Q3-2019 | Office Market Snapshot | Luxembourg

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LUXEMBOURG

Office Market Snapshot Third Quarter | 2019

MARKET INDICATORS

Overview

Market Outlook

The GDP growth in Luxembourg is set to reach a high 3.1% in 2019 while the International Monetary Fund reviewed its global economic forecasts on the downside recently. The unemployment rate is at a low 5.4% and the cross-borders workers are strongly increasing as Luxembourg is benefitting from strong economic fundamentals. Population is also set to rise strongly in the coming years. Household spending, even on a slight downside, will remain higher than in neighboring countries.

Prime Rents:

Prime rents in the CBD are expected to increase later this year to 52€/sq m/month.

Prime Yields:

Prime yields are expected to remain unchanged at 4% throughout the year.

Supply:

Pipeline is still important though mainly committed and pre-let surfaces.

Demand:

Demand is expected to pick up with multiple transactions expected before year end.

Occupier focus

Prime Office rents – September 2019 LOCATION

€ SQ M MTH

€ SQ M YR

US$ SQ FT YR

Luxembourg City (CBD)

50.00

600

62.9

0.0

2.1

Luxembourg City (Station)

36.00

432

45.3

0.0

1.1

Luxembourg City (Kirchberg)

37.00

444

46.6

5.7

2.3

CURRENT Q

LAST Q

LAST Y

10 YEAR HIGH LOW

Luxembourg City (CBD)

4.00

4.00

4.20

6.15

4.00

Luxembourg City (Station)

4.50

4.50

4.50

5.20

4.50

Luxembourg City (Kirchberg)

4.50

4.50

4.50

6.50

4.50

The third quarter of the year recorded a strong take-up of 123,400 sq m, boosting the total activity for the first three quarters of the year to 165,300 sq m. With close to 40,000 sq m, the Court of Justice recorded the largest transaction of the year so far. Other significant transactions include the letting of 10,080 sq m in the Dyapason by Edmond de Rothschild Europe, the 9,500 sq letting by the State of Luxembourg in the Green Square and the 8,420 sq m letting by KPMG in the K2. The vacancy rate for Luxembourg overall remains around 3%, one of its lowest levels ever recorded. Prime rents currently remain stable at 50€/sq m/month in the CBD, 37€/sq m/month in the Kirchberg area, 36€/sq m/month in the Station district and 31€/sq m/month in the Cloche d’Or.

GROWTH % 1YR 5YR CAGR

Prime Office yields – September 2019 LOCATION (FIGURES ARE NET, %)

NOTE: The above yields are for typical 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.

Investment focus Activity has been quite slow on the investment market. This quarter, the only transaction recorded was the acquisition of the D-Square (Deloitte HQ) for 268 MEUR by La Française on behalf of K.I.M. Despite the weak start of the year, there are still some transactions expected to be closed before the end of the year (such as the sale of Terre Rouge in Esch-Belval), while other notable deals are expected for 2020. Prime yields in all districts remained unchanged so far and stand at 4% in the CBD and 4.5% in the Station area.

Recent performance Yield - Prime Rental Growth - Country Average

6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00%

15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19

Rental growth (y/y)

Yields

Yield - Country Average Rental Growth - Prime

Outlook Some large letting transactions (mainly involving the public sector) are still expected to be closed before the end of the year (including the European Parliament in the KAD). As such, the total take-up for the year could potentially surpass the levels observed in 2018. Prime rents are expected to increase to 52€/sq m/month before the end of the year following the delivery of new projects in the CBD. The office stock is expected to increase by more than 175,000 sq m in Q4 2019, of which 95% is pre-let. Therefore, the vacancy rate is forecasted to remain at a low level. A strong demand is still present on the investment market, but there is a clear lack of available products for sale. Yet, the investment volume is also expected to pick up mainly due to several transactions currently in the pipeline. Yields for prime products, however, are expected to remain at 4% for now.

cushmanwakefield.com


LUXEMBOURG

Office Market Snapshot Third Quarter | 2019

LOCATION

CBD Kirchberg

BUILT STOCK

AVAILABILITY

VACANCY RATE

TAKE-UP Q3

TAKE-UP YTD

UNDER CONSTRUCTION

(SQ.M)

(SQ.M)

(%)

(SQ.M)

(SQ.M)

2019-2022 (SQ.M)

840,000

2,400

0.3%

4,120

14,050

22,200

1,173,000

11,000

0.94%

56,140

18,420

201,700

Station

421,000

12,500

2.97%

2,930

6,995

27,700

Cloche d’Or

452,000

27,600

5.6%

16,400

64,750

33,700

Other inner districts

249,000

16,800

6.7%

12,020

15,750

35,800

Decentralised districts

408,000

27,000

7.6%

3,190

32,870

121,700

Periphery

512,000

27,000

5.33%

28,580

12,440

69,600

4,056,000

120,000

3.03%

123,380

165,270

512,500

Luxembourg (Overall) Source: Cushman & Wakefield

Key Occupier Transactions PROPERTY

SUBMARKET

TENANT

SIZE (SQ.M)

TRANSACTION TYPE

3rd Tower Justice Court

Kirchberg

EU Justice Court

39,750

Letting

Dyapason

Cloche d'Or

Edmond de Rothschild Europe

10,080

Letting

Naos

Esch-Belval

ARHS

9,900

Letting

Green Square

Hamm

State of Luxembourg

9,494

Letting

K2

Kirchberg

KPMG

8,420

Letting

SUBMARKET

SELLER / BUYER

Source: Cushman & Wakefield

Key Investment Transactions PROPERTY

YIELD

PRICE € MILLIONS

D-Square

Cloche d’Or

Integrale & Ethias / La Française & Korean IM

3.85%

268

Source: Cushman & Wakefield, Real Capital Analytics

This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part. ©2019 Cushman & Wakefield LLP. All rights reserved.

Sebastien Bequet Head of Luxembourg 287/289 Route d’Arlon, 1150 Luxembourg Tel: +352 27 21 33 07 sebastien.bequet@cushwake.com cushmanwakefield.com