Office property upturn boosted by big moves

The European Parliament’s Konrad Adenauer building was the biggest deal of the first half of 2021 Photo: Matic Zorman/Maison Moderne

The European Parliament’s Konrad Adenauer building was the biggest deal of the first half of 2021 Photo: Matic Zorman/Maison Moderne

The first half of the year was marked by more take-ups and transactions, but beware of the comparison effect with 2020 and the bias induced by a few major transactions.

Between January and June, 271,494 square metres of office space were taken up in Luxembourg, an increase of 136% compared to the same period last year. At that time, lockdown came into force,  which impacted office real estate as large parts of the workforce began working from home.

Large-scale transactions decided before the global pandemic boosted the results for the first half of this year, JLL Luxembourg said in a report published on Wednesday . These include the European Parliament's 148,000 square metres offices in the Konrad Adenauer building in Kirchberg, but also the pre-letting signed by Post for 27,770 square metres in its new headquarters opposite the railway station. The publications office of the European Union signed for 18,000 square metres on Rue Mercier.

Excluding the European Parliament transaction, the half-year results are less impressive, the real estate agent said, acknowledging in a press release that “occupancy activity remains below normal, but is significantly better than in 2020.”

Vacancy down and rents stable

The vacancy rate is down to 3.7% from 4.0% at the end of 2020. Luxembourg remains well below the European average of 7%. The level of rents has stabilised at €52/month/m2 excluding VAT in the Luxembourg City centre, which remains the most expensive district, far ahead of the Gare and Kirchberg (€38), Cloche d'Or (€33.50), the periphery (€22.50), the belt outside the motorway that bypasses the capital (€28.50) and Belval (€24).

"Rents could increase slightly in the second half of the year in the Cloche d'Or, while the other districts will remain stable,” JLL Luxembourg said.

The agency observed a contraction in prime yields to 3.5% at the end of June, compared to 3.75% three months earlier. The investment market slumped by 24% year-on-year in the first half of the year, marked nonetheless by a few large-scale operations.

These include the sale of the H2O building in Howald (28,000 square metres) to the American investment fund Lone Star, as well as the former Renault dealership at the Cloche d’Or to Atenor with a building potential of 30,000 square metres.

It should be noted that 183,000 square metres of space was delivered in the first half of this year, six times more than a year earlier, when construction was halted by the pandemic.

This article was first published in French on Paperjam. It has been translated and edited for Delano.