A look back at 2020 and the outlook for the office market in Belgium in 2021
2020 was an unusual year from every point of view. The global pandemic triggered by COVID-19 had significant repercussions on both the world and local economies, affecting every sector of business. Lockdown, mandatory working from home, the repeated closures of businesses, bars, restaurants and performance venues were all events that forced us to adapt and change our way of life and consumer habits – along with a whole range of other impacts on the various real estate providers and sectors.
The office market was no exception to this and the substantial increase in homeworking is bound to contribute towards a major overhaul of the tertiary real estate landscape in the future. So let’s look back at an unprecedented year in 2020 and at the impact it will have for the office market in Belgium in the future.
1. In Brussels, take-up was the lowest in 20 years
Take-up in the capital was 260,000 sq m across the whole of the year. This was 50% lower than 2019 and 30% below the annual average for the past 5 years (+/- 400,000 sq m as an annual mean). Around 260 transactions were recorded, which was the lowest level ever seen. The health crisis put a brake on viewings and also slowed the speed at which occupants took decisions – in fact, it contributed to a total redefinition of occupancy strategy, which in turn had a significant impact on leasing activity.
Despite the low take-up rate, prime rents remained at €320 per sq m per year in the Léopold quarter of the city. It rose in many other districts, driven up by the combined effect of historically low vacancy rates (around 7.6% for Brussels on average), the handover of high-quality buildings and heightened competition for the best locations. Forecasts for prime rents confirm that this level will stabilise in 2021, with a fresh increase to €325 per sq m per year from 2022 onwards.
The large number of office projects launched on a speculative basis is a cause for concern regarding developments on the Brussels market. In fact, more than 150,000 sq m of new offices is expected to come on-stream in 2021, with around the same number in the pipeline for 2022. Combined with the new space likely to be released in the months ahead, the impact on the vacancy rate could become problematic in some districts more than others, particularly if the current high level of homeworking is confirmed with the passage of time.
Subleases come on to the market at regular intervals. This could also have a negative impact on the vacancy rate. Indeed, working practices becoming more flexible in large companies are currently freeing up floor space that has become redundant, returning previously occupied space to the market.
As a result, the current vacancy rate of 7.6% is estimated to rise to over 8.3% by the end of 2021 and could exceed 8.7% (maybe as high as 9%) by the end of 2022, all districts combined. Location, performance and especially flexibility and the option to repurpose space will all be factors that determine the success of these buildings. In-depth knowledge of the market and expert advice will be essential for guiding and marketing these projects.
2. Flanders’ sharp decrease in demand resulted in the lowest year since 2011
Flanders take-up decreased dramatically by 39% in 2020, to total 142,000 sq m across Antwerp, Ghent, Leuven and Mechelen.
Perhaps most striking was the decline in Antwerp, which was knocked it off its usual top spot among Belgium’s regional markets with take-up of 70,000 sq m, its lowest level since 2005. This is explained by a decline in the number of transactions, with occupiers biding their time on their occupation strategies with the economy in flux and new work habits emerging.
Ghent provided a silver lining, with a pretty robust 55,000 sq m despite a decrease in the number of deals recorded (72, compared with against 90 in 2019). Nevertheless, more than a third of this figure was due to two major deals: the purchase of the former Thomas Cook offices (approximately 10,000 sq m) by Colruyt Group, and the development of 13,000 sq m for own use by Daikin, which plans to centralise its Belgian activities in Zwijnaarde.
Maximilien Mandart, Partner: “Part of the issue, particularly in Antwerp, may be related to the reduced speculative deliveries in 2020. As new available supply plays a key role in ensuring healthy rotation on the market, this could provide an explanation for some of the market slowdown in 2020.”
Meanwhile, supply was also the issue in Mechelen, where a drop in take-up was also noted, although developers are beginning to flock back to the market, with new projects on the back of the recent success of more recent buildings, such as the Elephant, illustrating the demand for quality premises. Up and coming projects include the former Inofer building, redeveloped by CODIC and PSR, and the Het Zegel project acquired by Leasinvest External Link in 2020.
Perspectives in Antwerp are somewhat more encouraging in the medium term, thanks to projects in the Linkeroever area (Ghelamco’s Campus West), Leasinvest’s Hangar 26/27 in the Centre district, TheM, a project recently acquired by Intervest Offices, and warehouses in the Singel district. In Ghent, there is also a healthy pipeline, particularly in the area of The Loop, as well as projects such as the Keizerpoort (Oryx).
As far as demand is concerned, the dark clouds still need to clear and no significant improvement is expected in the year ahead.
Only Ghent is expected to see a prime rent increase in 2021:
• Antwerp: 165 EUR/sq m/year
• Ghent: 165 EUR/sq m/year
• Leuven: 135 EUR/sq m/year
• Mechelen: 150 EUR/sq m/year
3. Wallonia’s record year at the unlikeliest of times – Namur: Belgium’s second market in 2020
Wallonia take-up in 2020 amounted to 127,000 sq m, registering a 41% growth in the process. This includes 78,000 sq m of take-up in Namur, which makes it Belgium’s second market in terms of take-up ahead of usual frontrunner, Antwerp.
Wallonia was the only region to improve on its 2019 figures. Such a leap is bound to raise eyebrows, particularly in a year when the economy had to with the disastrous consequences of the COVID-19 pandemic. In fact, this upward trend was achieved through a substantial increase in the size and number of deals – attributable in particular to the Regional administration’s new occupational strategy. These deals were not carried out on a whim and were long overdue as taxpayer money was spent more wisely and efficiently on overheads than in the past.
The main beneficiary of the public sector’s vigour was Namur, with approval granted for the future Court of Justice (approximately 35,000 sq m) and the Walloon administration taking in excess of 34,000 sq m in two buildings (AXS and Crosspoint). Charleroi actually recorded a significant fall in activity (6,000 sq m in 2020), whereas Liège was broadly in line with 2019’s excellent figure with 43,000 sq m. A special mention for Mons, albeit located outside the three “recognised” Walloon market cities, where a couple of public sector bodies pre-leased 10,000 sq m in the Renouv’O building at the end of the year.
Stéphane Moermans, Head of Office Leasing Wallonia, said, “Building on these major lettings in Mons, we predict 2021 will be a highlight year, especially for Hainaut and Charleroi, following Liège in 2019 and Namur in 2020. Indeed, some large moves involving various public sector bodies are expected to come to fruition, potentially yielding as much as 25,000 sq m of take-up.”
Apart from Charleroi, though, Wallonia has reached the end of a cycle as far as public sector relocations and influence on take-up are concerned. In an ideal world, the market would look to the private sector to pick up the mantle in 2021; however, the pandemic has put a dampener on this prospect. “However, the COVID situation and general rethink around workplace strategies may provide regional markets with an opportunity to position themselves as proper decentralised locations for companies looking to provide offices nearer their employees than Brussels, as is often the case.”, said Stéphane Moermans. In Liège in particular, a strong speculative pipeline on the outskirts of the city, as well as in central areas certainly provides opportunities for corporates looking to make a move. Conversely, the Namur pipeline offers very little in the short and medium term.
No shifts from current prime rent levels are anticipated in 2021:
• Liège: 160 EUR/sq m/ear
• Namur: 160 EUR/sq m/year
• Charleroi: 135 EUR/sq m/year
4. The future of the office, the office of the future
The health situation has caused a dramatic change in our structures and the way they operate. Working from home has risen sharply and, according to our latest international survey1, homeworking will occupy a significant place in the way work is organised in the future.
Overall, hybrid working (in which the employee works part of the time in the office and the other part from home or some other location) is set to more than double in the years ahead, rising from 22% pre-pandemic, to more than 58%. In Belgium, over 55% of employees expect to see the way they work become more flexible2.
Having said that, it would appear that the office market is entering a new age that will see big changes to the way offices are used. In fact, some of the conclusions from our survey point towards the workplace becoming more important for:
- Creativity and innovation
- Corporate culture
- The employee experience and sense of belonging
This means that the way offices are used – and hence the form they take – will change in the future. However, according to Antoine Brusselmans, Director of the Brussels Office Leasing Department, “The change will become visible over a relatively long period of time. Tertiary real estate has already started moving towards this new paradigm. But, like an ocean liner, changing course will take some time to happen. In the future, we expect there to be more communal spaces for staff to work together and meet, with conference rooms of various sizes, office communities and spaces for ad hoc meetings, etc. Urban locations would also appear to be in favour. In a world where employees will come to the office less often, they will be looking more for additional amenities and services when they do, such as retail outlets, fitness studios, cafés and restaurants. This means that fast, urban means of transport will be determining for greater workforce mobility.” Hence, the old adage of ‘Location, Location, Location’ will be amplified by ‘Flexibility, Flexibility, Flexibility’ in the months and years to come.
While the actual impact is difficult to estimate accurately in terms of figures, for Brussels take-up is likely to decrease in the years ahead and stabilise at around the 320,000 sq m mark, on average, rather than the 400,000 sq m recorded annually over the past 5 to 10 years. And this change will raise numerous questions about the future of the tertiary real estate landscape. Antoine Brusselmans concludes, “Nevertheless, a number of major deals should make it safely into land in 2021, which will contribute significantly to take-up. Combined with a certain resilience in the segment for medium-sized office space, 2021 could still have a few pleasant surprises up its sleeve for us.”
5. How can we help you?
In this highly specific environment, we will be by your side more than ever to support and guide you through all of your office leasing procedures.
As the market leader3 for many years, we reinforced our dominant position in 2020 thanks to our team of experts, our undisputed knowledge of the market and the development of new services and tools.
Cushman & Wakefield is the only property consultant with offices in each region, in Antwerp and Liège, as well as in Brussels.
So, please do not hesitate to contact us for all your questions about your commercial real estate:
- Renewing or negotiating your lease,
- Taking advantage of our unequalled market knowledge,
- Analysing and optimising your office occupancy,
- Defining your new spaces for working and collaborating
According to Oxford Economics latest figures, Belgium could be one of the most impacted countries in Europe, with a GDP decline now forecasted around 2% this year.
While every industry is affected in a different way, most of the professionals within the commercial real estate sector are currently working from home.
The everyday life of a broker during this unprecedented period
In order to comply with the guidelines provided for the industry, real estate agents are prohibited from organising visits and face clients (unless virtually). As such, communication by e-mail, phone and video conferencing quickly intensified. Nevertheless, real estate remains a people business, meaning face-to-face meetings and property visits remain an essential element in this line of work.
The lack of face to face contact and inability to be able to visit properties is, affecting the generation of new leads and of course the creation of new letting deals. This is especially true for the small-scale transaction segment which is expected to be at risk of being hit hard in the coming months.
The take-up could be negatively impacted in the first half of the year
It is safe to say that the COVID-19 crisis will have a negative impact on the take-up levels for the first half of the year. The magnitude of the effects on the take-up is still unknown and very difficult to estimate since there is too much uncertainty regarding the duration of the lockdown and the rate at which the economy is going to recover. It is important to bear in mind that the take-up levels in 2019 were rather exceptional and a slowdown in activity was expected for 2020, regardless of the current crisis.
On average, 60% of all office transactions in Brussels are smaller than 500 sq m. These transactions are usually concluded relatively quickly, but it is getting more complicated to relocate smaller tenants. This is also because smaller businesses with ten to twenty employees will tend to postpone their move or even completely rethink their relocation plans due to the crisis.
Rental levels remain stable for the moment
At this current stage, there has been no pressure on rental levels. Prime rents in Brussels are still found at 320 €/sq m/year (in the Leopold District). The weighted average rents for the year so far is around 165 €/sq m/year (similar to the 5-year average). Fortunately, the crisis has hit the market at a period of historically low vacancy levels, so competition is still stabilising rents.
However, we are noticing that some tenants who wish to sign a leasing contract ask for extra concessions to their future landlords. Generally, this means one or even two months of rent-free period on top of what is usually seen in the market. On the other end, property owners are not objecting per se and are showing some understanding given the situation.
Several property owners reveal that some tenants are getting increasingly anxious as uncertainty surrounding the lockdown is mounting. Some landlords are beginning to get requests from their tenants to postpone lease payments for the April to June period. Should the lockdown last longer than expected, we are going to see more severe reactions in the market regarding this issue.
What the future looks like for the Brussels office market?
Nevertheless, if the lockdown doesn’t continue into the summer we are still expecting a rebound for the second part of the year as the Brussels office market has historically proven to be resilient
Several important transactions are in the pipeline and are continuing despite the Covid-19 crisis. Even if delayed, these will occur in the coming months. Furthermore, public institutions (both national and European) will need to relocate in the coming months or years. This will lead to an increase in new requirements.