Luxembourg office market slows in 2022

OFFICES
Tim Harrup

Real estate advisor CBRE has produced its report on the Luxembourg office market in 2022. It starts by stating that Luxembourg office take-up volume moderated further in the final quarter of the year to 35,750 m, bringing the annual total to just 206,700 m.

CBRE goes on to say that the lack of EU activity is very apparent in the figures in 2022. The number of recorded transactions was in line with the ten-year average, which means that as take-up was down, the average deal size was lower than usual. The Luxembourg State helped support a slow fourth quarter. It leased the entire buildings of the Ultimate (6,543 m) in the Station district and Serra B (4,034 m) in Kirchberg. In another notable transaction, ARHS Developments is to occupy Lot 48 (6,500 m2 in Esch-Belval. And the prestigious Boulevard Royal will welcome two new tenants, including the Weerts Group subletting 1,358 m in Royal Hamilius. Additionally, the Landewyck PAP is beginning to take shape with the Mediahuis letting of Maison Landewyck (1,932 m). Some corporates have also taken significant space, including entire buildings. LSC Engineering will for example occupy Albert Simon 4 in Contern (6,800 m), Banque UBP will occupy HS8 in Cloche d'Or once delivered (4,500 m) and Security Made in Luxembourg will occupy Villa Fischer (1,300 m).
On top of all this, the market continues to absorb well-located new space. Royal Park in the CBD secured three law firms in the third quarter alone, each taking floors of 1,157 m. Overall, companies are facing dual challenges in this market one is the limited number of available buildings and the other is the economic uncertainty that is hindering strategic real estate decisions.

Vacancy and deliveries

The result of this on vacancy is that approximately 182,600 m of office space is considered vacant out of a total stock of 4.705 million m, a very tight situation with just 3.9% of overall space available. The newly completed Ultimate is now fully let, as is Serra B, resulting in downward pressure on vacancy. The largest vacancy remains Buzz in Leudelange (12,934 m), with other major vacancies being H20 in Howald (5,473 m) and Eagle in the Airport district (4,454 m). Vacancy rates in central markets have compressed to around 2%.

In terms of deliveries, the final quarter saw seven completed projects for 74,000 m to bring the annual total to 152,700 m. Overall, development volumes have been consistent with the previous four years. Major completions in the fourth quarter include the Post building (27,700 m) in the Station district, Urbaterre (20,000 m of which 4,408 m is available) in Leudelange, Wooden (9,600 m) in Leudelange and Bronze Gate (5,470 m) in the Cloche dOr.

For this new year of 2023 there is a robust pipeline of more than 383,500 m of office space, although just two buildings (Jean Monnet 2, 130,000 m and KAD2 (70,000 m) account for more than half of this. Approximately 25% of scheduled 2023 deliveries (95,000 m ) is currently available.

Rental levels

The overall strong letting market and supply and demand dynamics are such that rental values are well-supported. This has led to an increase in prime rent to a record 54/m/month (excl. VAT) in the CBD in the second quarter following the conclusion of a pre-let in a new project. This level holds through to the end of 2022. Prime rents are stable but under upward pressure in other major markets, with the Cloche dOr increasing to 37/m/month. Other markets that saw increases in 2022 are Strassen ( 30/m/month), Howald ( 27/ m/month) and Hamm ( 29.5 /m/month). Peripheral markets have seen steady growth in popularity for their accessibility, relative affordability and quality offer. As a result, there is upward pressure in rents. The Airport market increased to 30/m/month) in recent quarters.