In most European countries, 2008 and 2009 proved very tough for the real-estate sector.
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The crisis seriously upset the property market, resulting in a significant rise in yields and a drop in rental values. While the Brussels market was less exposed than some others, such as Paris, London and Dublin, it did not emerge unscathed.
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Against this backdrop, values on the Brussels market are being adjusted, but to a lesser extent than in neighbouring capitals. Indeed, in recent years Brussels enjoyed a degree of protection, as it has not witnessed a substantial rise in rents (which stayed quite steady), nor strong pressure on yields (“prime” yield has rarely beenlower than the minimum level of 5%,and only for exceptional transactions).
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With a total office space of 12.9 million m², Brussels ranks among the major European markets.
Demand
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During the first three quarters of 2009 demand for offices in Brussels was hard hit by the global economic downturn. Indeed, take-up of office space over these past three quarters was below 200,000 m², at 196,249 m². Take-up in 2009 could thus prove to be the lowest for over a decade.
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This is explained mainly by the uncertainty linked to the economic downturn and especially to the labour market, which slows down the decision-makingprocess. The low take-up is also due to the drop in public sector activity, at regional, federal and European levels.
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Although demand remains weak in relation to historical levels − the average level before the crisis was around500,000 m² a year − and after probably bottoming out early this year, there are some signs of a gradual recovery. Indeed, both private and public sectors are engaged in a large number of negotiations and renegotiations. These should be concluded by the end of 2009 and are therefore likely to lead to an increase in take-up over the coming quarters.
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Meanwhile, businesses remain cautious; some are taking advantage of increased competition between owners to optimise their rental conditions or tomove to better quality buildings.
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For the first three quarters of 2009, the Central Business District (CBD) (1) accounted for 47.8% of demand, or 93,732 m², with decentralised areas and the suburbs representing 52.2% of demand, i.e. 52,059 m² and 50,458 m² respectively since the year began.
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(1) This area has 8.2 million m² of space, and comprises the city centre, the Leopold district, the North area, the Louise district and the South station area.
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Supply
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In Brussels, there is a significant number of new office buildings in the development pipeline, with over 560,000 m² of office space due for completion in the last quarter of 2009, 2010 and 2011. Some 390,000 m² of this will be handed over on a speculative basis, unless some projects are postponed.
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The major speculative projects are Platinum (24,000 m²) in the Louise district, Pericles (13,000 m²) and Montoyer 51 (12,000 m²) in the Leopold district, and phase I of the Airport Plaza (35,000 m²) in the suburbs.
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In the current economic climate, promoters are unlikely to launch many new speculative projects. The pipeline should therefore slow down from 2011.
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Rental vacancy rate
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The availability of office space increased over the first half of 2009 and the situation has only worsened since then, with the hand-over of major speculative projects in the third quarter of 2009.
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There is 1.4 million m² of office space to let, over 10% (10.8%) of the Brussels total (12.9 million m²), as against 8.8% one year previously.
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The vacancy rate has increased dramatically in the CBD, where many speculative projects were handed over in 2009 and now offer large areas to let. This applies in particular to the Leopold district where the vacancy rate rose from 6.8% to 8.7% following the handover of the Capital building (54,000 m²), in the city centre with the hand-over of the Marquis building (Central Station – 33,700 m²) and also in the North area with the hand-over of the Zénith building (30,000 m²). The vacancy rate in the city centre is 5.4% and 7.2% in the North area.
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Rental vacancy rates can be expected to rise substantially over the coming months on account of the many speculative projects in progress and due for completion in 2010 and 2011.
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Rental values
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Since the last quarter of 2008, there has been strong pressure to reduce rents in the CBD as well as in decentralized areas and the suburbs of Brussels. Prime-rent office space in Brussels is currently traded at €265/m² compared with €300/m² previously for small spaces in the Schuman Roundabout micromarket. This trend can also be observed in the sub-markets of the CBD, where rents average between €165/m² and €217/ m². Average rents in decentralised areas and the suburbs are of the order of €137/m² and €132/ m² respectively.
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Tenants’ moves are also reflecting a greater tendency to cut costs. The average rent in the Brussels office market is currently €170/m². Rents for second-hand office buildings are generally harder hit than those for new buildings. The areas of the Brussels CBD are suffering mainly from the excess of new office projects recently handed over, whereas in decentralized areas and the suburbs the rise in vacancy rates has stepped up competition between owners wishing to attract new tenants to fill vacant spaces.
Owing to the crisis on the financial markets and the resulting economic uncertainty, there has been a considerable slowdown in office transactions. Over the first nine months of 2009, spending on such transactions was a mere €221 million, whereas the total volume of investment in 2008 was €1.3 billion and €2 billion in 2007. The first two quarters of 2009 were very quiet, with only 10 transactions in 6 months, but investment in Brussels office buildings did recover during the third quarter. The most significant operations were carried out by foreign funds, notably two German open funds (Signa Property Funds and Realis). - There is currently a mismatch in terms of perceived values between potential purchasers and vendors. Against a backdrop of very scarce transactions, yields on quality offices, let to reliable tenants on standard 3/6/9 leases, are estimated at 6.25% in the CBD (compared with 5.50% one year previously) and 7.50% in the suburbs (compared with 6.50% one year previously).
