H2-2019 | Marketbeat Wallonia Office Market

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MARKETBEAT WALLONIA OFFICE MARKET H2 2019


CONTENTS

01 02 03 04 05 08

Executive summary

Economic overview

Belgian regional office markets

Walloon office markets: Liège, Namur, and Charleroi

Walloon Brabant

Regional office investment market


WALLONIA OFFICE MARKET H2 2019

EXECUTIVE SUMMARY •

The total regional markets (Wallonia and Flanders) take-up in 2019 was 327,000 sq m, which is only marginally inferior to the record year registered in 2018 (353,000 sq m). Furthermore, 2019 was a record year on the Walloon office market with 104,000 sq m of take-up (Figure 1). In H2, yet another impressive level of demand resulted in 172,000 sq m of take-up through Belgian regional markets. Highlight H2 transactions in Wallonia were a pair of pre-lettings by the Walloon government totalling 11,000 sq m in the Paradis Express project as well as a double pre-letting by gas and electricity distribution network operator Resa in Liège for a total of 12,000 sq m. A total of 76,000 sq m of new or heavily renovated spaces were delivered across regional markets in H2, split between 20,000 sq m in Wallonia and 56,000 sq m in Flanders. The total pipeline for both regions is quite impressive with as much as 352,000 slated to be delivered by the end of 2021 - 161,000 sq m in Wallonia and 191,000 sq m in Flanders.

The global vacancy rate for regional markets is 6.16% Wallonia vacancy is 3.42% and Flanders’ is 7.07%.

As far as prime rents are concerned, Namur has the joint-highest among regional markets with EUR 160/sq m/year; in Flanders, Antwerp and Ghent are also at a level of EUR 160/sq m/year.

In total, EUR 369 million of investments have been recorded in regional markets in 2019 – an excellent 57% annual increase and a decade high. This included a volume of EUR 112 million in H2 with EUR 16 million attributed to investments in Wallonia, bringing its 2019 total volume to EUR 42 million.

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

104,000 sq m RECORD WALLONIA ANNUAL TAKE-UP

3.42% WALLONIA VACANCY RATE.

Figure 1 Walloon office markets take-up, sq m 120,000 100,000 80,000 60,000 40,000 20,000 0 2015 Liège

2016 Namur

2017 Charleroi

2018

2019

5Y Avg 2015-19

Source: Cushman & Wakefield

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ECONOMIC OVERVIEW GDP growth expected at 1.3% in 2019 and 1.2 in 2020.

Figure 2 GDP growth

According to Oxford Economics, the Belgian economy appears to have slowed in Q4. Global trade tensions and geopolitical uncertainties affecting Europe and Belgium have led to a revised expected GDP growth of 1.3% in 2019 and an easing expansion to 1.2% in 2020 (Figure 2).

3.00%

After GDP growth surprised in Q3 by holding steady at 0.4% q/q, economic activity probably eased in Q4 and this may extend into 2020. Decelerating exports and investment will be the main causes of the economic slowdown as external uncertainty takes its toll (Oxford economics, 2019). Data shows that the eurozone’s economic growth is ongoing but relatively moderate due to a weakness in the manufacturing sector which remains a drag in the growth momentum.

Consumer and Business confidence seem to have bottomed out . As in the rest of the eurozone, business confidence seems to have bottomed out after more than a year of free-fall. Although encouraging, there is little hope of a meaningful pick-up in industrial activity as sentiment remains close to five-year lows and the external environment remains quite uncertain (Figure 3). In contrast, despite slowing slightly on a quarterly basis, we expect private consumption to remain robust as households continue to benefit from rising wages, low unemployment and contained inflation (Oxford economics, 2019).

Unemployment rate at a record low 5.5% in Belgium. The unemployment rate, which has been continuously decreasing since the third quarter of 2017, has stabilised at 5.4 %. Compared to the third quarter of 2019, Statbel sees mainly positive developments on the labour market. The employment rate of people aged 20-64 increases by 0.6 percentage points and the unemployment rate of people aged 15-64 decreases by 0.5 percentage points. Labour market tightness should continue to push up wage growth. Although slightly increasing, the unemployment rate is expected to remain relatively low until 2021. Important disparities are still observed in the country’s three regions, with the unemployment rate in Brussels, Flanders and Wallonia amounting to 12.5%, 3.3% and 7.7%, respectively (Figure 4).

2.00% 1.00% 0.00% -1.00% -2.00%

Eurozone

Brussels

Flanders

Wallonia

Source: Oxford Economics

Figure 3 Confidence indices 10 5 0 -5 -10 -15 -20

Consumer confidence

Business confidence

Source: National Bank of Belgium

Figure 4 Unemployment rate 20% 15% 10% 5% 0%

Belgium

Brussels

Flanders

Wallonia

Source: Oxford Economics

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

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ECONOMIC OVERVIEW Employment growth expected to stabilise. Employment growth has already decelerated slightly compared to the peak in 2017 even if the intensity of employment growth still edges up this year. While employment growth itself is projected to moderate gradually, economic growth is expected to be supported by increasing labour productivity. This is mostly due to the recent and projected increase in labour costs, but also because the still important impact of supply constraints on the labour market, as witnessed by the high level of vacancies, will make it increasingly difficult for firms to find suitable staff (NBB, 2019).

Inflation decreases in 2019. Core inflation remained stable at 1.4%, well below the 2% ECB target. Inflation has declined sharply in 2019 due to the deceleration in energy prices. However, underlying domestic cost pressures, related to relatively high wage growth in particular, will gradually push up inflation in the near future, although it will still fall clearly short of 2% at the end of 2022 (NBB, 2019). Oxford Economics expect headline inflation to fall below 1% in 2020, after a modest 1.5% in 2019 (Figure 6).

Figure 5 Employment growth 5% 3% 1% -1% -3% -5%

ICT Administrative & support Other services

Financial & insurance Public administration & defence

Source: Oxford Economics, Federal Planning Bureau

Figure 6 Inflation rates 2.50% 2.00% 1.50% 1.00%

ECB policies remain supportive 0.50%

The latest pattern of moderate economic growth in Europe reflect the ongoing weakness of international trade in an environment of continued global uncertainties which has particularly affected the manufacturing sector and also dampened the economic growth and investment activities. With this in mind, the ECB’s Governing Council voted to keep the main deposit rate at a historic low of -0.5%, in line with market expectations. The marginal lending facility remained at 0.25% and the main refinancing operations rate stayed at 0%. Furthermore, in light of the subdued inflation outlook, the ECB announced the monetary policy will remain highly accommodative for a prolonged period of time to support the underlying inflation pressures and headline inflation developments over the medium term. The unfolding monetary policy measures should continue to underpin favourable financing conditions and borrowing terms for companies and households which stimulate consumer spending and business investments. The 5-years and 10-years government bond yields are respectively at -0.33% and 0.01% and should stay at very low rates in the coming months (Figure 7).

0.00%

Belgium

Eurozone

Source: Oxford Economics

Figure 7 Belgian Government bond yields 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00%

OLO 5 Years

OLO 10 Years

Source: Oxford Economics

Sources for the Economic Overview: Oxford Economics, OECD, National Bank of Belgium, European Central Bank, Statbel

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

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BELGIAN REGIONAL OFFICE MARKETS Very dynamic year and a record in Wallonia.

Figure 8 Take-up in regional markets, sq m

Yet another impressive level of demand resulted in 172,000 sq m of take-up through Belgian regional markets in H2. This brings the total for the year to 327,000 sq m, which is only slightly inferior to the record year registered in 2018 (Figure 8). Furthermore, 2019 represented a record year on the Walloon office market with 104,000 sq m of take-up thanks to several substantially-sized movements in Liège.

400,000 350,000

300,000 250,000 200,000 150,000

100,000

These included a pair of pre-lettings by the Walloon government totalling 11,000 sq m in the Paradis Express project as well as a double pre-letting by gas and electricity distribution network operator Resa in Liège for a total of 12,000 sq m.

50,000 0 2015 Q1

2016 Q2

2017 Q3

Q4

2018

2019

5Y Avg 2015-19

Source: Cushman & Wakefield

As a result of these large deals, the share of Grade A spaces in the regional markets take-up was impressive with 52% in H2 (Figure 9). Figure 9 Take-up distribution by building grade, Belgian regional office markets, H2 2019

The public sector was the most influential occupier type in 2019, accounting for 43,000 sq m, mainly stemming from a handful of large transactions in Walloon markets. The coworking sector is a close second, with more than 41,000 sq m of take-up, and is finally making its presence felt throughout both regions, with an especially striking footprint in Antwerp and Ghent.

C 34%

163,000 sq m

Impressive pipeline. A total of 76,000 sq m of new or heavily renovated spaces were delivered across regional markets in H2, split between 20,000 sq m in Wallonia and 56,000 sq m in Flanders.

B 14%

The pipeline for the next couple of years is quite impressive with as much as 352,000 slated to be delivered by the end of 2021, including 161,000 sq m in Wallonia and 191,000 sq m in Flanders. The global vacancy rate for regional markets is 6.16% Wallonia vacancy is 3.42% and Flanders’ is 7.07%.

A 52%

Source: Cushman & Wakefield

Figure 10 Belgian regional office prime rents, EUR/sq m/year 170

160

Namur joint-highest prime rent.

150

As far as prime rents are concerned, Namur has the jointhighest among regional markets with EUR 160/sq m/year; in Flanders, Antwerp and Ghent are also at a level of EUR 160/sq m/year (Figure 10).

140 130

120 110 2015

2016

Leuven Mechelen Charleroi

2017 Antwerp Namur

2018

2019 Ghent Liège

Source: Cushman & Wakefield

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

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WALLOON OFFICE MARKETS LIÈGE, NAMUR, AND CHARLEROI Best year achieved in 2019.

In Charleroi, IRET’s Tirou n°1 will add 15,000 sq m to the stock in the coming years while ORES’ new head office in Gosselies (13,000 sq m) should be delivered by the end of 2020.

Wallonia rounded off its best ever year as far as take-up is concerned with an outstanding 61,000 sq m in H2, bringing the 2019 total to 104,000 sq m (Figure 11). This is almost twice as much as the five-year average (56,000 sq m).

The overall vacancy rate for Wallonia ends 2019 on a level of 3.42% (see dashboard on the next page for more details).

More than a dozen transactions over 1,000 sq m were recorded in H2 in Wallonia – mainly in Liège. Chief among large deals in H2 was a double pre-letting by gas and electricity distribution network operator Resa in Liège for a total of 12,000 sq m. True to the trend, the public sector – in this case the Walloon regional administration - also played a key role with two pre-lettings for a total of 11,000 sq m in Befimmo’s Paradis Express. In Namur, large activity included a 1,500 sq m bespoke development for Cafés Delahaut in the Ecolys business park in Suarlée.

Highest regional prime rent in Namur, increase in Liège. Namur has the highest prime rent in Wallonia (and indeed Belgian regional markets) at EUR 160/sq m/year, followed by Liège which has witnessed an increase of its prime rent to EUR 155/sq m/year. Charleroi’s prime rent remains a modest EUR 135/sq m/year (Figure 12).

Grade A deals amounted to an impressive 79% of H2 takeup thanks to a large volume of pre-lettings, new developments and occupiers eager to move into quality newbuilds.

Figure 11 Walloon office markets take-up, sq m

Once again, the public sector was a central figure and accounted for 39% of H2 take-up (47% of the activity for the whole year). More movements from these occupiers are expected in the near future. This makes sense as the administration has set out to rethink, rationalise and consolidate its location strategy. Due to the Resa deals mainly, industry-type occupiers accounted for 23% of H2 take-up.

120,000 100,000 80,000 60,000 40,000 20,000

Imposing speculative pipeline.

0 2015

Close to 20,000 sq m of new or heavily renovated office spaces have been delivered at the tail-end of 2019, bringing deliveries to 65,000 sq m approximately for the whole of 2019. Standout deliveries include the police call center in Vottem (Liège) – 10,000 sq m.

Liège

2016 Namur

2017 Charleroi

2018

2019

5Y Avg 2015-19

Source: Cushman & Wakefield

The pipeline in Wallonia will be even more substantial in the coming couple of years, with more than 160,000 sq m scheduled to be delivered.

Figure 12 Walloon office rents, EUR/sq m/year 180 160

In Liège, major developments include Liège Office Center (15,000 sq m in 2020 – almost fully prelet), En Féronstrée (more than 11,000 sq m in 2020 – developed speculatively), and Paradis Express in 2021 (21,000 sq m, half prelet) In Namur, speculative developments include Pixel Park (over 2,000 sq m on the Chaussée de Marche)) and Cross Point (10,000 sq m near Namur train station) which will be added to the stock in 2020 and 2021 respectively. In addition Eaglestone’s Aquilis A (5,500 sq m) and Belfius’ 6,000 sq m Combattants offices will be delivered by Artone, also in 2021. Beyond 2021, it is worth noting Baltisse’s mixed-use AXS project in Namur (next to Cross Point) which will include offices across 39,000 sq m. Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

140 120 100

80 60

2015

2016

Liège prime Namur prime Charleroi prime

2017

2018

2019

Liège average Namur average Charleroi average

Source: Cushman & Wakefield

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REGIONAL OFFICE MARKETS DASHBOARD H2 2019

WALLONIA

FLANDERS

Market

Take-up (sq m)

Office stock (sq m)

Vacancy rate (%)

Prime rents (EUR/sq m/year)

Average rents (EUR/sq m/year)

Liège

38,000

459,000

3.55

155

137

Namur

3,000

519,000

5.76

160

141

Charleroi

9,000

440,000

0.54

135

124

Antwerp

69,000

2,301,000

6.46

160

126

Ghent

17,000

1,084,000

4.85

160

135

Mechelen

20,000

325,000

n.a.

150

131

5,000

561,000

n.a.

150

130

Leuven

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

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WALLOON BRABANT Best year since 2012.

Figure 13 Walloon Brabant office take-up, sq m

After an off-colour 2018, take-up in Walloon Brabant in 2019 registered its best year since 2012 with 35,000 sq m. Nevertheless a slowdown took place in H2 with take-up of 12,000 sq m (Figure 13).

40,000

35,000 30,000

Indeed, few large deals were recorded compared to during H1 – the largest was a 1,500 sq m letting by Hamon in the Axis Parc (Mont-Saint-Guibert), where they have already been present for some time.

25,000

20,000 15,000 10,000

The year’s strong showing mainly benefitted from a couple of large transactions in H1 – a 10,000 sq m pre-letting by ING, and a 7,000 sq m purchase by Odoo, both in Louvain-la-Neuve The East area (i.e. Louvain-la-Neuve and Mont-SaintGuibert) was most popular with close to 60% of H2 takeup.

5,000 0 2015 Q1

2016 Q2

2017 Q3

2018

2019

Q4

Source: Cushman & Wakefield

Take-up in H2 was dominated by Grade C deals which amounted to 65% of the total, against 22% for Grade A deals on a market short of available new office spaces.

Figure 14 Walloon Brabant prime office rents, EUR/sq m/year 180 160

CBTC only project in pipeline with availability.

140

Currently, only UI Europe’s CBTC (20,000 sq m) in Louvain-la-Neuve has spaces under construction which are still available on the market. The project will be delivered in early 2021.

100

120

80 60 40 20 0

Prime rent stays steady. The Walloon Brabant prime rent is anchored at EUR 155/sq m/year, following a pair of transactions recorded at this level in H1 (Figure 14). The weighted average rent was in the region of EUR 140/sq m/year.

2015

2016

2017

2018

2019

Source: Cushman & Wakefield

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

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EUR 369 million Volume invested in regional office markets in 2019 – ending the decade on a high.


INVESTMENT MARKET REGIONAL OFFICES Regional markets on the rise in 2019. In total, EUR 369 million of investments have been recorded in regional markets in 2019 – an excellent 57% annual increase (Figure 15). This included a volume of EUR 112 million in H2 with EUR 16 million attributed to investments in Wallonia. Strong competition around increasingly expensive assets in Brussels intensified by international players, has led some investors to examine regional markets as a more affordable - albeit specialty - alternative.

Figure 15 Annual invested volumes, EUR m 400

30 25

300

20 200

15 10

100

5 0

0 2015

A sole transaction was recorded in H2 in Wallonia – the EUR 16 million purchase by Walloon REIT WEB of the 4,700 sq m Grade A Business Park Alleur in Liège In Flanders the standout investment in H2 was the saleand-leaseback of InBev’s headquarters in Leuven by Belfius for EUR 45 million, with InBev agreeing a nine-year lease. Furthermore, French investors Corum acquired the AA-Toren in Ghent for EUR 27 million during the summer.

2016

2017

Wallonia regional markets

2018

2019

Flanders regional markets

# deals (RHS)

Source: Cushman & Wakefield

Figure 16 Investments by origin 100%

Regions as an affordable alternative specialty market. Increased competition stemming from international investors in the capital has steered some players to examine the more affordable regional markets as an alternative. Indeed, an overwhelming share of investments (90%) in 2019 is attributed to Belgian investors who are more accustomed to the trends of such markets (Figure 16). International investors have a tendency to steer clear of these markets as they often require knowledge of local dynamics.

80% 60% 40% 20% 0%

2015 2016 Belgium United States

2018 China

2019 Other

Source: Cushman & Wakefield

Figure 17 Prime office yields

Prime yield compression throughout the year. Renewed investor interest in regional markets, particularly in Flanders, led to a prime yield which has sharpened to 5.50% (-65 bps YoY). The Wallonia prime yield is steady at 6.75% (Figure 17).

2017 Europe

8.00% 7.50% 7.00% 6.50%

6.00% 5.50% Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019

5.00%

Prime yield Flanders

Prime yield Wallonia

Source: Cushman & Wakefield

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

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MARKET DEFINITIONS Availability:

Represents the total floor space in existing properties, which are physically vacant, ready for occupation and being actively marketed as known on the last day of the quarter (with a margin of error of 5%). The vacancy rate represents the total vacant floor space divided by the total stock at the survey date.

Building grade:

Grade A: newly developed or comprehensively refurbished to new standard, including sublet space in new/refurbished buildings not previously occupied. Grade B: buildings of good specification, floor plate efficiency and image usually but not exclusively ten years old or less. Grade C: remaining poorer quality stock.

New supply:

Represents the total amount of floor space that has reached practical completion as known on the last day of the quarter (including major refurbishments) regardless whether the space is occupied or still available on the market.

Prime rent:

Represents the attainable average prime rent that could be expected for an office unit (min. 500 sq m) commensurate with demand in each location, highest quality and specification in the best location in a market at the survey date. The rent is given as a base rent, i.e. no service charge or tax is included.

Square metres:

Unless stated otherwise, the square meters used in this publication refer to the Gross Leasable Area definition for Brussels. For more information, see our Insight: Office Lease Area Comparison.

Stock:

The office property stock is the sum of office properties which are in use and office properties standing empty at the time of analysis. The office property stock is not a static amount. Due to new-build or totally refurbished operations it increases (new supply), due to demolition, change of use or even larger refurbishments that make the space not usable for a significant amount of time, it decreases.

Take-up:

Represents the total office floor space known to have been either let, pre-let or developed for tenants as well as sold or pre-sold to owner-occupiers as known on the last day of the quarter. Adjacent office spaces, when known, are not included. Pure contract renewals, sales and leasebacks and sub-lettings are not included.

Cushman & Wakefield | Marketbeat Wallonia Office Market H2 2019

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CONTACT DETAILS

AUTHOR Shane O’Neill

Andrew Phipps

Senior Research Analyst

Head of EMEA Research & Insight

+32 2 510 08 33 shane.oneill@cushwake.com

+44 203 296 4236 andrew.phipps@cushwake.com

Stéphane Moermans

Thomas Hannecart

Marc-Antoine Buysschaert

Partner – Office and Industrial Agency

Account Manager – Office and Industrial Agency

Head of Capital Markets Office

+32 42 220 220

+32 32 42 220 220

stephane.moermans@cushwake.com

thomas.hannecart@cushwake.com

+32 2 546 08 75 marc-antoine.buysschaert@cushwake.com

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