Q3 2021 | Brussels Office Marketbeat | Belgium

M A R K E T B E AT

BRUSSELS Office Q3 2021

YoY Chg

12-Mo. Forecast

247,368

Belgian economic growth returning to pre-crisis level as expected .

Economic growth is set to increase to 5.54% which means that the GDP is around pre-crisis levels, after which growth levels will stabilise to 2.64% in 2022 and 2.85% in 2023.

YTD Take-Up (sq m)

7.72% €320

The unemployment rate peaked at 6.17% in the third quarter and should be expected to decline in the last quarter of 2021 and stabilise around 5.74% in 2022 and 2023. In most private sectors, employment grew substantially in 2021, including up to 4.5% for R&D sector representing 4,000 new jobs. However, the banking & insurance sector continues to reduce its workforce reaching 44.5k jobs by the end of 2023.

3.70%

Core inflation in Belgium stands at 1.68% in Q3 2021 as recently forecast. It is projected at 1.12% in 2022 and 0.70% in 2023.

Vacancy Rate

Prime rent (€/sq m/year)

Prime yield

Predicting the return to the office.

According to Cushman & Wakefield’s Predicting the return to the office report1, 40% of the workforce in Europe had returned to the office as of September, and it is expected that the majority will return in early 2022 with potential positive ramifications for the office occupational market.

ECONOMIC INDICATORS Q3 2021 YoY Chg

12-Mo. Forecast

1. https://www.cushmanwakefield.com/en/insights/predicting-the-return-to-the-office

5.54% 2021 GDP Growth

6.17%

8%

1.68%

4%

Source:Moody’s Analytics, BNB, Eurostat, September 2021 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.

5%

10%

2021 Unemployment rate

Consumer Price Index

EVOLUTION RATE OF EMPLOYMENT BY SECTOR

GDP GROWTH AND UNEMPLOYMENT RATE

4% 3%

6%

2% 1%

2%

0%

0%

-1%

-2%

-2%

-4%

-3% -4%

-6%

-5% -8%

2016 2015

2016

2017

2018

GDP Growth

2019

2020

2021

2022

Unemployment Rate

2023

2017

2018

2019

2020

2021

2022

Financial and insurance activities

Public administration

Scientific activities

Other activities

2023

M A R K E T B E AT

BRUSSELS Office Q3 2021 TAKE-UP BY QUARTER (000S SQ M)

Demand during Q3 was in line with Q2.

600

In Q3, 68,000 sq m of take-up was recorded on the Brussels office market. This is a slight decrease on the previous quarter, however there were as many transactions as in Q3 2020. Occupiers are mainly in a wait-and-see position, combined with the fact that there are still a good number of big deals to close by the end of the year. We expect that 2021 will outperform 2020 with the total in the region of 350,000 sq m.

500 400 300 200 100

KU Leuven contributes 30% of the activity in one transaction.

0 2015

KU Leuven (Catholic University of Leuven) confirmed the acquisition of the 21,000 sq m Pacheco Building, project located on Boulevard Pacheco 44. This represents 35% of Q3 total take-up in only one transaction.

2016

2017 Q1

2018 Q2

Q3

2019

2020

2021

Q4

NUMBER OF Q1-Q3 TAKE-UP DEALS BY OFFICE SIZE (SQ M) 350

The National Bank of Belgium and Nagelmakers complete the podium with close to 6,000 sq m in the Arenberg (Centre district) and a 3,700 sq m pre-letting in Monteco (Leopold district) respectively.

300 250 200

Small transactions drive the market.

150 100

So far this year, there have been as many transactions as in Q1-Q3 2020, but this figure remains lower than in previous years. Excluding large public transactions, the current total take-up is down by 16,000 sq m compared to last year. This can be explained by a higher share of small transactions.

For Q3 2021, 80% of deals have been realised for surfaces inferior to 1,000 sq m. Specifically, there has been an 85% increase in the number of transactions in the 500-1,000 sq m range compared to Q3 2020.

50 0 2015 0-500

2016 500-1000

2017

2018

1000-2500

2019

2500-5000

2020

5000-10000

2021 10000+

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

500

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.

400 300 200 100 0

2015

2016

2017

2018

Private

Public

2019

2020

2021

M A R K E T B E AT

BRUSSELS Office Q3 2021 Important pipeline under construction for 2022, 77% currently pre-let.

OFFICE PIPELINE (000s sq m) 200

An important re-/development pipeline is taking shape for the coming years. For the end of 2021 alone, 56,000 sq m will enter the market, with 15,000 sq m on a speculative basis. In the longer term, another 70,000 sq m are under construction and still available, and building permits have been delivered for 330,000 sq m.

150

100

50

In Q3 2021, 82% 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 2021

2022 Pre-let

Vacancy rate on the rise for 2022.

VACANCY RATE (%)

At the end of Q3, the vacancy rate stands at 7.72%, a slight decrease compared to Q2 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%.

12%

2023 Available

2024

2025

10% 8%

6% 4%

Fluctuating prime rents according to districts. General increase awaited in the coming years.

2% 0% 2015 2016 2017 2018 2019 2020 Q3 21Q4 21 2022 2023 2024 2025

Most districts preserved their prime rents in Q3 except the North district. This area saw a decrease in its prime rent from €230/sq m/year in Q2 to €225/sq m/year. A further decrease to €220/sq m/year in the North district is expected by the end of the year due to significant speculative competition and current availability.

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

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

In the Periphery, new developments such as The Wings tend to drive the rents upward. 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.

200 150

CBD

Decentralised

Periphery

M A R K E T B E AT

BRUSSELS Office Q3 2021

Slow Q3 on the investment market. Investors stay more selective.

In Q3, 270 MEUR has been invested in the Brussels office market, which is below the historical quarterly average. The most important transaction was the sale of the New Espace Orban by Aberdeen Asset Management to AXA Investment Managers for 122 MEUR representing 45% of the total invested volume during Q3. This brings the total investment volume YTD to EUR 1.17 bn.

OFFICE INVESTMENT VOLUMES BY QUARTER (MEUR) 4.000 3.500

3.000

Investors’ interest in core assets in H1 is confirmed in Q3. Of the five transactions recorded in Q3, two of them were (LT) core investments. These two transactions represent 78% of invested volume.

2.500 2.000 1.500

Prime yield stabilise to 3.70%.

1.000 500

In H1, a compression of the prime yields was recorded to a record low of 3.70%. In Q3, the prime yields stabilised at 3.70% but it is expected that in 2022 the prime yield will drop to 3.60% for products with 3/6/9 leases due to intense competition for core assets. The long-term prime yield stands at 3.20% in Q3 2021 and is expected to drop to 3.15% as soon as next year.

0 2015

2016

2017

Q1

2018

Q2

Q3

2019

2020

2021

Q4

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 3.60% up to the end of 2023.

PRIME OFFICE YIELDS IN BRUSSELS (%)

The return to the office in Q1 2022.

On a final note, a majority of companies in Europe have earmarked September or October for a concerted move back to in-office working. Those that have taken a longer view have cited January 2022 as the targeted timing. This will vary by country based on factors such as continued growth in vaccination levels, and opportunities to take a third booster vaccine.

6% 5% 4%

3% 2% 1%

It is clear that workspace and work culture will continue to change in the future and hybrid work will become the norm. However, an important return to the office is expected.

0% -1%

Prime

LT Prime

10y. Bond

M A R K E T B E AT

BRUSSELS Office Q3 2021 MARKET STATISTICS UNDER CONSTRUCTION (SQM)

PRIME RENT (€/sq m/year)

PRIME YIELD

62,339

88,794

€320

3.70%

53,875

157,643

€260

3.90%

741

10,359

91,505

€225

4.90%

5.27%

3,746

12,070

-

€275

4.10%

17,780

2.93%

240

240

5,000

€195

5.25%

2,603,056

288,726

11.09%

4,661

37,672

50,000

€200

6.25%

2,176,873

383,244

17.61%

13,254

70,813

93,967

€175

6.0%

13,638,709

1,052,713

7.75%

60,366

247,368

486,909

€320

3.70%

STOCK (SQM)

AVAILABILITY (SQM)

VACANCY RATE

Q3 2021 TAKE-UP

TAKE-UP 2021 YTD

Brussels (Leopold)

3,369,521

112,294

3.33%

10,184

Brussels (Centre)

2,362,466

91,695

3.88%

27,540

Brussels (North)

1,645,608

112,870

6.86%

Brussels (Louise)

875,282

46,124

Brussels (Midi)

605,903

Brussels (Decentralised) Brussels (Periphery)

SUBMARKET

Brussels (Overall)

KEY LEASE TRANSACTIONS Q3 2021 PROPERTY

SUBMARKET

TENANT

SQ M

TYPE

Centre

KU Leuven

21,000

Purchase

Pacheco Building Arenberg 7

Centre

BNB – NBB

6,000

Letting

Monteco

Leopold

Nagelmackers

3,674

Letting

CÉDRIC VAN MEERBEECK Head of Research and Marketing | Belgium & Luxembourg +32 477 98 11 83 cedric.vanmeerbeeck@cushwake.com BENJAMIN DEVIE Research Analyst | Belgium & Luxembourg +32 2 510 07 11 benjamin.devie@cushwake.com

*Renewals not included in leasing statistics

KEY INVESTMENT TRANSACTIONS Q3 2021 PROPERTY

SUBMARKET

SELLER / BUYER

Volume (in MEUR)

Yield

122

3.44%

Leopold

Aberdeen Asset Management / AXA Investment Managers

Watson & Crick Hill Business Park

Periphery

Liegeois Group / Kadans Science Partner

100

4.70%

Siemens Business Park

Periphery

Global Estate Group / Prologis

36

7.95%

Leopold

Sabam / IMMOBEL

23

-

New Espace Orban

Rue d’Arlon 75-77

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