M A R K E T B E AT
LUXEMBOURG Office Q3 2022
YoY Chg
12-Mo. Forecast
Inflation is on the rise again. The Russian invasion of Ukraine and its repercussions have significantly deteriorated economic conditions. Due to its reliance on energy imports, Europe is severely affected, and Luxembourg is no exception. While Luxembourg GDP held up well in the first three quarters of this year, continued high inflation is expected to cause GDP to stagnate in the final quarter of the year and the first semester of 2023. The most recent figures indicate annual GDP growth is expected to be 1.65% in 2022, stabilising to at best 1.68% in 2023.
170,757
2022 YTD Take-Up (sq m)
54
Prime Rent, (EUR/sq m/ month)
Despite the economic downturn, employment growth remained strong in the first half of 2022 creating an additional 13,000 jobs, and building on the momentum of two years with an unemployment rate down from 6.68% in 2020 to 4.46% in 2022. In Moody’s Analytics baseline scenario, unemployment is expected to increase to 4.63% in 2023 before stabilising in the coming years.
4.11%
Vacancy Rate
3.60%
Prime Yield (3/6/9 Lease)
Following a brief pause in July and August, inflation increased again in September. As a result, inflation has been revised upwards to reach a sky-high 6.39% for 2022. This level will decelerate in 2023 to 3.55% before broadly closing in on the ECB’s 2% target from 2024.
ECONOMIC INDICATORS Q3 2022 YoY Chg
12-Mo. Forecast
1.65%
2022 GDP Growth
4.46%
Unemployment Rate
6.39%
Regarding our outlook, Cushman & Wakefield forecasting has elaborated a baseline short-term mild recession scenario in the Eurozone (50% probability). In this scenario, persistent inflationary pressures push the ECB to raise rates aggressively, see more here, stalling business investment and consumer spending. The Eurozone economy would enter a mild recession beginning in Q4 2022 with three quarters of negative growth, before returning to moderate growth in the second half of the next year. GDP growth and Unemployment Rate
Inflation Rate 7.0%
8%
6.0% 6%
5.0%
Consumer Price Index
4%
4.0%
2%
3.0%
Source: Moody’s Analytics, STATEC Lux, Eurostat, October 2022
0%
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.
2.0% 1.0%
-2% 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
0.0% 2018
2019
2020
2021
2022 Infl ation
2023
2024
2025
M A R K E T B E AT
LUXEMBOURG Office Q3 2022 This year witnesses a return to a regular pre-2020 take-up in Luxembourg.
Take-up (in 000s sq m, LHS) & no. of deals (RHS) 40 0
Following two record years for the take-up in Luxembourg, 2022 witnesses a return to a regular take-up. In Q3, less than 60,000 sq m of take-up was recorded which brings the total take-up year to date to 170,000 sq m, in line with the past average.
30 0
35 0
25 0
30 0 20 0
25 0 20 0
The fourth quarter of the year is not expected to be particularly active. Indeed, forecasts of market stagnation in the last quarter are likely to slow the occupational market, and some companies are likely to stay on the sidelines and renew their leases.
15 0
15 0
10 0
10 0 50
50
So far, 105,000 sq m of new spaces have been delivered this year, including 32,000 sq m in the Cloche d’Or. Furthermore, no less than 325,000 sq m should be delivered by the end of next year, meaning these two years will be a milestone in terms of new deliveries. The largest developments are Jean Monnet 2, a 76,000 sq m pre-let asset located in the Kirchberg planned for Q3 23, and Skypark Business Center, a 30,000 sq m speculative project located in the Airport district scheduled for Q2 23. Many key deliveries will take place in the Periphery and other inner districts in Q4, including the development of Connection (Hamm) and the third phase of Am Bann (Leudelange). The vacancy rate rose to 4.11% in the third quarter. The large number of partially vacant buildings entering the market, combined with occupiers’ concerns about inflation, is causing an increase in vacancy. Despite a high proportion of pre-let developments, the above trend is expected to continue in the coming months, resulting in a 4.3% vacancy rate by the end of 2023. Projections of a more favourable economic environment in 2024 should allow the market to absorb a chunk of the vacancy, finally reaching a level of 4.15% by 2025.
Stable prime rents ahead of likely increase in the coming months. Prime rents remained stable, ahead of likely increases in the coming months with the arrival of new developments and the high inflation context where increased costs will be transferred to occupiers to an extent. Occupants may choose to relocate from ageing- to a more environmentally responsible building with comparable rents. In the side districts, the high number of new developments tend to drive the rents upwards. For example, the prime rent could reach new levels of €26.5/sq m/month by 2023 in the Periphery thanks to new assets such as Gravity.
Q2
Q3
20 22
20 21
20 18
Q1
20 20
0 20 19
0
150,000 sq m of speculative developments to meet demand up to 2023.
Q4
# De als
Office pipeline (in 000s sq m, LHS) & vacancy rate (RHS) 30 0
4.50 %
25 0
4.00 %
20 0
3.50 %
15 0 3.00 %
10 0
2.50 %
50 0
2.00 % 20 21
20 22
De live red
20 23 Avai lab le
20 24
20 25
Pre-l et
Vaca ncy rate
Prime and average rents (EUR/sq m/month) 55 50 45 40 35 30 25 20 20 15
20 16
20 17
CBD Station Oth er inn er districts Peri phe ry
20 18
20 19
20 20
20 21
Kirch berg Cl oche d 'Or De central ised
20 22
M A R K E T B E AT
LUXEMBOURG Office Q3 2022 Total invested volumes by quarter (MEUR) 2,50 0
A volume of 90 MEUR has been invested on the Luxembourg office market in Q3, which brings the total invested volume to 628 MEUR. As in the rest of Europe, Luxembourg is experiencing longer and more difficult transactions, a growing gap between asking and offering prices, and transaction repricing and/or asset withdrawals from sales because offers have not met expected price levels.
2,00 0
The only transaction of the quarter was Real I.S.’s 90 MEUR purchase of the OBH in the Kirchberg. The property, located in the centre of the business district, is a certified BREEAM ‘Very Good’ 2020 development. In 2022, several transactions were signed in the OBH at €42/sq m/month, establishing the new prime rent for the Kirchberg.
50 0
As a result of further rate hikes, further prime yield increases (to around 4.1%) are inevitably expected in 2023. However, according to Where Do European Property Values Go From Here? the report’s baseline scenario (50% probability) expects ten-year government bond yields to trend down as from 2023/2024, and office yields follow to suit. The same report, and early market evidence in Luxembourg suggest that a flight to quality office buildings by both occupiers and investors will increasingly bifurcate the price gap with lesser-quality buildings.
20 18
20 19
20 20
Q1
Q2
Q3
20 21
20 22
Q4
Office deals by size (LHS) and average size (MEUR, RHS) 10 0%
10 0 80
60 %
60
40 %
40
20 %
20
0%
0
Under €10m €50-100m Avera ge size
20 22
80 %
20 21
To counter inflation in the Eurozone, the European Central Bank has delivered three consecutive rate hikes, totalling 200 bps, and is expected to proceed with other rate increases in the coming months. The pressure on European property values is evident. Indeed, prime yields, just like the 10-year bond which recently reached an average of 2.4% versus -0.36% in 2021, are rising, albeit to a lesser extent. Prime yields have increased by 20 bps in the CBD and now stand at 3.6% and will increase further to a level of 3.8% in Q4.
0
20 20
Prime yields have been revised upwards.
1,00 0
20 18
Cushman & Wakefield’s recent Where Do European Property Values Go From Here? investigates investment ideas for the end of 2022 and 2023. In its mild recession baseline scenario, high-quality offices constitute a somewhat appealing (mainly long-term) investment, while trading at a discount due to occupiers adjusting their needs in the aftermath of the pandemic. Because of remote working, ESG standards, costs of living and rising interest rates, low-quality offices are to be reconsidered as investments.
1,50 0
20 19
One investment transaction recorded this quarter.
€10-20m €100-200m
€20-50m €200m+
Prime office yield evolution 6%
5%
4%
3% 20 18
20 19
20 20
CBD Station Oth er inn er districts Peri phe ry
20 21
Q3 22
Q4 202 2
Kirch berg Cl oche d 'Or De central ised
M A R K E T B E AT
LUXEMBOURG Office Q3 2022 MARKET STATISTICS SUBMARKET
CBD Kirchberg
STOCK (SQM)
AVAILABILITY (SQM)
VACANCY RATE
Q3 2022 TAKE-UP (SQM)
2022 YTD TAKE-UP (SQM)
CURENTLY UNDER CONSTRUCTION (SQM)
PRIME RENT (EUR/sq m/month)
PRIME YIELD
872,000
17,500
2.00%
10,000
19,000
33,000
€54
3.60%
1,360,000
15,000
1.10%
7,300
14,500
129,600
€42
3.70%
Station
437,500
15,500
3.55%
800
8,000
11,000
€36
3.85%
Cloche d’Or
482,500
10,000
2.05%
11,000
55,000
36,200
€37
3.90%
Other inner districts
259,000
12,000
4.65%
800
6,000
22,200
€33
5.25%
Decentralised districts
475,000
40,000
8.40%
13,000
35,500
53,800
€28.5
5.75%
Periphery
611,000
75,000
12.25%
13,000
32,000
172,000
€25.5
5.75%
4,497,000
185,000
4.11%
56,500
170,750
458,000
€54
3.60%
Luxembourg (Overall)
KEY LEASE TRANSACTIONS Q3 2022 PROPERTY
SUBMARKET
TENANT
Edison 2
Decentralised
Etat du GDL
SIZE (SQ.M) TRANSACTION TYPE 9,400
LSC Contern
Periphery
LSC Engineering Group
6,500
Letting
Serra A
Kirchberg
Ministere de la Defense
5,900
Pre-letting
Letting
HS8
Cloche d’Or
Banque UBP
4,500
Letting
Cromos
Cloche d’Or
Etat du GDL
3,200
Letting
Cromos
Cloche d’Or
CAA
3,000
Letting
*Renewals not included in leasing statistics
KEY INVESTMENT TRANSACTIONS Q3 2022 PROPERTY OBH
CÉDRIC VAN MEERBEECK Head of Research & Marketing | Belgium & Luxembourg +32 477 98 11 83 cedric.vanmeerbeeck@cushwake.com SEBASTIEN BEQUET Head of Luxembourg +352 27 21 33 07 sebastien.bequet@cushwake.com BENJAMIN DEVIE Research Analyst | Belgium & Luxembourg +32 492 11 35 10 benjamin.devie@cushwake.com
cushmanwakefield.com
SUBMARKET
SELLER / BUYER
YIELD
PRICE € MILLIONS
Kirchberg
Batipart / Real I.S.
-
90
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.