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More firms are setting up or expanding operations in the Grand Duchy, and building development continues apace. But the market will remain tight.
Construction cranes are everywhere when you scan the Luxembourg City skyline. Where is the demand coming from for these new constructions, and what is the outlook for the commercial property market?
It’s easy enough to find office space for 30 to 50 people anywhere in and around Luxembourg City. However, operations bigger than that could have to wait six months before an acceptable property comes on the market in a more or less central location.
Where is the demand coming from?
There is about one percentage point more capacity this year than last, thanks to the on-going building work. But where is the demand coming from? Financial and professional services businesses have accounted for the majority of transactions in Luxembourg in recent years, said a recent report by the estate agency JLL Luxembourg. Yet there is also a general drive to increase activity in the Grand Duchy, to a large extent due to international efforts to clamp down on tax avoidance through shell “letterbox” companies employing few people.
“International businesses that have had a presence in Luxembourg for many years are increasing their activities here to create fully operational business units,” explained Romain Muller, managing director of JLL Luxembourg. Muller estimates that up to a quarter of recent commercial real estate transaction growth is directly linked to this trend which has been gathering pace in recent years.
What is the outlook? Muller said that the shortage of medium-sized first grade properties in central districts will decrease, and vacancy rates will remain at about the current level. There is a lot of talk about UK-based businesses pre-empting Brexit uncertainty with a quick move to the EU27, but little has happened yet. Muller said he had received half a dozen related inquiries. However, he points out that places like Luxembourg or Dublin might not have the spare office capacity for a major relocation readily available. A dedicated building project would need to be undertaken. However, Frankfurt, Paris or Amsterdam all have a good supply of decent quality space, he said.
The large Ban de Gasperich project in the Cloche d’Or is the biggest growth area at the moment. Builders are converting these fields into a mixed-use area. A quarter of the planned 1,000 homes are currently being built, with most already sold. Work has started on the shopping centre. It will have 120 new retail units (double the current total of the Kirchberg mall) as well as an Auchan supermarket (this will be a similar size to that on the Kirchberg). A new French language school is also planned, and much of this site will be for offices.