Q2 2022 | Brussels Office Marketbeat | Belgium

M A R K E T B E AT

BRUSSELS Office Q2 2022

YoY Chg

12-Mo. Forecast

130,351

YTD Take-Up (sq m)

Inflation in Belgium climbed again in April and in May 2022. As a result, inflation is currently expected to reach a skyhigh 8.3% for the whole year 2022, before decelerating sharply as from 2023 to finally reach finally the ECB objective of 2% by 2024.

7.67%

Vacancy Rate

Recent political evolutions show no signs of a short-term resolution of 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.

€320

Prime rent (€/sq m/year)

3.60% Prime yield

In these challenging times, GDP growth has been revised on the downward and should stand around 2.15% for 2023 and continue to decelerate (though remaining positive) up to 2025. This could potentially weigh on the unemployment rate which is still expected to decrease by the end of 2023 to reach 5% in Belgium before rising again to 5.6% by 2025.

ECONOMIC INDICATORS Q1 2022

2.15%

Inflation still on the rise, though decelerating recently.

YoY Chg

Uncertainties will certainly continue to shape the year 2022.

12-Mo. Forecast

2022 GDP Growth

5.35%

Unemployment rate

GDP GROWTH AND UNEMPLOYMENT RATE

INFLATION RATE

9%

8%

8%

6%

8.30%

Consumer Price Index

7%

4%

6%

2%

5% 4%

0%

Source: Moody’s Analytics and Federal Planning Bureau, June 2022

-2%

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.

-4%

3% 2% 1% 0%

-6% 20 16

20 17

20 18

20 19

GDP Gro wth

20 20

20 21

20 22

20 23

20 24

Un empl oymen t Ra te

Sources: Moody’s Analytics, BNB, Eurostat, June 2022

20 25

2016

2017

2018

2019

2020

2021

2022

in fl ation

Sources: Moody’s Analytics and Federal Planning Bureau, June 2022

2023

2024

2025

M A R K E T B E AT

BRUSSELS Office Q2 2022 A calm H1 for the Brussels office market.

TAKE-UP BY QUARTER (000s SQ M) 60 0

In Q2, 52,500 sq m of take-up was recorded on the Brussels office market which is consistent with the five-year quarterly average. Due to the period of uncertainty caused by the war in Ukraine and rising inflation, the occupational market is experiencing hesitation and sluggishness from occupiers.

50 0

2022 as a whole is expected to be a calm straightforward year on the Brussels office market.

20 0

40 0 30 0

10 0

Public and non-profit sectors contribute to 32% of the activity.

In Q2, public and non-profit sectors contributed some 16,600 sq m across seven deals, led by the KNOPY 8,200 sq m purchase for own occupation by the Embassy of the Netherlands in the Leopold district, and a 6,200 sq m letting by the SHAPE (NATO) in the Parc de l’Alliance in the Walloon Brabant.

0 20 18

20 19

20 20 Q1

Q2

Q3

20 21

20 22

Q4

PUBLIC AND PRIVATE TAKE-UP (000s SQ M) 60 0

The private sector represents close to 68% of the take-up in the second quarter. Air Belgium and Squire Patton Boggs drove the activity for the private sector with respectively a 3,000 sq m letting in the Axis Office Park in the Walloon Brabant and a 1,500 sq m letting in the Louise Legrand in the Louise district.

Small transactions drive the market.

Although take-up is decreasing, the higher number of deals (a 10% increase compared to Q2 21) reflects an undeniably dynamic market, currently based essentially on small transactions. Indeed, 64% of the transactions recorded this quarter were for surfaces of less than 500 sq m. Conversely, only two deals took place for surfaces between 5,000- and 10,000 sq m, which represents just under 3% of the total number of deals recorded.

The resurgence of COVID-19 continues to impact the occupational market and the hybrid work trend is here to stay. In addition, record inflation due to the conflict in Ukraine is raising concerns about high indexation of rents, which is why occupiers are opting for smaller but more ecologically efficient office spaces.

50 0 40 0 30 0 20 0 10 0 0 20 18

20 19

20 20 Priva te Pub lic

20 21

20 22

Q2 TAKE-UP BY OFFICE SIZE (SQ M)

0-500

5001,000

1,0002,500

2,5005,000

5,00010,000

Takeup

10,829

7,530

16,865

2,943

14,437

# of deals

48

11

13

1

2

M A R K E T B E AT

BRUSSELS Office Q2 2022 Speculative pipeline required for market to thrive.

Although an important development pipeline is foreseen for the coming years, 68% is already pre-let.

This shows the interest of occupiers in ESG buildings. For the next three years, more than 140,000 sq m will enter the market on a speculative basis, some of the biggest ones being The Louise in the district of the same name, The Wings in the Airport district, The Luxia in the Centre district or the Montoyer 10 in the Leopold district. The fact that new (re-)developments must be regularly added to the stock to meet occupiers’ demand for ESG is a certainty.

OFFICE PIPELINE (000s SQ M) 25 0 20 0 15 0 10 0 50 0 20 22

20 23

20 24

Pre-l et

In addition to these developments currently under construction, some important projects have or are about to get their building permits and could be launched in the short term. However, rising inflation and construction costs could be a source of delay for some of these.

Vacancy rate on the rise for the next couple of years.

20 26

Avai lab le

VACANCY RATE (%) 10 % 9% 8% 7% 6% 5%

No changes of the prime rents were recorded in H1, it still stands at €320/sq m/year in the Leopold district.

20 25

20 24

20 23

22 H1

20 21

20 20

20 19

20 18

General increase of prime rents awaited in the coming months.

20 17

4% 20 16

At the end of H1, the vacancy rate stands at 7.67%, a slight decrease compared to Q1 2022.

Speculative projects, combined to the existing and future subleases and space reductions will lead to further increases of the vacancy rate. By 2023, the vacancy rate could reach 8.3% 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%.

PRIME RENTS (in EUR/SQ M/YEAR) 40 0 35 0 25 0 20 0 15 0 10 0 50

CBD

De central ised

20 24

20 23

20 22

20 21

20 20

20 19

20 18

0 20 17

The other districts should record a similar evolution. In the Louise, Centre and Airport districts, new developments such as The Louise, Chancelier and The Wings tend to drive the rents upwards. Prime rents could reach new levels of €330/sq m/year, €310/sq m/year and €185/sq m/year by 2023 in the Louise, Centre and Airport districts respectively.

30 0

20 16

Due to an intense competition for the best buildings and best locations as well as rents indexation, new and efficient developments could record a rise in their prime rents in the coming years. In the Leopold district, prime rents are expected to reach a new level of €340/sq m/year by the end of 2023.

Peri phe ry

M A R K E T B E AT

BRUSSELS Office Q2 2022 A record quarter for the investment market.

In the second quarter of 2022, EUR 1.11 bn has been invested on the Brussels office market. In absolute volume this represents the best Q2 ever recorded, although heavily boosted by one single transaction. Indeed, KB Asset Management, a South Korean investment fund, acquired the North Galaxy. A 627 MEUR transaction, representing more than 55% of the total investment volume in Q2.

OFFICE INVESTMENT VOLUMES BY QUARTER (MEUR) 4,00 0 3,50 0 3,00 0 2,50 0 2,00 0

The second largest deal was the Baloise Assurance’s acquisition of the Royale Belge, a new iconic mixed-use development in the South district.

1,50 0 1,00 0

The increase in interest rates decided by central banks, in order to fight inflation, has led some investors to close their deals early.

50 0 0 20 18

Prime yield stable with a possible rise by the end of 2022.

After a period of compression in the past few years, prime yields remain stable in the first half of the year and stands to 3.60% for buildings with standard lease terms. Long-term prime yields still stand at a level of 3.20% and record no further compressions as well in H1.

The war in Ukraine, a decisive factor for the Economy and Real Estate.

In February 2022, Russian invasion of Ukraine pushed the already high inflation to a record level in Belgium. If the conflict persists, the global economy could be severely affected.

According to Statbel1, inflation continued to rise in June, reaching 9.6%, up from 8.9% in May. 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 OLO and yields is narrowing, prime yields are expected to rise by the end of the year.

In Central districts, an increase of 10 bps is expected by the end of the year, while in the Decentralised and in Periphery, an increase of 25 bps is expected.

1

https://statbel.fgov.be/en/themes/consumer-prices/consumer-price-index

20 19 Q1

Q2

20 20 Q3

20 21

20 22

Q4

PRIME OFFICE YIELDS IN BRUSSELS (%) 8% 7% 6% 5% 4% 3% 20 15

20 16

20 17

20 18

20 19

20 20

20 21

Q2 22

Ce ntral

De central ised

Peri phe ry

LT Prime

Q4 22

M A R K E T B E AT

BRUSSELS Office Q2 2022 MARKET STATISTICS STOCK (SQM)

AVAILABILITY (SQM)

VACANCY RATE

Q2 2022 TAKE-UP

H1 2022 TAKE-UP

UNDER CONSTRUCTION (SQM)

PRIME RENT (€/sq m/year)

PRIME YIELD

Brussels (Leopold)

3,372,958

123,339

3.66%

12,304

19,325

91,294

€320

3.60%

Brussels (Centre)

2,469,552

106,756

4.32%

4,470

25,427

77,643

€260

3.90%

Brussels (North)

1,645,608

117,822

5.46%

-

-

91,505

€230

4.90%

Brussels (Louise)

875,282

40,749

4.66%

7,537

12,739

32,600

€275

4.10%

Brussels (Midi)

605,903

14,690

2.42%

1,096

1,096

-

€195

5.25%

Brussels (Decentralised)

2,580,797

294,333

11.40%

5,125

14,274

78,000

€200

6.25%

Brussels (Periphery)

2,166,419

383,567

17.71%

23,168

57,490

83,983

€175

6.00%

13,716,519

1,081,256

7.67%

52,604

130,351

455,025

€320

3.60%

SUBMARKET

Brussels (Overall)

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

KEY LEASE TRANSACTIONS Q2 2022 PROPERTY

SUBMARKET

TENANT

SQ M

TYPE

Leopold

Embassy of the Kingdom of the Netherlands

8,200

Purchase

Parc de l’Alliance

Walloon Brabant

Shape (NATO)

6,237

Letting

Axis Parc

Walloon Brabant

Air Belgium

2,943

Letting

Lola Liza

1,600

Letting

K-NOPY

Place du Samedi Centre *Renewals not included in leasing statistics

BENJAMIN DEVIE Research Analyst | Belgium & Luxembourg +32 495 11 35 10 benjamin.devie@cushwake.com

KEY INVESTMENT TRANSACTIONS Q2 2022 PROPERTY

SUBMARKET

SELLER / BUYER

Volume (in MEUR)

North Galaxy

North

KB Asset Managment / ATP & AXA

627

Royale Belge

South

Baloise / Cores, Urbicoon, APE, Foresite

158

Proximus Towers K-NOPY Twin Square

North

Immobel / Proximus

93.45

Leopold

Embassy of Netherlands / Eaglestone

78.25

Ariport

MiDEAL Group / Limestone

25

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