M A R K E T B E AT
Luxembourg Office Market Office Q3 2020 Economic Overview YoY Chg
12-Mo. Forecast
175,500 Take-Up sq m
€51 Prime Rent, (€/sq m/ Month)
The GDP growth is projected to fall by 3.7% for the year 2020 (revised from a sharp 6.2%), as a result of the COVID-19 outbreak. Domestic demand is expected to decline due to lower private consumption and investment, while government consumption is set to cushion only part of the fall in 2020. The fall is sharp but might seem modest compared to results reported elsewhere in the euro area. For 2021, a rebound in GDP growth to 5.4% is expected, with risks mainly on the downside. Private consumption is expected to further decline in 2020 due to the effects of the pandemic and due to the weakening of the labour market (via a higher unemployment level and lower employment growth). Unemployment is expected to increase to 6.5% for 2020 (coming from 5.6% in 2019) and 6.2% in 2021.
Occupier Focus The third quarter of the year recorded a take-up of around 58,400 sq m (67 transactions including pre-lettings), more or less in line with the quarterly average. Overall, since January the Luxembourg office market recorded a relatively strong letting activity with a take-up of 175,500 sq m over 155 transactions. This is especially good considering the turbulent conditions faced this year. This, furthermore, shows the strengths of this small office market and its resilience during economic uncertainties. The most notable transactions this quarter came from the State of Luxembourg with the 10,100 sq m letting of Terres Rouges and the pre-letting of Darwin II (over 5,000 sq m). Prime rental values remained stable in the CBD and the Kirchberg area at respectively 51€ and 38€/sq m/month. Prime rents in the Cloche d’Or district increased to 33€/sq m/month. The vacancy rate for the overall market is currently at 3.50%.
3.48% Vacancy Rate
3.60% Prime Yield (3/6/9 Lease)
Investment Focus ECONOMIC INDICATORS Q3 2020 YoY Chg
12-Mo. Forecast
6.5% Unemployment Rate 2020
-3.7% GDP Growth for 2020
All in all, the office investment market is doing relatively well considering the health crisis. Most of the office sale transactions that were started before the lockdown closed during or just after the lockdown. The Luxembourg market stands out from other European markets because its fundamentals are still relevant. Year to date, around 14 transactions totaling 530 MEUR have been recorded in the office market. Prime yields have witnessed a further compression following a high demand for secured, core and central assets. The lack of supply for this type of product has seen the prime yield in the CBD reach a record low level of 3.60%.
Outlook Letting activity is expected to resume at roughly the same pace as the previous quarters of the year to reach more or less 230,000 sq m by the end of 2020. The vacancy rate is expected to increase slightly with the arrival of new office schemes, but should remain below the 4%. Prime rents could further increase in the central locations, especially in the CBD and the Kirchberg. The investment market records an auspicious pipeline, but deals may be finalised in 2021 rather than this year. Prime yields are expected to remain quite stable for the following months. TAKE-UP PER QUARTER
INVESTMENT VOLUME (MEUR, LHS) & PRIME YIELDS (%, RHS)
1.2%
400.000
2.000
Employment Growth for 2020
300.000
1.500
200.000
1.000
100.000
500
0
0
7,00% 6,00% 5,00%
Source: Oxford Economics 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.
4,00%
Q1
Q2
Q3
Q4
3,00% 2,00%
Investment Volume
Prime Yield