Luxembourg office market slows in 2022
OFFICES
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 m², bringing the annual total to just 206,700 m².
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 m²) in the Station district and Serra B (4,034 m²) in Kirchberg. In another notable transaction, ARHS Developments is to occupy Lot 48 (6,500 m2² in Esch-Belval. And the prestigious Boulevard Royal will welcome two new tenants, including the Weerts Group subletting 1,358 m² in Royal Hamilius. Additionally, the Landewyck PAP is beginning to take shape with the Mediahuis letting of Maison Landewyck (1,932 m²). Some corporates have also taken significant space, including entire buildings. LSC Engineering will for example occupy Albert Simon 4 in Contern (6,800 m²), Banque UBP will occupy HS8 in Cloche d'Or once delivered (4,500 m²) and Security Made in Luxembourg will occupy Villa Fischer (1,300 m²).
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 m². 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 m² of office space is considered vacant out of a total stock of 4.705 million m², 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 m²), with other major vacancies being H20 in Howald (5,473 m²) and Eagle in the Airport district (4,454 m²). Vacancy rates in central markets have compressed to around 2%.
In terms of deliveries, the final quarter saw seven completed projects for 74,000 m² to bring the annual total to 152,700 m². Overall, development volumes have been consistent with the previous four years. Major completions in the fourth quarter include the Post building (27,700 m²) in the Station district, Urbaterre (20,000 m² of which 4,408 m² is available) in Leudelange, Wooden (9,600 m²) in Leudelange and Bronze Gate (5,470 m²) in the Cloche d’Or.
For this new year of 2023 there is a robust pipeline of more than 383,500 m² of office space, although just two buildings (Jean Monnet 2, 130,000 m² and KAD2 (70,000 m²) account for more than half of this. Approximately 25% of scheduled 2023 deliveries (95,000 m² ) 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/m²/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 d’Or increasing to € 37/m²/month. Other markets that saw increases in 2022 are Strassen (€ 30/m²/month), Howald ( €27/ m²/month) and Hamm (€ 29.5 /m²/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/m²/month) in recent quarters.