Luxembourg stagnant but buying opportunities will come in 2010

Luxembourg's office market will see some buying opportunities in 2010 as funds reassess their position, according to Savills. The market, which has seen a steep decline in office take up and a very small number of investment transactions, is set to return next year as GDP growth is forecast at 1.0%.

Luxembourg's office market will see some buying opportunities in 2010 as funds reassess their position, according to Savills. The market, which has seen a steep decline in office take up and a very small number of investment transactions, is set to return next year as GDP growth is forecast at 1.0%.

The international real estate advisor recorded a 74% decline in office take up during the first three quarters of 2009, compared to the same period in 2008, and a 71% decrease in investment deals also in this time period. This lack of transactional movement has resulted in little change in rental market prices, the average prime office rent stands at approx €456 sqm/year. Likewise, due to a lack of market activity, Savills reports a difficulty in quoting of investment yields but believes prime yields have moved from 5.35% to 6% so far this year.

Sheelam Chadha, Head of Research for Savills Belux, says: "Limited movements in the letting and investment market have profoundly affected the overall sentiment in Luxembourg. However, the underlying fundamentals remain strong despite the short term imbalances. We forecast some good ‘buy’ opportunities coming onto the market for 2010."

During Q309 no more than 8,470 sq m (91,173 sq ft) was let compared to 28,000 sq m (301,399 sq ft) during Q308. Vacancy rates have risen from 2.05% in 2008 up to 3.5% during the past quarter and are set to rise as an additional 330,000 sq m (3,552,206 sq ft) is delivered to the market in Q409 and 2010, albeit 69% of this space remains speculative. In the investment arena, €88 million of turnover was transacted in Luxembourg’s office market during the first three quarters of the year, representing 71% fall when comparing these quarters to 2008, and 96% drop compared to 2007.

Read the Luxembourg Office Market report