Office market report Brussels

Transcription

1 Office market report Brussels Pulse Spring 2014 The Belgian Logistics Market - Quarterly Update On Point 2nd quarter 2014 Take-up in Q increased by 35% y-o-y to 137,800 sq.m. Year-to-date take-up amounts to 239,400 sq.m., up 19% y-o-y again boosted by local administrations. Vacancy slightly increased compared to Q to 10.6% due to speculative completions and large offices vacated. Prime rents were unchanged at 285 / sq.m. / year. Investment volume in Belgium came in 18.5% higher than a year ago thanks to huge office deals. Prime office yields tighten further in CBD location, to 5.75% Source all charts : JLL Research

2 - 2 - On Point Brussels Office Market Q Foreword As already announced in our Q1 comments, the Brussels Office Market was boosted by the Administrations (Actiris, Flemish Community, European Commission) during the 1st semester of This trend will probably continue during the 2nd semester, with a positive effect on the overall take-up. In the meanwhile, Grade A office space will continue to be scarce in the CBD, due to active take-up in this segment of the market and due to less speculative construction. Erik Verbruggen - Head of Office Agency Belgium Key statistics H H Take-up (cumulative) (000 sq. m.) Take-up (cumulative) (No of Deals) Stock (Mio sq. m.) Completions (cumulative) (000 sq. m.) Vacancy (000 sq. m.) 1,458 1,360 1,351 1,411 Vacancy Rate (%) Prime Rent ( /sq. m./pa) Top Quartile Rent ( /sq. m./pa) Weighted Average Rent ( /sq. m./pa) Total Investment Volume in BE (cumulative) (bn ) (*) Offices Investment Volume in BE (cumulative) (bn ) (*) Prime Yield Band (%) H (**) 2015 (**) 2016 (**) Future Supply, Speculative (000 sq. m.) Future Supply, Non Speculative (000 sq. m.) Total (*) Investment volume includes investment, owner occupier and redevelopment acquisitions; excludes land sales. Data as of 30/06/2014. (**) Under construction and projects with permit. Projects with no permit, except if prelet, on 30/06/2014 excluded.

3 - 3 - On Point Brussels Office Market Q Letting Market Solid take-up growth in Q2 The volume of leasing activity increased by 35.4% year-on-year to 137,800 sq.m., 36% more than in Q Year-to-date volume therefore came in at 239,400 sq.m., 19.3% more than a year ago. The recovery of corporate letting activity has still to materialise Local administrations confirm their return on the market The recovery of take-up after a weak 2013 is primarily the result of the return of local administrations to the market with largesize deals. In Q2 the Flemish Community pre-let the Meander project in the North district. This 50,000 sq.m. building is located on the Tour & Taxis site situated along the canal, and will neighbour the brand new Brussels Environment building. As a result of this huge and long awaited transaction, the proportion of the Local administrations exceeds Corporates for the first time since 2003, at 48% for the former vs. 45% for the latter. Noticeably, all of the recent deals by administrations are replacement demand illustrating the needs of administrations to move to larger energy-efficient buildings instead of several medium size old properties. Corporate activity has not improved much compared to Q1: only 50,800 sq.m. was taken up vs. 57,000 sq.m. 3 months ago. The largest transactions were the acquisition by an international non-profit organisation of the Arbre Bénit (11,000 sq.m.) in the Louise district, the acquisition by Mediagenix of 5,800 sq.m in the Periphery and the letting to Spadel of 1,990 sq.m. in the Decentralised. The European Commission s Training Center prelet Cofinimmo s refurbished Livingstone II building (15,300 sq.m.) in the Leopold district, this being the first transaction by European institutions in North district recovers The largest recent transactions by Local administrations (Actiris in Q1, Flemish Community and INASTI / RSVZ in Q2) boosted occupier activity in the North district. In H1 it represented 39.6% of the take-up, vs. 14% on average over the last 10 years. The Leopold district follows with 15% (down compared to 63% a year ago, an exceptionally high level thanks to 3 large deals) and the Decentralised ranks third with 13%. TAKE-UP BY BUSINESS SECTOR (SQM) Local administrations outperform Corporates TAKE-UP BY DISTRICT (SQM) North district boosted by mega deals 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% H1 14 Belgian Adm EU International Adm Corporates H Decentralised Leopold Louise North Pentagon Periphery South

4 - 4 - On Point Brussels Office Market Q Completions and move to new buildings pushed vacancy higher A few medium to large size buildings became available in Q2 2014, some after having been renovated. As a result, the vacant volume in Brussels increased by 41,000 sq.m. and the vacancy rate increased to 10.6% vs. 10.3% 3 months ago. Total vacant space in Brussels came in at 1,411,000 sq.m. 20% 15% 10% 5% VACANCY RATE CBD & OUTSIDE CBD Vacancy rate outside CBD not far from peak Vacancy in the CBD districts was 6.2%, up vs. 5.9% 3 months ago. The most substantial increase was in the North district, with the Green Island A (c. 19,000 sq.m. vacated by KBC Bank) and the Botanic Tower (c. 24,000 sq.m. vacated by the Federal Police that moved to the Belair in the Pentagon district), offset by the letting of the UpSite 35 (10,000 sq.m.). As a result the vacancy rate increased to 9.3% vs. 7.4% in Q In the Leopold district, the vacancy rate increased to 5.5% vs. 5.2% because of the completion of the renovation of the Da Vinci (7,635 sq.m. Avenue de Cortenbergh) and limited letting activity. In the Louise district, the vacancy rate is roughly unchanged at 12.5%, the completion of the E-Lite (4,287 sq.m. still vacant) being offset by the acquisition of the Arbre Bénit building and some conversions of obsolete buildings. 0% Q Q Q1 14 Q2 14 Total BXL Market CBD Outside CBD COMPLETION AND PIPELINE More speculative completions in the CBD in 2014 and H2 14e 2016e Completions Future Compl. Spec. Future Compl. Non Spec. The situation is different in the Pentagon where there was no completion and robust letting activity: vacancy decreased by 14,400 sq.m. and the vacancy rate declined by 70 bps to 3.6%, the lowest since Outside the CBD, the vacancy rate increased by 30 bps as well to 18.3%, with 15.2% vacant in the Decentralised (+40 bps) and 22% (+20 bps, an all-time high) in the Periphery. The completion of the renovation of Befimmo s Triomphe I building (10,800 sq.m.) and the move to the North district of Electrabel, exiting the Ariane Square (11,000 sq.m. vacant), largely explain the deterioration in the Decentralised.

5 - 5 - On Point Brussels Office Market Q More speculative completions in 2015 A total of 47,000 sq.m. was completed in the first semester, the most recent being the Brederode 1B (13,400 sq.m. in the Pentagon, occupied by Linklaters) and the E-Lite (6,800 sq.m. in the Louise district, partly occupied by VW Bank and Knight Frank). As a result and deducting stock removals for conversions, the existing stock in the Greater Brussels amounts to 13,359,000 sq.m. Completions in the second semester are limited: 58,000 sq.m. are expected, of which 37,400 sq.m. is speculative. Next year will see more speculative completions, we expect 76,700 sq.m. to be delivered without predefined tenant. 73% is located in the CBD. Non speculative completions amount to 69,000 sq.m., of which 56,000 sq.m. in the Leopold district (Europa building, new HQ of the European Council). BELLIARD 40 - LEOPOLD DISTRICT ARCHITECT: ART & BUILD / PIERRE LALLEMAND OWNER: COFINIMMO COMPLETION: Q DISTRICT BUILDING NAME TYPE sq. m. OFFICE PLANNING PENT DE LIGNE Ref 30,000 Q LEOP BELLIARD 40 New 17,500 Q LEOP MERODE Ref 12, LEOP BLACK PEARL New 11, PENT TREURENBERG New 9,600 Q PENT RAC 2 Ref 9,000 Q LEOP REGENT 35 New 7,300 Q2 2014

6 - 6 - On Point Brussels Office Market Q2 Q Stability of prime rents, top quartile and weighted average show no sign of recovery, nor of deterioration Prime rents remained unchanged at 285/ sq.m. / year, this level being achievable in the Leopold district. In the Pentagon prime rents are 235/ sq.m / y, in the Louise district 230/ sq.m. / y, in the North and the Decentralised 185/ sq.m. / y and in the Periphery 165/ sq.m. / y. Substantial discounts to these prices are applicable to second hand buildings. Top quartile rents (TQR) did not materially changed in Q after the deterioration last year: for the total market they increased by 1% q-o-q to 213/ sq.m./y, however compared to a year ago it is still 3% below. In the Pentagon TQR declined by 1% q-o-q to 206/ sq.m. / y, in the Leopold district they tightened by 1% to 251/ sq.m. / y, in the Louise district they were flat at 227/ sq.m. / y, in the Decentralised and the Periphery they were roughly unchanged at respectively 173/ sq.m. / y and 151/ sq.m. / y. Weighted average rents in Brussels also hardly changed, with an increase by 1% q-o-q to 168/ sq.m. /year for the total market. Noticeably, weighted average rents in the Leopold district declined by 3% q-o-q to 199.3/ sq.m. / y because of recent large size transactions closed well below prime rents PRIME FACE RENT BY DISTRICT From 285 in Leopold to 165 in the Periphery Q1 14Q2 14 Pent South North Leop Louise Dece Peri EVOLUTION OF FACE RENTS BRUSSELS Decline of top quartile and weighted average rent Q1 14 Q2 14 Prime Rent Top Quartile Rent Weighted Average Rent The Brussels office market remains tenant-favourable

7 - 7 - On Point Brussels Office Market Q Investment Market Belgium Sharp rise of investment volume in Q2 Total investment volume in Q increased by 18.5% year-on-year to 1,203 Mio, led by offices which jumped by 43.5%. In the first semester, the total investment volume came in at 1,482 Mio, 14% higher than a year ago. Based on the transactions currently under negotiation in every segment, investment volume in 2014 may be the highest since 2008 and trend to 3 bn. Offices: 1,051 Mio Investors appetite for core office properties was again confirmed with the acquisition by the Danish pension fund ATP, in JV with AXA that took 10% of the deal, of the North Galaxy in the North district. This 105,000 sq.m. building consists of two towers, leased by the Federal Public Administration of Finances until 2031, was sold by Cofinimmo for 475 Mio. This is the largest office deal ever in Belgium s history. In the Louise district, GLL acquired the Platinum for close to 91 Mio. This multi-let fully refurbished building totals 23,700 sq.m. and was sold at a yield below 6%. Year-to-date, volume amounted to 1,051 Mio, 34.6% more than a year ago. 78% of the transactions were in Brussels, totalling 821 Mio, an increase of 28.5% year-on-year. The average deal size in Brussels (excluding owner-occupation and redevelopment transactions) increased in Brussels. In H1 2014, it was 79.7 Mio vs Mio over the last five years and vs Mio over the last 10 years. There were 20 deals during the first half, one more compared to a year ago and a five year average of 18 for a first semester. 87.4% of the deals in Brussels year-to-date were investment, 6.8% owner-occupation and the remainder redevelopments. In Belgium as a whole, 89.5% of the office deals were investments, 6% owner-occupier and 4.5% redevelopment deals. Retail: 140 Mio Volumes year-to-date in Belgium are 49% below H At this stage there have been few deals and have been limited in size. The average size of deals was only 6.8 Mio compared to 16 Mio in H Industrial: 126 Mio Investment activity in the industrial segment was broadly in line with previous years with volume of 54 Mio compared to 78 Mio in Q1 and 108 Mio in Q Yearto-date, investment volume was 126 Mio, down 10.9% year-on-year. 63% of the volume was for logistics properties, 37% for semiindustrial. All of the transactions were realised in Flanders TOTAL INVESTMENT VOLUME BY SECTOR - BELGIUM - Majority of Offices deals Developers 1% REITs 11% Pooled Funds 11% INVESTMENT VOLUME BY SOURCE BELGIUM Majority of Offices deals Propco's 5% Corporate 2% Other 4% H1 14 Office Warehousing Retail Retirement Homes Other Private 12% Institution 54%

8 - 8 - On Point Brussels Office Market Q The North Galaxy and Platinum transactions confirm the growing appetite for large volume office transactions Jean-Philip Vroninks Head of Capital Markets BeLux Diversification of investors origin The investors origin tends to be more diversified. Following the acquisition of 90% of the North Galaxy, Danish investors contributed to 28.8% of the investment volume in H Noticeably, this is the first investment of Denmark in Belgium since Belgian investors, however, retain by far the majority of the deals with 50.8% of the volume in H The German investors contributed to 7.8% of the volume in H1 and French investors contributed to 6.4%. At this stage, there is limited direct activity by Middle East investors, however Asian sovereign wealth funds from China, Korea or Singapore as well as Canadian pension funds demonstrate interest for prime properties in Brussels. Institutional investors such as pension funds and insurers are active and investing in large lot sizes. In H they contributed to 51% of the volume in 8 deals. The average deal size of institutional investors was 99 Mio in H1 2014, way higher than the five year annual average of 49 Mio. Private investors rank second with 12% of the volume but the average deal size was 9 Mio in H and 11 Mio in the last five years. REITs, also active with 11%, have average deal size of 16.9 Mio in H1 and 20 Mio over the last five years. Pooled funds (11% of the volume) invest in larger deals than REITs at 31 Mio in H and 25 Mio over the last five years. PLATINUM - LOUISE DISTRICT SELLER: ABERDEEN BUYER: GLL

9 - 9 - On Point Brussels Office Market Q Prime yields under further pressure in the CBD Prime office yields in Brussels with standard 6/9 year leases are under further downward pressure in the CBD. In the Leopold district prime yields are 5.75% (was 5.8% in Q1) and prime properties in the Louise and Pentagon districts trade at 5.9% (vs. 6.0% 3 months ago). In the North district yields also trend stronger at 6% vs. 6.25%. Outside the CBD, prime yields in the Decentralised Area and the Periphery remain high, at 7.50% and 8%, reflecting the higher inherent risk. Properties located in the CBD, having a long term lease (> 9 years) and an investment grade tenant, trade at higher prices than half a year ago with yields of 5% - or below vs. 5.25% previously. Yields for secondary assets are clearly much higher, value-added investments deals achieving yields well above 8%. This has started attracting opportunistic investors provided that the occupancy rate of the asset is at a reasonable level. A good example of an opportunistic transaction is the Pegasus Park for which an agreement in principle on a sale to ARES was found in early July. The acquisition price is approximately 83.4 Mio at a net initial yield above 10%. Compared to 10 year government bonds, real estate offers a substantial yield premium. At the end of June 2014, the yield gap between 10 year Belgian OLO yield and prime property yield was 4.05%. Brussels is cheap compared to other European cities Prices for prime office properties in the major European capital cities have increased substantially over the last 24 months. In London West-End, prime yields have reached the unprecedented low of 3.75% in Q1 2014, in Paris prime yields returned to pre-crisis levels of 4.25%, as well as in Berlin and Frankfurt to 4.6%. Brussels offers an appreciable yield premium compared to these core cities and can therefore be an attractive alternative for international investors. PRIME OFFICE YIELDS (6/9 YEAR LEASES) BY DISTRICT Yields down in all CBD locations PRIME OFFICE YIELDS (6/9 YEAR LEASES) VS. BOND YIELD Offices trade at substantial premium to government bonds 8,5 8,0 7,5 7,0 6,5 6,0 5, Q Q1 13 Q2 13 Q3 13 Pentagon North Leopold Louise Decentralised Periphery 13 Q1 14 Q2 14 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Q Q Q year Bond CBD average Non CBD average Q1 14 Q2 14

10 On Point Brussels Office Market Q Key figures by district - H Take-up cumulative Stock Vacancy Rate 000 sq. m. Mio sq. m. % Prime Rent Top Quartile Rent /sq. m./ year Weighted Average Rent Speculative Pipeline H2 2014e 2015e 000 sq. m. 000 sq. m. Pentagon South District North District Leopold District Louise District Decentralised Area Periphery Total Letting transactions H YEAR QTR DISTRICT Operation BUILDINGNAME AGE AREA TENANT NORTH Preletting MEANDER PNP 50,000 VLAAMSE GEMEENSCHAP NORTH Preletting ASTRO TOWER PWP 32,000 ACTIRIS LEOPOLD Preletting LIVINGSTONE II UR 15,300 EU COMMISSION LOUISE Acquisition ARBRE BENIT Modern 11,000 INTERNATIONAL NON PROFIT ORGANISATION NORTH Acquisition UPSITE 35 New 10,000 INASTI / RSVZ DECE NO Letting ATLANTIS New 7,200 B-BRIDGE PENTAGON Letting BOTANIC CENTER Old 6,000 BRUXELLES FORMATION LOUISE Acquisition TRIO New 5,200 CITYDEV PERI NO Acquisition NORTH Letting STATIONSTRAAT (GR. BIJGAARDEN) ALBERT II - ZENITH BUILDING PWP 3,353 OPEN TOURS New 2,500 INFRAX

11 On Point Brussels Office Market Q Investment transactions H Year Qtr District Property Price est. (EUR Mio) NORTH NORTH GALAXY 475 Cofinimmo ATP / AXA Seller LOUISE PLATINUM - AVENUE LOUISE 91 Aberdeen GLL DECENTRALISED HQ CARREFOUR BELGIUM 47 Redevco Buyer Financière Techeyné NORTH UPSITE PMV Allianz DECENTRALISED VERIDIS / MARSH 23 Banimmo L Intégrale LEOPOLD BELL ARTS 22 IVG Morabanc LEOPOLD MONTOYER Cofinimmo NEIF DECENTRALISED Place Communale d Auderghem 11 AG real Estate (certificate) Private LOUISE LOUISE Leasinvest Immo Graanmark Decentralised GENEVE 10 9 Aberdeen Private

12 On Point Brussels Office Market Q Map of the Brussels office market

13 On Point Brussels Office Market Q Definitions TAKE-UP Take-Up New: Represents take-up of floorspace in new or substantially refurbished buildings of less than five years since completion. Take-Up Modern: Represents take-up of floorspace built or renovated between 5-15 years ago. Take-up Old: Represents take-up of floorspace built more than 15 years ago and not renovated. RENT Prime Office Rent represents the top openmarket rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The rent quoted normally reflects prime units of over 500 sq. m. of lettable floorspace, which excludes rents that represent a premium level paid for a small quantity of space. Top Quartile Office Rent represents the average mean value of the top (25 %) quartile of all known face rents achieved on leasing transactions completed within a market during the survey period (normally calculated annually, or quarterly on a 12 monthly rolling basis). It excludes any unrepresentative deals. Weighted Average Rent represents the average mean value of all known face rents achieved on leasing transactions completed within a market during the survey period weighted with the floorspace (normally calculated annually, or quarterly on a 12 month rolling basis). It excludes any unrepresentative deals. PRIME YIELD Represents the best (i.e. lowest) rackrented yield estimated to be achievable for a notional office property of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The property should be let at the prevailing market rent to a first class tenant with an occupational lease that is standard for the local market. The prime initial net yield is quoted, i.e., the initial net income at the date of purchase, expressed as a percentage of the total purchase price, which includes acquisition costs and transfer taxes. VACANCY Vacancy represents completed floorspace offered on the open market for leasing or sale, vacant for immediate occupation on the survey date (normally at the end of each quarter period), within a market. It includes all vacant accommodation irrespective of the quality of office space or the terms on which it is offered. Vacancy excludes obsolete or mothballed office property, i.e. floorspace held vacant and not being offered for letting, usually pending redevelopment or major refurbishment. Vacancy Rate The Vacancy Rate represents immediately vacant office floorspace in all completed buildings within a market as at the survey date (normally at the end of each quarter period), expressed as a percentage of the total stock. STOCK Stock represents the total amount of completed office space in buildings mainly used for office purposes within a market that is capable of occupation regardless of the type of ownership or type of building quality, as at the survey (normally at the end of each quarter period). COMPLETIONS Completions represent floor-space completed during the survey period (normally annually). Completions include new development and refurbished accommodation, speculative developments, pre-let floor space and space for owner-occupation

14 On Point Brussels Office Market Q 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 VINCENT H. QUERTON INTERNATIONAL DIRECTOR - CEO BENELUX +32 (0) ERIK VERBRUGGEN (*) HEAD OF OFFICE AGENCY - BELGIUM +32 (0) [email protected] JEAN-PHILIP VRONINKS (*) HEAD OF CAPITAL MARKETS - BELUX +32 (0) [email protected] PIERRE-PAUL VERELST HEAD OF RESEARCH - BELUX +32 (0) [email protected] (*) sprl / bvba 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. Printing information: paper, inks, printing process, recycle directive.