (in 000s sq m, LHS) & number of deals (RHS) 400
The year 2021 marks the best Q1-Q3 period ever in Luxembourg, with take-up more than 320,000 sq m, mainly driven by the public sector: 127,000 sq m occupied by the European Parliament in the brand new KAD 2 in the Kirchberg and 27,000 sq m occupied by the Post Luxembourg on Place de la Gare.
350
In Q3, nearly 51,000 sq m of take-up was recorded in 60 transactions on the Luxembourg office market which is consistent with the first semester. BGL BNP Paribas confirmed the pre-letting of the 18,300 sq m Tour 3, located on Rue Edward Steichen, in Keiberg. This represents 32% of Q3 total take-up in only one transaction. We expect that 2021 will outperform 2020 in terms of activity.
150
The vacancy rate is expected to increase in 2022. The office stock in Luxembourg is increasing continuously these last years, standing currently at around 4.4 million sq m. This stock is expected to grow by 180,000 sq m per year and will reach the 5 million sq m cap in 2025. Close to 515,000 sq m are currently under construction while 570,000 sq m could be launched, depending on the economy and market dynamics.
300 250
300
200
250 200
150 100
100 50
50 0
0
Q1
Q2
Q3
Q4
# Deals
Awaited new supply (000s sq m, LHS) & Vacancy rate (RHS) 250
4.00% 3.80% 3.60% 3.40% 3.20% 3.00% 2.80% 2.60% 2.40% 2.20% 2.00%
200 150
Out of these 515,000 sq m, roughly 48% are already pre-let, while the rest is still currently available. The vacancy rate should rise in 2022 because of the large new offices arriving partially vacant on the market. During 2022 the vacancy rate should reach 3.8% before experiencing a new decrease as the office market will adapt to its new paradigm. By the end of 2024, the vacancy rate should stand at 3.50%
100 50 0 2020
2021
2022
2023
2024
Prime rents on the rise in 2021. General increase awaited in the coming years. Delivered
Most districts preserved their prime rents in Q3, ranging currently from EUR 26/sq m/month in the Periphery to EUR 52/sq m/month in the CBD. In the Kirchberg district, prime rents rose to EUR 41/sq m/month thanks to a relatively low vacancy rate of 1.12%.
Awaited new supply
Vacancy rate
Prime and average rents (EUR/sq m/month) 55 50 45
As market activity is expected to remain high in the coming months and low overall vacancy rates, prime rental levels are forecasted to witness further upward movement in the coming months and years. If no major changes are awaited before year-end, prime rents could reach EUR 56/sq m/month by the end of 2025 in the CBD. The other districts should follow a similar evolution.
40 35 30 25 20 15 2015
2016 2017 CBD Station Other inner districts Periphery
2018
2019
2020 2021 Kirchberg Cloche d'Or Decentralised
M A R K E T B E AT
LUXEMBOURG Office Q3 2021 Total invested volumes by quarter (MEUR)
Relatively quiet Q3 on the investment market.
2,500 2,000
Unlike the exceptional first semester, investments in Luxembourg slowed down significantly during Q3 with only 83.7 MEUR invested. This brings the total investment volume YTD to 817.7 MEUR. The Luxembourg market is relatively small and opportunities are rare but a dynamic Q4 is expected.
Foreign players invest in Luxembourg.
1,500 1,000 500 0
As a result of the low volume invested during Q3, we observed a strong decrease of the average size of the office deals in Q3 to stand at 25 MEUR, while the average for the year is now at 48 MEUR, boosted by large-scale transactions in H1. Of the five transactions recorded this quarter, two were carried out by foreign investors, which confirms the trend of international players investing in the Luxembourg market. The largest purchase is the acquisition of Plaetis (3,000 sq m) by KanAm Group, a German real estate fund, for 40 MEUR and a 3.40% yield.
Further prime office yield compression expected. Competition has been- and is still fierce for the best assets, which is why prime office yields declined to 3.50% in the third quarter and are expected to compress further to reach a new level of 3.40% in the CBD by the end of 2022. Looking at the other office districts, yields range from 3.70% in the Kirchberg to 5.75% in the Periphery and stand for example at 4% in the Cloche d’Or or 5.50% in the Decentralised districts. Activity should remain intense in Luxembourg in the coming months as it is expected that the majority of the workforce will return to the office in early 2022, with potential positive ramifications for the office occupational market.
2015
2016
Q1
2017 Q2
2018
2019 Q3
2020
2021
Q4
Office deals by size (LHS) and average size (MEUR, RHS) 100%
100
80%
80
60%
60
40%
40
20%
20
0%
0
Under €10m €50-100m Average size
Prime office yield evolution 5.5% 5.0% 4.5% 4.0% 3.5%
3.0%
€10-20m €100-200m
€20-50m €200m+
M A R K E T B E AT
LUXEMBOURG Office Q3 2021 MARKET STATISTICS SUBMARKET
STOCK (SQM)
CBD
AVAILABILITY (SQM)
VACANCY RATE
Q3 2021 TAKE-UP
CURENTLY UNDER CONSTRUCTION (SQM)
2021 YTD TAKE-UP
PRIME RENT (EUR/sq m/month)
PRIME YIELD
866,300
23,856
1.80%
24,709
34,143
28,046
€52
3.50%
1,360,000
13,672
1.12%
8,205
138,414
129,637
€41
3.60%
Station
424,600
11,200
2.64%
2,669
54,101
51,526
€36
3.90%
Cloche d’Or
465,000
14,700
3.16%
5,698
9,183
54,187
€35
3.90%
29,000
13,639
5.27%
2,312
7,461
13,296
€35
5.00%
Decentralised districts
459,550
37,876
8.24%
2,215
35,444
52,346
€28.5
5.50%
Periphery
572,000
42,343
7.40%
5,557
41,332
216,554
€25.5
5.75%
4,406,450
157,286
3.57%
51,366
320,081
545,592
€52
3.50%
Kirchberg
Other inner districts
Luxembourg (Overall)
KEY LEASE TRANSACTIONS Q3 2021 PROPERTY
SUBMARKET
TENANT
SIZE (SQ.M) TRANSACTION TYPE
Tour 3
CBD
BGL BNP Paribas
LHO
Kirchberg
BEI
18,300 5,100
Pre-letting Letting
K2 Ellipse
CBD
Trendiction / Talkwalker
4,304
Subletting
The Bronze Gate
Cloche d’Or
Athome
2,805
Pre-letting
Regus Altitude
Leudelange
SwissLife
1,353
Subletting
SEBASTIEN BEQUET Head of Luxembourg +352 27 21 33 07 sebastien.bequet@cushwake.com BENJAMIN DEVIE Research Analyst | Belgium & Luxembourg +32 2 510 07 11 benjamin.devie@cushwake.com
*Renewals not included in leasing statistics
KEY INVESTMENT TRANSACTIONS Q3 2021 PROPERTY
CÉDRIC VAN MEERBEECK Head of Research & Marketing | Belgium & Luxembourg +32 477 98 11 83 cedric.vanmeerbeeck@cushwake.com
cushmanwakefield.com
SUBMARKET
SELLER / BUYER
YIELD
PRICE € MILLIONS
Plaetis
CBD
AM Alpha / KanAm Group
3.40%
40
Jans 10
CBD
Fidentia Real Estate / Private Investor Luxembourg
3.90%
24
Tango
Bertrange
Private / Private
6.00%
11
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 52,000 employees in 400 offices and 70 countries. In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. ©2021 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.