Q1-2021 | Brussels Office Marketbeat | Belgium

M A R K E T B E AT

BRUSSELS Office Q1 2021 12-Mo. Forecast

YoY Chg

110,000

YTD Take-Up (sq m)

7.35%

Belgian economy will recover gradually in 2021 The economic growth has been severely hit in 2020 due to higher unemployment, subdued external demand and a limited fiscal response. GDP is contracted by around 8% last year. It should observe a strong rebound in 2021 around 3.5% and remain positive, though at a gradually decelerating rate up to 2023.

€320

Unemployment rate is on the rise in 2020 and will be especially rising in 2021 as a direct consequence of the COVID-19 outbreak. According to latest forecasts, Belgium should lose more than 56,000 jobs in 2021. As from 2022, situation is expected to enhance with new job creations (close to 46,000 in 2022 and 47,000 in 2023). As a result, unemployment should decrease gradually to stand around 6.7% at the end of 2023.

3.75%

Core inflation in Belgium stands at 0.4% in 2020, well below the 2% ECB target. It should be around 1.7% for 2021 and 1.9% for 2022 and 2023.

ECONOMIC INDICATORS Q1 2021

According to the latest survey of the National Bank of Belgium, working from home could be three times higher in the future, implying potential space reductions, and by consequence, a drop in the take-up and the office stock. The situation will of course be very different depending on the functions and/or the sector of activity

Vacancy Rate

Prime rent (€/sq m/year)

Prime yield

Working from home is set to continue, with potential impacts for the Brussels office market

10 %

0%

8%

-5%

6%

-20 % -25 %

-4% 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.

-6% -8% 20 15

20 16

20 17

20 18

GDP Gro wth Source: National Bank of Belgium, April 2021

20 19

20 20

20 21

20 22

20 23

Un empl oymen t rate Source: National Bank of Belgium,, April 2021

Back Office & Sup port

0% -2%

Fina nce & In suran ce

Source: National Bank of Belgium, and Eurostat, April 2021

-15 %

2%

IT, In fo rmation & Co mmuni cation

Consumer Price Index

-10 %

4%

Flan ders

1.7%

> 2 50 emp loye es

2021 Unemployment rate

50 - 25 0 empl oyee s

7.4%

EXPECTED SPACE REDUCTIONS PER YEAR IN THE NEXT 5 YEARS

GDP GROWTH AND UNEMPLOYMENT RATE

< 5 0 empl oyee s

2021 GDP Growth

Brusse ls

12-Mo. Forecast

Wall oni a

3.5%

YoY Chg

M A R K E T B E AT

BRUSSELS Office Q1 2021 Despite the context, demand is strong overall in Q1 as far as the take-up is concerned At the end of Q1, 110,000 sq m of take-up was recorded on the Brussels office market. Actually, this is the second-best start to the year since 2015 after the exceptional 2019. However, only 61 deals have been observed which is the lowest level recorded over the same period. Occupiers are mainly in a waitand-see position, wtih the bigger ones defining their workplace strategy in a post-COVID environment.

TAKE-UP BY QUARTER (000s sq m) 60 0 50 0 40 0 30 0 20 0

The European Commission contributes to 36% of the activity in two transactions.

The European Commission finally confirmed the pre-letting of the 13,000 sq m of the Copernicus and the 25,000 sq m of the Realex, both projects being located along the Rue de la Loi. This represents 36% of the total take-up in only two transactions.

Total completes the podium with a 17,000 sq m pre-letting in the Multi-Tower currently under construction in the city centre. In the Airport district, SECO is the second occupier to opt for Park 7 (currently under construction). SECO will occupy more than 4,000 sq m along the Boulevard Léopold III, confirming the attractivity of this district, especially in best located and most recent and efficient office schemes.

Grey spaces on the rise, though the impact is relatively limited on the market

10 0 0 20 15

20 16

20 17 Q1

20 18 Q2

Q3

20 19

20 20

20 21

Q4

PUBLIC AND PRIVATE TAKE-UP (000s sq m) 60 0 50 0 40 0 30 0 20 0 10 0

Over the last weeks, growing concerns and alarming reports arose about subleases, grey spaces, substantial reductions in space requirements and the future of the Brussels office market.

0 20 15

20 16

20 17

20 18

Priva te

It is true that the COVID-19 outbreak had- and still has an impact on the occupational market and that the working from home trend is here to stay. Some sectors are more concerned than others, with potential stronger space reductions in the Finance & Insurance sector (around 55,000 sq m of subleases currently). The coworking sector is also suffering, some sectors are constrained to close some centres or to reduce their occupation.

At the time of writing, we recorded close to 200,000 sq m of grey spaces on the Brussels office market, far below the 1,000,000 sq m read in some reports and newspapers. According to our own calculations, the increase in the working from home trend could lead to space reductions between 8 and 23% in the coming years. However, the office is here to stay, though in a very different way. As employees could come less often to the office, this will be increasingly seen as a space to collaborate, to foster innovation and corporate culture and to attract and retain talents. As such, collaborative spaces as well as spaces dedicated to well-being will rise.

20 19

20 20

20 21

Pub lic

MONTHLY AND CUMULATIVE SUBLEASES (000s sq m) 20 0 15 0 10 0 50 0 01 -21

02 -21 Mon th ly

03 -21 Cu mula ti ve

04 -21

M A R K E T B E AT

BRUSSELS Office Q1 2021 Important pipeline under construction, 55% currently pre-let.

An important pipeline is foreseen for the coming years. Just for 2021, more than 350,000 sq m will enter the market, with 175,000 sq m on a speculative basis (the biggest ones being the Mobius II, the Quatuor or the CBTC in Louvain-la-Neuve). In the longer term, another 200,000 sq m are under construction and still available on the market.

Next to these projects currently under construction, some important projects have their building permits and could be launched by the owner. However, the COVID-19 outbreak could delay some of these, or developers could also tend to redevelop residential instead of office.

OFFICE PIPELINE (000s sq m) 40 0 35 0 30 0 25 0 20 0 15 0 10 0 50 0 20 21

20 22

20 23 Pre-l et

These speculative projects, combined to the existing and future subleases will probably lead to further increase of the vacancy rate. However, this increase is expected to remain limited in the coming months.

Vacancy rate on the rise. In the longer term, impact will be limited.

20 24

20 25

Avai lab le

VACANCY RATE (%) 12 % 10 % 8% 6% 4% 2%

In the Periphery, new developments such as the Park 7 or The Wings tend to drive the rents upward.

They now stand at 175 € and could reach 185 € / sq m / year by the end of 2022.

20 25

20 24

20 23

20 22

20 20 Q 1 21 En d21

20 19

20 18

35 0 30 0 25 0 20 0

CBD

De central ised

Peri phe ry

20 25

20 24

20 23

20 22

20 21

20 20

20 19

20 18

15 0 20 17

In the Decentralised districts, prime rents stand currently at 190 € / sq m / year thanks to different transactions recorded in the Royale Belge (namely Puilaetco and Claeys & Engels) which is set to become a new iconic mixed-use development by 2023. They could observe further growth in the coming months.

PRIME AND AVERAGE RENTS (in € / sq m / year)

20 16

No changes of the prime rents were recorded in Q1, it still stands at 320 € / sq m / year in the Leopold district. Along 2020, several central districts recorded rental growth, including the Louise district which now stands at 275 € / sq m / year. As this district remains attractive, it could observe further increases in the coming months. As competition for the best buildings and best locations remains high, prime rents could slightly rise in the coming years.

20 17

Prime rents expected to remain stable in 2021. Increase awaited in the coming years.

20 16

20 15

0%

20 15

At the end of Q1, the vacancy rate stands at 7.35%, on a very slight rise compared to Q4 2020. In the short term, the vacancy rate should continue to rise, because of new office buildings arriving empty on the market, some space reductions and a wait-and-see behaviour of occupiers. By the end of 2023, the vacancy rate could reach 9.5% before experiencing a new decrease as the office market will adapt to its new paradigm. By the end of 2025, the vacancy rate should stand at 8%.

M A R K E T B E AT

BRUSSELS Office Q1 2021

Conversely to other European cities where we will observe a yield increase (between 50 and 100 bps depending on the city) in the coming 12 to 24 months, Brussels should be more resilient with a prime yield forecasted at 3.70% up to the end of 2024.

The office market will exist in the future, though in a very different way.

The office market is entering a new age that will see big changes to the way offices are used, the workplace will become more important for creativity and innovation, collaboration and corporate culture. The take-up is likely to decrease in the years ahead and stabilise to around the 300,000 to 320,000 sq m mark, occupiers will focus more and more on flexible and qualitative assets, with positive impacts on rents. Investors, focusing also on these core assets will contribute to a dynamic office investment market the years ahead.

20 00 15 00 10 00 50 0 0 20 15

20 16

20 17 Q1

20 18 Q2

Q3

20 19

20 20

20 21

Q4

PRIME OFFICE YIELDS IN BRUSSELS (%)

Prime

LT Prime

20 25

20 24

20 23

20 22

20 21

7% 6% 5% 4% 3% 2% 1% 0% -1% 20 20

As a result of growing competition for core assets, we observed a new compression of the prime yields in Brussels, now standing at 3.75% for a 3/6/9 years lease. Long-term prime yields stand at 3.25%.

25 00

20 19

Prime yields record new compression, to a historic 3.75%.

30 00

20 18

Despite being limited in Q1, we observe a shift from investors towards core assets as a consequence of a growing cautiousness. Indeed in the current context, we observe a regearing of investors towards qualitative assets and/or core locations. We also witness a growing disparities regarding debt availability and costs between core products and other asset classes.

35 00

20 17

Developers ware also active this quarter. Indeed, CODIC acquired the Chancellerie project in the Centre district for around 50 MEUR while Alides purchased the Montoyer 34 in the Leopold district. This confirms the interest of developers for core locations, as occupiers are increasingly focusing on central districts. It is also worth mentioning the acquisition of the 3M building (currently under construction) in the Park 7 (Airport district) by Perial Asset Management for 20 MEUR.

40 00

20 16

In Q1, 535 MEUR have been invested on the Brussels office market, which is globally in line with the volumes observed over the past years. However, the start of the year is atypical as the biggest deals are own occupation transactions, namely the Realex acquired by the European Commission for more than 250 MEUR and the Wiertz Building, sold by Befimmo to the European Parliament for 75 MEUR.

OFFICE INVESTMENT VOLUMES BY QUARTER (MEUR)

20 15

Slow start to the year on the investment market. Investors become more selective.

10 y. Bon d

M A R K E T B E AT

BRUSSELS Office Q1 2021 MARKET STATISTICS UNDER CONSTRUCTION (SQM)

PRIME RENT (€/sq m/year)

PRIME YIELD

48,000

88,000

€320

3.75%

21,000

204,000

€260

3.90%

4.8%

500

500

187,000

€230

4.90%

4.7%

2,500

2,500

-

€275

4.10%

22,000

3.7%

-

-

5,000

€195

5.25%

2,620,000

293,000

11.2%

11,000

11,000

50,000

€190

6.25%

2,120,000

366,000

17.2%

28,000

28,000

115,000

€175

6.25%

13,520,000

992,000

7.33%

111,000

111,000

649,000

€320

4.00%

STOCK (SQM)

AVAILABILITY (SQM)

VACANCY RATE

Q1 2021 TAKE-UP

TAKE-UP 2021 YTD

Brussels (Leopold)

3,365,000

107,000

3.2%

48,000

Brussels (Centre)

2,372,000

88,000

3.7%

21,000

Brussels (North)

1,562,000

75,000

Brussels (Louise)

876,000

41,000

Brussels (Midi)

605,000

Brussels (Decentralised) Brussels (Periphery)

SUBMARKET

Brussels (Overall)

KEY LEASE TRANSACTIONS Q1 2021 PROPERTY

SUBMARKET

TENANT

SQ M

TYPE

Leopold

European Commission

25,000

Purchase

Realex Multi Tower

Centre

Total

17,000

Pre-letting

Copernicus

Leopold

European Commission

13,000

Pre-letting

Airport

SECO

4,400

Pre-letting

Dec. South

Claeys & Engels

3,000

Pre-letting

Park 7 Royale Belge

*Renewals not included in leasing statistics

cushmanwakefield.com

KEY INVESTMENT TRANSACTIONS Q1 2021 PROPERTY

CÉDRIC VAN MEERBEECK Head of Research and Marketing | Belgium & Luxembourg +32 477 98 11 83 cedric.vanmeerbeeck@cushwake.com

SUBMARKET

SELLER / BUYER

Volume (in MEUR)

Realex

Leopold

Atenor / European Commission

256

Yield N/A

Wiertz Building

Leopold

Befimmo / European Parliament

75

< 5%

Montoyer 34

Leopold

Hesse Newman Capital / Alides

55

N/A

Chancellerie

Centre

FICO / CODIC

47

N/A

Park 7 (3M Building)

Airport

IMMOGRA / Perial Asset Management

20

4.30%

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 51,000 employees in 400 offices and 70 countries. In 2019, the firm had revenue of $8.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.

©2020 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.