Office Market Report Q3 2018

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The shortage of properties is always stronger

The year 2018 will close by accounting for more than 200,000 square meters of office space taken in occupancy. “The market dynamics is very positive. Not so long ago, it was considered that with 150,000 square meters taken in occupation, the year was successful. In 2018, for the fifth consecutive time, we will cross the 200,000 square meter mark”, commented Julien Pillot, Head of Office Agency within INOWAI. During the first three quarters of the year, 217 transactions were completed on the market. This is more than in the first three quarters of 2017 (201) and 2016 (179). “The rented surfaces are on average smaller than the previous years”, continues the expert. The average size of the rented property is 660 m², for a median of 320 m².”

Shortage of property

If demand is still strong, the shortage of properties is always more felt. The vacancy rate, in the third quarter, fell further to 3.45%, while it was still at 5.14% a year earlier. “Few new goods are delivered to the market. In addition, new surfaces are most often pre-let well in advance. On the most prominent neighborhoods, it becomes almost impossible to find. The vacancy rate is 0.2% in Kirchberg. And it will take another two to three years to see new deliveries complete the offer of the business district, with a Kirchberg Fund project at roundabout Serra (10,000 m²), the new headquarters of ArcelorMittal (with 22,000 m² which will not be occupied by the industrial giant) or the third office building signed Giorgetti (+/- 13.000m²), on the site Media Bay (RTL). It is very likely that these spaces will find occupants before delivery.”

The return of risky projects

The vacancy rate is a little higher in other parts of the capital: 1.86% in the city center, 2.52% at the station, 5.84% at the Cloche d’Or. “It is in this quarter that there remains the most development possibilities. But overall, the projects that are currently coming out of the ground are buildings that have been custom designed for tenants. At the heart of this market, on the good locations, we begin to see again promoters embarking on risky projects, in other words without having previously found a tenant, continues Julien Pillot. But, again, it will be necessary to wait two to three years before seeing these surfaces delivered.”

2019, still a year under tension

Throughout the year 2019, therefore, the market may remain tense. Of course, several major players will take their new building in occupation, such as Deloitte or Ferrero, releasing also surfaces that just wait to be occupied. But not enough to satisfy the demand. “We do not expect the vacancy rate to rise significantly until 2022 and 2023, when other major players will also take possession of their new facilities. The European Commission for example, could release nearly 50,000 m² at La Cloche d’Or. That’s why, despite the shortage, we must remain vigilant. That being said, in three years, many things can happen. And until then, the trend is extremely positive. There is no reason to worry.”

A renewed interest in the periphery

Demand remains strong and supply insufficient despite a steady increase in the stock. The latter, considering the program of planned deliveries, should exceed the four million square meters available by the end of the year. “If we look at the latest deliveries, we note the installation of Telindus on the Bourmicht zoning in Bertrange, the extension of Foyer in Leudelange, taken in occupation of the state in Strassen, that of MM Warburg in Munsbach or a surface rent by Deloitte in Belval, details Julien Pillot. We can only note a renewed interest in properties located in the periphery. This trend is linked to pressure on rents, to a lesser extent, and mainly to the scarcity of property felt on the territory of the city of Luxembourg. So even outside the capital, finding a property is not necessarily easy. “In Munsbach, while we could fear for the area following the departure of EY, we see that there is no longer any property available,” says Julien Pillot. At the airport, the vacancy rate is 2.2%. In Belval, it is 7.8%. “The new university district and its surroundings are also enjoying a very positive momentum,” says the INOWAI expert.

Around two billion euros invested

As for the investment market, the dynamics around Luxembourg is also extremely positive. Over the first three quarters, 1,436 billion investments were made in Luxembourg for some 36 transactions. “The evolution of the annual investment volume continues to grow. It is not impossible that, for the year 2018, we are getting closer to the cap of two billion euros invested, explains Julien Pillot. If it is still young, the Luxembourg market is maturing. He is more and more known to investors around the world and particularly appreciated for its stability and the quality of its goods.”