Brussels Office Market

Transcription

1 Research Report Brussels Office Market Q3 2017

2 - 2 - Research Report Brussels Office Market Q Introduction Does size matter? It s no secret: Brussels is not a market of mega office transactions. Deals of more than 10,000 sq.m. are rather the exception than the rule. On average, we count four or five such transactions a year with a peak at ten last year. This could be considered disappointing, and blame it on fiscal and social landscape that is not business friendly, but it can be seen in a more positive light. The share of SMEs (Small and Medium Size Enterprises) in the Belgian economy is comparatively high at 28% of GDP, representing 69% of the country s employment excluding administrations and other non-market segments. Focusing on the commercial sector only, SMEs represent 62% of Belgium s added value. (Source: European Commission / Eurostat). As by definition SMEs use less space than the large corporates, it is logical that the relative proportion of small size transactions is very high. We count on average 300 transactions of less than 1,000 sq.m. each year (5 y horizon) representing 79% of the total market which implies an average deal size of around 1,000 sq.m. for the whole of Brussels over the past 5 years. Another interesting statistic: in a recent study EY stated that while SMEs represent 28% of the economy their average contribution to GDP growth is 36%. SMEs perform better than giants. In conclusion, we do not have to worry about the small number of large office transactions by corporates, it is just a reflection of the economic reality of our country and is not likely to change, especially given the higher growth of SMEs versus larger corporates. The success of business centre firms like Regus, Orega, Tribes and Silversquare, the latter being in the spotlight in September with its cooperation with Befimmo, and the development of co-working space are good illustrations. We should perhaps rather question the absence of the EU and of Federal administrations in the occupier market so far this year. Cover photo: Engie Towers (North) Architect: Jaspers-Eyers Owner: La Française / AG Real Estate Pierre-Paul Verelst Head of Research Belux

3 - 3 - Research Report Brussels Office Market Q Occupier market Back to a normal level of activity As always Q3 was quieter than the other quarters from the occupier point of view. We recorded a transaction volume of 79,233 sq.m., 3.9% above the 5 year average for a third quarter and in line with last year. The average deal size was 921 sq.m. which is in line with the 5 y average for a third quarter but 15% below last year as there was no large size transaction Take-Up (sq.m.) Q1 Q2 Q3 Q4 Among the representative transactions, Accenture took 4,500 sq.m. in the Gare Maritime project in Tour & Taxis (North) and consumer credit company Buy Way took 3,872 sq.m. in the Centre Monnaie (Pentagon). The Brussels Capital Region took close to 9,000 sq.m. in the Arcadia building in the Pentagon, which was the largest transaction of the quarter. This confirmed that vacancies around the Central Station are rapidly occupied by tenants from the administration and corporate sectors. Take-up year-to-date amounts to 302,000 sq.m., 12.5% lower than last year, and was mainly supported by corporates (64% of the volume) as well as by local administrations (34%) while there was no new transaction by European institutions during the nine months period. Based on ongoing transactions, take-up by year end should be between 350,000 and 375,000 sq.m., ie a normal level of activity compared to recent history. The Periphery is the most actively traded district with 30.4%, followed by the North with 23.9%. The launch of high quality projects in the North fuels demand, but the district continues to suffer from its mono-functional image. 22.2% of the transaction volume was recorded in the Decentralised district. The share of the European district was reduced to 6.9% vs. 22% on average the last 5 years because of no transaction by the EU so far. The Louise district was also comparatively quiet at 3% of the takeup volume vs. 6.7% on average and this is largely explained by the very limited grade A vacancy in the district. The Pentagon contributed the remaining 13.6%, and there was no transaction in the South. 9M 17 Take-up by sector 2016 Local Admin. 35% Local Admin. 31% Intl. Admin. EU 2% 0% Corp 63% Intl. Admin. 1% EU 10% Corp 58%

4 - 4 - Research Report Brussels Office Market Q Representative transactions Q District Building Age Class Surface Operation Occupier Pentagon Arcadia Modern 8,818 sq.m. Letting Region de Bruxelles Capitale North Gare Maritime Project 4,500 sq.m. Letting Accenture Pentagon Centre Monnaie Old 3,872 sq.m. Letting Buy Way North Manhattan Project 3,750 sq.m. Letting Covington & Burling Periphery Heizel Business Park Modern 3,227 sq.m. Letting Vasco Data Security Vacancy: declining further. Increase likely from 2018 In the absence of major completions during the quarter vacancy reduced further to 8.6% in Brussels as a whole (from 8.8% in Q2), 4.5% in the CBD (from 4.7%) and 15.6% outside the CBD. These are all the lowest vacancy rates for at least a decade. In volume terms, this represents 1,145,000 sq.m. the vast majority being second hand space as the share of new property is currently estimated at 6%, ie 68,500 sq.m. Vacancy may have reached a level that is, in our view, not sustainable because of speculative completions scheduled in the coming months. In the European District, Cofinimmo s Belliard 40 (18,800 sq.m.) will be ready in January 2018 with no prelettings as of today and smaller projects like the Montoyer 25 and new units in the Axis Park of Mont Saint Guibert will be delivered in the coming weeks. Now that the Flemish Community has moved to its brand new Herman Teirlinck building (50,000 sq.m. in the Tour & Taxis site in the North district), two large size buildings will shortly be vacated: Befimmo s North Building, that will be demolished and leave place to the Quatuor project, and Baloise s Phoenix D (17,000 sq.m.) that will be available early Next to that, KPMG s vacated space in Brussels decentralised (c. 14,000 sq.m.) will be offered to the market as of Q A gentle rise of vacancy is therefore in the cards for 2018, trending to 10%. Vacancy Vacancy rate rate Vacancy by age class 0,2 0,18 0,16 0,14 0,12 0,1 0,08 0,06 0,04 0, % 15% 10% 5% 0% Q3 17 Brussels Total CBD Outside CBD Q3 17 Modern 33% New 6% Old 61% Brussels Total CBD Outside CBD

5 - 5 - Research Report Brussels Office Market Q More speculative completions from 2018 Only 15,000 sq.m. will be delivered speculatively by year-end 2017, comprising Leasinvest s Tree Square (5,900 sq.m., European district) and Kairos Montoyer 25 (3,000 sq.m., European district). Inevitably vacancy will decline further in the coming quarters. Next year, however, speculative completions will increase to a nine year high of 158,000 sq.m. with among others large size projects like Cofinimmo s Belliard 40 (mentioned above ), Atenor s The One (30,000 sq.m.), both in the European district and Victory s Manhattan (36,000 sq.m., North district). In the Periphery, a new phase of development of the Axis Parc in Mont Saint Guibert is ongoing and an unit of c. 1,900 sq.m. will be delivered by yearend. A similar amount of surface is expected to be completed in 2019: 149,000 sq.m. is in the pipeline, including Ghelamco s Spectrum in the Pentagon (c. 16,000 sq.m.), and AG Real Estate, in joint venture with Macan Development, will deliver its Tweed project in the Pentagon (c. 16,000 sq.m.). Manhattan (North) Developer: Victory Advisors Architect: Jaspers-Eyers Rental values: prime rents increase for the first time since 2011 In Q prime rents in most districts of Brussels were lifted higher as a consequence of marginal Grade A vacancy on the best locations and rising demand. 3 months later, no change has been recorded in prime headline rents that stay at 300 / sq.m. / year in the European district, 245/ sq.m. / year in the Pentagon and the Louise districts, 215/ sq.m. / year in the North, 205/ sq.m. / year in the South, 190/ sq.m. / year in the Decentralised and 165 / sq.m. / year in the Periphery. There are deals about to be signed at higher levels in the North and the Pentagon, we forecast a further increase toward mid Top quartile rents stayed about the same on a quarterly basis at 211 / sq.m. / year, as well as average rents that stabilised at 153 / sq.m. / year. Weighted average rents however declined by 1.6% q-o-q and by 4.2% y-o-y to 163 / sq.m. / year. Incentives for a 6-9 years lease term in the CBD are typically between 1 and 1.5 month per year of lease, and at least 2 months outside the CBD. / sq.m. / year Rental analysis Q3 17 Prime Rent Top Quartile Rent Weighted Average Rent

6 - 6 - Research Report Brussels Office Market Q Capital Markets More Korean money in Brussels The share of valued-added and core+ transaction increases Investment activity in Q was again very high: in the last 3 months we recorded a volume of 859 Mln, 6.2% above the 5 y average for a third quarter but down 1.8% y-o-y. It was largely driven by offices that contributed to 62%, followed by Industrial with 15% and retail 10%, the rest being hotels, retirement homes and mixed schemes. Over the first nine months of the year, volume is down 6.5% y-o-y to 2,439 Mln and exceeds the 5 y average by 12%. Investors seem to look down the risk curve since the share of core transactions declined to 52% vs. 69% the last 5 years while the share of value-added and core+ transactions increased to respectively 24% and 20%, vs. respectively 9% and 6% the last 5 years. Asian investors, and more specifically from Korea, confirmed their appetite for Belgian real estate with a share of 23% in the investment volume over the nine months period. Belgium continues to dominate with a share of 48% of the investment volume, but below the 56% proportion recorded on the period. France contributed to 7% and Germany 6%. Also worth noting: Australia entered the market with a share of 4% in one office transaction. Millions Investment Volume (all assets), Belgium Q1 Q2 Q3 Q4

7 - 7 - Research Report Brussels Office Market Q Office: another mega deal Volume Belgium by Type of Use 9M Retail 14% Retirement Homes 5% Hotel 6% Industrial 14% Mixed 2% Retirement Homes 6% Retail 27% Hotel 7% Industrial 6% Mixed 1% Office 59% Other 3% Office 50% The office segment outperformed in Q3 with the acquisition by fund manager La Française, acting on behalf of Korean investors, of Belfius Insurance s 60% stake in the Engie Towers in the North district. The stake was reportedly 228 Mln, and showed a yield of around 4%. The property totals 78,000 sq.m. and is let to Engie under a long term lease. Union Investment sold its Corporate Village in the Periphery for an estimated 93 Mln to Australian investor RF Capital. This is a value-added deal, the property has c. 30% vacancy. We recorded several core and core+ transactions in the European district: KanAm s Leading Cities Invest fund acquired the Nerviens 85 for 85 Mln and M&G acquired the Guimard (leased to ENI) for 42 Mln. In total the office investment volume in Q3 was 596 Mln, twice as much as a year ago and 140% above the 5 year average. Over the nine months period office volume came in at 1,421 Mln, 21% above last year and 54% above the 5 year average. There is a pipeline of a few mid-size transactions in Q4 and we estimate that the office volume by year end may reach 1.8 bn, well above the 5 year average of 1.4 bn.

8 - 8 - Research Report Brussels Office Market Q Top 3 office deals Q Prime Yields stabilised at a historically low level of 4.5%, achievable in the European district as well as in the Pentagon. Properties with a long term lease and creditworthy tenant trade as low as 3.75% or even slightly below. JLL s scenario on office yields at EMEA level is flat, the current benchmarks are expected to remain stable for at least the next two years in the absence of unexpected geopolitical upheaval. Guimard (European District) Engie Towers (North) 212 Mln Yield 4.0%(est.) Seller: Belfius Insurance Buyer: La Française Corporate Village (Periphery) 93 Mln Yield 10% (est.) Seller: Union Investment Buyer: RF Capital Nerviens 85 (European District) 45 Mln Yield n/a Seller: Deutsche AM Buyer: KanAM 8% 7% 6% 5% 4% 3% 2% 1% 0% Yields Q3 17 Brussels Office 6/9 Lease CBD Brussels Office 6/9 Lease Non CBD Brussels Office LT Lease

9 - 9 - Research Report Brussels Office Market Q Retail: Quiet Q3, strong Q4 ahead Retail investment activity was quiet in Q3 with a volume of 79 Mln that is 74% lower than a year ago. Year-to-date we recorded a transaction volume of 334 Mln, 44% lower than a year ago and 51% below the 5 year average. Mid-October the Dutch REIT Eurocommercial Properties entered into exclusive talks to acquire to Woluwe Shopping for 468 Mln at a yield of slightly below 4%. This transaction should be closed by year-end and would contribute to lift retail investment volume to close to 1 bn by year end. Prime high street yields stabilised at 3.5%, and stand at 5.5% for retail warehousing and 4.25% for shopping centers. In Q we expect a compression by 25 bps for all three assets, based on recent transactions. Top 3 retail deals Q Meir 17 + Schuttershofstraat Mln Seller: Private Buyer: Private De Boeckstraat St Niklaas 14.5 Mln Seller: Private Buyer: Private Lombardenvest Antwerpen 12 Mln Yield 6.5% Seller: Bermaso Buyer: Private

10 Research Report Brussels Office Market Q Industrial: record year ahead 2017 is outstanding in terms of industrial volume. Year-to-date we recorded transactions for a total of 351 Mln with the largest transaction in the third quarter the sale of Leasinvest s Lopolease portfolio to German fund Patrizia for an estimated 60 Mln. This transaction is still subject to certain conditions. Adding the forthcoming sale of the Logicor portfolio to Chinese fund CIC for an estimated 125 Mln, volume will trend to c. 400 Mln in 2017, a record high, beating the previous record of 369 Mln in The share of logistics increased to 83% vs. 69% in 2016 and 67% on average the last five years. The liquidity of semi-industrial properties is more limited and this asset class attracts less international investors. Prime logistics yields on normal lease terms stabilised at 6.00% whilst semi-industrial yields stays at 7.00%. There is some further compression potential in Q4. Top 3 industrial deals Q Lopolease portfolio (pending) 60 Mln (est.) Seller: Leasinvest Buyer: Patrizia DC Estée Lauder Westerlo 25 Mln Seller: Thys Bouwproject Buyer: WDP Prins Boudewijnlaan 7 Kontich 11 Mln Seller: Leasinvest Buyer: BVI

11 Research Report Brussels Office Market Q Summary M 2017 Take-Up (cumulative) ( 000 sq.m.) Take-Up (cumulative) (# deals) Stock (Mio sq.m.) Completions (cumulative) ( 000 sq.m.) Vacancy ( 000 sq.m.) 1,351 1,369 1,270 1,239 1,145 Vacancy rate 10.1% 10.4% 9.7% 9.4% 8.6% Prime Rent ( / sq.m./ y) Total Investment Volume BE (cumul, bn ) Office Investment Volume BE (cumul, bn ) Prime Yield 5.80% 5.75% 5.35% 4.75% 4.50%

12 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 Jean-Philip Vroninks (*) MANAGING DIRECTOR BELUX +32 (0) Jean-Philip.Vroninks@eu. jll.com Erik Verbruggen (**) HEAD OF OFFICE AGENCY BELGIUM +32 (0) Erik.Verbruggen@eu. jll.com Adrian Glatt (***) HEAD OF CAPITAL MARKETS BELUX +32 (0) Adrian.Glatt@eu. jll.com Pierre-Paul Verelst HEAD OF RESEARCH BELUX +32 (0) Pierre -Paul.Verelst@eu. jll.com 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. (*) Re vron gc v (**) spr l / bvba (***) saga bvba