COVID-19 AND THE BELGIAN OFFICE MARKET

PART 3 – The impact of the COVID-19 on the Belgian office market

The coronavirus crisis is having an increasing impact on the entire Belgian economy. According to Oxford Economics latest figures, Belgium could be one of the most impacted countries in Europe, with a GDP decline now forecasted around 2% this year.

While every industry is affected in a different way (see our post on the retail sector previously), most of the professionals within the commercial real estate sector are currently working from home.

The everyday life of a broker during this unprecedented period

In order to comply with the guidelines provided for the industry, real estate agents are prohibited from organising visits and face clients (unless virtually). As such, communication by e-mail, phone and video conferencing quickly intensified. Nevertheless, real estate remains a people business, meaning face-to-face meetings and property visits remain an essential element in this line of work.

The lack of face to face contact and inability to be able to visit properties is, affecting the generation of new leads and of course the creation of new letting deals. This is especially true for the small-scale transaction segment which is expected to be at risk of being hit hard in the coming months.

The take-up could be negatively impacted in the first half of the year

It is safe to say that the COVID-19 crisis will have a negative impact on the take-up levels for the first half of the year. The magnitude of the effects on the take-up is still unknown and very difficult to estimate since there is too much uncertainty regarding the duration of the lockdown and the rate at which the economy is going to recover. It is important to bear in mind that the take-up levels in 2019 were rather exceptional and a slowdown in activity was expected for 2020, regardless of the current crisis.

On average, 60% of all office transactions in Brussels are smaller than 500 sq m. These transactions are usually concluded relatively quickly, but it is getting more complicated to relocate smaller tenants. This is also because smaller businesses with ten to twenty employees will tend to postpone their move or even completely rethink their relocation plans due to the crisis.

Rental levels remain stable for the moment

At this current stage, there has been no pressure on rental levels. Prime rents in Brussels are still found at 320 €/sq m/year (in the Leopold District). The weighted average rents for the year so far is around 165 €/sq m/year (similar to the 5-year average). Fortunately, the crisis has hit the market at a period of historically low vacancy levels, so competition is still stabilising rents.

However, we are noticing that some tenants who wish to sign a leasing contract ask for extra concessions to their future landlords. Generally, this means one or even two months of rent-free period on top of what is usually seen in the market. On the other end, property owners are not objecting per se and are showing some understanding given the situation.

Several property owners reveal that some tenants are getting increasingly anxious as uncertainty surrounding the lockdown is mounting. Some landlords are beginning to get requests from their tenants to postpone lease payments for the April to June period. Should the lockdown last longer than expected, we are going to see more severe reactions in the market regarding this issue.

What the future looks like for the Brussels office market?

Nevertheless, if the lockdown doesn’t continue into the summer we are still expecting a rebound for the second part of the year as the Brussels office market has historically proven to be resilient

Several important transactions are in the pipeline and are continuing despite the Covid-19 crisis. Even if delayed, these will occur in the coming months. Furthermore, public institutions (both national and European) will need to relocate in the coming months or years. This will lead to an increase in new requirements.   

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WANT TO KNOW MORE?

The C&W Office Team remains at your entire disposal for all kind of information, advice or support on Covid-19 and the Belgian office market.

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Read our previous articles:

• PART 2 – COVID-19 AND THE BELGIAN RETAIL MARKET
• PART 1 – COVID-19 AND THE BELGIAN REAL ESTATE MARKETS
• LIÈGE OFFICE PIPELINE WILL KEEP STIMULATING DEMAND IN UNCERTAIN TIMES