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Luxembourg office market performing well

Image: Luxembourg City
Image: Luxembourg City

Luxembourgs office occupier market, states real estate advisor CBRE in its latest Marketview report, continues to shrug off pandemic concerns with a strong third quarter in terms of take-up. The Luxembourg State was particularly active, closing deals across the country and absorbing some of the largest remaining availabilities. As a result, vacancy declined slightly to a very low 3.2%. Upward pressure on prime rent is seen in certain markets, with Kirchberg now at 504 m/year (against around 325 in Brussels ed).

Take-up in the third quarter of the year amounted to a strong 67,400 m, higher than eight of the last ten years. This brings the YTD figure to 184,500 m in what is set to be a solid year for the office occupier market, despite the uncertainty surrounding covid-19 and the economy. Somewhat unusually, activity in Esch-Belval drove office letting and sales activity in the third quarter, claiming the two largest deals of the quarter. These were the Luxembourg State leasing of 10,107 m in Terres Rouges and Luxcontrols acquisition of 7,000 m on the Square Mile. Typically, Esch-Belval averages some 8,000 to 10,000 m, of take-up annually, but through the first nine months of this year it has already achieved 20,000 m. Rounding out the top three is a world-leading e-commerce firm leasing 5,095 m in K2 Dolce in Kirchberg. Smaller and more peripheral markets have seen more activity this year. This is in part due to a lack of available quality space in more central locations, but also lower rental values and moderate new development.

Kirchberg, on the other hand has seen limited activity this quarter, primarily due to a lack of available space. Just 14,000 m has been registered here so far this year. In terms of office occupiers, the Luxembourg State continues to expand, often taking some of the largest vacancies on the market. Alongside the Terres Rouges deal, the State closed a deal for 5,072 m in the Darwin II project in Cloche dOr, 2,720 m in Edison 7 in Strassen and 987 m in Hireknopf in Capellen.

Vacancy and completions

Approximately 140,000 m of office space is considered vacant out of a total stock of 4.4 million m. This is notably less than a years worth of take-up, indicating a shortage of available space. The result is a very tight market with a vacancy rate of just 3.2%. Some movement in major markets over the previous quarter were noted. Naturally, vacancy in Esch-Belval fell from more than 5% to around 1% as a result of the large deals outlined above. Vacancy in Bertrange was almost halved to 8% this quarter, and further absorption of space in Lux West saw vacancy fall to 6.6%.

After an active second quarter, completions over the last quarter will be limited to just 3,000 m. That brings year to date total to 67,000 m. The sole completion was the Vega building on the terrain of the Vertigo office in Cloche dOr. For the rest of 2020, some 225,000 m is scheduled for completion. Though, 158,000 m of this is part of the KAD2 European Parliament building. Major completions expected in the final quarter, if not delayed, include new Creos HQ (15,300 m) in Lux West, Arendt 9 (8,000 m) in Hamm and Cargolux HQ (4,000 m) by the Airport. Just 20,000 m remains available for this year.

For 2021, the pipeline is estimated at a moderate 150,000 m, of which almost two-thirds is available.
Tim Harrup
25-11-2020
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