Uncertain office market but some high points

Tim Harrup

Real estate advisor Colliers has just published a report on the trends in the European office market and in Belgium in particular. In general terms, Colliers finds that 2022 was mainly a year of execution of previously planned investment transactions. In 2023, the market is starting to see the full impact of highly uncertain global and local political, economic, financial and business challenges on the property market.

The capital market, they go on to say, is going through a difficult period, and the ECB continues to raise its key interest rates, while improving economic indicators suggest that the situation could stabilise by the end of the year. However, the recent collapse of several financial institutions has increased the risk of a tightening of lending procedures, which could reduce credit availability and weigh on GDP growth.

In addition, the market will continue to be influenced by European Green Deal legislation, the New Way of Working, mobility policies and the war for talent. New projects are increasingly trying to improve their environmental performance and raise their visibility by obtaining more than one certificate: BREEAM is a must, WELL is a plus. Other certificates such as C02 Neutral, AirRated and WiredScore are growing in popularity. However, property decision-makers and stakeholders, advise Colliers, need to understand the challenges and opportunities that always go hand in hand. It is important not only to navigate through this period of uncertainty, but also to position themselves strategically for the next economic cycle.

Where Belgium is concerned, Colliers states that 2023 started with a quite hesitant take-up in all three regions. At the end of the quarter, however, it stood at 130,901 m², a decrease of 3% year on year. This is also 25% below the 5-year average for the first quarter. Such a decrease is explained by the absence of large transactions and a reduction in the total number of transactions. Investment activity is on hold in anticipation of market repricing with only seven transactions having taken place since the beginning of 2023 for a total investment of some €147 million.

Prime rents, however, continue to see upward movements, while pre-lets and leases on new energy efficient buildings dominated the larger size bands and higher rents. LT Core transactions, such as Treesquare (yield 4.23%) and Wood Hub (yield 6.13%), could provide support to the overall yields, which turned out to be lower than expected in our previous report as there were not enough transactions to back up the yields at that time.

More specifically in Brussels, transactional activity declined in the CBD, while take-up was more resilient in the Periphery. Prime rent in the Louise district jumped from €275 to €340 sm²/year. This is significant as it is not very long ago that the prime rent for the most expensive district – the European Quarter – finally crossed the € 300 mark for good. There is still pressure on landlords, with tenants in non-energy-efficient buildings expecting rent reductions and high incentives.