European Commission North District deal characterises second quarter

The North Star Building was the major transaction of the second quarter. Image: BAM

Real estate advisor CBRE has produced a report on the state of the Brussels office market during the second quarter of 2023..One of the conclusions is that the European institutions are now favouring the North District as well as their traditional home in the European/Leopold District.

Office take-up in Brussels, CBRE begins, recorded 79,895 m² in the second quarter of 2023, a similar amount to the first quarter. This is lower than the five- and ten-year averages for take-up through the first half of the year, but it is higher than the same period in 2022. One large deal in particular is a major contributor to take-up figures through the second quarter. This quarter, the European Commission signed for 30,000 m² in the North Light building in the North district. This is the largest new transaction from a European institution in almost 10 years and is a major win for the North area as it continues its transformation into a revitalised, mixed-use district. A long-anticipated deal, the Commission will complete fit-out works by the end of the year. Additionally, this deal helps the Commission take another step towards its energy reduction goals after leaving their outdated Genève and Beaulieu locations.

The Commission is expected to clarify its strategy in the Leopold district later this year..The Commission was not the only active European institution this quarter. The European Parliament acquired the 5,935 m² Trèves 9 building in the Leopold district. Also in this market, Davis Polk & Wardwell secured 682 m² in the Lucia building as its third tenant. Outside of the CBD, four buildings sold to three different occupiers comprising a total of 9,500 m² in the Keiberg business park in the Airport district.

Corporate take-up has been relatively subdued through the first half of the year at 88,150 m². The macro environment has put businesses’ margins under stress, with some occupiers delaying major real estate decisions and others weighing the cost of a move in a market with limited immediately available options. Occupiers are acknowledging higher rents for more efficient, quality space, but the increase in total occupancy costs has been a sticking point for some that has held up or even ended deals all together. The market is changing rapidly and expectations will need to readjust, CBRE believes.

Vacancy and conversion Vacant office space increased slightly to 7.52 % of total stock in the Brussels market in the second quarter. This is equivalent to 942,000 m² including 102,000 m² of grade A vacancies. Vacancy in grade A has remained stable compared to last quarter (0.82%), but decreased for grade B assets (2.1%). Office vacancy in the CBD declined to just 3.9% in the second quarter. The decentralised and periphery markets noted slight increases to 10.9% and 18.2%, respectively. Notable CBD vacancies for the second quarter include: Manhattan Center (16,429 m²) and Botanic Tower (15,070 m²) in Brussels North, and Commerce 46 (14,274 m²) in the Leopold district. However, Commerce 46 is in negotiations with key occupiers. Overall, vacancy is heavily concentrated in older building stock.

In the first half of 2023, developers have earmarked 10,794 m² of office space for conversion into alternative uses in a slow first half. Conversion into residential uses remains the dominant option in the market. Regarding this quarter, only one conversion was identified: Cofinimmo sold their headquarters at Woluwelaan 58 to Urbicoon. 3,836 m² of offices will be converted into residential space. Despite the low conversion figures so far this year, CBRE expects conversions to continue from the changing occupier demand for offices. New requirements will force landlords to weigh costly capital expenditure improvements to upgrade facilities to new standards against disposing of the property for a potential other use.