The future of the Belgian office market

The big trends expected to reshape the Belgian Office Market

Overview: 

• Look back at 2022
• Outlook 2022 for the Brussels Office Market
• Outlook 2022 for the Regional Office Market 
• Look back at 2020 and the outlook for the office market in Belgium in 2021
  

December 2022

A look back at 2022

After two years of ups and downs, marked by the COVID-19 pandemic in 2020 and improving economic activity following the post-crisis rebound in 2021, one might have expected somewhat 2022 to be a regular year. 2022 was an unusual year from every point of view yet. The Russian invasion of Ukraine had significant repercussions on both the world and local economies. Continued high inflation and soaring energy prices are affecting our lifestyles and consumer habits. 

The commercial real estate market is no exception, growing inflation and energy prices continue to influence the future real estate landscape. So, let’s examine 2022 and its influence on the Belgian office market.

In Brussels, a decreasing take-up…

This year, take-up in the Brussels-Capital Region totaled just over 300,000 sq m, a 30% decrease from the five-years’ annual average (± 400,000 sq m). Despite the declining take-up, the amount of transactions remained constant, indicating a still dynamic market based essentially on space reduction by most of the occupiers. 

In 2022, just like in previous years, the offer on the sublease market has risen. In order to adapt to their workers’ new way of working and to prepare for a significant indexation of their leases, many companies have opted to minimise their surfaces. As a result, the vacancy rate has increased overall this year, and is now at a level of 8%. 

According to Maximilien Mandart, Head of Occupier Services, “Every year, the proportion of firms conscious to the environmental concerns grows and this is reflected in their real estate strategy.” In addition, record inflation due to the conflict in Ukraine is raising concerns about high indexation of rents, which is why occupiers are opting for smaller but more sustainable office spaces. As a result, despite the low take-up rate, prime rents increased to a record level of €340/sq m/year in the Brussels office market due to the lack of high-quality assets.

Remote-working has become a new way of working since the COVID-19 pandemic. However, companies are focusing on employee wellbeing through appealing facilities, and placing a strong emphasis on ESG requirements to bring back their workforce on site. 

… but a record investment market

In contrast to the occupational market, the Brussels investment market is performing at record levels despite the challenging economic conditions. The exceptionally large volume recorded this year did not reflect anything about the market’s present state, confirmed Michael Despiegelaere, Head of Capital Markets. More than €2.5 billion have been invested in 2022, mainly boosted by the closing of large transactions. A large portion of the amount invested this year is the outcome of previous negotiations. 

However, the commercial real estate market began to adapt to this challenging economic climate at the end of the year, and Brussels is experiencing longer and more difficult transactions, a growing gap between asking and offering prices, and transactions repricing. As a result, prime yields have been revised upwards to a level of 4.10% at the end of the year, from 3.60% at the start.

The Regional Office market 

2022 began with the lowest take-up in the first quarter, since the pandemic. It was able to achieve a robust take-up in the following quarters. The take-up of the Belgian regional office market has decreased from 307,000 sq m in 2021 to respectively 269,000 sq m (-12.35%). Furthermore, the market witnessed a 23% decrease from the five-year’s annual average (±350,000 sq m). The number of transactions also slowed down due to the same reasons as the Brussels office market. 

Although the overall take-up has decreased, Flanders remained robust (238,000 sq m). For example, Mechelen saw an sharp increase of at least 25%. Additionally, the Antwerp Office market witnessed an increase of 8%. The other major Flemish cities witnessed a decrease of approximately 25% (Ghent and Leuven). 

On the other side of the country, Wallonia witnessed its quietest take-up since 2015 with 31,000 sq m. The major cities, such as Charleroi and Liège, witnessed decreases from 2021 to 2022 with 50% an 70% respectively. Only Namur’s take-up witnessed an increase with 50% compared to 2021.

Take-up by regions

Shifting trends in the regional office markets

The demand in Flanders can be roughly characterised as existing occupiers on the market who are in search of high-quality offices. The overall take-up in Flanders accounted for more than on third (35%) in Grade A offices. This demand is mainly stimulated by companies’ ESG requirements which will allow well-located prime products to face no difficulties in terms of availabilities issues. 

The prime rents in Wallonia witnessed a significant pressure from the Grade C offices. The prime rent remained stable at 160 €/sq m/year. Whereas in Flanders, due to the demand of Grade A offices and the lack of immediate availability in future-proof developments, the prime rent increased from 165 €/sq m/year to 170 €/sq m/year.

Prime rents by regions

Increasing interest to increase in uncertainty

Although the occupational market was slower than previous years, the Regional investment market has performed strongly compared to previous years. More transactions were recorded compared to 2021, which resulted in an investment volume of nearly €400 million. 

As mentioned in the Brussels’ office market, the commercial real estate market began to adapt to these challenging conditions. A widening gap between asking and offering prices, which led to transaction repricing, resulted in an increase of the prime yields since the beginning of 2022. The prime yields increased from 5.25% to 5.60% (+35 bps) in Flanders and in Wallonia, the prime yield witnessed an increase of 25bps (from 7% to 7.25%).

Investment volumes by regions

Prime yields by regions

Outlook 2022 for the Brussels Office Market

  Sustainability is now mandatory

Green building really kicked off in the recent years. Now, it has gone crucial, and many expect a certain amount of sustainability in their buildings. “We’re at a place where science is telling us to take action and the financials are telling us it’s doable” said Marta Schantz, senior vice president for the Greenprint Center for Building Performance at the Urban Land Institute . Recent events may bolster such developments, with the coronavirus pandemic confirming interest in these sorts of healthy workplaces.

Environmental certification and the circular economy are now unique selling points for both owners and occupiers. These factors will reshape profoundly the Brussels office market as outlined below.

  Investors are attracted by both ends of the risk spectrum

1. On the one hand, with sustainability now crucial, investors will refocus on Core and Long-Term Core products, i.e., buildings of the highest quality, well connected to transportation hubs and offering secured cashflows. Additionally, “Long-Term Core assets are a hedge against inflation”, confirms Michael Despiegelaere, Head of Capital Markets.
2. On the other hand, redevelopment assets could represent another important part of the future invested volumes in 2022. Next to complete redevelopments, investors and developers look to create value by renovating older schemes to new ESG standards with the latest environmental certifications.
   
    

Outlook 2022 for the Regional Office Market

 New quality offices will continue to drive take-up in Flanders

It is fair to expect 2022 to be an improvement on 2021 in terms of take-up in Flanders, "But, says Nathan Claessens, this will hinge on supply and the quantity of quality products on offer." We have often been beating the drum for the creation of new offices when timely and appropriate, as they usually meet demand from occupiers. This remains the case for Flanders in 2022 according to Nathan Claessens, although factoring in current availability and occupiers' ESG requirements, such as soft mobility solutions (e.g., access to public transport) is a must. 

• In Antwerp, Flanders' largest market, there is definitely supply (which may nevertheless be overtaken by strong demand). Indeed, many occupiers are looking for square metres - as opposed to a handful of large occupiers driving demand. 
• In Ghent, aside from some spaces in recent buildings such as Blue Towers being vacated, and perhaps some recent modestly sized office developments, not much else in terms of Grade A is immediately available on the market. There are nevertheless also a certain number of grey spaces (floors available for sublets) available.
• In Mechelen, some large new projects are underway, with many pre-lets already registered (although not yet publicly). 
• New and future supply Leuven is not abundant, although some spaces will be freed by occupiers moving within the market itself.

 A year of transition ahead for Wallonia

Stéphane Moermans: "A straightforward year is expected in Wallonia, with no major emerging trends expected to play a part. Much as in 2021, the Walloon authorities, (an important source of demand on the Walloon office market) will play a limited role, save the odd transaction which did not materialise in 2021, most notably the AVIQ-Famiwal move expected in Charleroi. Some deals involving the Federal Building Agency are a possibility, on the back of its new acquisition strategy, which resulted in its purchase of the Cadastre building in Mons, late 2021. However, no further transactions of this ilk are mooted thus far in Wallonia."

With the absence of large deals on the horizon, Stéphane Moermans recommends that developers focus on turnkey- rather than speculative projects currently and probably until the 2024 elections when new public sector occupation strategies may emerge. Bolder developers insistent on launching projects should focus on smaller, more flexible spaces, possibly integrating other functions such as residential units. Accessibility, however, is not a key requirement, as few occupiers from the private sector in Wallonia are intent on shifting to soft mobility exclusively. Indeed, ESG considerations are yet to significantly impact the Walloon office market landscape.

Notable speculative projects Flanders and Wallonia
(over 5,000 sq m, and with available spaces remaining)

 Satellite offices and coworking partnerships

 Time for Belgian real estate to harness strong R&D potential

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
- Collaboration
- 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

¹ See particularly Workplace Ecosystems of the Future
² See Workplace Ecosystems of the Future, p. 10. 
³ Based on the annual rankings published by Expertise News External Link on 14^th January 2021