Brussels office market prepared for the approaching crisis

The economic slump is spreading around the world, leaving ever more victims in its wake as the financial crisis begins to takes its toll on the real economy. Against this background, a slowdown in the Brussels office market appears inevitable. However, there is no need to panic: according to the international professional real estate consultancy Cushman & Wakefield, the user market for offices in Brussels is made of strong stuff and is perfectly capable of weathering the storm.


There is no longer any doubt that the real estate sector will be negatively affected by the combination of falling employment and a lack of credit. A number of cities throughout the world already face increasing vacancy rates and lease prices are coming under pressure. However, not all cities have been affected in the same way. Cities with a high concentration of financial service providers have felt the job losses more acutely than other cities with a greater focus on the energy sector, for example. On the whole, though, no office market will escape entirely unscathed from the impending economic recession.


DIVERSIFIED LEASE MARKET

Nevertheless, Brussels is well placed for surviving the crisis relatively unscathed. The Brussels office market has always been characterised by a highly diverse lease market that has protected the city against severe economic fluctuations.


Nathan Reviers, research analyst at Cushman & Wakefield: “The diversity exhibited by the users of office space in Brussels is particularly noteworthy. Brussels is a city with many strings to its bow: in addition to being the capital of Belgium, Flanders and the Brussels Metropolitan Region, Brussels is also the capital of Europe. The demand from public organisations is therefore not simply limited to office space for local government, as is often the case in other cities. The presence of a large number of NGOs, non-profit organisations and representation offices sets Brussels apart from other European capital cities. Brussels is also home to the head offices of a number of international companies and remains the most important employment region in Belgium. The impact of local SMEs must also not be underestimated. All these factors mean that dividing the take-up in office space over the last five years into the four categories of public organisations, private organisations, foreign origin and local origin results in an almost perfect distribution with each category accounting for around ¼ of the lease market. I am convinced there is no other location in the world with such a diversified lessee profile.”

The presence of public organisations makes Brussels less dependent on the private sector, although demand from the public sector is not the only relevant criterion in Brussels. Over recent years, the market has primarily been stimulated by the private sector. The excellent distribution of demand across public and private organisations provides a stable market that is not subjected to large upward or downward fluctuations.



Antoine Brusselmans, equity partner at Cushman & Wakefield: “Public organisations are less affected by economic developments because these organisations are not confronted by an immediate fall in revenue. In contrast, their accommodation requirements are more determined by the political agenda than by the underlying economic activities. This year alone, the European Commission accounted for a take-up of no less than 55,000 m2. In the third quarter of this year, we arranged 30,000 m2 of office space for two agencies of the European Commission in the Covent Garden building that forms part of a prestigious office development in the North district. The current calls for an expanded Europe are likely to lead to further growth in European institutions in the medium term.”


NET ABSORPTION

Meanwhile, we must also bear in mind that the user market for professional real estate tends to exhibit a delayed reaction to real economic developments. Business cycles in the Brussels office market are not at all synchronised with developments in economic growth. In fact, despite the current economic downturn, net absorption in the Brussels office market recently reached its highest rate of growth in five years.



Eric Peeters, head of European offices at Cushman & Wakefield: “You can compare the real estate market with an enormous tanker: a huge, inflexible colossus that powers ahead through the rough seas. Once the tanker is in motion, it takes a certain amount of time to change its course or bring it to a halt. At this point in time, the market is reaping the benefits of the stronger economic performance of recent years, during which time the tanker powered up to cruising speed.”

In order to calculate the growth in the office market, it is necessary to look at more than just the growth in the gross supply of office space. The figures also need to take into account the occupancy rate for the existing supply of office space. By closely observing gross supply and vacancy rates, the Research department of Cushman & Wakefield in Belgium was able to map out the real rate of growth, also referred to as net absorption:

Between 2000 and 2008, the gross supply of office space grew by an average of 4.43% annually. Although net growth of 3.85% in the office market was slightly lower than gross growth, it was nonetheless higher than the percentage growth in GDP. Since the gross supply of office space grew faster than net absorption, vacancy rates in this period grew from 7.2% at the end of 2008 to 9.5% today.



This figure primarily grew during the period from 2002 to 2005. Following the events of 11 September 2001, the office market shrank for two successive quarters and was officially classed as being in recession. This long-term slump resulted in a record vacancy rate of 13% in the second quarter of 2005.



During the second half of 2005, however, the office space market recovered and experienced two years of prosperity during which net absorption rates once again exceeded the growth in the supply of office space. Vacancy rates fell to 10.1% at the end of 2006, although this was shortly followed by net absorption once again falling below the gross rate of growth in office space.



However, growth in the office market has accelerated significantly since the start of this year. In the third quarter of 2008, absorption was 6.3% on an annual basis, the highest level since the second quarter of 2001 when growth in the office market was still at 9.8%. The increase in absorption has led to a fall in the vacancy rate to 9.5%, the lowest level since the second quarter of 2002.



Nathan Reviers, research analyst at Cushman & Wakefield: “Due to the time taken for changes to impact on the market, we expect the current boom in the user market to continue for one to two quarters during which vacancy rates will remain stable or even continue to fall. Following this, a moderate increase in vacancy rates appears unavoidable, especially in view of the large number of new projects being brought onto the market in 2009. If we steer the tanker clear at this moment, we will surely be able to avoid any unbalance in the market. However, the increased costs of financing will lead construction activities to decrease by themselves.”





For more information, contact Nathan Reviers, +32 (0)2 510 07 01.

source : Cushman & Wakefield

source : Cushman & Wakefield