At the end of 2013, the level of office take-up was 340,330 sq m, which represents a significant decline in comparison with the annual average for the past five years (441,000 sq m).
As any exit from the financial crisis is indecisive at best, this has led to two types of behaviour which have caused the market to decline in volume:
• cautiousness has significantly slowed the strategic decision-making processes in real estate
• organisations are rationalising and seeking greater efficiency; when a company relocates, the occupants of offices take advantage of the move to maximise the use of space by reducing the total floor area occupied
This over-cautiousness in particular is causing transactions to dry up. Volume is in the bracket from 1,000 to 3,000 sq m (see graph below), which is where the market’s real dynamic lies. These medium-to-high volume transactions usually represent a large proportion of the total volume, but are lacking this year.
Two outstanding take-ups saved 2013 from a significantly worse result: AXA (combined 49,000 sq m Marnix + Régent) and Deloitte (34,000 sq m, Gateway Zaventem). If these two are taken out of the equation in view of their exceptional nature, 2013 actually saw a net fall in the proportion of take-ups from the private sector, in contrast to take-ups from the public sector (Belgian and European), to around 45%, compared with the usual 60-65%.
One striking observation is the percentage of renegotiations across all of the lease transactions published. This ratio is currently over 25%, a level only exceeded over the past 13 years in 2010. These numerous renegotiations, resulting from increased rationalisation, tend to cannibalise part of the potential take-up. Taking non-published renegotiations into account, we estimate it is even probable that this percentage exceeds 50% of lease transactions.
The main trends currently emerging from the office property market are as follows:
• conversions of office buildings into residential buildings, hotels, retirement homes. In 2013, we complied a list of nearly 180,000 sq m of advertisements for conversions of this type across Brussels, and almost 590,000 sq m since 2011. It is striking to note that more and more districts are seeing the value of investments per m² in residential projects exceed the value of office developments. These conversion projects are to be found in particular along the green belt (Chaussée de La Hulpe – Bld du Souverain), with examples at 130 & 154 Chaussée de La Hulpe and 2 Bld du Souverain. Over time, this will make the office buildings remaining in this district increasingly scarce.
• from a town-planning point of view, the authorities are veering away from the principle of single-function districts (such as offices in the Leopold district), instead advocating mixed usage in new developments (retail, residential, offices, crèches, etc.).
• The recently adopted Brussels Code on Air, Climate and Energy Management, known as “COBRACE”, features new constraints on the number of parking spaces authorised for each office building. Over time, this could represent a disadvantage in terms of accessibility vis-à-vis the outskirts of the city if employees continue to favour the use of cars.
• There have also been fewer comments this year about environmental standards along the lines of BREEAM. Even though any new development is still required to incorporate a degree of environmental thinking, the attention paid to these forms of certification appears to have lessened this year for office buildings in Brussels and Belgium as a whole.
At the present time, large spaces of modern, high-quality offices have become few and far between in Brussels. Vacancies, which have declined slightly in recent years and currently represent 10% of stock, are located mainly on the outskirts of the city and are in older buildings that are out of date from a technical point of view. Large-scale, forward-commitment developments are becoming rare, which allows us to forecast that this stable-to-downward trend in the vacancy rate will continue.
The main developments currently underway are:
• Black Pearl
• RAC / Belair
• Silver Tower
• Régent 34
We believe that these major developments, coupled with the deferment of decisions from previous years and the succession of relocations they might generate, could make 2014 a year of beginnings, with 2015 the year in which offices in Brussels are really roused from their slumbers.
Outside Brussels, the take-up rate is also below average, except for the market in Ghent, where we have seen over 50,000 sq m of offices leased or purchased for own use.