Luxembourg office market in good form

OFFICES
Tim Harrup

A record fourth quarter in the Luxembourg office market, driven by large pre-lets, sent annual take-up soaring 30% higher than the previous year. In its report, broker CBRE points out that the EU and Luxembourg State closed substantial pre-lets in the Kirchberg and Station districts for a combined 117,300 m. Vacancy increased slightly to a still very low 3.5%. Prime rents are stable, though select markets have seen increases this year, including Kirchberg (42 /m /month) and Cloche dOr (35 /m /month). Development completions were down in 2020, but should pick up considerably in 2021. Investment was stronger in the fourth quarter, with the annual figure totaling 1.6 billion and prime yields compressing to 3.4% for the best assets.

Looking a little more closely at the market, CBRE finds that take-up in the fourth quarter of 2020 amounted to a substantial 160,000 m to bring the year total to 342,000 m. This is one of the best years on record, which, CBRE points out, seems all the more surprising given the Covid-induced uncertainty and restrictions (pre-lets are now being recorded at the time of signature). Despite the short-term disruption, Luxembourg is a growing market with expansive state occupiers. And public occupiers drove take-up in the fourth quarter, accounting for almost 40% of total annual take-up. The biggest deals were the European Investment Bank pre-let of the 65,000 m Extension building in Kirchberg, and the CNS pre-let of the 52,300 m office in the Station district. Also notable was the Luxembourg States pre-let of the 10,190 m Twist project in Esch-Belval. Public bodies - particularly the Luxembourg State - continue to be reliable office occupiers, absorbing both vacant properties and new construction in diverse markets.

This year has also seen a rebalance of interest between Luxembourg City and the periphery. Esch-Belval (30,127 m), Leudelange (27,080 m) and Bertrange (11,103 m) all recorded notably higher take-up than the previous year. While activity in Luxembourg City has been hindered due to a lack of available space, the peripheral markets are gaining credibility with occupants as they continue to develop. The markets provide an attractive working environment in terms of new, quality projects, growing services and amenities, and car accessibility.

Vacancy

Approximately 153,000 m of office space is currently considered vacant out of a total stock of 4.43 million m. This figure, it is relevant to note, is 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 3.5%. This evolution is a slight increase over the previous quarter. Bertrange, Capellen, Esch-Belval saw an upward drift in availabilities. In the third of there, the increase was the result of a new project being delivered (Capelli Towers (2,286 m available) and parts of Red Sky also becoming available. Nevertheless, vacancy in the growing Esch-Belval market stands at just 3.6%. Central markets are very tight. The CBD, Kirchberg, and Station all have vacancy of under 2%, while the Cloche dOr is slightly higher (but still very low) at 4.2%. Elsewhere, the Airport district still has around 7% of space available. As an indication of just how starved of space the market is, there is just one building with more than 5,000 m available. This is Monnet 8 in Kirchberg with 5,258 m. Four buildings are currently offering between 4,000 and 5,000 m available.

Projects

Completions in 2020 and the development pipeline are clearly of interest in all this. The final quarter of 2020 saw 25,000 m of completions, 18,000 m of which was already pre-let. This brings the final year total to 92,000 m, which is about half of that seen in the previous year. Completions in the fourth quarter were all small and under 9,000 m. These included Arendt 9 (8,000 m) in Hamm, Cargolux HQ (6,500 m) in the Airport district, and Southlane Tower 2 (4,986 m) in Esch-Belval. For 2021, the pipeline is estimated at a huge 300,000 m, although half of this is the KAD2. Overall, two-thirds of the total space is pre-let. Projects with space remaining include P+R (10,000 m) in Kirchberg, WOC (10,000 m) in Capellen, Royal Park (10,500 m) in the CBD, and Buzz City (16,000 m) in Leudelange.