Q4 2021 | Brussels Office Marketbeat | Belgium

M A R K E T B E AT

BRUSSELS Office Q4 2021

YoY Chg

12-Mo. Forecast

438,510 YTD Take-Up (sq m)

7.65%

Belgium GDP growth beats forecasts.

In the last quarter of 2021, economic growth increased to 5.85% which means that for the first time since the outbreak of the COVID-19 pandemic, the pre-crisis level of economic activity was reached and even exceeded. Growth levels should stabilise to 2.21% in 2022 and 2.63% in 2023.

The unemployment rate peaked at 6.36% in the last quarter and should be expected to decline and stabilise around 5.52% in 2022 and 5.23% in 2023. It is expected that a lot of temporarily unemployed people will resume work in the early of 2022 or will be able to find new jobs.

Vacancy Rate

€320

Prime rent (€/sq m/year)

Inflation on the rise in 2022.

3.60%

Core inflation in Belgium stands at 2.44% in the last quarter of 2021. It is projected at 4.21% in 2022 and 1% in 2023.

This is due to the fact companies are confronted with rising commodity prices which puts pressure on the price paid by the end consumer. Combined with the fact that consumer spending is set to increase after a record year of saving, inflation is set to rise.

Prime yield

ECONOMIC INDICATORS Q4 2021 YoY Chg

12-Mo. Forecast

5.85% 2021 GDP Growth

6.36% 2021 Unemployment rate

2.44% Consumer Price Index Source:Moody’s Analytics, BNB, Eurostat, January 2022 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.

After having increased sharply from May to September 2021 on the back of a successful vaccine rollout in Belgium, along with the relaxing of constraining measures surrounding COVID-19, consumer confidence index is again on the downside since October. The Belgian population is more cautious namely due to the different variants of the COVID outbreak and growing energy prices.

GDP GROWTH AND UNEMPLOYMENT RATE

INFLATION RATE

10%

4.50%

8%

4.00%

6%

3.50%

4%

3.00%

2%

2.50%

0%

2.00%

-2%

1.50%

-4%

1.00%

-6%

0.50% 0.00%

-8% 2015

2016

2017

2018

GDP Growth

2019

2020

2021

2022

2023

2024

2015

2016

2017

2018

2019

2020

2021

Unemployment Rate inflation

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

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

2022

2023

2024

2025

M A R K E T B E AT

BRUSSELS Office Q4 2021 A remarkable quarter for the office market.

TAKE-UP BY QUARTER (000S SQ M) 600

After a shaky Q3 where occupiers were in a wait-and-see position, much was expected in Q4 as far as take-up was concerned. In the last quarter, nearly 190,000 sq m of take-up was recorded on the Brussels office market which is the best Q4 in 12 years. This brought the total for 2021 to 438,500 sq m.

In 2021, the Brussels office market recovered from the impact of the pandemic outbreak thanks to a spectacular end-of-year rush, where one third of the take-up was recorded in the last two months.

500 400 300 200

However, in terms of number of deals, the COVID-19 outbreak still weighs on the activity as 328 transactions were recorded this year, which is 14% less than the annual average before the pandemic.

100 0 2015

Small transactions drive the market.

2016

2017 Q1 Q2

2018 Q3 Q4

2019

2020

2021

DISTRIBUTION OF # TAKE-UP DEALS BY SIZE SINCE 2020

Despite the impact of homeworking and space reductions, the office market had one of its most active years.

1% 6% 4% 11%

Over the last two years, nearly 80% of transactions have been realised for surfaces inferior to 1,000 sq m. The COVID-19 outbreak continues to impact the occupational market and the hybrid work trend is here to stay. This trend leads to space reductions, with most occupiers nearing a break, opting for smaller offices.

58% 20%

Belgian administration contributes 25% of the activity.

0-500

The Buildings Agency confirmed the acquisition of the 34,000 sq m Möbius II and of the 14,000 sq m Networks Nor, both projects located in the North district on Boulevard Albert II. This represents 25% of Q4 total take-up in only two transactions.

500-1000

1000-2500

2500-5000

5000-10000

10000+

PUBLIC AND PRIVATE TAKE-UP (000S SQ M) 600 500

Another notable transaction was the temporary move of Proximus into the Boréal Tower, to occupy 37,486 sq m during the renovation of the Proximus Towers, which is set to become a mix-used project in 2025. Overall, these three transactions amount for 45% of take-up in Q4.

The biggest deals of Q4 took place in the North district which shows tangible interest in the area and a will to redevelop the district, both from public authorities and private companies.

400 300 200 100 0 2015

2016

2017 2018 2019 Private Public

2020

2021

M A R K E T B E AT

BRUSSELS Office Q4 2021 Important pipeline under construction for 2022, 76% currently pre-let.

OFFICE PIPELINE (000s sq m) 250

An important re-development pipeline is taking shape for the coming years. For 2022 alone, nearly 200,000 sq m are currently under construction, with 46,500 sq m still available. In the longer term, another 250,000 sq m are under construction and building permits have been delivered for 290,000 sq m. Brussels’ office stock should stand to 14,500,000 sq m by the end of 2026.

200 150 100 50

In 2021, 80% of the projects under construction were pre-let. Thanks to this trend, the impact of the new deliveries on the vacancy rate is weaker than expected.

0 2022

2023 Pre-let

Vacancy rate on the rise for 2022.

At the end of 2021, the vacancy rate stands at 7.65%, a slight decrease compared to Q3 2021. In the short term, the vacancy rate should rise because of new offices arriving empty on the market as well as occupier space reductions. During 2022, the vacancy rate should reach 8.5% 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%.

2024 Available

2025

2026

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

Prime rents general increase awaited in the coming years.

Despite the high level of activty, most districts preserved their prime rents. The North district however saw an increase in its prime rent from €225/sq m/year to €230/sq m/year in Q4 with Ageas letting 5,000 sq m in the Manhattan Center and a 3,800 sq m lettin in the Quatuor by Sopra. The district is undergoing major facelift. For the overall market, a general increase is expected in the coming years.

In the Decentralised districts, prime rents rose to €200/sq m/year thanks to different transactions recorded in the Royale Belge which is set to become a new iconic mixed-use development by 2023.

In the Periphery, new developments such as The Wings tend to drive the rents upwards. They could reach €185/sq m/year by the end of 2022 and even €195/sq m/year by 2025 – against €175/sq m/year currently.

2% 0%

PRIME RENTS (in €/sq m/year) 350 300 250 200 150

CBD

Decentralised

Periphery

M A R K E T B E AT

BRUSSELS Office Q4 2021 An outstanding quarter for the investment market.

OFFICE INVESTMENT VOLUMES BY QUARTER (MEUR) 4,000

In the last quarter of 2021, EUR 1.10 bn has been invested in the Brussels office market, which is one of the best last quarters ever. The most important transactions were the sale of the Astro Tower by FG Asset Management to Union Investment Real Estate and the sale of Möbius II by Immobel to the Buildings Agency for 238 MEUR and 216 MEUR respectively, representing 41% of the total invested volume during Q4. This brings the total investment volume to EUR 2.28 bn in 2021.

Indeed, the high investment volume recorded in Q4 was boosted by the Buildings Agency, which has adapted its real estate program in Belgium by considering purchases for own occupation when the opportunity is right.

3,500 3,000 2,500 2,000 1,500 1,000 500 0

Prime yield compresses to 3.60%.

2015

2016

2017 Q1

Investors’ interest in core assets was confirmed in H2. Due to this intense competition for core assets, prime yields recorded a further compression to a new level of 3.60% for products with 3/6/9 leases. In the longer term, it is expected that in 2022 the prime yield will continue to drop to 3.50% and the longterm prime yield, standing at 3.20% in the end of 2021, is expected to drop to 3.15% as soon as next year.

2018

Q2

Q3

2019

2020

Q4

PRIME OFFICE YIELDS IN BRUSSELS (%) 6% 5%

As expected in the last quarter, and conversely to other European cities where an increase of prime yields in the coming 12- to 24 months is expected, Brussels should be more resilient with a forecasted prime yield at 3.50% up to the end of 2023.

4%

Outlook: Towards a “greener” office market.

1%

3% 2%

0%

A trend emerges from the figures recorded this year, this is the rush for green and ecological buildings.

This trend should profoundly alter the market, and force developers and investors to make their buildings ESG proof. In the coming years, the vacancy rate could explode among obsolete buildings.

-1%

Prime

LT Prime

10y. Bond

2021

M A R K E T B E AT

BRUSSELS Office Q4 2021 MARKET STATISTICS UNDER CONSTRUCTION (SQM)

PRIME RENT (€/sq m/year)

PRIME YIELD

80,275

75,646

€320

3.60%

63,980

157,643

€260

3.90%

103,632

114,219

91,505

€230

4.90%

4.59%

10,984

21,974

28,000

€275

4.10%

20,481

3.38%

3,800

4,040

-

€195

5.25%

2,594,098

286,564

11.05%

18,823

56,495

50,000

€200

6.25%

2,171,171

400,351

18.44%

24,134

97,527

52,183

€175

6.00%

13,767,486

1,052,878

7.65%

189,814

438,510

454,977

€320

3.60%

STOCK (SQM)

AVAILABILITY (SQM)

VACANCY RATE

Q4 2021 TAKE-UP

TAKE-UP 2021 YTD

Brussels (Leopold)

3,382,669

124,865

3.69%

18,336

Brussels (Centre)

2,492,755

97,787

3.92%

10,105

Brussels (North)

1,645,608

82,616

5.02%

Brussels (Louise)

875,282

40,214

Brussels (Midi)

605,903

Brussels (Decentralised) Brussels (Periphery)

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 Q4 2021 PROPERTY

SUBMARKET

TENANT

SQ M

TYPE

Boreal

North

Proximus

37,486

Letting

Möbius II

North

Buildings Agency

34,000

Purchase

Networks Nor

North

Buildings Agency

14,000

Purchase

*Renewals not included in leasing statistics

BENJAMIN DEVIE Research Analyst | Belgium & Luxembourg +33 6 29 45 32 81 benjamin.devie@cushwake.com

KEY INVESTMENT TRANSACTIONS Q4 2021 PROPERTY

SUBMARKET

SELLER / BUYER

Volume (in MEUR)

Yield

Astro Tower

Leopold

FG Asset Management / Union Investment Real Estate

238

3.25%

North

Fidentia / Buildings Agency

216

-

Môbius II Stephanie Square

Louise

AG Real Estate / KGAL Investment

150

-

Tweed Building

Centre

AG Real Estate / BNP Paribas REIM

112

-

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