Belgium PropertyInsight

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January 2012

Belgium PropertyInsight News and trends in the Belgian property market

January 2012

January 2012

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I Belgium PropertyInsight

ECONOMICS

PROPERTY INVESTMENT IN 2011 

4

OFFICES IN BRUSSELS

8

Economic indicators for Belgium 2006

2007

2008

2009

2010

2011 (e)

2012 (e)

GDP growth

2,8%

2,9%

1,0%

-2,9%

2,3%

1,0%

0,2%

Domestic demand

2,4%

3,1%

2,3%

-2,0%

0,9%

2,3%

0,8%

10

REDEFINING WORK SPACE

12

Exports

5,0%

4,5%

1,5%

-11,3%

9,9%

5,5%

1,7%

THE REGIONAL OFFICE MARKETS

14

HICP

2,3%

1,8%

4,5%

0,1%

2,3%

3,5%

2,4%

LOGISTICS IN BELGIUM

16

Health index

1,8%

1,8%

4,2%

0,8%

1,7%

3,1%

2,4%

Unemployment rate

8,3%

7,5%

7,0%

7,9%

8,5%

6,9%

7,0%

2006

2007

2008

2009

2010 (e)

2011 (e)

2012 (e)

THE SEAPORT-HINTERLAND INTERACTION

THE BELGIAN RETAIL MARKET RETAILERS ON RETAIL IN BELGIUM

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OFFICE RECONVERSION

Belgium PropertyInsight

TABLE OF CONTENTS

18

20

Economic indicators for EU-27

22

GDP growth

3,2%

2,9%

0,8%

-4,1%

1,8%

1,5%

0,5%

ELDERLY HOMES

24

HICP (change)

2,2%

2,1%

3,3%

0,3%

2,0%

2,6%

1,7%

THE RESIDENTIAL MARKET

26

Unemployment rate

8,2%

7,1%

7,0%

9,1%

9,6%

10,0%

10,1

Financial indicators 2006

2007

2008

2009

2010

2011

Euribor (3 months)

3,72%

4,68%

2,89%

0,70%

1,06%

1,36%

OLO (10 years)

3,81%

4,33%

4,42%

3,90%

3,46%

4,07%

2006

2007

2008

2009

2010

08/2011

Issued residential permits (number of units)

61.155

53.992

52.059

45.289

49.683

27.415

ABEX index (construction costs)

635

660

694

670

690

705

Construction indicators January 2012

SOURCE: BNB, OCDE, GDSEI, CE, CBRE

was significantly higher than previous years, registering a 45% increase in turnover as compared to 2010. A new trend since the end of the summer has been an increase in the amount of investment product coming to the market. It is coming from a variety of sources; German Open-ended Funds, Banks, Belgian Reits or just investors looking to capitalize on recent gains in capital value for core products.

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Belgium PropertyInsight

PROPERTY INVESTMENT IN 2011

YIELDS

January 2012

The uncertainty of the macro economic climate has increased in the second half of the year. With what appears to be a lack of consensus from government leaders on how to solve the euro-crisis, the market is extremely apprehensive on possible outcomes. This has resulted in property markets becoming increasingly polarised. Prime real estate in core locations continues to attract the bulk of investor demand, with secondary assets still causing difficulties for investors. Although transactional activity has been stymied by uncertainty in 2011, there has still been considerable interest for Belgian properties. At 1,6 billion euro, direct commercial real estate investment in 2011

Prime property sales are still restricted by a shortage of stock. Investor demand remains strong for these assets, and there is likely to be an imbalance between supply and demand over the short to medium term, as investors continue to look for good quality stock to try and protect themselves from the difficulties seen in the wider economy. As investment liquidity is rather scarce in this market segment, with little product coming online for sale, yield compression has continued. Prime yields for office stock with long-term leases are now trading close to 5% for Belgium. Equity buyers will continue to dominate the market for the foreseeable future and consequently the yield spread between prime and non-prime stock will be at least maintained, and may widen further. The ability to sell secondary properties in a market where liquidity remains constrained

INVESTMENT TURNOVER EVOLUTION 6 bio euros 5 bio euros 4 bio euros 3 bio euros 2 bio euros 1 bio euros 0 bio euros 2001 Offices (Brussels)

2002

2003

2004

Offices (Regions)

2005

2006

Industrial

and demand is purely focused on prime remains very challenging. Yields on property with standard short-term leases have therefore been revised upwards, to for example 6,75% for Office CBD locations or close to 8% for suburban office properties. It is important to stress however, that these yields are being derived in the absence of transactional information. Retail continues to be seen as a safe haven. Investor appetite for prime stock remains undiminished. While yields for highstreet retail have remained stable at 4,5%,

2007 Retail

2008

2009

Leisure & Hotels

2010

2011 Residential

further yield compression has been noted for both shopping centers and retail parks. Unfortunately for investors, the appearance of prime shopping centres and retail parks is a rarity. When they do appear, they invariably change hands at a premium.

FINANCING Throughout the first two quarters of 2011, the lending market was fairly robust. Activity levels were seemingly picking up, although

As a result, there has been some increase in lending margins and tightening of other lending terms, due to reduced competition. However, there are some positives signs being seen from certain lenders. The current wording of Solvency II appears to incentivise insurance companies to provide senior debt to commercial real estate. Achievable margins are increasing, and both individual lenders and debt funds look set to take advantage of this increase in the short term.

ASSET ALLOCATION

Description

2007

2008

2009

2010

2011

Offices

CBD (standard lease)

5,40%

6,50%

6,25%

6,25%

6,75%

Offices

CBD (long-term lease)

4.75%

5,75%

5,50%

5,20%

5,00%

Offices

Suburban (standard lease)

6,25%

7,50%

7,50%

7,50%

7,75%

Logistics

Modern facilities on logistic corridors

6,00%

7,75%

7,50%

7,25%

7,25%

Retail

Highstreet retail

4,50%

5,00%

4,75%

4,5%

4,50%

Retail

Shopping centers

5,00%

5,75%

6,00%

6,00%

6,00%

Retail

Retail warehouses

6,00%

6,75%

6,50%

6,25%

6,25%

Residential

> 100 units

-

-

5,00%

5,00%

5,00%

Elderly homes

-

-

-

-

6,25%

5,75%

Hotels

-

-

-

-

6,50%

6,25%

Investors were reluctant to look further away from core assets in light of the uncertain economic outlook and invested mostly in the traditional and less risky sectors.

Offices Office investment was in line with 2010, with 824 million euro of office property changing hands. Prime office buildings with long lease lengths remain the most soughtafter asset sub-class. Investment volume for Brussels offices suffers from a lack of good-quality product on sale and the illiquidity of buildings at standard lease lengths. The most notable investment transactions on the basis of long leases and strong covenants were: • the acquisition by Befimmo of the

Pavilion in the Brussels Leopold Area, let to the European Commission for 15 years; • the acquisition by Swiss Life of the Renaissance Green Building in the Brussels City-Centre, multilet on a 15- and 21-year basis, and; • the acquisition of 7.000 m² by Ethias in the UpSite development scheme in the Brussels North Area let to the Smals for 27 years. All these transactions took place at yields close to 5%. A number of deals concerned leases of 12 years like for example the Brussels Guim’Arts, acquired by iii Investments or the acquisition of the Drapiers 17-23 by Intégrale. These transactions were secured at yields between 5,25% and 5,50%. Transactions on office buildings with shorter leases were scarce, as interest in this kind

A rare sample of prime properties at standard lease lengths might still be valued at 6% to 6,25%, but this is no longer the case for the majority of goodquality buildings. Economic uncertainty, rental corrections, and an overall higher vacancy rate complicate the valuation of the risk premiums. Well located short-lease properties therefore tend to trade at 6,75% or higher. Similar office buildings in the more cyclical suburbs and buildings with voids continue to be virtually untradeable at the moment. In the absence of liquidity in some suburban office markets, the only realistic buyers of these investment properties at present are occupiers or developers. A growing trend is the conversion of offices to alternative uses, and has gained momentum over the last few years. The recent build-up of office redevelopment schemes into alternative use is rather substantial, and has contributed significantly to the recent tightening of office voids in Brussels. The reason for this trend out of office space is mainly related to rising structural voids in some business districts. Office investment activity in 2011 was driven by a number of deals in regional cities. Similar to Brussels, investment was characterized by the stiff competition for core office products resulting in a strong yield compression for long-term secured cash flows.

January 2012

The sector breakdown of investment during 2011 reflects a reversion to norm, with office activity accounting for the largest proportion of Belgium investment volume. Long-term income-producing properties attracted the most interest from investors.

Asset class

of assets continues to be limited. As such, the few transactions that took place were valued at a serious discount, with yields ranging from 6,75% to 7,50%.

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This is in addition to the ongoing strategies of international lenders to focus on their home markets or to hold on new property financing completely for a while. Most of these banks are unlikely to return significantly to the lending market in the medium term.

Indicative yields for prime properties on prime locations

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mainly confined to prime/core real estate. As Augusts’ events unfolded, with renewed fears over Europe’s sovereign debt and weakening economic outlook, a significant shift in sentiment was noted. Alongside an already cautious lending attitude and ongoing restructuring within the banking sector, some lenders became even more conservative.

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Notable transactions in the regions for 2011 are: • the acquisition by Dexia Insurance of the KAM-Building in Bruges, let to the Belgian state and Belgian Railways for 27 years; • the acquisition by Intégrale and Ogeo of the Corpernicus building in Antwerp, let to the VDAB for 18 years, and; • the acquisitions of both the City Link in Antwerp and the Stephenson Plaza by Mercator Verzekeringen. Both buildings are leased to multiple occupants at predominantly standard lease lengths. For the first time in history, investors seem to value properties in Brussels and in regional Belgian cities at comparable risk premiums. This seems to be true for both long and short lease lengths. Some regional cities, that boost healthy void rates, might have even become more expensive than Brussels in terms of yields or maybe even less illiquid for shorter leases.

“

“

Investors seem to value properties in Brussels and in regional Belgian cities at comparable risk premiums.

January 2012

Retail At a time when the economic outlook is expected to remain fairly flat and uncertainty persists, prime retail continues to perform well. Prime retail is viewed as a good defensive product, with its share of

yield of 5,6%, and • AG Real Estate acquired the 37.450 m² Westland Shopping Center in Brussels for 80,75 million euros.

the overall commercial investment market reporting a gradual increase. Over 438 million euro have been invested in retail in Belgium in 2011. A decent amount of highstreet retail transactions and retail

129 million euro was invested in highstreet retail, with a handful of wealthy private

MOST NOTABLE INVESTMENT transactions IN 2011 Date

Building(s)

Acquired by

Asset class

Estimated price

12/2011

Westland (Brussels)

AG Real Estate

Retail (shopping center)

80.750.000 euro

12/2011

Carrefour Logistics (Nivelles)

AG Real Estate

Industrial (Logistics)

50.000.000 euro

12/2011

City Link (Antwerp)

Mercator Verz.

Offices (regions)

63.000.000 euro

12/2011

Veldstraat 47-49 (Ghent)

Groep Tans

Retail (highstreet)

44.000.000 euro

12/2011

Galeries St-Lambert (Liège)

CBRE Global Investors Retail (shopping center)

100.000.000 euro

12/2011

Motel One (Brussels)

Union

Leisure & hotels

50.000.000 euro (based on a purchase option)

10/2011

T-Forum (Tongeren)

Retail Estates

Retail (suburban)

32.000.000 euro

8/2011

Regency (Brussels)

Family Boone

Offices (Brussels)

30.000.000 euro

8/2011

Meeûs 35 (Brussels)

Deka Immobilien

Offices (Brussels)

30.000.000 euro

6/2011

KAM (Bruges)

Dexia Insurance

Offices (Regions)

124.000.000 euro

5/2011

Montoyer-Science (Brussels)

Hesse Newman

Offices (Brussels)

50.000.000 euro

4/2011

Guim'Arts (Brussels)

iii Invesments

Offices (Brussels)

30.000.000 euro

2/2011

Renaissance (Brussels)

Swiss Life France

Offices (Brussels)

40.000.000 euro

2/2011

The Pavillion (Brussels)

Befimmo

Offices (Brussels)

80.000.000 euro

1/2011

Nerviens 85 (Brussels)

RREEF

Offices (Brussels)

30.000.000 euro

1/2011

Copernicusgebouw (Antwerp)

Intégrale + Ogeo

Offices (Regions)

27.000.000 euro

warehouse transactions were registered, but investment volume was mostly influenced by 2 shopping centre deals. • CBRE Global Investors acquired the 35.000 m² Galeries St-Lambert (Liège) for 105 million euro at a

investors eyeing this particular market segment. Prime highstreet units in the largest Belgian cities now trade at 4,5%, underpinned by the strong occupational market and the ongoing expansion of international retailers. Most notable transactions concern the acquisition of a

number of retail units along the Veldstraat in Ghent by Tans Groep for 44 million euro and a similar acquisition in Bruges by Athelean for 25 million euro. Investment activity in retail warehouses was largely dominated by one player, Belgian REIT Retail Estates. Retail Estates acquired a number of standalone units and 2 modern retail parks currently under development, being the T-Forum in Tongeren (32.000 m²) and the V-Markt in Bruges (12.000 m²).

Industrial Supported by a recovering occupational market, the demand for industrial space and logistic centres in Belgium remains firm. Transactions of industrial assets amounted to 157 million euro. The low investment volume was mainly the result of a shortage of prime well-let properties available for sale. In addition, investors are extremely demanding in terms of property specifications and still require a significant risk premium for this highly cyclical asset class, especially given the economic uncertainty. Most notable deal of the year was the acquisition of the 80.000 m² Carrefour distribution centre in Nivelles by AG Real Estate for 50 million euro. Belgian REIT WDP acquired the 78.000 m² Betafence distribution centre in Kortrijk for 16,3 million euro. Other Belgian REIT Intervest acquired a number of logistic centers in Oevel, Houthalen en Huizingen over the course of the year.

Elderly homes A total of 132 million euro was invested in the Belgian elderly homes market. Especially Cofinimmo and Aedifica have built huge portfolio positions in this market segment. Other notable players are financial institutions and insurance companies such as KBC, Ethias and Ageas. Nursing homes are popular investment assets. Investors appreciate the high occupancy rate (often 100%) and the longterm, secured cash flows (lease contracts of 27-30 years). Elderly home properties trade at yields of 5 to 7%. Recent deals by insurance companies have happened at yields in between 5,5 and 6%, while REITs are generally seen in transactions above 6%.

TYPE OF INVESTORS

Investment volume per Investor origin

Investment volume per Investor TYPE

2011 (in euro)

2011 (in %)

2011 (in euro)

2011 (in %)

Belgium

1202113336

73,82%

Belgium

1202113336

73,82%

Germany

241500000

14,83%

Germany

241500000

14,83%

USA

100000000

6,14%

USA

100000000

6,14%

France

40000000

2,46%

France

40000000

2,46%

Middle-East

29000000

1,78%

Middle-East

29000000

1,78%

Others

15761538

0,97%

Others

15761538

0,97%

their attention largely on prime assets in Belgium, where they are now facing less competition. Foreign investors are still keen to invest in Belgium, and all of their interest is focussed on prime office and retail opportunities. But at the moment, domestic investors are often more aggressive and have scooped up most of the prime property deals. Most active foreign investors were the Germans, although overall they have been net sellers in 2011.

Insurance companies and pension funds Belgian and European insurance companies and pension funds were highly active in the market, accounting for an investment volume of 522 million euro in 2011. These

in regional cities. Mercator Verzekeringen took an alternative approach, with the acquisition of 2 larger office buildings at standard lease lengths. AG Real Estate was active in retail and logistics.

Belgian REITs After cleaning up their balance sheets in 2009 and 2010 through a series of refinancing operations and capital increases, Belgian REITs made a significant return to the market in 2011. They invested a total volume of 354 million euro, becoming one of the major purchasers of Belgian real estate in 2011. While they seem to be net sellers when it comes to office space, they were dominant buyers in market segments such as elderly

homes, out-of-town retail and industrial space. Most active REITs were Cofinimmo, Befimmo, WDP, Aedifica, Intervest, Home Invest and Retail Estates.

Private investors Private investors accounted for 314 million euro in transaction volume in 2011, mostly direct transactions. Private investors focussed mainly on retail, with both highstreet retail and out-of-town retail being of interest. A few other wealthy individuals were noticed to buy smaller office buildings in Brussels.

German open-ended funds & Special funds A number of transactions were registered with German open-ended funds on the buying side. Union and Axa Reim acquired hotels, while Kanam and iii investment continued to focus on Brussels offices. Despite these transactions, the German funds were notable sellers in 2011, especially amongst funds which are approaching their reopening deadline such as CS Euroreal and SEB ImmoInvest.

Closed-end Special funds (Property funds) Money continues to be tunnelled into Belgian real estate by a number of Special closedend or property funds. Foreign property funds doing transactions in Belgium were for example AIK and RREEF. These funds typically target the Brussels office market, looking at buildings with weighted average lease lengths of close to 10 years or higher.

January 2012

Most of the investors who have an appetite to purchase Belgian investment assets at present are domestic players. Belgian investors made up 75% of the total invested volume. With many investors struggling to negotiate bank finance, equity investors such

Based on their risk/return-profiles it is likely that these investors will continue to focus

equity players accounted for some of the largest deals on record in 2011, at the most aggressive yields. Ethias, Swiss Life, Intégrale and Dexia Insurance managed to secure nearly all long-lease office transactions in 2011, both in Brussels and

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In total, some 65 million euro was invested in hotels and leisure in 2011. The largest transaction was realized by Union Investment, who acquired (through purchase option) the first Motel One hotel in Brussels, located along the Rue Royale. Motel One will operate a 490-room hotel, which is expected to open its doors in 2014.

as pension funds, insurance companies and a number of wealthy individuals continue to dominate the market.

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Hotels & Leisure

The European district continues to be an area of high activity, with 96.308 m² of transactions taking place here, including the largest deal of the year of 45.945 m² to the European Commission (EEAS European External Action Service) in the Capital building. Other recent transactions include the SPF Justice agreeing terms on 7.625 m² in the Waterside (North Area), the sale of the 9.133 m² Marais 33 office building to HUB (City-Centre) and Etnic leasing 6.300 m² in the Zenith Building (North Area). Overall, there was strong demand coming from the public sector at 98.786 m² as well as the education sector at 27.824 m², which together have accounted for 40% of all floorspace taken in 2011.

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Belgium PropertyInsight

OFFICES IN BRUSSELS

Demand in the Brussels office market was slow, with companies putting strategic location decisions on hold in the current economic climate. While the development pipeline remains flat, voids marginally decreased. The conversion of office space into alternative uses, mostly housing, has lead to older and structural voids being taking offline.

January 2012

DEMAND Take-up across all of the Brussels market in 2011 reached 319.379 m², a 35% fall in take-up as when compared to 2010. This marks the lowest take-up volume for the last ten years. The first half of 2011 in particular has seen a difficult start for take-up in with a total of only 111.661 m². The second half of the year was noticeably stronger.

The corporate sector was far less active in 2011, with especially a lack of larger enquiries. With occupier sentiment across all markets deteriorating in response to a weaker economic outlook, multinational occupiers have been noticed to delay or put strategic location decisions on hold. Despite the ability to negotiate relatively attractive deals, occupiers are likely to delay taking space until there is greater clarity on the macroeconomic picture.

Prime rents and vacancy rates in Brussels

SUBMARKET PRIME RENT VACANCY RATE

DECENTRALISED NORTH-WEST PERIPHERY (AIRPORT) 175 euro/m² 150 euro/m² 24,77% PERIPHERY (WEST) 17,07% 135 euro/m² NORTH 29,64% 195 euro/m² DECENTRALISED NORTH-EAST 155 euro/m² 8,84% CENTRE 18,83 225 euro/m² LEOPOLD 4,84% 285 euro/m² SOUTH 7,50% 185 euro/m² LOUISE 2,04% 210 euro/m² DECENTRALISED SOUTH-EAST 14,19% 175 euro/m² 11,83%

Source of most activity is renegotiations. Occupiers are taking advantage of upcoming break clauses and lease expiries to initiate negotiations with their landlords in order to agree on more favorable lease terms. With little new leasing activity taking place, the key focus for landlords is to retain existing tenants and where possible come to agreements with them to extend their existing lease commitments in order to preserve income streams. Landlords are seen to accept lower headline rents in exchange for the certainty of longer lease terms considering the implications for funding terms.

PERIPHERY (South) 150 euro/m² 13,42%

There is still a sizable amount of space under offer. Available supply has decreased, moving from 1.55 million m² or 11,80% at the end of 2010 to 1.49 million m² or 11,80% currently. While the decrease seems only marginal, the underlying figures have changed dramatically. A significant amount of voids has been taking offline over the last 12 months. Conversion of office space to alternative uses has never been more prominent in Brussels, with for example the Chambon office complex of BNP Paribas (75.000 m²) and the former Solvay headquarters (45.000 m²) being redefined as predominantly residential development schemes. Similar operations have taken place all over Brussels, but especially in those areas with structural vacancy issues.

Voids in Brussels are driven by a combination of new renovated stock being marketed and secondhand space being brought back to

There are only few speculative buildings either currently under construction or expected to start in 2012. The development pipeline in 2012 and 2013 is therefore expected to remain flat, with most developers shying away from office development at the moment. The only exception is likely the Leopold Area, where some construction activity can be observed. A number of heavy renovations or reconstructions are breaking ground here. A substantial development potential for 2014 exists, but is likely non-speculative. This means that it will be delayed into 2015 or 2016, if no occupant can be committed.

RENTS Prime rents in Brussels have remained broadly static, with all the key location prime rents holding steady. Rents and incentive packages for modern office space have likely reached the bottom of the market. Rents on secondary properties, both in terms of location and specification, could however continue to deteriorate, given the underlying levels of vacancy in

Building

Submarket

Floor Area

Type

Occupant

12/2011

Zenith Building

North

6.300 m²

Letting

ETNIC (Communauté française)

12/2011

Marais 33

Centre

9.114 m²

Sale

HUB

12/2011

Central Gate

Centre

3.877 m²

Letting

Fedex

11/2011

Royale 139

Centre

5.490 m²

Sale

CPAS Bruxelles

10/2011

Leopold Square

Decentralised (North-East)

4.588 m²

Letting

Air Liquide

10/2011

Waterside

North

7.625 m²

Letting

SPF Justice

09/2011

Manhattan Center

North

4.890 m²

Letting

Vlerick Management School

09/2011

Verheyden 39

Decentralised (South-West)

8.400 m²

Sale

St-Goedele Brussel

08/2011

Orion Center

Leopold

5.205 m²

Letting

Bruxelles Formation

08/2011

The Capital

Leopold

45.945 m²

Letting

EEAS European External Action Service

06/2011

Winterthur Building

Leopold

4.000 m²

Letting

Euler Hermes

06/2011

Boulevard Baudouin Ier

Periphery (South)

6.700 m²

Letting

BsB

05/2011

Cortenbergh 80

Leopold

4.600 m²

Letting

Embassy of Finland

05/2011

Fonsny 23

South

4.219 m²

Letting

ONEM/RVA

04/2011

Science 14

Leopold

3.657 m²

Letting

Windows on Europe

03/2011

Corporate Village Aramis

Periphery (Airport)

5.358 m²

Letting

Yara

MOST NOTABLE transactions IN 2011

the office sector and the general economic circumstances. As soon as the ongoing Eurozone debt crisis settles and the economic outlook becomes clearer, companies will likely rethink their real estate strategies and more companies are expected to seek alternative accommodation, likely in newer

space-efficient buildings. This could lead to a continued polarisation between rents for prime and secondary office buildings, as new office space gets scarcer and poorer quality second-hand accommodation comes onto the market.

January 2012

In the last 12 months, vacancy rates dropped most substantially in the Leopold Area and the North Area, as a result of a number of larger letting transactions. Voids in other submarkets were largely stable over the year.

DEVELOPMENT

Date

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VACANCY

the market. Of existing available supply, newly completed, Grade A space accounts for just 23% of the total, although large disparities between submarkets can be observed. In the North Area for example, as much as 53% of voids concerns newer buildings.

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The lack of transactions by the corporate sector was the main reason for the lower outcome in terms of take-up in the suburban submarkets. In the Airport area for example, only 35.992 m² of new transactions were registered in 2011.

converted in housing, elderly homes, hotels or schools.

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OFFICE RECONVERSION

January 2012

The conversion of commercial and industrial buildings to alternative uses such as residential space is not a recent idea. The trend has been seen since a couple of decades. Especially the reconversion of older industrial sites has been a widespread phenomenon. Today, also modern vacant office space is being converted.

The reason for this trend out of office space is mainly related to rising structural voids in some business districts. The conversion of office space used to be unthinkable since office properties were substantially more valuable than most other asset classes. But times have changed. Office voids have risen sharply since the financial crisis in 2008, and office values have consequently taken a hit. Especially empty office buildings or buildings in cyclical office districts have lost much of their value. And with most investors looking for safe and long-term secured cashflow, empty office space has become virtually unsellable in its current form. Values for other asset classes such as housing or elderly homes, on the other hand, have been largely unaffected by the financial crisis. Both asset classes have in fact gained value over recent years, as demand for these properties in most cities is substantial.

SOFT PROPERTY DOING WELL

STRUCTURAL OFFICE VOIDS

Reconversion of office space has definitely gained momentum over the last few years. The recent build-up of office redevelopment schemes into alternative uses is rather substantial, and has contributed significantly to the recent tightening of office voids in Brussels. Over the last 3 years, over 300.000 m² of office space has been

Voids in Brussels have risen from 9% in 2008, up to nearly 12% in 2011. Some local office clusters are experiencing voids of up to 35%, which often concerns structural long-term vacancies. In Brussels, this is mostly the case for a number of suburban office clusters, which are typically facing problems such as a lack of public transport,

fiscal disadvantages or competition from a nearby office district. Reconversion is happening at rapid pace in the Brussels Marcel Thiry and Colonel Bourg office districts. Both are suffering from structural office voids as a result of high office taxes and insufficient public transport. One office building has been transformed into a hotel, while another former office building is currently being operated as an elderly home. Two other buildings in the area are currently being transformed into housing.

NOTABLE OFFICE CONVERSIONS Building

Floor area

Reconverted to

Wafelaerts

9.864 m²

School

T'Serclaes

13.488 m²

School

Marais 33

9.108 m²

School

Plaine 5

10.804 m²

School

Plaine 9

9.173 m²

School

Ariane 1

8.206 m²

Elderly home

Colonel Bourg 128

8.294 m²

Elderly home

De Wand - Janson

8.000 m²

Elderly home

Pléiades 69

7.418 m²

Hotel

Loi 71

13.842 m²

Hotel

Royale 120

14.417 m²

Hotel

Régent 58

3.200 m²

Aparthotel

Clinique E. Cavell 12.500 m² Residential But also mature office markets Livingstone 17.000 m² Residential such as the European District Marcel Thiry 204 8.084 m² Residential in Brussels have recently seen office buildings being Chambon 75.000 m² Residential/Mixed redeveloped into alternative Solvay 40.000 m² Residential/Mixed uses. The European district Toison d'Or 25.000 m² Residential is a dense business district, Cœur d'Ixelles (Electrabel XL) 10.000 m² Residential which lacks mixity and especially housing. Some developers and landlords have identified this shortage, and reckon possible. Reconverting office space is often that conversion to housing or hotels is a not the core business of the landlord holding safer bet in current market circumstances. it in portfolio, and therefore not always an option. Typically, reconversion is done by specialised developers or landlords, active FEASIBILITY OF CONVERSION in either housing, hotels or elderly homes. Conversion is not always feasible or While these developers would prefer to

Most office space is well located, and therefore simply too expensive to acquire for reconversion purposes. Also factors such as neighbourhood, accessibility, visibility, orientation, interior daylight and parking space do not always favour alternative uses for the building. These differences are sometimes hard to overcome. In a lot of cases, only the concrete structure of the buildings, the stairways and the lifts can be maintained. Interior walls, floors, electricity and plumbing typically have to be completely renewed. Even without changing the structure and shell of the building, redevelopment costs quickly add up to 1.000 euro/m². Lost space is another issue. In general, net useable space is 10 to 15% lower for residential buildings as when compared to office space.

CITY-CENTRE REGENERATION

As a result, developers actually have the choice between a number of asset classes based on the most rewarding and less risky exit strategy. This should support further regeneration of city-centre locations across Belgium, with more mixeduse city districts as a result.

RECONVERTED OFFICE SPACE

While the choice to convert an existing office building to alternative use may be the result of individual despair or opportunistic behaviour, the overall trend is definitely well received and appreciated in all cities. While the trend takes a long time to mature, it allows property markets to be auto-regulated in favour of what is in large demand. Over the last years, it has for example definitely helped to constrain a further rise of voids in the Brussels office market, by taking older vacant office space out of the equation.

January 2012

Since the financial crisis of 2008, property values from different asset classes seem to have consolidated. Office space is no longer “king” in terms of property values. As residential pricing has increased

considerably in Brussels and most other cities, the value gap with offices has visibly tightened.

Belgium PropertyInsight I 11

start their projects from scratch, the scarcity of land in dense urban areas has forced them to look at the renovation of existing dwellings. Recent acquisitions of offices for later reconversion have happened at prices in between 500 and 1.000 euro/m², but this strongly depends on the location, renovation or reconstruction costs and the estimated value of the finished alternative product.

tasks. But most employees realise that they don’t really need to be there on a daily basis. The interaction with clients, colleagues and suppliers has changed dramatically over time. Because of technological advances in mobile communication, most employees are able to do their job at any place and at any time.

12

I Belgium PropertyInsight

REDEFINING WORK SPACE

January 2012

Improving mobile solutions could alter the way we do business in our service-oriented knowledge economy. With work becoming time and location independent, offices will evolve to places of gathering, where communication and collaboration take place. Most companies are embracing these new ways of working, yet somewhat hesitantly. Home working is generally allowed on a limited scale, while desk-sharing and clean-desk policies have been implemented in a number of companies.

Most managers in Belgium still prefer to have everyone present on the office floor in order to monitor their presence or activities (input), while the focus should in fact be on the outcome of that work (output). Trust is needed to lead a company solely on output, where employees can decide freely on when and how they perform their tasks. With consultants being on the road, more people working within a more flexible time regime, and others working part-time, the occupation level of a traditional office has substantially decreased over time. On tuesdays, a maximum of 70% of the work places are being occupied. On friday afternoon, this is likely closer to 30%. With more work places being vacant, going to the office is becoming less appealing and somewhat unpleasant. Traditional meetings rooms have an occupation level of only 25% per room, or 12% per seat.

THE TRADITIONAL WAY

REDEFINING WORK SPACE

Most people still go to their office on a daily basis to meet with their colleagues, to be part of a team or to simply perform their

Desk-sharing and flexible work stations are easy options to resolve the issue of vacant work stations. The ideal work spot

can be chosen based upon the reason for coming to work (individual or group, formal or informal). By reducing the number of individual work stations, more space can be dedicated to promote interaction and team-projects. In a traditional office, 75% of space consists of individual working stations. In the modern office, this will only be 50%, with the other half devoted to space where people can interact, discuss

and brainstorm in group. Individual work can be done at home or at the office. Another notable advantage of the new office concept is the ability to reduce office space. By allowing desksharing and reducing the number of work units, companies are able to decrease their office space needs by about 20% without sacrificing comfort.

THE EMPLOYEES OF TOMORROW Generation Y “GenY” is born between 1980 and 1990, and is gradually coming onto the work floor. They grew up in the digital information society. In contrast to previous generations, they are focused on the collective instead of the individual. This generation processes information in a creative and multidisciplinary way. Computers have no secrets, and they have not known a world without mobile phones, credit cards and email. GenY is highly flexible, is accustomed to rapid changes and adapts quickly to new technologies. They have no fear to voice their opinion. Because of the ageing population, they won’t have too much trouble finding a job. From their job, they expect satisfaction and flexibility. Salary and hierarchy are less important. The distinction between

work hours and social life is blurred. While they don’t mind working late or answering emails during the weekend, they expect the same flexibility from their job. Lounge and break-out zones are much appreciated and used. City life suits them well.

GENERATION Z “GenZ” is the group born after 1990. 9/11 is an important milestone in their lives, as norms and values have changed considerably since. Digital is key for this generation, with access from a very young age to mobile phones, interactive game consoles and laptop. These youngsters live and breath social media and multitasking. They are quick, flexible and mobile, but also somewhat impatient. They have an unbridled confidence in the future.

Open communication stairways

Multiple central cores

Large open floor surface

Open vertical connections and atrium

Appealing recognisable entrance Use of outdoor space Seperate ground floor

While employees might worry about losing their fix working unit, they will quickly see the benefits of a more flexible work space environment, certainly in terms of freedom. A similar observation can be made for the employer. It is not easy to shift the business culture from “control and input” to “trust and output”. But the outcome in terms of productivity and employee satisfaction is definitely worth the effort.

The Netherlands and the Scandinavian countries are frontrunners in implementing flexible work space. Here, even some CEO’s have to share desks. The implementation of flexible work space and desksharing is easiest in companies and cultures with an open and flat hierarchal structure. Over the last decade, a number of Belgian companies have changed to a more flexible work space. And it makes sense for Belgium to allow employees more flexible work hours, given its high population density and long traffic jams.

LOCATION Accessibility becomes essential if working becomes time and location independent. By emphasizing the work/ life balance, employees will prefer to work in a dynamic lively environment that combines a number of facilities (supermarket, sports, pubs, ...). While accessibility by car and ease of parking remain highly requested, public transport will become more important.

DEFINING YOUR WORK SPACE Traditional Office

Innovative Office

WAY OF WORKING ■■ Execution and Routine

■■ Knowledge workers

■■ Hierarchical organisation

■■ Network organisation

■■ Based on presence and control

■■ Based on output and trust

■■ In the office

■■ Work can be done everywhere

■■ Individual

■■ Group and project-team

■■ Lack of creativity and knwoledge sharing

■■ Encourages creativity and knwoledge sharing

■■ Clear distinction between work and private life

■■ Work and private life mingle

■■ Desktop PCs and physical archives

■■ Mobile IT Tools and digital archives

BUILDING ■■ Standard office building

■■ Building with own identity

■■ Narrow floors

■■ Large, wide floors

■■ Functional entrance

■■ Social heart and atrium

■■ Elevators and emergency stairways

■■ Open stairways

■■ Functional facilities

■■ Facilties based on communication and interaction

OFFICE CONCEPT ■■ Walled office rooms

■■ Open space

■■ Assigned standardised work spots

■■ Flexible work space that allows for individual work or group interaction

■■ Maximum storage space ■■ No meeting points ■■ 20-25 m² per work unit ■■ 20-25 m² per employee

■■ Highly reduced physcial storage space ■■ Lots of meeting possibilities ■■ 18-22 m² per work unit ■■ 9-18 m² per employee

January 2012

The process is even irreversible. Once employees have experienced a more flexible work environment, they will likely make it one of their key decision factors over potential career changes. Likewise, it can be a huge contributor in attracting younger people to the business. As the babyboom generation will gradually retire, there will be fewer well-educated people around, and attracting a younger generation will not only depend on salary. Generation Y will fit right in.

APPLICABLE IN BELGIUM?

Belgium PropertyInsight I 13

NEW OFFICE BUILDING THAT ALLOWS FOR MORE FLEXIBILITY, INTERACTION AND RANDOM RUN-INS

efficient office buildings, often close to train stations. This has led to a number of large space commitments over the last few years. All that new space is currently being developed or has recently come online, which means that some older, both large and small office buildings are being be vacated in many cities.

14

I Belgium PropertyInsight

THE REGIONAL OFFICE MARKETS

Office take-up in the regional markets has been slow, as companies prefer to delay major real estate decisions. Public sector demand remains an important driver of space demand. While some speculative development is taking place, projects are mostly driven by precommitments and custom -builts.

DEMAND

January 2012

Office take-up in the regional markets has been slow throughout the country. Take-up totals 179.598 m² in 2011, 30% down on 2012. Public sector demand remains an important driver of space demand in regional cities, accounting for 30% of demand in 2011. Both regional and local administrations are centralizing their staff in larger more

Most notable transaction in Antwerp concerns the Province of Antwerp agreeing terms on 14.000 m2 at 87,36 euro/m² in the Mercator Building, along the Desguinlei. The lease will run for from 2013 to 2016, the time the Province needs to redevelop its current headquarters along the Koningin Elisabethlei. The city of Verviers has acquired the 8.700 m2 Belgacom office complex, along the rue Thil Lorrain. In 2012, Verviers will centralise its city administration of 450 people here. A number of buildings spread over the city, currently housing the communal service departments, will be sold. Corporate space demand was muted, with only a few notable transactions taking place throughout the country. In the current economic climate, companies prefer to delay major real estate decisions, while focusing on their core business instead. This has resulted in a multitude of renegotiations taking place. In Leuven, Acerta acquired a 10.000 m2 office building along the Diestsevest and

MOST NOTABLE transactions Date

Building

City

Floor Area

Type

Occupant

12/2011

Archimedes Building

Antwerp

3.224 m²

Letting

Maersk Benelux

12/2011

SkylinE40

Aalst

2.895 m²

Letting

Gates

10/2011

Till Lorrain 6

Verviers

8.700 m²

Sale

Ville de Verviers

08/2011

Mechelen Campus

Mechelen

3.970 m²

Letting

Biocartis

08/2011

Mercator Building

Antwerp

14.000 m²

Letting

Provincie Antwerpen

04/2011

Diestsevest 1

Leuven

10.000 m²

Sale

Acerta

03/2011

Keetberglaan 1b

Antwerp

5.000 m²

Letting

Think Media

02/2011

Het Pakhuis

Ghent

4.200 m²

Sale

Wit-Gele Kruis

EVOLUTION OF REGIONAL OFFICE TAKE-UP 300.000 m² 250.000 m² 200.000 m² 150.000 m² 100.000 m² 50.000 m² 0 m² 2007 Antwerp

Gent

2008 Leuven

2009 Liège

2010 Mechelen

2011 Namur

Others

OFFICE RENTS IN REGIONAL CITIES

Think Media moved from the Antwerp City-Centre to an out-of-town business park, agreeing terms on 5.000 m².

MARKET PRIME RENT ANTWERP 145 euro/m²

ACCESSIBILITY Current railway infrastructure works around the National Airport in Zaventem should considerably increase the business appeal of some regional cities. From mid 2012 onwards, cities such as Ghent, Antwerp and Mechelen will benefit from a direct train link to the national airport at greatly enhanced travel times. What used to take 40 minutes to get from Mechelen to the airport, will now ony be 8 minutes. The increased accessibility to the airport could definitely make regional cities more attractive to companies, which would previously only consider the Brussels periphery as a suitable business location in Belgium. Whether it will ignite a true regionalisation of the corporate office market in Belgium is still to be seen. But office space close to train stations will benefit most.

DEVELOPMENT

ZAVENTEM BRUSSELS 150 euro/m² LEUVEN 285 euro/m² 155 euro/m²

HASSELT 125 euro/m²

LIEGE 130 euro/m² NAMUR 149 euro/m²

Liège. In Leuven, leasing activity is mainly focused on the remaining office space in the Kop van Kessel-lo. For most cities, new projects are however mostly driven by precommitments and custom-builts as developers (and banks) require higher levels of occupancy before breaking ground in the current economic climate.

RENTAL VALUES Rental values for office space remain under pressure across the country. However, because of depleting levels of new office space, there are encouraging signs of rental growth on headline rents in some key locations, provided they are well located and offer good visibility. Overall, incentives

remain reasonable. Prime office space trades at 145 euro/ m² in Antwerp and 135 euro/m² in Ghent and Mechelen. Leuven is the most expensive regional market, with rents up to 155 euro/ m². Space in the Namur Office Park is let at 149 euro/m², while Liège office space is generally cheaper at 130 euro/m².

January 2012

While vacancy rates differ significantly from one city to the other, the existing supply of new office space is generally limited. This has sparked a number of speculative builds at key locations, like for example the Onyx building (12.600 m²) in Antwerp or the continued development of smaller office units in the outskirts of Ghent, Namur or

MECHELEN 135 euro/m²

GHENT 135 euro/m²

Belgium PropertyInsight I 15

close to the train station, as an extension to its adjacent headquarters.

January 2012

16

DEMAND

Despite growing uncertainty about the economy, demand for space in the industrial sector held up well in 2011, with even a number of notable players expanding their storage space in Belgium. With no speculative development, available space has decreased further. Rents remain under pressure however. Periods of economic contraction and falling demand are far from unknown, but it has generally been the case that boom followed by bust gives way to steady recovery. Not this time. The possibility that the economic crisis, which has persisted on and off since 2008 will be very prolonged, introduces an unprecedented degree of uncertainty into corporate decisionmaking.

MOST NOTABLE transactions

Industrial take-up of 989.155 m² was achieved in the Belgium industrial market in 2011. This represents a 34% increase on take-up compared to the previous year 2010. Although take-up in the industrial sector did very well in 2011, some of this

Date

Building

Floor Area

Type

Occupant

12/2011

Kanaalweg (Tessenderlo)

62.064 m²

Sale

Stanley Black & Decker

12/2011

Greinestraat (Hoboken)

16.245 m²

Sale

Econor

12/2011

Greinestraat (Hoboken)

13.934 m²

Sale

Heerenhuis

“

11/2011

Bremenstraat 3 (Antwerp)

10.730 m²

Sale

GHA

11/2011

Canal Logistics (Brussels)

22.256 m²

Letting

Caterpillar

10/2011

Genk Logistics (Genk)

17.307 m²

Letting

Limburgse Distributie Maatschappij

10/2011

De Regenboog 8 (Mechelen)

44.800 m²

Sale

Colim (Group Colruyt)

07/2011

Herentals Logistics II (Herentals)

48.788 m²

Letting

Nike Europe

06/2011

Korte Mate (Gent)

11.950 m²

Letting

SAS Automotive

06/2011

Puurs Logistics (Puurs)

25.547 m²

Sale

Duvel

06/2011

Straatsburgdok-Haven 28 (Antwerp)

12.961 m²

Letting

Pacorini

05/2011

The Bridge Logistics (Willebroek)

16.720 m²

Letting

Damco

03/2011

Liegistics 34 (Milmort)

20.000 m²

Letting

Vincent Logistics

03/2011

Tri-Access (Willebroek)

11.537 m²

Letting

Forlog

01/2011

Vilvoordelaan 118 (Machelen)

12.212 m²

Sale

Ad Coach Service

Transactions in logistic centers over 10.000 m² accounted for 381.765 m², a substantial improvement compared to 2010.

“

I Belgium PropertyInsight

LOGISTICS IN BELGIUM

activity emanates from occupiers focused on rationalizing, centralising and optimizing real estate positions. Although net additional demand took place in 2011 by a number of notable players, cutting operational costs and taking advantage of the ability to negotiate short-term lettings on attractive terms is still a major driver of deals. 3PL players are most sensitive to the considerable degree of business uncertainty which still exists in the logistics market. As a result, they were largely absent in transactions in 2011. Likewise, industrial occupiers were reluctant to make large-scale strategic decisions in light of the prevailing economic uncertainty. Transactions in logistic centres over 10.000 m² accounted for 411.001 m², a substantial improvement compared to 2010. Demand

was dominated by consumer goods. Notable transactions include the sale of a 62.064 m² logistics site in Tessenderlo to Stanley/Black & Decker and the letting of 48.788 m² at Herentals Logistics II by Nike Europe. Likewise, retailers continue to be important drivers of logistics demand with for example the sale of a 44.800

m² distribution center in Mechelen to the Colruyt Group. Demand for smaller semi-industrial space and distribution centers (< 10.000 m²) increased 23% to 578.154 m².

IMPORTANT LOGISTICS ZONES

The Belgian development logistics market continues to be driven by built-to-suit projects, rather than speculative schemes. Given the economic uncertainty, decreased rental values and funding constraints, developers are reluctant to break ground, unless they have secured occupiers for their projects.

A12/E19 take-up: 187.201 m² vacancy: 6,98% prime rent: 41 euro/m²

While available land for logistics and semi-industrial space is rather scarce, especially in dense urban zones, the future development potential is enormous. Over the years, developers and investors have acquired an enormous land bank, good for over 2,2 million m² of space. Given the sustained economic uncertainty, land values have come under downward The market continues pressure. The to be driven by built-tovalue of industrial suit projects, rather than land is higher in speculative schemes. Brussels with very few parcels still available. Prices for land here typically vary from 140 to 220 euro/m². Along the A12 and E19, land values vary between 100 and 150 euro/m². More land is available in both Limburg and Wallonia. Land values in Limburg along the E313 vary from 40 to 85 euro/m², in Liège and in Charleroi from 25 to 45 euro/m².

VACANCY

take-up:165.434 m² vacancy: 2,58% prime rent: 41 euro/m²

take-up: 126.715 m² vacancy: 7,21% prime rent: 43 euro/m² LIEGE take-up: 51.650 m² vacancy: 6,40% prime rent: 39 euro/m²

remains vacant with virtually sizeable space left at the moment.

no

Dissection of the availability figures reveals that new space has seen a larger decrease in availability than second-hand space. The overhang of older industrial accommodation will take longer to erode, which will continue to impact on rental values for this segment.

RENTS

conditions, both on prime and secondary accommodation.

Rents for prime industrial buildings continue to be under pressure, although the gap between rents for prime and secondary buildings has widened over the course of 2011. Tenants continue to negotiate very favourable terms and

The scarcity of modern accommodation will ultimately see rental values for prime buildings hardening, despite the relatively low cost of secondary accommodation.

January 2012

With no new speculative industrial accommodation due for completion for the foreseeable future, the quantum of available quality accommodation will continue to decrease. In the popular A12/E19 submarket, voids have decreased from 9,61% at the end of 2010 to 6,98%. Likewise, the Liège submarket saw voids decrease from 12,67% to 6,40%. In the E313 submarket, only 2,58%

E313

BRUSSELS & PERIPHERY

“

“

Belgium PropertyInsight I 17

DEVELOPMENT

18

traffic in Belgium. Multimodal container transport has grown tremendously over the last decade, as containers provide a more cost-effective handling when changing transportation modes, to for example inland water navigation, road or railway. Of the container traffic handled in Antwerp, 65 percent is transported by road, 29 percent by inland water ways and 6% by rail. The

January 2012

“ Seaports serve hinterlands that run deep into continents. The Rhine-Scheldt Delta houses two of the largest seaports in the world, Rotterdam and Antwerp, and a number of smaller seaports such as Zeebrugge, Ostend and Ghent. These seaports are important European transit point for cargo, and serve as a vital link in logistics supply chains, providing goods to industries and local consumer markets. Belgium thanks its leading role as a logistics property market in great extent to the presence of these seaports and its central location within Europe.

At present, some 50% to 60% percent of all general cargo concerns container

Especially river and canal transport is gaining ground as a result of road congestion.

“

I Belgium PropertyInsight

THE SEAPORT-HINTERLAND INTERACTION

high proportion carried by road can be explained by the short distance most cargo freight has to travel before being stored in distribution centers. From the Antwerp seaport, inland cargo freight only travels 50 km on average before being stored. In Ghent, as much as 45% is transported by inland waterways. While suitable for the largest seaships, Zeebrugge currently lacks an adequate connection with the European inland navigation. The seaport-hinterland interaction plays an increasingly important role in shaping supply chains and logistics solutions. This has led to the development of intermodal corridors by rail and barge and the deployment of inland container terminals. Especially river and canal transport is gaining ground as a result of road congestion. The inland port of Liège is a good example of a nodal point

TOTAL MARITIME CARGO TRAFFIC FOR Belgian SEAPORTS (SOURCE: Vlaamse havencommissie) 80.000.000 tons 70.000.000 tons 60.000.000 tons 50.000.000 tons 40.000.000 tons 30.000.000 tons 20.000.000 tons 10.000.000 tons 0 tons 2004 Antwerp

2005

2006 Ghent

2007

2008

2009

Zeebrugge

2010

2011 Ostend

TOTAL MARITIME CARGO TRAFFIC FOR EUROPEAN SEAPORTS (SOURCE:EUROSTAT) 500.000.000 tons

2006 2007 2008 2009 2010

400.000.000 tons 300.000.000 tons 200.000.000 tons 100.000.000 tons 0 tons Antwerpen Zeebrugge Rotterdam Amsterdam Hamburg

Bremen

Le Havre Dunkerque

seaport-hinterland interaction BY ROAD, RAILWAY AND WATER (SOURCE: EUROSTAT, STRALE 2010 & CBRE)

Cargo traffic trough the Belgian seaports is still growing year by year, albeit at a slower pace since the economic slowdown. After a significant decrease in freight traffic in the second half of 2008, the more recent economic slowdown caused cargo traffic to weaken again in the last few months of 2011. The decrease occurred mainly in the container business. The seaport of Antwerp expects to have handled 186 million tons

Economic slowdown caused cargo traffic to weaken again in the last few months of 2011.

“

“

Belgium PropertyInsight I 19

where diverse cargo traffic flows cross. In 2010, Liège handled over 15 million tons of cargo traffic.

of freight in 2011, up from 178 million tons in 2010. Zeebrugge, one of the fastest growing seaports in the Le Havre/Hamburg range, estimates cargo throughput at 47.3 million tons in 2011, down from 49.6 million tons in 2010. Ghent reported to have handled 27.2 million tons in 2011.

Incoming cargo

Inland transport

100 mio tons

by water

50 mio tons

by road

25 mio tons

by train

January 2012

Market shares in terms of maritime cargo traffic for Belgian seaports have increased marginally over the last few years, at the expense of the smaller ports in France and Germany. Hamburg, with its pivotal role in traffic flows to Central and Eastern Europe, has lost some of its market share in recent years. Only Rotterdam has been able to outgrow the Belgian ports in recent years, and is truly developing massive proportions.

some pick-up in lettings, although retailers are mostly unwilling to take space outside very established high streets or shopping centres. As a result, we have seen considerable pressure on rents in secondary and tertiary locations. In contrast, prime rents in the country’s four biggest cities (Brussels, Antwerp, Liège and Ghent) have seen small increases. These probably represent the only areas of the market where the balance of power still rests with landlords.

20

I Belgium PropertyInsight

THE BELGIAN RETAIL MARKET

Newcomers

January 2012

The Belgium retail market holds up well. Retailers are optimistic and continue to expand in key locations. With very little new supply coming through, primary retail unit shortages in highstreets remain. Rental values for prime highstreet retail are stable or rising, while secondary locations suffer. Demand for well-located out-of-town retail parks is strong, but developers are facing increasingly stringent urban planning regulations. The Belgian retail market has once again proven to be a strong and stable one in 2011, with retailers reporting sales no more than one or two percentage points either side of those achieved in 2010. This stability has carried through to the retail property market, where there has been

Overall, retailers have become more careful and opportunistic in their expansion strategies with fewer retailers willing to expand or take space in new schemes. Nonetheless, top retail locations remain highly popular with both newcomers and existing brands competing for a limited amount of retail space. The invasion of Anglo-Saxon retail brands continues, with brands such as Forever 21, River Island and Primark having opened a series of additional stores throughout 2011. New to the market, Hollister is agreeing leases for several shopping centre units at the same time as investigating high street premises that will provide greater exposure for its brand. Hollister’s parent brand, Abercrombie & Fitch, is due to open its first Belgian store, in Brussels.

CONSUMER CONFIDENCE INDICATOR (SOURCE: BNB) 5 0 (5) (10) (15) (20) (25) (30) 2006-12

2007-12

2008-12

Domestic retailing groups have also been active, in particular the female fashion brands Lola & Liza and appel’s, which have been opening stores in high streets, shopping centres and retail parks. Meanwhile Veritas remains in full expansion mode, on the back of continuing strong sales for its mid-priced fashion offer. There is a notable demand for larger retail floor areas in city-centre locations, from both newcomers and existing retailers. For example Primark, Forever21, Marks & Spencer and H&M are actively scouring the market for suitable premises above 2.000 m² GLA on top locations.

2009-12

2010-12

2011-12

High Streets Belgium’s premier high street destinations continue to perform strongly with no noticeable increases in voids. Those voids which do come onto the market are usually snapped up quite quickly. Prime rents in the country’s four biggest cities have seen small increases. Most expensive destinations are the Meir in Antwerp at 1.700 euro/m²/ year for 200 m² retail units, and the Rue Neuve in Brussels at 1.600 euro/m². Key money is still a factor for the very best high street locations, with sums up to 1,5 million euros known to have changed hands in order for a lease to become available. Demand for secondary locations, and in smaller towns, has slowed down however.

Street

City

Maximum rent

Meir

Antwerp

1.700 euro/m²

Steenstraat

Brugge

1.150 euro/m²

Rue Neuve

Brussels

1.600 euro/m²

Veldstraat

Gent

1.300 euro/m²

Hoogstraat

Hasselt

1.150 euro/m²

Vinave d'ïle

Liège

1.000 euro/m²

Shopping center units of 200m² with 7m front Shopping Center

City

Minimum rent

Wijnegem

Antwerpen

1.400 euro/m²

City2

Brussels

1.050 euro/m²

Woluwe Shopping

Brussels

1.300 euro/m²

Belle Ile

Liège

750 euro/m²

L’Esplanade

Louvain-La-Neuve

850 euro/m²

Les Grands Prés

Mons

650 euro/m²

Retail warehouse units of 1.000m²

With retailers more cautious about expansion, voids are starting to pop up here. New leases and lease renewals contain more favorable terms for the retailers, with landlords eager to find or keep the better tenants.

Shopping centers The trends in the shopping centre segment closely match those seen in high streets. Apart from a number of popular schemes, small declines in shopper footfall have been reported. Owners and managers are actively addressing the issue by organizing more special events and freshening up their tenant mix with exciting new brands. Given the maturity of the Belgian retail market plus ongoing difficulties in securing financing, now is not the best timing to bring additional shopping centers online. In fact no shopping centres larger than 8.000 m² gross leasable area (GLA) are scheduled to open between now and the end of 2013.

Out-of-town retail

City

Minimum rent

Rue de Stalle

Drogenbos

165 euro/m²

Kortrijksesteenweg

Gent

150 euro/m²

Bredabaan

Merksem/Schoten

165 euro/m²

Chaussée de Tongres

Rocourt

130 euro/m²

Gouden Kruispunt

Tielt-Winge

150 euro/m²

Weiveldlaan

Zaventem

150 euro/m²

Belgium can be considered as a highly mature market in terms of out-of-town retail, but highly fragmented. Modern structured retail parks remain scarce. The Belgian out-of-town retail market is dominated by a series of well-established local retailers, such as for example Vanden Borre, Torfs, AS Adventure and Colruyt.

Rents in the parks that are open and trading have stayed close to 2010 levels, with the very best schemes able to set rents in the region of 165 euro/ m²/year for units of 1.000 m² and the average across much of the sector closer to 85 or 95 euro/m²/year.

authorities are however clamping down on these types of developments. Retail developers in Belgium are confronted with an increasingly restrictive urban planning, which is especially prohibitive on out-of-town retail. With very little new supply coming through, primary retail unit shortages in highstreets remain. Belgian cities are however becoming increasingly conscious of their unique city-centre retail offer. A number of city development schemes are therefore planned in previously underdeveloped cities such Leuven, Mechelen and Ghent.

Development pipeline Retail development activity in Belgium has slowed down considerably with virtually no large schemes coming online in the coming years. While a number of existing shopping centers have expansion plans, none of these are likely to break ground any time soon. A flow of new schemes can be expected to be delivered to the market from 2013 onwards, with some notable developers competing for a new shopping centre to the north of Brussels. A few modern well-located out-of-town retail parks have been successfully let in the last few months, illustrating retailer demand for these kind of structured products in an otherwise fragmented standalone market. Regional and local

January 2012

Street

Demand for well-mixed retail parks continues to be strong, with recent developments such as Tongeren Retail Park (35.000 m²) and V-Market in Bruges (11.000 m²) being fully prelet well ahead of coming online. The 35.000 m² GLA retail park that opens in 2012 in Belgium’s oldest town, Tongeren, will be by far the largest project to be completed for a number of years.

Belgium PropertyInsight I 21

Highstreet retAIL units of 200m² with 7m front

over a general economic slowdown or a double-dip scenario have risen over the summer months, with financial markets reacting extremely volatile over the European sovereign debt problems.

In terms of expansion plans, results are quite similar to last year. An overwhelming majority of retailers continue to look for expansion possibilities. Food retailers remain the most active, with 91% of respondents planning to open new and additional stores over the next 12 months.

CBRE has held its annual CBRE Retailer Survey for the fifth consecutive time, during the months July, August and September. 130 national and international retail chains active in Belgium have been asked to share their views on the local retail market in which they operate. The survey allows CBRE to compare and contrast the performance and views of Belgian retailers over an extended period of time.

THE ECONOMY January 2012

Do you have expansion plans for the next 12 months?

EXPANSION

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I Belgium PropertyInsight

RETAILERS ON RETAIL IN BELGIUM

At the time of the survey, the national consumer confidence indicator shows three consecutive months of decline before levelling out in September. Households are worried about unemployment as fears

Most retailers do not anticipate difficulties in finding space to materialise their expansion plans. Surprisingly however, 25% of out-of-town retailers do worry about a potential shortage of expansion opportunities. This could be related to increasingly restrictive urban planning regulations.

Do you expect to find suitable locations to expand?

Retailers are looking both at large and medium-sized cities to expand, with only a few retailers looking at smaller cities. Food retailers and sports and leisure retailers look predominantly at a further expansion in large cities, while home and household players are mostly looking at new stores in medium-sized cities. About one out of 5 retailers indicated to have closed shops over the last 12 months, well spread over the different product categories. Main reasons for closing retail units are the deterioration of the neighbourhood in combination with high rents and operating at a loss.

TURNOVER OUTLOOK 57% of retailers believe turnover to increase in the coming 12 months. In Personal care, Food and Home & Household, less than 10% expects turnover to decrease. Sports and leisure

DID YOU CLOSE RETAIL UNITS?

Despite more ambitious sales targets, most retailers acknowledge that consumers suffer under the hesitant economic recovery. This is especially true for sports and leisure retailers, offering a product line of which the acquisition can be more easily omitted by consumers in harder economic times. But somewhat surprisingly, also food retailers admit facing a more sensitive clientele today. Retailers notice consumers to buy less, less frequently, less impulsively or cheaper products. While Personal Care and Home & Household retailers experience less impulsive buying patterns among their clients, Food and Sports & Leisure retailers simply observe that consumers buy less.

RENTS Overall, 54% of retailers foresee rents to be stable over the next 12 months. Nevertheless, 40% fear a further rise of rents, while only 6% of respondents expect rents to decrease.

FAVOURITE RETAIL LOCATIONS

Woluwe Shopping Center was chosen as favourite shopping center, closely followed by Wijnegem Shopping Center. Also Waasland, K in Kortrijk and L’Esplanade were among the favourites. L’Esplanade was also mentioned a few times as most profitable shop location, together with Woluwe and Wijnegem.

What will be the evolution of rents next year?

How do you think your revenues will evolve in the nExt 12 months?

ONLINE SHOPPING Online shopping remains rather limited in Belgium. Only 1 out of 5 retailers provide an extended productline on their website, while 41% of respondents admit having less products on sale online. A large majority or 85% of retailers claims that the emergence of online retailing has no impact on their physical retail strategy, except for the possibility to collect online items in a physical store.

FavOURITE CITY?

FavOURITE SHOPPING CENTER?

BEST EVOLUTION IN TERMS OF URBAN PLANNING AND RETAIL PROMOTION?

2 out of 3 retailers claim that online sales do not represent over 1% of their national sales volume in Belgium. Only 16% claims that online sales represent over 5% of total sales. When comparing the company website with physical stores, over half of respondents does expect the online store to feature in the top-10 of physical store in terms of sales.

January 2012

When asked about their best and worst shops in Belgium, answers are in line with results of previous surveys. Brussels is still regarded as their most profitable shop in Belgium, closely followed by Antwerp. Both cities are however also quoted as the least profitable locations by a number of retailers. This is likely related to the high street retail rents in both cities, which are markedly higher than their peers. It also shows that further rental appreciation in both cities is rather limited at this time, with a number of international retail chains already struggling to be profitable.

Despite Brussels being the most profitable, the majority of retailers have chosen Antwerp as their favourite retail destination. Antwerp is also praised for its recent evolution, in terms of urban planning and retail policy. Others gave this honour to Ghent and Liège. Among the smaller cities, Kortrijk, Leuven and Mechelen generated the most credits for their recent evolution.

Belgium PropertyInsight I 23

retailers are somewhat less optimistic, with 33% anticipating a decrease in turnover.

THE AGEING POPULATION Like most other European countries, Belgium is confronted with a quick ageing of its population. This is the direct result of longer life expectancy and continuous improvement in living standards. The ageing “baby boom” generation (people born between 1946 and 1964) will have a profound effect on the Belgian health care system over the coming decades, with elderly (inactive) people rapidly outgrowing the younger active population.

January 2012

24

I Belgium PropertyInsight

ELDERLY HOMES

The expected growth of the older adult population will have an unprecedented impact on the national health care system. There is a clear need for additional nursing homes and healthcare workers, to avoid potential shortages in the coming years. Besides numerous public and non-profit initiatives, the private commercial market is rapidly consolidating into a more professional pool of larger operators. Senior housing has attracted growing interest from property investors over recent years for the bricks and mortar component.

The ageing of the population has an important impact on real estate. The fast growing senior population in Belgium calls for the construction of new dedicated facilities for dependent elderly people. The number of Belgians at the age of 65 and older (1,87million in 2010) will nearly double by 2050 (3,2 million in 2050). From 2010 to 2050, the proportion of people older than 65 will grow from 17,2% to 24,5 of the total Belgian population. Those older than 80 will grow to 1,25 million people in 2050 or nearly 10% of the total population.

elderly people, and another 15.240 beds can be found in Brussels. Because nursing homes are heavily subsidized by the federal government, caps to the number of beds have been imposed to control costs. According to calculations by CBRE, Belgium would be in need of an additional 65.000 beds in nursing homes by 2050, to avoid significant demand/supply imbalances. These calculations take into account a continued rise in health standards and an increase in elderly care “at home”. Please note that only some 5.000 beds were added since 2001.

While more beds are definitely an issue going forward, the most important problem within the sector remains the ability to find suitable staff. Since the active population in Belgium will significantly decrease towards 2050, this problem is likely to grow over time.

LEGISLATION Elderly homes are regulated and subsidized on a national level in Belgium, as part of the federal health care system. The regions (Flanders, Wallonia and Brussels) are on the other hand responsible for the actual licensing of retirement homes, and have their own particular legal requirements

Population Forecasts for the Regions (in the year 2050) FLANDERS

WALLONIA

BRUSSELS

TOTAL

Older than 65 years

1.893.223

1.067.148

253.930

3.214.301

Older than 80 years

762.468

399.388

90.144

1.252.000

Population Forecasts for Belgium (2001-2050) 2001

2009

2010

2030

2050

MARKET SIZE

0 to 14 years

1.805.200

1.823.600

1.841.900

2.125.700

2.201.100

In 2010, Belgium counts 129.580 beds in 1.556 senior residences. With over 60% of the population and also most elderly people, Flanders has the highest number of beds. Wallonia offers 47.375 beds for

15 to 64 years

6.743.300

7.124.500

7.171.000

7.456.000

7.702.800

Older than 65 years

1.738.100

1.848.500

1.871.100

2.727.200

3.214.300

Older than 80 years

-

501.213

-

-

1.252.000

Total population

10.286.600

10.796.600

10.884.000

12.308.900

13.118.200

# ELDERLY HOMES

# ROOMS

ROOMS/ HOME

FLANDERS

WALLONIA

BRUSSELS

PRIVATE COMMERCIAL

664

42.255

64

9.504

23.249

9.502

PRIVATE WITHOUT PROFIT

499

46.724

94

33.946

10.781

1.997

GOVERNMENT

393

40.601

103

23.515

13.345

3.741

TOTAL

1.556

129.580

83

66.965

47.375

15.240

NOTABLE OPERATORS IN THE PRIVATE COMMERCIAL SEGMENT BEDS

RESIDENCES

Senior Living Group

4.041

27

Senior Assist

2.500

33

Armonea

3.168

29

Orpea

2.826

24

Noble Age

507

5

for new and existing retirement homes. Regions can also subsidize, on top of what is received from the federal level. Three main types of senior housing exist under the term “elderly homes”:

These forms can coexist under the same roof in mixed retirement homes. Over the last few years, normal rooms have been converted to the better subsidized rooms with medical care. The conversion of rooms and the creation of new rooms is strictly controlled per region, following strict budgetary guidelines. Legally, a minimum of 1 nurse per 30 beds and per floor is needed. Propertywise, this requires operators to look for or build properties that can handle this legal requirement in the most efficient way. Modern nursing homes ideally have a multiple of 30 beds per floor.

Often, commercially driven nursing homes are smaller in size. With legislation on nursing homes increasingly stringent, smaller privately-led nursing homes are slowly disappearing. In the last few years, larger corporations specialized in nursing homes have appeared on the scene as part of a consolidation trend towards less players and more beds per home. New commercial players that are expanding across the country are Senior Living Group, Armonea, Orpea, Senior Assist, Noble Age and Domitys.

DAY prices for residents In Belgium, residents in elderly homes pay the operator on average about 36 euro per day or 13.140 euro per year. Day prices vary strongly per room however, with differences in size, view, and quality. It is also notable that private commercial nursing homes are often cheaper (and possibly less well staffed and equipped), than their governmental and non-profit peers. The Royal Institute of Healthcare (RIZIV/ INAMI) intervenes for a similar amount, which values the average bed at an annual

OUTSOURCING THE BRICKS & mortar Nursing home operators prefer to sell off the real estate component in their business model. The released cash can subsequently be used to expand and develop new nursing homes and to acquire beds. The outsourcing of the property component happens in the form of long-term lease rights (emphytéose), where the operator and investor agree terms on for example a 27 year lease (2 times 15 years) contract with a purchase option or renewal option for the operator. The rent paid to the landlord is not generally linked to revenues, but consists of an annual rent, indexed to the health index. Rents paid by elderly home operators to landlords are 5.000 euro/room/year on average or 115 euro/m² on average. Prices may vary further, depending on a number of factors related to the building, the location or the type of residents. The operator is in most cases responsible for maintenance expenses and also bears the costs linked to the upgrading of the facilities and related equipment.

January 2012

• Retirement home: Public or private certified multi-residence housing facility with daily services intended for senior citizens older than 60. A retirement home includes facilities for meals, gathering, recreation, and a limited form of hospice care. • Retirement home with medical care (MRS): A retirement home with

medical care differs from a typical elderly home primarily in the level of medical care given. Specific parts of the building are devoted to people who need permanent assistance and medical care. • Service Residences: Retirement residences, unlike retirement homes, offer separate and autonomous homes for residents. Licensing from the authorities is easier to obtain than traditional retirement homes.

Elderly homes in Wallonia and Brussels are often operated by a commercial operator. In Flanders, the majority of nursing homes is managed by non-profit organizations or the government itself.

revenue for the operator of about 26.000 euro. In turn, the operator provides shelter, food and basic health care to its residents.

Belgium PropertyInsight I 25

OPERATORS

Market size - break down

The strong increase in mortgage lending for renovations in 2011 is likely related to the upcoming austerity measures, planned for 2012. Subsidies for “green” investments such as solar panels and isolation are likely to be revised downwards in the coming months, in order to cut government expenses.

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I Belgium PropertyInsight

THE RESIDENTIAL MARKET INDICATIVE AVERAGE PRICES FOR NEW APARTMENTS IN BRUSSELS

BUILDING PERMITS

The residential market in Belgium continues to perform strongly, with rising property values. A slowdown in transactional activity has however been noticed since the 2011 summer months, as the euro crisis has curbed demand and development activity.

January 2012

MORTGAGE LENDING Residential mortgage lending for residential acquisitions continues to grow in Belgium, albeit at a slower pace. The euro-crisis has curbed mortgage lending. In the first 9 months of 2011, Belgian households borrowed 10,7 billion euros, a 4,6% rise over the same period in 2010. Mortgage lending for house constructions is down 7,3%, while renovations is up 27,4%.

2.100 euro/m²

Construction activity in the residential market has shown a sharp decline over the first 8 months of 2011. Up to August 2011, buildings permits were sustained on 13.555 apartment units. This compares to 22.402 units in the same period in 2010 or decrease of 39,5%. In Brussels, building permits for apartments dropped by 54%.

2.900 euro/m² 2.000 euro/m²

2.800 euro/m²

3.200 euro/m² 3.200 euro/m²

NUMBER OF TRANSACTIONS AND ACQUISITION PRICES

2.850 euro/m²

While mortgage lending is still up, a clear slowdown can be noticed in the number of housing transactions. In the first 9 months of 2011, sales of apartments was down 6% in both Flanders and Wallonia. Only Brussels is still up year-to-date, with a 2% increase as compared to the same period last year.

quarter in 2010.

Despite the noticeable slowdown in transaction activity in the residential market, acquisition prices for apartments are still rising. Q75 prices for apartments were up 4,44% in Flanders, 5,82% in Wallonia and 8,33% in Brussels as compared to the same

New apartments trade at 2.600 euro/m² on average in Brussels. The most expensive residences can be found in the communes of Woluwe-Saint-Pierre, Ixelles, Etterbeek, Uccle and Bruxelles, with average prices varying in between 2.900 euro/m² and

3.200 euro/m² on average. The western communes of Brussels remain the cheapest to buy new apartments (2.000-2.200 euro/ m² on average). Newly developed residential space trades at 2.350 euro/m² on average in Antwerp, 2.300 euro/m² in Ghent and 2.200 euro/

Belgium PropertyInsight I 27

m² in Mechelen. Leuven tends to be more expensive as buyers have to disburse 2.450 euro/m² on average to purchase a new apartment.

INDICATIVE AVERAGE PRICES FOR NEW APARTMENTS IN BELGIUM

Property values in the south of the country range from 1.450 euro/m² in Charleroi to 1.900 euro/m² in Namur. In Liège, a new apartments costs 1.650 euro/m² on average.

ANTWERP 2.350 euro/m²

OSTEND 2.300 euro/m² GHENT 2.300 euro/m²

Securing land in Brussels costs 450 eur/m² on average, with land parcels in the best locations worth up to 1.000 eur/m². Prices of land vary from 250 to 500 eur/m² in Antwerp and from 250 to 550 eur/m² in Ghent. In Hasselt and Liège, land values are respectively at 150 eur/m² and 70 eur/m² on average.

HASSELT 1.750 euro/m² BRUSSELS 2.600 euro/m²

LEUVEN 2.450 euro/m² LIEGE 1.650 euro/m²

CHARLEROI 1.450 euro/m²

NAMUR 2.100 euro/m²

RESIDENTIAL STATISTICS per city (SOURCE: FOD/SPF Economie) City

Permits Issued

Population increase

Population increase

(Units Allowed)

(Units Allowed)

(2009-20010)

(2005-20010)

Average Apartment Price

(01/2011-08/2011)

(01/2005 - 08/2011)

Brussels Region

844 apartments

16.515 apartments

21.006 people

82.789 people

Antwerp

269 apartments

3.261 apartments

5.569 people

Ghent

713 apartments

6.183 apartments

Liège

165 apartments

1.679 apartments

Apartment Price Growth Apartment Price Growth (Q3 2010 - Q3 2011)

(Q3 2005 - Q3 2011)

226.091 euro

5,02%

39,95%

25.756 people

157.494 euro

3,18%

37,91%

3.317 people

12.415 people

208.006 euro

4,57%

57,92%

1.762 people

6.930 people

124.010 euro

1,46%

59,37%

(Q3 2011)

January 2012

Permits Issued

I Belgium PropertyInsight 28 January 2012

MORE INFORMATION:

From local to global

DISCLAIMER

Kim Verdonck Head of Research/Head of Marketing Partner

CBRE is the world’s leading commercial real estate adviser. With 300 offices across over 50 countries we have more consultants advising more customers than any other property firm. We look beyond bare bricks and mortar to discover the true value within our clients’ real estate. We tailor our services to meet each client’s unique needs and to deliver value beyond expectations.

This publication has been prepared by the research department of CBRE Belgium. Information herein has been obtained from sources believed reliable. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission from CBRE.

CBRE Avenue Lloyd George 7 B-1000 Brussels t: +32 2 643 33 34 e: [email protected]

© 2012. All rights reserved.

Belgium PropertyInsight I 29 January 2012

I Belgium PropertyInsight 30

CBRE (BRUSSELS) Avenue Lloyd George 7 1000, Brussels Belgium T: +32 2 643 33 33 F: +32 2 643 33 44

January 2012

CBRE (AnTWERP) Cockerillkaai 26 2000, Antwerp Belgium T: +32 3 248 68 60 F: +32 3 248 68 35