Luxembourg is characterised by an active economy, unemployment at under 6% and a dynamic entrepreneurial climate. The banking and finance sector is substantial and European institutions are growing …
At the end of 2015, there were 382,000 people working in Luxembourg including over 165,000 cross-border workers , equivalent to 43% of overall employment. 10 years ago, there were 57,000 cross-border workers who accounted for 30% of the Luxembourg workforce. Over half of these 165,000 cross-border workers live in France, 41,000 in Belgium and the remaining 41,000 in Germany.
This growth in cross-border employment, which is beneficial for the Luxembourg economy, does have some negative repercussions, particularly on mobility. Access to the city centre is becoming more difficult, journey times are increasing and the established office districts (Station, City Centre, Cloche d’Or and Kirchberg in particular) are becoming less accessible. Corporates are also looking to move closer to their staff in order to encourage recruitment, while public authorities are also opting for new locations in the Periphery for some of their sites.
To mitigate this reduced accessibility, as well as to offer more affordable rents, new office developments have sprung up in recent years close to the borders with neighbouring countries, and have increased the range of office supply for occupiers.
This has led to the level of stock in the Periphery doubling over the last 10 years, from 6% in 2015 to over 12% in 2015 (around 460,000 sq m); this is mainly linked to real estate developments around the university in Esch/Belval in the South-West of the country. In fact, in this area alone, office stock has increased from 35,000 sq m to over 185,000 sq m over the last 10 years. The main occupiers in the area are the university (Maison du Savoir, Maison des Sciences Humaines, Maison du Nombre) as well as Ketterthil, Adem and the Royal Bank of Canada. These occupiers were seeking a creative environment, local services, modern developments, easy road access and close proximity to the French border.
Although smaller, the suburban zones of Capellen / Windhof and Munsbach, which are close to the Belgian, German borders respectively, have also seen a high degree of development over the last 10 years. In 2015, there was 113,000 sq m of office space in Capellen / Windhof, while the total office stock in Munsbach stood at 60,000 sq m.
It therefore stands to reason that the level of take-up in these Periphery locations has increased in recent years; this is both due to the rising share of office space in the overall Luxembourg stock as well as an increase in occupier interest for these border locations. 10 years ago, the Periphery’s share overall take-up stood at around 10% of the total volume, but for the last 3 years, this share has stood at an average of almost 20%. These figures show that, although the Periphery only has 12% of overall stock, these locations account for almost 20% of demand - a clear indication of the strong market activity in these areas.
2015 was an exceptional year as almost 36% of overall take-up was recorded in the Periphery. This was mainly driven by the university taking over 100,000 sq m of space in new developments in Esch/Belval over the second half of the year. Development in this district has led to the arrival of other occupiers seeking large floorplates to set-up back-office operations.
The level of turnkey developments seen in Esch/Belval mean that that the vacancy rate currently stands at less than 1%. However, vacancy rates in Capellen and Munsbach are higher at 8.7% and 6.1% respectively and are therefore higher than the overall average for Luxembourg, which stands at 4.2%. However, vacancy is falling in both of these locations.
The situation in Leudelange and Contern (located half-way between the city centre and the Periphery) is more delicate. These areas currently have a lower level of activity with a take-up of around 7,000 sq m in 2015, while the vacancy rate stood at over 10%. Even so, Leudelange could see improvements over the next few years as it benefits from its close proximity to the city, major road development and the arrival of local services; the area already has a number of major occupiers including Lotterie Nationale, Foyer and Luxembourgeoise.
There are only a few developments underway in the Periphery and these are located in the Esch/Belval district. Activity in Esch/Belval is set to remain strong for years to come. The time gain for cross-border workers is significant and local services and facilities are being developed (restaurants, gyms, leisure, sports centres are in the pipeline) with the aim of boosting the attractiveness of this area of Luxembourg.
Finally, in terms of rents, levels are almost 50% lower than those found in the city centre. On average, prime rents stand at around €21 per sq m per month in the Periphery, whereas they are €45 per sq m per month in the CBD. And the gap between the two is widening as both city-centre land costs and competition for the best locations are pushing up rents, mainly along the Boulevard Royal. In the Periphery on the other hand, rents have remained stable in recent years.