How did the office market perform in 2015?
The take-up market – rental and acquisition for own use – closed 2015 at a record level with over 335,000 sq m of take-up recorded throughout the year. This represents growth of over 65% compared to 2014 which was itself an excellent vintage on the office market. This quite exceptional year – 2015 – can be explained principally by the take-up of around 100,000 sq m by the University at Esch-Belval.
As a result of the unprecedented dynamism and of the absence of speculative developments, the vacancy level is continuing to plummet. From 5.6% in January 2015, it is now at around the 4.5% mark, the lowest level in Europe.
The substantial differences which exist between districts have to be borne in mind, however: for while the Kirchberg is recording a level of under 2%, the Strassen and Contern districts, for example, are approaching 20%. This gap may slightly diminish over the coming months nevertheless, in view of the fact that the lack of speculative developments may force occupant to (re)locate into more decentralised zones.
Where office stock is concerned, it is set to increase by 8% in 2016-2017. It is interesting to observe that of the 300,000 sq m of offices scheduled to come onto the market during this period, (notably the BGL, One-on-One, Boulevard Royal 4 and Boulevard Royal 16-18), only 50,000 sq m are being constructed at risk, of which 30,000 sq m are located in the city centre.
The pressure between supply and demand may thus decrease over the coming months, although with a vacancy level of around 3% in the central districts, it will still be palpable, pushing certain occupants to neighbouring districts, seeking available space while being able to benefit from services and public transport.
Over the longer term, the mixed Infinity project – including Infinity Living, two iconic residential towers – is going to completely redesign the entrance to the Kirchberg plateau. Cushman & Wakefield has been mandated to market the Infinity Working office space (over 6,800 sq m) and the Infinity Shopping retail space (over 6,500 sq m) delivery is scheduled for 2019.
Where rents are concerned, they remained relatively stable throughout 2015 compared to 2014 across the whole of the Luxembourg market, with the exception of the Station and Kirchberg districts, which recorded slight increases to reach € 35/sq m/month. Prime rent stands at around € 45/sq m/month in the CBD.
How is the take-up split by sector of activity?
Luxembourg remains above all a financial market of the highest order, with banks and insurance companies playing a very important role. Nevertheless, over recent years, and in 2015 in particular, the public sector via the University of Luxembourg, along with the European institutions, has played a crucial role in the dynamism of the office market.
1.The development of the University at Esch-Belval: the University is expanding to Esch, where it took up over 100,000 sq m in 2015. This has led to further development of this south-west Luxembourg zone, with the arrival of numerous students, along with a gradual influx of companies with or without a connection to the University, the creation of student housing, the gradual filling of the existing shopping centres… This zone is set to grow further over the years to come.
2.The substantial dynamism of the European institutions: these accounted for some 15% of take-up this year, against under 5% three years ago. In 2015 the European Investment Bank and the European Commission took up over 60,000 sq m of office space on the Kirchberg plateau (IAK and President buildings) and at the Cloche d’Or (Laccolith and Ariane buildings). Cushman & Wakefield took part in two of these four letting transactions.
3.The delivery of new headquarters: this involves the location of Arendt & Medernach (15,000 sq m) and Ernst & Young (around 30,000 sq m) at Kirchberg, and 14,000 sq m for the CSSF along the Route d’Arlon in Luxembourg.
Other headquarter deliveries are scheduled in 2016. And the European institutions are expected to remain active as well.