The offices remain taken in Luxembourg
The office market continued to grow in Luxembourg with a record occupancy price of 357,000 m last year2 and deliveries quadrupled, to 214.00m2.
“It’s a year of transition with phenomenal figures on the one hand, but to be qualified given the many pre-lettings, the weight of institutions and the reality of transactions, the majority of which are less than 2,000m2“, a detail Friday Lotfi Behlouli, Director Office Agency at JLL Luxembourg.
The real estate agent reported a vacancy rate in contraction from 4% to 3.6% over one year, more than double that of Brussels. A phenomenon which is explained by a scarcity of supply in the Grand Duchy Coupled at a pre-rental and pre-sale rate of 23%, down however compared to 2020 when it stood at 51% of transactions.
Public administrations as a driving force
The year was marked by an overrepresentation of Luxembourg public administrations (16%), but especially European ones (42%) on the market, led by the delivery of Kad II to the European Parliament (127,000 m2) in front of that of the new Post headquarters at the station (27.70m2) and the forthcoming move of the Publications Office of the European Union to rue Mercier, where Post currently operates .
These major operations have also reshuffled the maps of the districts, with a dominant Kirchberg which represents 45% of the volume delivered against 25% a year earlier. Belval saw its share triple to 9% thanks to the pre-letting of the Icone building by Société Générale (17,303m2) as well as that of Statec at the Twist building over 10,150m2.
In terms of rents, the centre/boulevard Royal remains the most expensive location with prime rent up 4% to 52 euros/month/m2/excl. VAT, in front of Kirchberg and the station which is displayed at 38 euros and finally the Cloche d’Or at 35 euros/month/m2/excl. VAT, which marks the sharpest increase of 9.4% in one year.
In the crown of the capital, rents remain at 28.5 euros / m2just like in Belval (24 euros) and further afield where the status quo is in order at 22.5 euros/m2.
The current year should be marked by a drop in deliveries of 36% to 135,468m2, of which almost 53% are already pre-let or reserved. “In 2022, we will have a balance between supply and demand,” commented Lotfi Behlouli, who underlines the appetite for buildings with green energy certifications.
Rising interest rates weigh on investment
On the investment side, the total volume fell to 1.2 billion euros in 2021, “a quiet year in the absence of “mega-transactions”” summed up Vincent Van Brée, Head of Capital Markets Luxemburg. Yields fell from 3.9% to 3.25%, with investors focusing on the office segment (78%) far ahead of land (13%).
“Given the prospect of rising interest rates, real estate yields will be under a little pressure and to counter this, investors will no doubt stay in locations where there is potential for rent growth, Belval for example has this characteristic,” he said.
Rural exodus on the residential
As for residential real estate, the rise in prices – and in demand – was felt above all in the existing segment with 11% annual growth against 3% for properties under construction. However, the number of building permits took off by 19% between September 2020 and September 2021. But the uncertainties generated by the pandemic, the rise in the price of materials and tax changes penalizing investors have sparked the trend.
Faced with soaring prices, the desire for more space and greenery: demand has moved from the capital to outlying, even remote areas. “In Ettelbruck, we are now selling apartments at 10,000 euros/m2 whereas two years ago they were still hovering around 7,000 euros/m2», illustrates Robby Cluyssen, Retail Agency Director. “In the future, we expect these price levels in Diekirch and even Wiltz”.
Mass distribution has fueled trade
In terms of retail, take-up fell by 7% to 21,545m2, against the backdrop of a market driven by two opposing segments: luxury on the one hand and discounters on the other.
“The city center was strongly revitalized in 2021 with around twenty signatures and a very good pipeline for 2022 with new arrivals to be expected”, commented Dimitri Collignon, Head of Retail Agency Belux. Rather optimistic, the agent underlined the dynamics reflected on the avenue de la Gare where the brands are making a comeback, like McDonald’s.
As for rents, they fell by nearly 7% on the axes of the center of the capital, to 140 euros/month/m2 while they remained maintained in shopping centers at 110 euros/month/m2 just like in outdoor retail warehousing complexes where they have stagnated at 20 euros/month/m2. “We are seeing a lot of demand for Foetz and Escape in Capellen has quickly sold out, we will always have demand,” commented Dimitri Collignon.
In his eyes, 2021 marked a wind of recovery and a return to almost normalcy. It should be noted that supermarkets alone accounted for 37% of take-up. The good health of the segment in 2020 therefore seems to be confirmed, like the Perspectiv’ project developed close to Esch/Alzette where at this stage this mixed project already has a declared occupant: the retail chain Match-Smatch .