Belgium capital market perspectives

Tim Harrup

Even in these troubled times, buying real estate is still attractive – as illustrated, the JLL ‘Investor Confidence Survey Results Belgium’ shows, by an all-time high volume of € 5.9 billion in 2020 - but with more selective risks. This is to some degree borne out by the share of core transactions in 2020 – 78% against 60% in 2019. Value-added, including redevelopment, maintains a notable share of 37%. And JLL also finds that while Senior Housing and Student Housing were the first segments to become institutionalized, now it may be the turn of the multi-family segment. Nevertheless, in the residential segment the lack of opportunity will remain an issue. Investors are divided about the rental growth potential, but yields are seen compressing.

Segment shift
In terms of yields, whereas stability is the most expected outcome, almost 30% of respondents believe it could (for prime offices) compress from the current 3.9% to 3.5%. However, yields for logistics real estate (a winner during the crisis) are certainly expected compress further in 2021, but opportunities will remain scarce because of limited land available for development.

High street retail is perceived as highly risky, with falling rents and significant yield decompression. This last factor has led to almost all (93%) of respondents believing that high street vacancy will significantly increase this year.

In the traditional offices sector, 2020 was a record year, with a volume of €3.6 billion recorded (+33% compared to 2019), illustrated by the sale of the Finance Tower, Post X, the Iris Tower etc. Investors are still positive about this asset class, they do not fear a rental decrease or a massive jump of vacancy but they would not increase its relative share in their portfolios. Higher vacancy looks inevitable, however, because of home-working and completions, with two thirds of respondents expecting it to rise moderately

Turning to a segment which has rocketed into the headlines over recent years, investors have now become more cautious about co-working, with a fifth of respondents believing the risks are too high.

Analysis of investments in Belgium in 2020

To summarise, JLL says, after the record year in 2020, 2021 should be quieter with contrasted situations between the different asset classes. Property investment will definitely remain attractive, but with strategies adapted to the new context: less risk taken, less bank financing in the funding mix. And there is a new ‘non-financial’ factor in the strategic mix: across all investment products, whether equity, bonds, loans, structured or real estate, the Environment, Social and Governance criteria have climbed to the top of the list for many, if not all, investors. According to the JLL survey, 97% of respondents will include ESG in their investment criteria.