Luxembourg Offices www.cbre.lu/research Quick Stats Take-up Vacancy Developments Rents Yields Hot Topics Evolution Q4 10 Q3 11 The office real estate market has performed very well in 2011, achieving a result of 174.000 m² in take-up. As long as the economic uncertainty continues, it is difficult to predict the further outcome for the local property market in 2012. Development activity will be limited in 2012. The vacancy rate decreases slowly. OVERVIEW The Luxembourg property market has weathered the volatile economy reasonably well, with a solid performance throughout 2011. Demand for office space amounted to 174.000 m² in 2011. This result is beyond the traditional average of 140.000 to 150.000 m² and so the forecasts. But as long as the economic uncertainty continues, it is difficult to predict the further outcome for the local property market in 2012. Development activity is limited and will probably remain so for some time as developers are facing financing constraints for speculative schemes. The vacancy rate has begun to decrease slowly and stands at 7.2%. Prime rents for space in the city-centre amount to 40 euro/m²/month. Foreign buyers have not yet returned to the market, as core product on sale has been limited thus far. ECONOMY The positive evolution of the Luxembourg economy in the first half of 2011 was halted amid increased euro concerns in the second half of the year. GDP growth for 2011 has been revised from 4% to 2%. In 2012, GDP growth is estimated at 1.4%. Likewise, unemployment is again on the rise, and could total 6.5% of the active population at the end of 2012. This is unusually high for the country. Inflation at the end of December 2011 was at 3.19%. Consumer price growth is expected to slow, with estimates of 2.30% for 2012. Economic activity and inflation in Luxembourg 8% 6% 4% 2% 0% -2% -4% -6% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 GDP growth Inflation Source: Statec 2012, CBRE
MarketView Luxembourg Offices OFFICE DEMAND The Luxembourg property market has weathered the volatile economy reasonably well, with a solid performance throughout 2011. But as long as the economic uncertainty continues, it is difficult to predict the further outcome for the local property market in 2012. Demand for office space amounted to 174.000 m² in 2011, compared to 123.000 m² in 2009 and 2010. This shows that the result is above the long-term average of 145.000 m². The market share of transactions exceeding 1.000 m² has increased compared to 2010, leading to an increase of the average size of transaction from 558 m² in 2010 to 716 m² in 2011. Demand in 2011 predominantly came from the Bank, Finance, Insurance sector (39%), the Luxembourg State (13%) and general business services (13%). Take-up (2002-2011) 300.000 m² 250.000 m² 200.000 m² 150.000 m² 100.000 m² 50.000 m² 0 m² 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Type of occupants (2011) Notable transactions were the pre-purchase of a 10.000 m² custom-built office project in Leudelange by the Raiffeisen bank in Q3, the 8.000 m² letting by the Bank Pictet in the Kirchberg district in Q2, the 5.000 m² pre-letting in the Start-Up building in Esch- Belval by the Centre de Recherche Public Henri Tudor and the 5.000 m² pre-letting by the lawyer Kremer Clifford Chance in the Charlotte office project in the CBD during Q3. Major transactions in Q4 were the pre-letting of 4.000 m² in the Stargate project, along Boulevard de la Foire by the insurance company Axa and the letting of 3.700 m² by Cardiff Insurance/Fortis Lux Vie in the office building 23 Avenue de la Porte. The considerable number of pre-commitments and custom-builts (20% of all transactions) taking place in the market is indicative of the recovering property market. Corporations are again taking real estate decisions, and are ready to commit to the Luxembourg market on the longer term. Office demand was the largest in the Central Business District in 2011, accounting for 20% of take-up. The Kirchberg and the Station district registered 16% and 10% of office take-up. Already in 2010 the CBD and the Kirchberg were the preferred locations, followed by Capellen third. By analyzing the number of transactions, the CBD is ranked first with about 22% of transactions. It is followed by the station district with a market share of 16% and by the Kirchberg showing 9%. The districts ranking in 2010 was identical, the percentages were 20%, 14% and 10%. The occupiers are showing a clear preference for the BFI 13% Government 3% 1% EU 7% Services Lawyers 11% Industry Retail 13% Others Size of transactions in m² (2011) 0-149 m² 18% 150-299 m² 300-499 m² 500-999 m² 18% 1000-2999 m² > 5000 m² 39% 13% 3% 6% 9% 16% 30% Page 2
Notable transactions (2011) Quarter Building District Area Type Occupant Q3 Projet Leudelange Leudelange 11.114 m² Prepurchase Banque Raiffeisen Sc Q2 BHK Kirchberg 8.711 m² Letting Pictet & Cie (Europe) Sa Q1 President Kirchberg 5.630 m² Letting Arendt & Medernach - Avocats Q3 Start-up Building Esch-Belval 4.900 m² Preletting Centre de Recherche Public Henri Tudor Q3 Charlotte CBD 4.817 m² Preletting Kremer Associes & Clifford Chance Q4 Stargate CBD 4.268 m² Preletting Axa Assurances Vie Luxembourg Sa Q4 Porte-Neuve 23 CBD 3.738 m² Letting Cardif - Fortis Luxembourg Vie Sa Q2 Dexia II Esch-Belval 3.500 m² Subletting Ceps - Instead Q4 C3 Howald 3.464 m² Letting Seb Private Bank Sa Q4 Etoile CBD 3.440 m² Letting Ministere des Finances - Commission des Loyers Q3 Biotec Building Esch-Belval 3.300 m² Owner occupation LCSB - Luxembourg Centre For Systems Biomedicine Q2 Serenity Strassen 2.635 m² Letting Commission de Surveillance du Secteur Financier - CSSF Q3 Projet Elise Leudelange 2.632 m² Owner occupation CDC Q4 Espace Contern Contern 2.506 m² Letting Clearstream International Q2 Airport Center Aéroport 2.386 m² Letting Alceda Fund Management Q3 Kowac-Drosbach Building C Gasperich 2.271 m² Subletting Alter Domus - Corporate and Trust Services Q1 Horizon - Centre Kiem Strassen 2.179 m² Preletting Fiduciaire HRT Sarl MarketView Luxembourg Offices Project pipeline (2002-2013) 200.000 m² 150.000 m² inner city, CBD, Kirchberg and the station. They attach great importance to the image of their area and the proximity to customers and partners. The CBD and Station district are also sought for small sized areas and benefit from their proximity to the Central Station and public transport. 100.000 m² 50.000 m² 0 m² 2002 2004 2006 2008 2010 2012 DEVELOPMENT ACTIVITY About 105.000 m² of new office space have come online in 2011, from which approximately 45.000 m² were delivered during the last quarter of 2011. This is comparable to the development activity in 2010. Notable new office buildings are the 18.000 m² Neiwisen building belonging to La Luxembourgeoise, the 5.000 m² Start-Up building in Esch-Belval and the 3.000 m² Bourbon located in the Station district. For 2012, about 78.000 m² are expected to be completed. Only 35.000 m² thereof are still available, more than 50% have already been pre-let or are developments for own occupation. This has the consequence that the number of new available areas will be more and more limited. Over the past two years the developers had faced Page 3
MarketView Luxembourg Offices Statistics per office district (2011) DISTRICT STOCK TAKE-UP (2011) VACANCY PRIME RENTS Kirchberg 820.000 m² 28.272 m² 4,88% 33 euro/m²/month CBD 712.000 m² 33.791 m² 3,42% 40 euro/m²/month Station 324.000 m² 18.251 m² 2,37% 33 euro/m²/month Gasperich 269.000 m² 8.365 m² 16,93% 28 euro/m²/month Airport 191.000 m² 6.178 m² 10,89% 25 euro/m²/month Luxembourg-West 166.000 m² 5.057 m² 7,27% 31 euro/m²/month Strassen 136.000 m² 11.675 m² 5,43% 26 euro/m²/month Howald 84.000 m² 6.407 m² 10,91% 26 euro/m²/month Bertrange 82.000 m² 6.173 m² 30,77% 24 euro/m²/month Limpertsberg 74.000 m² 681 m² 4,63% 31 euro/m²/month Esch-sur-Alzette/Belval 69.000 m² 17.500 m² 0,36% 20 euro/m²/month Capellen-Mamer 69.000 m² 2.232 m² 16,11% 20 euro/m²/month Leudelange 64.000 m² 14.828 m² 23,41% 21 euro/m²/month Hamm 49.000 m² 2.530 m² 20,67% 21 euro/m²/month Munsbach 44.000 m² 2.330 m² 4,13% 22 euro/m²/month Contern 24.000 m² 5.419 m² 11,69% 18 euro/m²/month major difficulties to start their projects. Without precommitment of an occupier and a significant amount of liquidities, developing a speculative project turned out particularly difficult. Due to the more tough market conditions, some developers have therefore turned to alternative uses or have abandoned schemes. Vacancy rate evolution (2001-2011) 8% 6% VACANCY Due to a weak demand for several quarters, new building deliveries (even if they were moderate) and a growing supply of second hand space, the vacancy rate had increased and exceeded 8% at the end of the third quarter of 2010. Since then the vacancy rate has stabilized and has begun to decrease slowly. At the end of 2011 the rate amounted to 7.2% of the total stock, representing approximately 250.000 m². As the number of deliveries of available projects is quite limited, the vacancy rate should decline further. The decisive factor is the economic activity in the coming months. The small size of the Luxembourg office market has enabled developers to adapt and to avoid flooding the market with vacant space. 4% 2% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Page 4
RENTS Although the downward pressure had intensified in the course of 2010, prime headline rents for high standing office premises located in the central business district had stayed steady at 40 EUR/m²/month. Economic rents however, especially for areas located in the periphery, decreased, as landlords granted more easily letting incentives such as rent-free periods or participations in fit-out costs. With the stabilization of the vacancy rate, a change in the balance of power between landlords and tenants will take place with landlords becoming more comfortable again in terms of incentives and rents. The central districts are the most concerned. In the suburban markets, where voids are typically higher, letting incentives still tend to be given to attract occupants. Differences in voids across districts are considerable with for example a vacancy rate of only 2.5% in the Station district and above 20% in the Bertrange area. Prime rental evolution in the CBD (2001-2011) 50 euro/m² 40 euro/m² 30 euro/m² 20 euro/m² 10 euro/m² 0 euro/m² 20012002200320042005200620072008200920102011 Professional real estate investment volume (2001-2011) 3 mrd euros MarketView Luxembourg Offices INVESTMENT Total investment volume for the Luxembourg property market amounted to 383 million euros in 2011, in line with 2010 investment activity. Investment activity in Luxembourg continues to be dominated by local buyers, including acquisitions for own use and acquisitions of land. Around thirty transactions were realized. The average investment volume amounts to 13 Mio EUR per transaction. 2 mrd euros 1 mrd euros 0 mrd euros 20012002200320042005200620072008200920102011 Main reasons of the slow activity are the ongoing lack of core products and the cautiousness of the investors. The interest of potential investors is focused on the higher end of the market. Professional real estate prime yields (2001-2011) 8% German Open-Ended funds are still out of the investment market. Currently, main players are local investors and owner-occupiers. In the coming years, it is possible that German Special Funds might reinforce their presence in Luxembourg as they are less regulated by the new laws coming into force. German Open-Ended funds could also become active again, but their dominance and investment strategy will probably differ from the past. In addition some family offices are playing a more important role with some acquisitions made during the last months. 6% 4% 2% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Page 5
MarketView Luxembourg Offices Main office districts in Luxembourg For more information, please contact: Véronique Koch Research Analyst Luxembourg Research CBRE 60 Grand Rue, 5th floor L-1660 Luxembourg t: +352 26 26 12 23 e: veronique.koch@cbre.com Gérald Merveille Managing Director Luxembourg Research CBRE 60 Grand Rue, 5th floor L-1660 Luxembourg t: +352 26 26 12 20 e: gerald.merveille@cbre.com DISCLAIMER 2012 CBRE Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE. Page 6