Brussels Office Market

Transcription

1 Research Report Brussels Office Market Q2 2018

2 - 2 - Research Report Brussels Office Market Q Introduction Transparency Over the 20 years that JLL has been publishing its biennial proprietary Global Real Estate Transparency Index, increased regulatory requirements and greater data availability have driven incremental improvements. Since 2016, 85 of the 100 countries surveyed recorded an improvement, and the growing impact of technology may propel this positive trend in the future. Belgium ranks within the top ten markets across three of the six transparency sub-indices: the governance of listed vehicles (4th); the transaction process (10th); and the transparency of environmental sustainability measures (10th). There are, however, two areas with scope for further improvement: market fundamentals data (24th) and the regulatory and legal framework (34th). The depth and availability of market data lags behind Belgium s Highly Transparent neighbours, particularly in the residential and hotels sector, while there is also more limited data availability across the various niche property types of the emerging alternatives sector. Technology is poised to provide the next big leap in transparency. Proptech tools that transcend national borders such as blockchain, brokerage apps and open data could help semi-transparent markets leapfrog the normal process of transparency. Benefits are not a given. For instance, take data security. As building sensors start to accumulate massive amounts of data, how do we make sure its use is transparent? So far proptech has proved broadly helpful. The Netherlands, for instance, has greatly improved its real estate transparency in recent years in large part due to proptech. The European country already had a transparent real estate market, but innovation around blockchain and open data initiatives have contributed to its improved position in JLL s index. Whatever changes are on the horizon, investors and the public will continue to scrutinize every move. Meanwhile, information disclosure on real estate debt and financing conditions remains relatively limited and tightly held by banks, while changes around the land registry have made processes more complex and less transparent in recent year, holding back Belgium s regulatory score. Cover photo: Belliard 65 Architect: Archi 2000 Landlord: AXA Belgium Pierre-Paul Verelst Head of Research Belux Source: JLL Global Research

3 - 3 - Research Report Brussels Office Market Q Occupier market The co-working frenzy continues As was Q1, the second quarter of 2018 has been very quiet returning 76,599 sq.m., ie 8.9% less than in Q1 and 43.7% less than a year ago. Take-up year-to-date came in 27% lower year-on-year to 160,668 sq.m. We counted 78 transactions in Q2, vs. 100 in Q1 and 94 one year ago, so the average deal size declined by 32% y-o-y to 903 sq.m. As in Q1 and last year, co-working makes the headlines with additional transactions recorded, the largest of which being the prelet by Fosbury & Sons of 7,500 sq.m. in the redevelopment of Le Dôme, ie the former headquarters of Actiris in front of the Brussels Stock Exchange in the Pentagon. Welkin & Meraki added a second location in 3-month time in the European district by selecting the Artemis Square building so far looks very much like the disappointing 2015 that lacked deals in excess of 10,000 sq.m. A few of these will however materialise in H2, in the first days of Q3 the European Union External Action Service (EEAS) signed for a 18,000 sq.m. long term lease in the Espace Orban, marking the first EU transaction in 18 months. Next to that, the National Bank of Belgium is expected to take c. 25,000 sq.m. in the Pentagon, motivated by the forthcoming renovation of its main headquarters. Both deals will contribute to lift the yearly take-up to around 300,000 sq.m., ie way below the 418,000 sq.m. recorded in Co-working operators recorded 29,335 sq.m. of transactions this year-to-date, ie 18% of total take-up, but while local co-working start-ups demand is picking up, UK-based Orega is about to close its two hubs in Brussels only a few years after opening. The exit of Orega from Belgium is more a strategic decision, as both units performed rather well. Corporates contributed to 78% with no real sector dominance apart from co-working. With a share of 8% in total take-up, international administrations were more active than usual on the demand-side with two transactions in the European District. The Belgian Representation to the European Union is moving to AXA s Belliard 65 and will occupy 4,535 sq.m. Simultaneously, the 5,922 sq.m. it is leaving in the Colony House (Rue de la Loi / Wetstraat) is taken by the German Representation to the European Union. This opportunity was particularly attractive to Germany as its embassy is located just behind. Belgian administrations contributed to 14%, signing a few small to mid-size transactions in the last quarter, of which 3,400 sq.m. taken by the COCOF in the Congrès Building (Pentagon). Belliard 65 (EU district) Landlord: AXA Belgium Architect: Archi 2000

4 - 4 - Research Report Brussels Office Market Q There is however an enormous transaction pipeline coming from Belgian administrations scheduled over the next years. Brussels Capital Region launched a tender offer for 47,000 sq.m. and The Flemish Community is looking for c. 60,000 sq.m. The SNCB / NMBS has launched a public tender offer to develop a 80,000 sq.m. new headquarters along the South Station on the former site of the Tri Postal. Four consortiums of developers have applied to the process. The SNCB / NMBS will then either acquire or lease long term the new building, and leave 5 obsolete buildings representing a total volume of c. 200,000 sq.m. Take-up (sq.m) It is likely that not all of these old properties will be redeveloped as new office, some will rather have an alternative use. Finally, European Institutions have officialised their future needs: 25,000 sq.m. for a new conference center, 100,000 sq.m. replacement needs by These transactions will be spread over the period. Take-up by sector 180, , , , ,000 80,000 Intl. Admin 8% Local Admin. 14% H ,000 40,000 Corp 78% 20, Q1 Q2 Q3 Q4 Local Admin. 32% 2017 Intl. Admin EU 3% 0% Corp 65% Representative transactions Q District Building Age Class Surface Operation Occupier Pentagon Le Dôme Project 7,500 sq.m. Letting Fosbury & Sons EUR Colony House Modern 5,922 sq.m. Letting German Representation to the EU EUR Belliard 65 New 4,535 sq.m. Letting Belgian Representation to the EU Pentagon Poissonniers 11 Modern 4,500 sq.m. Letting Spaces Decentralised Leopold Square Old 4,094 sq.m. Letting ALD Automotive

5 - 5 - Research Report Brussels Office Market Q Vacancy: a last reduction before trend reversal No speculative completion has been recorded in the second quarter, vacancy has then decreased by 29,000 sq.m. vs. Q1 and is currently estimated at 1,063,000 sq.m. The vacancy rate overall came in at 8.1%, equalling the level of Q1 2002, vs. 8.3% previously, whilst in the CBD it narrowed to 4% vs. 4.1% previously largely thanks to transactions in the European District. Outside the CBD vacancy eased by 30 bps to 15.0% as a result of a few midsize transactions as well as by c. 24,000 sq.m. additional conversions announced during the quarter. Completions foreseen in H2 will trigger higher vacancy rate in the coming quarters. About 314,000 sq.m. of speculative project is currently under way and due for completion by 2020, 58,000 sq.m. of which in H Among those, The One of Atenor (European District, 24,750 sq.m. left), the Greenhouse BXL of Intervest (Periphery, 16,950 sq.m., 36% prelet), the City Docks of Atenor (Decentralised, 9,165 sq.m.), and the HD54 of AXA (Decentralised, 9,180 sq.m., 23% prelet). Vacancy is also expected to more strongly increase in 2019 because of the combination of substantial volume of speculative completions and second hand office space becoming available. Speculative completions next year are estimated at 131,000 sq.m., a large part located in the North district - the largest of which being the Manhattan (c. 40,000 sq.m., 20% prelet). In the European district two projects are under way with delivery date within 18 months: Eaglestone s Light-On (6,500 sq.m.) and Cofinimmo s Quartz (8,600 sq.m.). In the Pentagon two projects are under way: the Tweed (16,000 sq.m.) by AG Real Estate and Macan, and the Spectrum (16,000 sq.m.) by Ghelamco. 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Vacancy rate 14.9% 8.1% 4.0% Q2 18 Brussels Total CBD Outside CBD Vacancy by age class New 6% Modern 33% Old 61%

6 - 6 - Research Report Brussels Office Market Q Rental values: stabilised prime rents, all-time high top-quartile rents On a quarterly basis no change has been recorded for prime rents that stays at 315 / sq.m. / year. We however recorded a 2.8% increase of top quartile rents to the all-time high of 226 / sq.m. / year that was triggered by 5 transactions above 300 / sq.m. / year. Compared to last year, this equates to a 6.6% increase. Weighted average rents similarly increased by 4.3% y-o-y and by 1.5% q-o-q to 172 / sq.m. / year. The exponential increase of prime and top quartile rents in the last 12 months is seen rapidly coming to an end given the higher vacancy foreseen in the CBD from H Quartz (EU district) Landlord: Cofinimmo Architect: POLO.Architects Photo (c) QuickIT Rental analysis / sq.m. / year Q2 18 Prime Rent Top Quartile Rent Weighted Average Rent

7 - 7 - Research Report Brussels Office Market Q Capital Markets Retail volume exceeds office Docks Bruxsel sold Compared to the flamboyant Q1, the second quarter of the year has been much quieter with a total of 621 Mln volume recorded, ie 31% below Q2 last year and 68% below Q Investment volume year-to-date however soared by 61% y-o-y to 2.5 bn which remains the best first semester in history. Noticeably there is comparatively less transactions in H at 65, vs. 74 last year and 72 on average the last 5 years, so average deal size increases considerably by 83% y-o-y to 39 Mln vs. 21 Mln last year and vs. a 5-year average of 22 Mln. The activity in Q2 was boosted by a third shopping center sold in six months: Docks Bruxsel, acquired by Portus on behalf of Canadian fund AIMCo. Industrial, the rest being hotels and retirement homes. The investment market is dominated by cross-border investors, Belgium represents only 23% of the volume over the half year, vs. 53% in 2017 and 55% on average the last five years (yearly figures). Korea leads the Belgian market with its 3 mega office deals closed in Q1 at 26%. The other nations represented are The Netherlands (18%, one deal), the USA (12%, one deal), Canada (12%, one deal). France closed 4 transactions, the UK 2 and Germany 2 as well. Belgium closed 49 transactions, and remains the undisputed leader in deal count terms, but the average size of transactions is way lower than most of the other nations active, at 12 Mln. With this transaction, the retail asset class now leads total volume with a share of 48% vs. 45% for offices, 3% Millions 4,000 3,500 3,000 Investment Volume (all assets), Belgium 2,500 2,000 1,500 1, Q1 Q2 Q3 Q4

8 - 8 - Research Report Brussels Office Market Q Investment Volume Belgium by Type of Use H Mixed & Other 0.4% Hotel Mixed & Other 2% 0.4% Industrial 3% Hotel 2% Industrial 3% Retirement Homes 6% Mixed & Other 2% Retirement Homes 6% Hotel Mixed & Other 5% 2% Industrial 9% Hotel 5% Industr 9% l Retail 48% Office 46% Office 46% Retail 28% Retail 28% Office 50% Office: lower transaction size in Q2 A total of 172 Mln transaction volume has been recorded in Q2, down vs. 979 Mln in Q1 and vs. 447 Mln one year ago. Year-to-date the office investment volume remains however healthy at 1,152 Mln vs. 854 Mln one year ago and 849 Mln on average the last 5 years. Brussels dominates by far with a share of 96%, or 1,102 Mln, followed by Flanders with 49.5 Mln. We recorded 16 transactions in Q2, vs. 18 in Q1, of which 8 value-added transactions. As the availability of prime properties on the occupier side is reducing, developers are looking for office or mixed redevelopment opportunities preferably in central locations, and are no longer targeting residential conversion opportunities. For example, Brussels Capital Region selected a local developer (VDD) for the sale of the former Actiris building in front of the Brussels Stock Exchange (Pentagon). The c. 19,000 sq.m. office building will be redeveloped into a mixed retail and co-working property. The investors appetite for core+ transactions, yielding higher than core with a limited risk, continues, year-todate we recorded 8 such transactions representing 247 Mln. Among those JLL acted on the sell-side for the acquisition by the French fund manager Cording of the Loi 82 for 20 Mln. In H we counted 34 transactions, vs. 35 one year ago and 28 on average the past 5 years. The average transaction size in Q2 dropped to 11 Mln vs. 54 Mln in Q1, which is somewhat shy compared to a fiveyear average of 32 Mln. On a half year basis, the average deal size is 34 Mln. Q3 looks promising, in particular in the core segment, with the sale of the Waterloo 16, the Montoyer 47 and the Loi 15 for a combined volume of c. 250 Mln. Representative office transactions Q Building Price Yield Seller Buyer Loi 82 (EU district) 20 Mln 5.1% EuroCapital Cording Le Dôme (Actiris / Pentagon) 20 Mln (est.) Brussels Capital Region Local developer Louise 240 (Louise District) 17.5 Mln 5.0% est. Private Swiss Life REIM

9 - 9 - Research Report Brussels Office Market Q Prime Yields stabilised at 4.25%, 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. 8% 7% 6% 5% 4% 3% 2% Office yields 6.50% 4.25% 3.75% Q Brussels 6/9 Lease CBD Brussels 6/9 Lease Non CBD Brussels LT Lease Retail: 2018 seen the second best year ever The second quarter was marked by the sale to Portus Retail and AIMCo of the Docks Bruxsel shopping center for 300 Mln, hence 3 shopping centers changed hands this year to date after the Woluwe Shopping and the Rive Gauche in Charleroi. Total retail volume amounts to 361 Mln in Q2 lifting the half-yearly total to 1,208 Mln, 374% more than a year ago and 311% above the 5-year average for a first semester. During the quarter GH Group acquired a portfolio comprising 4 unit shops in Flanders and Brussels, for an amount of 50 Mln. Since 2016, 17 retail portfolios or group of properties were sold. Prime yields remained stable at 3.25% for high streets, 4% for shopping centers and at 5.25% for retail warehousing. The outlook is stable is therefore seen as the second best year ever for retail investment, after 2015 that recorded 2.0 bn. Photo: Georges De Kinder

10 Research Report Brussels Office Market Q Representative retail transactions Q Building Price Yield Seller Buyer Docks Bruxsel 300 Mln n/a Equilis Portus / AIMCo Portfolio Anthos 50 Mln 3.95% Belfoca Fonds (Provisum) GH Group Rue Neuve Chaussée Peruwelz 11 Mln 6.43% Retail Estates Warehouses Estates Belgium (WEB) Industrial: lacking opportunities despite high demand Q2 has been extremely quiet with a volume of only 16 Mln. Volume year-to-date amounts to 87 Mln, of which 51 Mln of logistics assets. The market currently lacks opportunities, despite a steady demand from local and international investors. Portfolio sales could reboot the market in H2: Segro is selling its properties in Rumst and Bornem, valued c. 65 Mln. Prime logistics yields for 6/9 year leases remained stable so far in Q2 at historically low levels of 5.75% for logistics and 6.75% for semi-industrial properties. There is a downward pressure on logistics yields that may compress further. Representative industrial transactions H City Building Surface Price Seller Buyer Transaction type Antwerpen Campus Coppens 13,700 sq.m. 20 Mln Van Roey Private Investment Lummen Bosstraat 55,000 sq.m. 14 Mln Neovia Logistics Futurn Vestra Redevelopment Zellik Nedcargo & Facq 24,234 sq.m Mln De Eik NV Intervest O&W Investment

11 Research Report Brussels Office Market Q Summary H H Take-Up (cumulative) ( 000 sq.m.) Take-Up (cumulative) (# deals) Stock (Mln sq.m.) Completions (cumulative) ( 000 sq.m.) Vacancy ( 000 sq.m.) 1,270 1,239 1,087 1,163 1,063 Vacancy rate 9.7% 9.4% 8.2% 8.8% 8.1% Prime Rent ( / sq.m./ y) Total Investment Volume BE (cumul, bn ) Office Investment Volume BE (cumul, bn ) Prime Yield 5.35% 4.75% 4.50% 4.50% 4.25%

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