Luxembourg Office Market

Transcription

1 Research Report Luxembourg Office Market Q4 2017

2 - 2 - Research Report Luxembourg Office Market Q Occupier market Another year with take-up above 200,000 sq.m. The closing quarter was similar to the third one with a rather weak take-up of 35,718 sq.m., ie 28% lower than last year and 39% below the 5-year average. The average transaction size was down 51% y-o-y to 425 sq.m. Compared to the very quiet Q3 it nonetheless represents a 26% increase. The largest transactions of the quarter were the letting to 3C Payment of 2,356 sq.m. in the Triologie project (Leudelange) and the letting to the European Commission of 1,864 sq.m. in the Helios building (Cloche d Or). The Brexit hasn t had major impact on the Luxembourg office market, despite several media announcements in that actually do not correspond to major shifts of staff and mega-size surface demands. Next to that, the European Banking Agency decided to move from London to Paris instead of Luxembourg as rumoured, but in view of the transaction flow by financial institutions independent to Brexit (eg, Chinese banks, Japanese insurers) the status of Luxembourg as a major European financial hub is not endangered but rather confirmed. Over the full year, take-up declined by 3.4% to 210,500 sq.m., as such exceeding 200,000 sq.m. for the third time in a row and surpassing the 5-year average by 12.5%. Corporates represented the majority of the volume with 69%, but declined vs. 90% in 2016 and 79% on average the past 5 years since the Luxembourg administrations (mainly the Post) expanded to 24% of take-up vs. 3% in 2016 and 10% on average the last 5 years. European institutions were stable in relative terms at 7% with a transaction by the European Investment Bank in Q1. Within corporates banks represented 30%, business services 37%, e-commerce 15%, and others 18%. By district, in 2017 the Station dethroned Kirchberg in volume terms at 27% of total take-up, vs. 22% for Kirchberg. In 2016, Kirchberg was the clear leader with a 40% share of take-up vs. only 7% for the Station district, the sharp rise of the Station district is largely explained by the take-up by the Post of 18,000 sq.m. in the Mercier building and the take-up by ING of 11,750 sq.m. in the Kons building earlier this year. The CBD represented 20% of take-up, Cloche d Or 11%, the City Belt 11%, Periphery 7% and Esch / Belval 2%. In number of deals, CBD remains the most demanded with 32%, followed by the Station with 20% and the Periphery 12% Take-Up (sq.m.) Other 12% 2017 Telecom/Post 2% Banking and Finance 20% National Adm 21% Business Services 25% Cover photo: Staccato Landlord: CGFP Services Q1 Q2 Q3 Q4 EU institutions 7% E-Commerce 10% IT 3%

3 - 3 - Research Report Luxembourg Office Market Q Representative transactions Q District Building Age Class Surface Operation Occupier Leudelange Triologie Under construction 2,356 sq.m. Letting 3C Payments Cloche d Or Helios E Modern 1,864 sq.m. Letting Commission Européenne Livange Domaine de Livange New 1,332 sq.m. Letting Regus Cloche d Or Dyapason New 1,200 sq.m. Letting SAIC Kirchberg Rose des Vents Modern 1,192 sq.m. Letting DER16 SA 2018 has already a strong occupier agenda with a total of 40,000 sq.m. secured by Deloitte and Alter Domus in their new headquarters of the Ban de Gasperich (Cloche d Or). We also anticipate an expansion of co-working space operators, in these companies massively expanded in most European capitals (17% of occupier take-up in London, 8% in Brussels) and Luxembourg will certainly be a target shortly. We may consequently have another excellent year ahead of us. Vacancy has decreased in all districts, except in Cloche d Or and Esch/Belval In volume terms 188,081 sq.m. is vacant in Luxembourg, ie a reduction of 4,546 sq.m. 3 months ago. Of this 24% is new, 53% is modern and 23% is old. As take-up remains robust we recorded a substantial decline of vacancy in the CBD (to 3.7%, vs. 4.9% a year ago), Kirchberg (to 1.6% vs. 3.1%) and the Station (to 2.7% vs. 4.4%). In Cloche d Or, however, vacancy has increased to 7.7% vs. 6.8% a year ago as the Dyapason project has been delivered in Q4 and offers c. 11,000 sq.m. of new prime space. Vacancy rate by district We recorded a slight decline of vacancy in the City Belt to 7.9% vs. 8.1% previously while in the Periphery occupier activity is progressively absorbing available space, dragging vacancy rate down to 9.3% vs. 11.7% a year ago. A major increase of vacancy has been recorded in Esch / Belval to 11.7% vs. 3.9% previously, and is actually concentrated on the Terres Rouges building where c. 20,000 sq.m. are vacant. All districts together, the vacancy rate overall increased marginally to 4.8% vs. 4.7% in Q3 but is down vs. 5.4% a year ago. In volume terms, 188,000 sq.m. are currently available and correspond to a 10% decline y-o-y. Luxembourg total Esch Periphery City Belt Cloche d'or Station Kirchberg CBD 0% 2% 4% 6% 8% 10% 12% 14% Q4 17 Q4 16 Q4 15

4 - 4 - Research Report Luxembourg Office Market Q Few speculative completions ahead Development activity has finally restarted and remains concentrated in central districts (59% of the planned deliveries toward 2020, vs. 30% for City Belt and 11% for Periphery and Belval). Developers are however still cautious as out of the 521,000 sq.m. planned toward 2020 only 43% is speculative. Noticeably within non speculative projects in progress, c. 150,000 sq.m. are related to European institutions (the European Parliament and the Court of Justice). Planned speculative deliveries for 2018 are estimated at 62,000 sq.m, nearly half being in the Green Square project in Hamm (25,000 sq.m.) and the first wing of the Altitude project of Codic Group and Tralux in Leudelange (9,200 sq.m. in total, planned in two phases toward 2019). Building District Total sq.m Vacant sq.m Timing NAOS Belval 14,000 sq.m. 6,100 sq.m. Q Altitude (Lhassa and La Paz) Leudelange (City Belt) 13,200 sq.m. 9,200 sq.m. Q / Q Triologie Leudelange (City Belt) 4,700 sq.m. 2,365 sq.m. Q Bijou Cloche d Or 6,000 sq.m. 6,000 sq.m. Q Impulse Station 6,500 sq.m. 6,500 sq.m. Q Higher prime rents in 2017 In central locations occupier market conditions are more in favour of landlords than tenants and there may be additional upward pressure on rents. Prime rents increased by 4% y-o-y in 2017 to 47 / sq.m. / month in the CBD but transactions less than 500 sq.m have been signed at 50 / sq.m. / month in a new building located Boulevard Royal. Stability prevails in Kirchberg at 35 / sq.m. / month, at the same level as the Station district. No change either in Cloche d Or and the City Belt (Strassen) where prime rents are 28.5 / sq.m. / month and in the periphery where they are unchanged at 22 / sq.m. / month. In Belval, 24 / sq.m. / month is the norm for new projects. All these benchmarks exclude VAT. Looking at top quartile rents, we observed a 11.2% yearly increase to 42.2 / sq.m. / month that clearly highlights the currently hot market conditions in Luxembourg, weighted average rents are also illustrative of that trend with a yearly increase of 8.2% to 31.4 / sq.m. / month. Prime rents ( /sq.m./m) CBD Station Kirchberg Cloche d'or City Belt Periphery Belval

5 - 5 - Research Report Luxembourg Office Market Q Capital Markets A 10-year high volume Volume above 1 billion again We recorded another set of core and core+ transactions in the last quarter but less than previous years. Investment volume in the final quarter came in at 218 Mln, down 47% vs. Q and down 12% vs. the 5-year average for a 4th quarter. Key deals comprised the acquisition of the mixed project Infinity in Kirchberg by Real-IS for a reported 80 Mln. This project developed by Immobel totals c. 6,500 sq.m. of offices (let long term to Allen & Overy) and the same surface for retail, with completion date We also recorded transactions on the core+ side, namely the JP Brasseur 14 property, occupied by Banque Privée Edmond de Rothschild. The purchaser was Baltisse, advised by JLL. On a full year basis, investment volume was at a 10 year high of 1.2 bn, 16% above 2016 and representing the fifth consecutive yearly increase of volume. 2017, liquidity in the retail asset class has improved with several transactions recorded on the Grand Rue and other locations, but investor interest in high street remains predominantly local. Altogether, local investors took the lion s share in 2017 with 32% of the investment volume, largely driven by the Lighthouse One transaction in Q3 (acquired by Lalux / Caisse d Epargne for an estimated 120 Mln). In 2016 Luxembourg investors represented only 12%. The biggest movement was the share of UK investors that jumped from 3% in 2016 to 16% in 2017 with the sale of the Gravity and the Da Vinci earlier this year. France came in in line with 2016 at 30%, Belgium slightly increased to 12% (vs. 11%) and Germany dropped to 10% vs. 26% previously. Luxembourg remains largely focused on office transactions that represented 81% of the volume in 2017 Investment Volume ( Mln) 16% % % % 12% Luxembourg Luxembourg Belgium Germany France UK Other

6 - 6 - Research Report Luxembourg Office Market Q Stabilisation of yields The share of non-core transactions was 76%, similar to 2016 (was 78%), investors are looking for properties with upside potential in terms of rents and capital values. Prime office yields are maintained at 4.5% for standard lease terms, lower levels being achievable in case of long term leases or exceptional locations. JLL views the outlook for yields as stable for the whole European region, including Luxembourg, for the year Retail yields are also under pressure: for a well located high street shop yields are at 3.5% vs. 4% a year ago. Prime office yield 6,50% 6,00% 5,50% 5,00% 4,50% 4,00% 3,50% 3,00% 2,50% 2,00% Top 3 deals Q Building Price Yield Seller Buyer Infinity (Kirchberg) 80 Mln Conf Immobel REAL-IS JP Brasseur 14 (CBD) Conf. Conf. Stena Baltisse Grand'Rue 69 (Retail) 5 Mln 3% Private Private Brasseur Rue JP Brasseur, 14 (CBD) Acquired by Baltisse

7 - 7 - Research Report Luxembourg Office Market Q Summary Take-Up (cumulative) ( 000 sq.m.) Take-Up (cumulative) (# deals) Stock (Mio sq.m.) Completions (cumulative) ( 000 sq.m.) Vacancy ( 000 sq.m.) Vacancy rate 4.7% 4.1% 5.4% 4.8% Prime Rent - / sq.m. / month (+vat) Total Investment Volume LUX (cumul, Mio ) Prime Yield 5.50% 5.00% 4.50% 4.50% 2018e 2019e 2020e Future supply, Speculative ( 000 sq.m.) Future supply, Non Speculative ( 000 sq.m.) Total

8 JLL Offices Luxembourg Atrium Business Park 41 Rue du Puits Romain L-8070 Bertrange Luxembourg T: JLL Contacts Romain Muller MANAGING DIRECTOR LUXEMBOURG Romain.Muller@eu. jll.com Angélique Sabron HEAD OF AGENCY LUXEMBOURG Angelique.Sabron@eu. jll.com Vincent Van Brée HEAD OF CAPITAL MARKETS LUXEMBOURG Vincent.VanBree@eu. jll.com Pierre-Paul Verelst HEAD OF RESEARCH BELUX 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.