BRUSSELS
Office Market Snapshot Fourth Quarter | 2018
Overview
MARKET INDICATORS
Annual GDP growth in Belgium weakened to 1.4% in 2018 and, despite rising geo-political uncertainties, is forecasted to slightly increase in 2019 to 1.5%. The unemployment rate was at 6.3% in Q4 and is expected to remain at this level throughout 2019. Interest rates are also expected to remain unchanged, at least up to the end of 2019 as announced by the ECB.
Market Outlook Prime Rents:
Prime rents increased in Q4 to 315€/sq m/year and are expected to remain stable throughout 2019.
Prime Yields:
Prime yields compressed further to record low levels at 4.25% and are anticipated to stabilise in 2019.
Supply:
Important pipeline is scheduled for 2019, both speculative and committed. Vacancy in less qualitative office spaces is likely to increase due to relocations.
Demand:
Occupier focus
Significant demand is forecasted, especially in the CBD and the Airport district. Demand in 2019 will be mainly boosted by the public sector.
Prime Office rents – December 2018 LOCATION
€ SQ.M YR
US$ SQ.FT YR
Brussels (Leopold)
315
33.4
3.3
2.8
Brussels (Centre)
275
29.1
5.8
6.6
Brussels (Decentralised)
185
19.6
-2.6
0.0
185
19.6
0.0
3.6
155
16.4
3.3
CURRENT Q
LAST Q
LAST Y
10 YEAR HIGH LOW
Brussels (Leopold)
4.25
4.30
4.40
6.30
4.25
Brussels (Centre)
4.60
4.80
4.80
6.50
4.60
Brussels (Decentralised)
7.25
7.25
7.40
8.10
6.70
7.25
7.25
7.25
8.25
6.70
6.75
6.75
6.75
7.50
6.75
Brussels (Periphery North – Airport) Brussels (Periphery South – Walloon Brabant)
GROWTH % 1YR 5YR CAGR
Prime Office yields – December 2018 LOCATION (FIGURES ARE GROSS, %)
Brussels (Periphery North – Airport) Brussels (Periphery South – Walloon Brabant)
NOTE: The above yields are for typical 3/6/9 leases. With respect to the yield data provided, in light of the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.
Recent performance Yield - Prime Rental Growth - Country Average
8,00%
15,0%
7,00%
10,0%
6,00%
5,0%
5,00%
0,0%
4,00% 3,00%
déc-08 déc-10 déc-12 déc-14 déc-16 déc-18
-5,0%
Rental growth (y/y)
Yields
Yield - Country Average Rental Growth - Prime
The presumption that 2018 would be a weak year in terms of take-up no longer holds thanks to better-than-expected activity in Q4 which recorded 130,000 sq m. The total for the year amounts to 367,000 sq m, still an 8% decrease compared to last year. Co-working operators contributed close to 20% of the total take-up in 2018 (fourteen deals). WeWork recorded the largest take-up activity of Q4 with almost 14,000 sq m (two deals) followed by SilverSquare with 10,500 sq m (one deal). The vacancy rate in Q4 fell to 7.98%, its lowest level in 17 years. Availability will start to increase again due to the delivery of partly empty speculative developments in 2019. This will negatively affect the vacancy level in grade A buildings, which currently stands at 34,000 sq m, or around 3% of the total vacancy. 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. Q4 saw an increase in prime rents for the three most important central districts of the capital (Leopold, Centre and North).
Investment focus
Around 380 MEUR has been invested in Q4, bringing the total for the year in Brussels to 1.9 billion EUR, the best year since 2007. With notable transactions such as the Egmont, the Passport and The One, 70% of the total investment volume came from foreign investors. Demand remains relatively strong but the growing lack of products for sale in the market can still be observed. Prime yields compressed further to a historically low level of 4.25%. The long-term prime office yield remains at 3.65%.
Outlook
In terms of occupier activity, 2019 is expected to be a successful year with take-up exceeding 400,000 sq m, mainly boosted by public bodies actively looking to relocate. Although a significant pipeline will be delivered in 2019, the investment volume is unlikely to exceed this year’s level due to the increasing lack of assets in the market. Prime yields for 2019 are expected to remain stable throughout the year at 4.25%. cushmanwakefield.com