Luxembourg Office Market

Transcription

1 Research Report Luxembourg Office Market Q1 2018

2 - 2 - Research Report Luxembourg Office Market Q Occupier market An apparently quiet quarter The first quarter of the year has been apparently quieter than usual with a take-up 38% lower than last year at 47,224 sq.m. The decrease is however related to the lower transaction size that came in at 590 sq.m. vs. 1,043 sq.m. a year ago. In number of deals terms, we counted 80 transactions in Q1, ie 7 more than a year ago and 11 more than the 5 y average for a first quarter. Large size moves will come among others in the second semester with Deloitte and Alter Domus joining their respective new headquarters (30,000 sq.m. and 10,000 sq.m., respectively) in the Ban de Gasperich (Cloche d Or). The State of Luxembourg is currently very active on the occupier market, a part being temporary lease contracts during construction or renovation works of buildings they own. The local authorities are currently optimising their footprint and aim at concentrating their services in second hand, large in core locations. In Q1 two transactions were signed for a total of 6,400 sq.m. in the Edison 7 (Strassen) and the Mercator House (CBD). At the beginning of the year, the demolition works of the former headquarter of the Post in the Station district started and will leave place by 2022 to a brand new state of the art building of 27,700 sq.m. Leudelange (City Belt) contributed to 21% of the occupier volume in Q thanks to the take-up by Le Foyer and its subsidiaries of the new extension (7,898 sq.m.) of their existing property as well as thanks to the letting to Wavestone of 1,050 sq.m. in the first phase of the Altitude project of Tralux and Codic, the latter transaction being advised by JLL. The CBD and Strassen (City Belt) rank second and third at 16% and 15%, respectively. In number of deals terms, CBD traditionally leads by far and it is again the case in Q1 18 with 26%, Strassen follows with 15% and the Periphery also with 15%. Interestingly Belval contributed to 9% of total take-up of the quarter by attracting the fast growing start-up Tada Web active in internet-based information management, for which the immediate proximity of the university makes fully sense. They elected the South Lane Tower II project with a surface of 3,975 sq.m. Take-up (sq.m.) Q ,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, National Adm 14% EU institutions 3% Other 14% Telecom/Post 2% Banking and Finance 5% Business Services 62% Q1 Q2 Q3 Q4 Cover photo: Connection (Hamm) Landlord: Greenfinch Capital

3 - 3 - Research Report Luxembourg Office Market Q Representative transactions Q District Building Age Class Surface Operation Occupier Leudelange Le Foyer Extension New 7,898 sq.m. Owner occupier Le Foyer & subsidiaries Belval South Lane Tower Under construction 3,975 sq.m. Pre-Letting Tada Web Strassen Edison 7 Second hand 3,657 sq.m. Letting State of Luxembourg Airport Daidalos Modern 2,944 sq.m. Letting Aztec Financial Services CBD Mercator House Second hand 2,770 sq.m. Letting State of Luxembourg Vacancy falls to the lowest since 2009: is there a shortage risk? Vacancy is continuously declining in central districts as well as in the City Belt and the Periphery. The recent completions in the CBD were all rapidly absorbed by the current demands; Elsewhere it takes a bit more time, not to say normal time. In the central districts (CBD, Station, Kirchberg and Cloche d Or), vacancy reduced by 24,205 sq.m. to 80,179 sq.m. as a result of the robust occupier activity. 35,377 sq.m. is vacant in the City Belt, ie 3,642 sq.m. less than 3 months ago, 21,043 sq.m. in the Periphery (-1,307 sq.m. vs. Q4 2017) and 22,253 sq.m. in Esch / Belval. All districts together, vacancy is currently estimated at 158,852 sq.m., 29,522 sq.m. less than at the end of Luxembourg total Esch Peri City Belt Cloche d'or Station Kirchberg CBD Vacancy rate by district Vacancy rate by district The vacancy rate overall went down to 4% vs. 4.8% 3 months ago and vs. 5.4% one year ago and is at the lowest point since We question if we are once again heading to a shortage situation, especially in the central districts. Only 2.9% is vacant in the CBD (was 3.7% in Q4 2017), 1.9% in the Station (was 2.7%), 1.4% in Kirchberg (was 1.6%) and 5.8% in Cloche d Or (was 7.7%). In the City Belt and the Periphery vacancy is respectively 7.0% and 8.8% (vs. 7.9% and 9.3% 3 months ago), while in Esch/Belval 11.1% is vacant (vs. 11.3%). 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% Q1 18 Q4 17 Q4 16

4 - 4 - Research Report Luxembourg Office Market Q Luxembourg is in expansion The next 12 months will be crucial for the development of Luxembourg as a business destination with large size state of the art properties under construction. A first set of completions in the mega project Ban de Gasperich in the Cloche d Or district are scheduled: In addition to the new headquarters of Deloitte and Alter Domus four other projects are under construction for a total of 22,000 sq.m., without signed prelets at this stage, but with advanced discussions ongoing for a part. Major developments are also ongoing in Hamm, close to the Airport and at Kirchberg: Greenfinch Capital is currently building two large projects along the Rue de Bitbourg, namely the Green Square (16,500 sq.m. of which 11,000 sq.m. are still available) planned for Q and the mixed project Connection which comprises c. 17,200 sq.m. of prime office space, as well as retail and auditoriums. Leudelange goes through a major shift as well: from a semi-industrial area less than a decade ago, it has become a real business location with anchor tenants like Le Foyer, Banque Raiffeisen, La LUX, etc. Tralux and Codic are about to complete the first phase of the Altitude project ( Lhassa ), a second phase ( La Paz ) is about to start and is well advanced in discussion with a potential tenant. 2,365 sq.m. out of 4,700 sq.m are still available in the Triologie project of Avensis and the W4 project of Willemen will add 4,872 sq.m. Another recent business district in expansion phase is Belval. Until recently Belval suffered from its industrial image that no longer corresponds to reality. Next to the university -related buildings that are almost all completed now, the available land is progressively filled by quality residential projects as well as offices dedicated to corporate occupiers. Among those, Atenor s NAOS project located along the Boulevard de France that will offer 14,000 sq.m. of which 6,100 sq.m. are available. 1 NAOS (Belval): Q ,000 sq.m. (6,100 sq.m. vacant) 4 Ban de Gasperich(Cloche d Or) : Q projects: 22,000 sq.m. vacant 7 Greensquare (Hamm): Q ,500 sq.m. (11,000 sq.m. vacant) 2 3 Triologie (Leudelange): Q ,700 sq.m. (2,365 sq.m. vacant) Altitude (Leudelange): ,200 sq.m. (9,200 sq.m. vacant) 5 6 Impulse(Station): Q ,500 sq.m. vacant Connection(Hamm): Q ,200 sq.m. vacant 8 Staccato (Kirchberg): Q ,890 sq.m. vacant

5 - 5 - Research Report Luxembourg Office Market Q Stabilisation of rents In central locations occupier market conditions are more in favour of landlords than tenants. Prime rents stay at 47 / sq.m. / month in the CBD but transactions less than 500 sq.m have been signed last year at 50 / sq.m. / month in a new building located Boulevard Royal. Stability prevails as well 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. As vacancy in new buildings has substantially decreased the relative share of transactions in second hand properties rises, and this has a consequence on the average rents. Top quartile rents have consequently decreased by 3.2% vs. Q to 40.9 / sq.m. / month and weighted average rents have decreased by 2.3% to 30.7 / sq.m. / month. Reasoning on a yearly basis, however, top quartile and weighted average rents increased by respectively 6.9% and 5.8%. Prime rents ( / sq.m. / m) Q1 18 CBD Station Kirchberg Cloche d'or City Belt Periphery Belval

6 - 6 - Research Report Luxembourg Office Market Q Capital Markets Quiet start Capital market performance in the starting quarter has been comparatively quiet, we recorded a transaction volume of 235 Mln, 22% lower than a year ago. The decrease is the consequence of a lack of liquidity of the Luxembourg investment market where good opportunities are scarce. Meanwhile, adding the transactions currently under closing this volume figure will double. 66% of the transactions were offices, 5% retail and 10% mixed. A recent trend that will in our view persist at least in the medium term is the acquisition of obsolete properties that offer an attractive redevelopment potential in offices or in other uses like residential. In Q1 2018, Royal Properties acquired a former office building occupied until recently by KBL along the Route d Arlon in Strassen and Eaglestone also sold its mixed residential / office project G 40 in the Station district to a private investor. Higher yielding core+ assets in secondary locations are also sought after: Maple Knoll acquired the E-Building (Munsbach, Periphery) for 39 Mln at a yield of 8.35%. The Luxembourg investors were the most active in Q1 and contributed to 59% of the transaction volume, vs. 6% for Belgium, 16% for the UK and 19% USA (Google). 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. We believe that should a multi-lock opportunity arise in central locations yield could go as low as 4.25%. Luxembourg offers additional rental growth potential driven by strong economic fundamentals as well as scarcity of products, investors (private and institutional) tend to buy more real estate as such lifting capital values higher. 1,400 Investment volume Investment volume 6.50% Prime office yield 1, % Mln 1, % 5.00% 4.50% Q1 Q2-Q4 Top 3 deals Q % Q1 18 Building Price Yield Seller Buyer KBL Route d Arlon (Strassen) 50 Mln (est.) KBL Royal Properties E-Building (Munsbach) 39 Mln 8.35% Rynda Maple Knoll Capital Rue Goethe 40 (Station, Mixed redevelopment) 25 Mln Eaglestone Private

7 - 7 - Research Report Luxembourg Office Market Q Summary Q Q 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 5.4% 4.8% 5.4% 4.0% Prime Rent - / sq.m. / month (+vat) Total Investment Volume LUX (cumul, Mio ) Prime Yield 4.50% 4.50% 4.50% 4.50% Q2-Q4 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.