Office market report Brussels

Transcription

1 Pulse Spring 2014 Office market report Brussels The Belgian Logistics Market - Quarterly Update On Point 2nd quarter 2015 Occupiers activity is substantially below levels of the last years. One of the four deals by European institutions has been closed. Vacancy falls below 10% for the first time since Q to 9.9% and is expected to fall further in the near term with other deals by Europe and by corporates. Prime rents unchanged at 275 / sq.m. / year, but rental values overall decrease. Investment volume: very strong retail activity, this segment is expected to exceed offices in terms of volume this year. Prime office yields trend down and we are seeing transactions being closed below 5.5% in the short term in the CBD. HOT IN BRUSSELS: Core of Pentagon goes pedestrian.

2 - 2 - On Point Brussels Office Market Q At a glance 147,000 sq.m. taken-up in H1 2015, 42% lower than a year ago. 9.9% vacancy, the lowest since Q ,740 sq.m. speculative completions expected in the next 18 months. The occupiers activity continues to disappoint, however vacancy finally broke the psychological level of 10% and we anticipate further decline in the near term. Hot in Brussels this summer is the creation of a 50 ha pedestrian zone in the Pentagon. While some fine-tuning is needed in the short term, there are long term consequences on the office market. 575 Mio, invested in office properties in Brussels in H Erik Verbruggen Head of Office Agency Belgium Key statistics Q Q Take-up (cumulative) (000 sq. m.) Take-up (cumulative) (No of Deals) Stock (Mio sq. m.) Completions (cumulative) (000 sq. m.) Vacancy (000 sq. m.) 1,360 1,351 1,367 1,335 Vacancy Rate (%) Prime Rent ( /sq. m./pa) Total Investment Volume in BE (cumulative) (bn ) (*) Offices Investment Volume in BE (cumulative) (bn ) (*) Prime Yield Band (%) H (**) 2016 (**) 2017 (**) Future Supply, Speculative (000 sq. m.) Future Supply, Non Speculative (000 sq. m.) Total (*) Investment volume includes investment, owner occupier and redevelopment acquisitions; excludes land sales. Data as of 30/06/2015. (**) Under construction and projects with permit. Projects with no permit, except if prelet, on 30/06/2015 excluded.

3 - 3 - On Point Brussels Office Market Q Letting Market More deals in Q2 and a first deal by an European institution TAKE-UP BY BUSINESS SECTOR (SQM) Corporates dominate letting activity in H The take-up in the second quarter increased by 34% compared to Q1, at 84,146 sq.m. 121 deals were registered, 64% more than in Q1. Compared to a year ago, the take-up volume declined by 39% but the number of deal increased by 30%. The cumulative take-up this year therefore came in at 147,000 sq.m., 42% lower than a year ago, and the cumulative number of deals is 195, one more than a year ago. «Dominated by corporates» The corporates are by far the most active on the Brussels office market, with a contribution of 82% in 181 deals this year to date, 3 more than a year ago, and of 79% in Q2 only. Amongst the recent transactions, ISS Facility Services took 4,300 sq.m. in the Everest building in Vilvoorde (Periphery), Unisys took 1,828 sq.m. in The Hub in Diegem (Periphery) and the Credit Agricole took 1,150 sq.m. in the Solaris (Decentralised). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% H Belgian Adm EU International Adm Corporates One of the four expected transactions by European institutions is closed: the Single Resolution Board signed for a 15 year usufruct in the Treurenberg, a 9,800 sq.m. building under construction in the Pentagon. For now, the contribution of Europe to total take-up is 7.5%. In the coming months, up to an additional 40,000 sq.m. may be taken by the European Commission and the European Parliament. Local administrations are less active than the record high 2014, year-to-date contribution is 8% in 6 deals (vs. 11 a year ago), with for example Le Foyer Bruxellois who took 2,947 sq.m. in the Imperatrice in the central station area (Pentagon). This transaction is another illustration that local administrations leave old premises and relocate in larger buildings in zones with direct access to train and metro stations. As corporates are mainly located in the Decentralised and the Periphery, the proportion of take-up in non CBD locations shifted from a five year average of 41% to 57% in H1 2015, vs. respectively 59% and 43% for the CBD. The Periphery increased its stake from 23% the last five years to 34% in H TREURENBERG - PENTAGON LANDLORD: AXA ARCHITECT: ASSAR PRELET TO SINGLE RESOLUTION BOARD 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% TAKE-UP BY DISTRICT More deals outside CBD H Eur District Louise North Pentagon South Decentralised Periphery

4 - 4 - On Point Brussels Office Market Q Vacancy rate below 10%, finally! If on the demand side the occupier activity was once again very quiet, on the supply-side vacancy was also once again down, though movements are limited in every districts The absence of speculative completions in Q2, additional conversions in the Decentralised and to a lesser extent stock removed for renovation purpose contributed to bring the vacancy rate below 10% for the first time since Q In Q1, vacancy was 10.2%, and in Q it was 10.6%. 20% 18% 15% 13% 10% 8% 5% 3% 0% VACANCY RATE CBD & OUTSIDE CBD Vacancy rate at record high in the Periphery Q2 14 Q4 14 Q1 15 Q2 15 Total BXL Market CBD Outside CBD CBD 5.5% is available, vs. 5.7% 3 months ago and 6.2% a year ago. This is a new 7 year low since the 5.3% reached in Q Outside CBD The vacancy rate decreased by 40 bps q-o-q to 17.5%, vs. 18.3% a year ago. The speculative development pipeline remains restricted As of 30/06/ ,000 sq.m. is currently under construction or renovation. 80% of this volume is in new constructions, and only 25% is speculative. 77% of the speculative development is located in the CBD. OXYGEN OFFICE - EUR DISTRICT LANDLORD: ALIDES ARCHITECT: CONIX RDBM AVAILABLE FROM Q In H ,000 sq.m. will be delivered, of which only 37,000 sq.m. is speculative will be another year with restricted speculative completions: we expect 50,658 sq.m. to come on to the market, 50% of which in the Pentagon, contrasting with a huge 228,000 sq.m. nonspeculative completions. Vacancy in the near term will therefore inevitably decline further, especially when the expected transactions by the European Commission will be closed. In the CBD we expect that the vacancy rate will fall to 13 year low of 5% within 6-9 months while for total Brussels it may trend to 9% within 12 months COMPLETION AND PIPELINE A majority of non speculative developments H1 15 H2 15e 2016e 2017e Completions Future Compl. Spec. Future Compl. Non Spec.

5 - 5 - On Point Brussels Office Market Q Close to 1 million sq.m. offices potentially converted in the period In 2015 to date, 93,500 sq.m. were removed from office stock calculation, including for example Cofinimmo s Woluwe 106 in the Decentralised (7,000 sq.m.) that will become an elderly care home operated by Vilvalto. We identified a pipeline of at least 200,000 sq.m. conversions in central and decentralised locations within the next two years (properties being currently taken in our stock calculation and partly occupied or vacant). Hence, over the period Brussels office stock would have lost nearly 1 million sq.m., ie 9% of existing stock in the 19 communes of Brussels (comprising CBD + Decentralised). This is one of the highest converted volumes in Europe: in Amsterdam, over the last 5 years a total of 661,000 sq.m. has been converted, representing 10% of stock. WOLUWE DECENTRALISED LANDLORD: COFINIMMO NEW USE: ELDERLY CARE HOME OPERATOR: VILVALTO Prime rents stabilise, less incentives in CBD Market conditions are still very favourable to tenants as vacancy in currently high and demand does not materially recover. However, as vacancy is trending downward, prime rents stabilise and have even increased in the North district (to 195 / sq.m. / y, vs. 185 previously). In the Decentralised, we also have evidence above the current 185 / sq.m. / y. In Brussels as a whole, prime rents are maintained at 275 / sq.m. / year, this level being achieved in the Schuman square in the European district. New projects in the European district lease at between 245 and 275 / sq.m. / year. Compared to most European cities Brussels remains very cheap, even compared to cities with higher vacancy like Amsterdam PRIME FACE RENT BY DISTRICT From 275 in Leopold to 165 the Periphery H Pent South North Eur Louise Dece Peri Incentives in the European district and to some extent the Pentagon are less generous than in 2014 with one to two months per year of lease for a 6/9 lease term. A year ago, a minimum of 2 months was common.

6 - 6 - On Point Brussels Office Market Q Hot in Brussels Core of Pentagon goes pedestrian from 29/6/2015 The project summarised The Municipality of Brussels recently decided to transform into pedestrian streets several key axes at the core of the Pentagon, in particular part of Boulevard Anspach between Brussels Stock Exchange and De Brouckère square. The existing pedestrian zone around the Grand Place will also be extended in order to create a very large homogeneous car-free area of 50 ha, which would be the largest in Europe. A test phase started on 29/06 for a period of 8 months. The definitive infrastructure works are scheduled between 2016 and Delivery and loading hours for retailers and restaurants is limited from 6 am to 11 am. There are exemptions, such as for disabled and senior residents, as well as residents and companies having a private parking. Car traffic is deviated in smaller streets, some of them becoming one way. Inevitably, during the test phase the core of the Pentagon will be highly congested, and the transfer traffic will be deviated to the West and East ring which is already congested in peak hours. In a later stage, the Municipality may build additional underground parking for customers of the main retail streets and for tourists. Source: Ville de Bruxelles / Stad Brussel

7 - 7 - On Point Brussels Office Market Q Consequences on the Brussels office market While aimed at boosting the retail and touristic activity downtown by providing a nice, customer-friendly atmosphere, the pedestrian zone has implications on the office market of the Pentagon. The majority of the occupiers of the area concerned by the pedestrian roads are corporates with sedentary employees (mainly banks and insurance companies) or local administrations. Besides the inevitable accessibility troubles during a transition period, we believe that the pedestrian transformation of the city center is positive for the Brussels office market: 1. The brand image of Brussels will be improved. In a long term perspective, the retail, tourist and hotel activity will expand and support the Brussels economy. 2. A more pleasant place to work for sedentary occupiers: less polluted, less noisy area will contribute to improve staff sentiment. 3. The pedestrian zone would contribute to boost the Pentagon as a district dedicated to sedentary corporates such as insurance companies, banks, mutualities and unions, as well as to local administrations. 5. This is an opportunity for landlords to renovate their buildings. Stock in the Pentagon, currently estimated at 2,327,000 sq.m., is ageing with 60% being older than 15 years. There is only 16,000 sq.m. of new space immediately available, of which 16,000 sq.m. in one building. 6. Office properties at a remote distance from metro and train stations will continue to disappear through conversions. For example, when Eli Lilly left its building located in a non-office area in the city center, the landlord sold the property to a developer for a residential conversion. In our view, there is still a potential of minimum 100,000 sq.m. 7. As a consequence of the further focus of the Pentagon on its main axes and the narrowing of vacancy, rental values may rise in the best buildings. The short term impact of the pedestrian zone is negative in view of traffic troubles, however in a mid to long term perspective this is an opportunity to further concentrate the Pentagon on its best locations of the central station and the Brouckère square. This would however only be a success if the mobility issues are solved, and if the pedestrian infrastructure is of premium quality. 4. For occupiers such as banks and insurance companies a corporate car is a common reward to staff, as a result there could be transfer of occupiers to the North and the European districts, resulting to lower vacancy in these districts.

8 - 8 - On Point Brussels Office Market Q Investment Market Belgium More retail deals than offices in Q Volume in the Q2 came in at 799 Mio, down 15% vs. the excellent Q1 that was boosted by large size deals and down 38% vs. the record high Q There were more retail deals than offices, and we expect it would also be the same in Q3 with the huge Celsius portfolio transaction. Volume year to date therefore came in at 1,741 Mio, 9% more than a year ago, and we expect that by year-end it may reach 4 bn. 45% of the volume year-todate is offices (Q2: 34%), 27% retail (Q2: 35%), 12% Industrial (Q2: 5%) and 8% Hotels (Q2: 17%). Several important hotel transactions were closed this year, and 2015 will be the most active of the last 15 years TOTAL INVESTMENT VOLUME BY SECTOR - BELGIUM - Proportion of retail rises H1 Office Industrial Retail Retirement Homes Other Offices in Q2 2015: 270 Mio / -48% The second quarter of the year was quieter than the first one, and also below the record high Q We registered 270 Mio of office transactions, down 48% q-o-q and down 73% y-o-y bringing volume year to date to 791 Mio, of which 575 Mio in Brussels only. Compared to H1 2014, this is 30% lower. Recent transactions include the sale to Ciloger, a French real estate mutual fund, of the Louise Claus (Louise district) for c. 36 Mio. In the European district, aik acquired the Science 14 from CBRE Global Investor for 32 Mio. These transactions are all core+ deals. Value-added transactions comprise the sale to GAC (a US private equity firm) of the Marnix 17 (European district) for c. 60 Mio. There is an important pipeline of core transactions for the rest of the year, one of the largest anticipated being the sale of the Astro Tower in the North district. Prime yields for core properties on conventional lease terms in Brussels were unchanged q-o-q at 5.75% in the CBD. We see prime yields edging down to 5.5% in the short term. 9% 9% 8% 8% 7% 7% 6% 6% 5% PRIME OFFICE YIELDS (6/9 YEAR LEASES) High spread between CBD and non-cbd districts Q4 06 Q4 07 Q4 08 Q4 09 Q4 10 Q4 11 Q4 11 Q4 12 Q4 13 Q4 14 Q2 15 Decentralised Periphery Decentralised Periphery Pentagon North EUR Louise In 2015 we see retail investment volume exceeding offices for the first time ever, thanks to huge shopping center deals. Jean-Philip Vroninks Head of Capital Markets BeLux

9 - 9 - On Point Brussels Office Market Q Yields in the Decentralised narrowed by 75 bps to 6.75%, though transactions are under negotiations at yields close to CBD levels. At this stage, no change in the Periphery at 8%, we however expect that transactions may be closed 50 bps lower in the near term. Yields for secondary assets are clearly much higher, non-core investment deals achieving yields above 8% although we are experiencing stronger appetite for this segment which could result in yield compression. Yields of long term lease properties are unchanged at 4.5%, an all-time low, however we expect that yields will decline by at least 25 bps in the coming months with the sale of, among others, the Astro Tower (25 y lease with Actiris). Retail in Q2 2015: 281 Mio / +190% SCIENCE 14 - EUROPEAN DISTRICT SELLER: CBRE GLOBAL INVESTOR BUYER: AIK MULTI-LET Q was once again very strong with a total volume of 281 Mio, 190% more than a year ago and 54% more than in Q Volume year-todate reaches 464 Mio, 171% more than a year ago. The largest transaction was the sale to Retail Estates (B-REIT) of the Rockspring retail warehousing portfolio for 129 Mio. Another important transaction was the acquisition by Fidelity of the retail park Les Dauphins in Mouscron for 42 Mio. The sellers were Mitiska and Abli NV. In the coming weeks, Belgium s second largest retail transaction ever will be closed with the sale to CIC (China Investment Corporation) of the Celsius portfolio (CBRE Global Investor). It includes 50% of the Wijnegem shopping center, Belgium s largest shopping center, and 100% of the Waasland shopping center. The total value of the Belgian component is estimated at 800 Mio. The largest retail transaction ever in Belgium was the sale of the GIB Immo portfolio to Redevco in 2001, for a value of 886 Mio. Prime shopping center yields dropped by 75bps to 4.25%, based on the levels obtained on the Waasland and Wijnegem shopping centers transactions early Q Prime high street shop yields are down by 25 bps to 3.75% however there are examples below that level. Retail warehousing yields are reduced by 25 bps to 5.75%.

10 On Point Brussels Office Market Q Industrial: 159 Mio / +105% Compared to the record high Q1 2015, industrial investment volume in Q2 declined by 73% to 43 Mio, 25% lower than a year ago. Cumulative volume year-to-date came in at 202 Mio, 50% above last year. In the transactions of more than 2.5 Mio, we registered only logistics deal, such as the sale to WDP of a 40,000 sq.m. logistics center i developed by MG Real Estate in Willebroek for 24 Mio. It will be occupied by Damco. Prime logistics yields are 25 bps lower than 3 months ago, at 6.75%, as well as semi-industrial yields at 7.5%. In both cases, we may see lower yields again in the near term as demand for the best assets is high and offer is restricted. INVESTORS BREAKDOWN BY ORIGIN H % of local investors Asia 3% France 4% Germany 8% Other 5% USA 6% Denmark 9% UK 5% Belgium 60% Internationalisation of the investors base This year so far, local investors dominated the market with a share of 80% in total volume. Over the last 18 months, 60% of the volume was realized by Belgian investors, followed by Nordics (9%), Germany (8%), the US (6%) and UK (5%). With the closing of the sale of the Celsius portfolio to CIC, the share of China will jump to a unprecedented high of c. 20%. INVESTMENT VOLUME BY TYPE INVESTOR H Pooled funds and REITs represents 61% of the volume REITs 32% Corporate 1% Developers 3% Government 2% Other 1% Institution 17% In 2015 to date, B-REITs took the largest share of the volume with 32%, followed by Pooled funds with 29% and institutional investors such as pension funds and insurers with 17%. The share of private investors was 12%. Propco's 3% Private 12% Pooled Funds 29% JLL Research Advisory Services JLL time series for quarterly and submarket data are available on request, as well as rental analysis (top quartile and weighted average rents). This is a fee-based service. JLL Research produces on a quarterly basis detailed submarket reports about Brussels office districts. These are available on request against paying subscription. Our Research & Advisory service also prepares micro-location studies for landlords with a focus on rental analysis, existing and future competition analysis with GIS mapping, transaction analysis and SWOT. Contact: Pierre-Paul Verelst Head of Research BeLux pierre-paul.verelst@eu.jll.com

11 On Point Brussels Office Market Q Letting transactions H YEAR QTR DISTRICT Operation BUILDINGNAME AGE AREA TENANT PENTAGON Letting TREURENBERG UC 9,800 SINGLE RESOLUTION BOARD PERINE Letting EVEREST (VILVOORDE) Modern 4,300 ISS FACILITY SERVICES DECESO Acquisition VEEWEYDE Old 4,000 COMMUNE D'ANDERLECHT SOUTH Acquisition CITYLINE (BARA) New 3,793 LACTALIS EUROPE DECENE Letting DA VINCI - H5 New 3,785 ELECTRABEL EUR Letting DECESE Letting MARIE DE BOURGOGNE, 58 GLAVERBEL BUILDING New 3,477 INDUSTRIE FORDERUNG GESELLSCHAFT (BDI) Old 3,396 VAN BAEL & BELLIS Office investment transactions H1 15 YEAR QTR DISTRICT Property Price est. (EUR Mio) SELLER BUYER PERIPHERY GATEWAY 145 CODIC / IMMOBEL BEFIMMO EUR BASTION TOWER 110 CBRE GLOBAL INVESTOR SCHRODERS EUR MARNIX TISHMAN SPEYER GAC LOUISE THE LOUISE-CLAUS 36 GENERALI CILOGER EUR SCIENCE CBRE GLOBAL INVESTOR LOUISE E-LITE (AVENUE LOUISE) 25 FIDENTIA SCHRODERS aik

12 On Point Brussels Office Market Q Map of the Brussels office market

13 On Point Brussels Office Market Q Definitions Take-Up Take-Up New: Represents take-up of floorspace in new or substantially refurbished buildings of less than five years since completion. Take-Up Modern: Represents take-up of floorspace built or renovated between 5-15 years ago. Take-up Old: Represents take-up of floorspace built more than 15 years ago and not renovated. Rent Prime Office Rent represents the top openmarket rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The rent quoted normally reflects prime units of over 500 sq. m. of lettable floorspace, which excludes rents that represent a premium level paid for a small quantity of space. Top Quartile Office Rent represents the average mean value of the top (25 %) quartile of all known face rents achieved on leasing transactions completed within a market during the survey period (normally calculated annually, or quarterly on a 12 monthly rolling basis). It excludes any unrepresentative deals. Weighted Average Rent represents the average mean value of all known face rents achieved on leasing transactions completed within a market during the survey period weighted with the floorspace (normally calculated annually, or quarterly on a 12 month rolling basis). It excludes any unrepresentative deals. Prime yield Represents the best (i.e. lowest) rackrented yield estimated to be achievable for a notional office property of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The property should be let at the prevailing market rent to a first class tenant with an occupational lease that is standard for the local market. The prime initial net yield is quoted, i.e., the initial net income at the date of purchase, expressed as a percentage of the total purchase price, which includes acquisition costs and transfer taxes. Vacancy Vacancy represents completed floorspace offered on the open market for leasing or sale, vacant for immediate occupation on the survey date (normally at the end of each quarter period), within a market. It includes all vacant accommodation irrespective of the quality of office space or the terms on which it is offered. Vacancy excludes obsolete or mothballed office property, i.e. floorspace held vacant and not being offered for letting, usually pending redevelopment or major refurbishment. Vacancy Rate The Vacancy Rate represents immediately vacant office floorspace in all completed buildings within a market as at the survey date (normally at the end of each quarter period), expressed as a percentage of the total stock. Stock Stock represents the total amount of completed office space in buildings mainly used for office purposes within a market that is capable of occupation regardless of the type of ownership or type of building quality, as at the survey (normally at the end of each quarter period). Completions Completions represent floor-space completed during the survey period (normally annually). Completions include new development and refurbished accommodation, speculative developments, pre-let floor space and space for owner-occupation

14 On Point Brussels Office Market Q JLL Offices Belgium Avenue Marnixlaan, 23 b1 B 1000 Bruxelles Brussel T 32 (0) F 32 (0) Jan Van Gentstraat 1 bus 402 B 2000 Antwerpen T 32 (0) F 32 (0) JLL Contacts VINCENT H. QUERTON INTERNATIONAL DIRECTOR - CEO BENELUX +32 (0) ERIK VERBRUGGEN (*) HEAD OF OFFICE AGENCY - BELGIUM +32 (0) Erik.Verbruggen@eu.jll.com JEAN-PHILIP VRONINKS (*) HEAD OF CAPITAL MARKETS - BELUX +32 (0) Jean-Philip.Vroninks@eu.jll.com PIERRE-PAUL VERELST HEAD OF RESEARCH - BELUX +32 (0) Pierre-Paul.Verelst@eu.jll.com (*) sprl / bvba COPYRIGHT JONES LANG LASALLE IP, INC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them. Printing information: paper, inks, printing process, recycle directive.