Elsewhere: Belgium’s Public Sector Boosts Office Development

With new countries joining NATO and the EU, Belgium’s office real estate is booming. Once an ordinary country of the Old Europe, Belgium now claims the role of a leading commercial capital.

Belgium comprises two large regions, the Flemish-speaking Flanders and the French-speaking Wallonia, as well as the Region of Brussels-Capital, which is bilingual. Belgians joke that their capital is more better known that the country itself. It is hardly surprising since Brussels is the capital of the entire European Union, with a population of 450 million, according to UN 2005 estimates.

Over the past two decades Brussels’ office stock doubled, from 6 million to 12 million square meters. Some business quarters of the city have shown even better results.

For example, the office stock in the airport area grew 3-fold over the past 15 years, from 500,000 to 1.5 million square meters. A much talked-about office project in those parts is the corporate village Zaventem, developed by Airport Garden. The 77,000-square-meter office development was launched in 2000. Developed on a 3-hectare plot in the proximity of Brussels National Airport, Zaventam will feature six buildings, including Avignon and Bayreuth developments, 18,600sqm and 14,800 respectively.

Trump Card

Brussels’ distinct advantage is the presence of leading European agencies and institutions in the city. The European institutions – the Commission, the Parliament and the Council of Ministers – have effectively chosen Brussels as their domicile and occupy 1.6 million square meters of space in the capital.

“Some tend to disregard that factor,” says Paul Delesenne, chairman of Robelco Company. “However, the presence of leading executive and legislative bodies of the European Union in Brussels, undoubtedly, has dual impact on local office market. On the one hand, they generate stable demand for office space. On the other, not every office building receives a hearty welcome. That is why more than just new office developments the city needs a high-quality competitive product.”

Brussels’ office market experienced a new upturn two years ago, in the wake of the EU expansion from 15 to 25 member countries. “Brussels is a venue where up to 70% of all legal acts that shape the future of the entire continent are adopted,” notes Charles Picquet, minister-president of the Region of Brussels Capital. “Those decisions also have direct impact on corporations. Today, over 1,500 international institutions are active in Brussels.”

Some countries have opened up to three representation offices in Brussels, including embassies, EU and NATO delegations. With 12 million square meters of office space per 1 million residents, Brussels is ahead of the world’s leaders London and Paris.

“Brussels has an enormous stock of office space,” says Philippe Helleputte, administrator at the European Union of Developers and House Builders. According to a report by Jones Lang LaSalle, by late 2005 Brussels ranked fourth in terms of total office stock, after London, Paris and Berlin. “We have to realize that Brussels owes its office boom to its being chosen by the EU as its domicile,” Helleputte says. “Many agencies, companies and institutions launch their operations in Brussels solely because it is the capital of Europe.”

It is well understood that industry giants Philip Morris, Shell and BP rented offices in the center of the so-called ‘European’ or ‘Leopold’ quarter of Brussels seeking to be closer to the European Commission, Christian Karkan, partner at Cushman & Wakefield, is convinced. However, Eric Verbeeck, Chairman of Professional Union of the Real Estate Sector (UPSI/BVS), says that Brussels’ office market is quite small, “even despite the fact that Brussels is the main seat of the European Commission, the Council of Ministers and the European Parliament.”

Investors Doubtful

In the year 2005, the total investment in European economies reached 125 billion euros, an increase of 20 percent over 2004. Office real estate investment grew to 700 million euros. But high as they seem those figures are below expectations. In Brussels, commercial property investors face a wide choice of opportunities. “The office market may be divided into four major sectors – Belgium’s national public sector, the ‘European’ sector, Belgian corporate market and international corporate market. Such a diversification make the office market remarkably stable,” says Christian Karkan.

Although private investments tend to decline, anticipated recovery of external markets and some improvement in consumption expenditure should continue to stimulate private investments in the future.

Cofinimmo, Belgium’s largest real estate firm, holds the lead in term of office property investment. Cofinimmo owns a property portfolio of 141 buildings, let to around 460 clients and managed over the long term by its own commercial and technical staff. The properties, chiefly situated in Brussels and Antwerp, represent a total area of 1,018,166 square meters and an investment value exceeding 2 billion euros. Cofinimmo is listed on Euronext Brussels and is included in the BEL20 index.

The leading foreign investor active in Belgium is Germany’s IVG Immobilien. The company’s Madou Plaza – the new seat of the European Commission – has won the MIPIM Award this year. IVG Immobilien is involved in the development of Le Croissant, Tervueren Plaza and North Gate office complexes in Brussels.

Natural Losses

Last year the capital of Belgium saw the decline in office demand. “While earlier we received orders for design and construction of office buildings once in two weeks, last year that happened only once in every 4 to 5 months,” admits Nicolas d’Ursel, partner at ASSAR. What are the reasons for the decline?

The key reason, common for most European countries, lies is the lack of projects worthy of attention of potential investors, such as, for example, investment funds traded on Euornext. Last year those funds were purchasing properties with long-term leases in place from the Belgian government. The shortage of worthy projects results in fewer opportunities for reinvestment. Landlords are not interested in selling off their properties.

In the years 2003 to 2004 local buyers and sellers accounted for 35 percent of investment while national and foreign investors made the remaining 65 percent. In early 2005, those figures stood at 21 and 79 percent respectively. Last year the market was dominated by local investors, with 36 percent; later the foreigners’ share grew.

The Irish accounted for the largest share of foreign investment in Belgium’s office market, with 13 percent, followed by the Dutch, German and British investors with 11, 10 and 10 percent respectively. Scandinavia and the Middle East accounted for 9% and 5% respectively. Spanish investors have shown increased interest in Belgium lately.

Remarkably, office projects attract investors in 75 percent of cases. The lion’s share (32%) falls on the Leopold quarter, followed by the Region (Brussel’s business periphery), Nord and Midi (19, 14 and 12% respectively). Analysts expect 300,000sqm of office space to be finalized in 2006 in the public sector and 260,000sqm in private sector.

Brussels’ Business District

The Brussels market is divided into five major commercial areas – the Central Business District, Nord, Leopold, the Louise quarter and Brussels Periphery. Rentals differ from the average of 250 to 300 euros per 1sqm per year to 150-160 euros in the Periphery.

The ‘Leopold’ quarter is the main seat of most European Union institutions and public agencies. In addition to the new seat of the European Commission – the 40,000-square-meter Madou Plaza refurbished by ASSAR, the quarter is remarkable for the Lex project that will house the Council of Ministers. The project measuring a total of 84,600sqm is under development by M. & J-M. Jaspers – J.Eyers & Partners. The property, to be launched in 2006, comprises two enormous shells joined with a gigantic atrium. Both Lex and Madou Plaza have mirror facades.

Here are but a few landmark projects developed in the Leopold quarter. The complex of Meeus and Luxembourg buildings is developed by Cofinimmo. Meeus, to be finalized in 2007, is the 1930s-built historic building, 9 stories high, with 9,300sqm of offices, 492sqm of storages and a 51-space parking facility. The 16-storied Luxemburg facing an inner garden will provide 7,200sqm of offices, 44sqm of storage facilities and 39 car-spaces. The surprising renovation project of Cortenbergh 71, undertaken by Allfin, is located on the Avenue de Cortenbergh. The office complex with convex glazed facades will provide 7,200sqm of offices, 232sqm of storage space and 75 car-spaces.

In other parts of central Brussels, outside Leopold, worthy of mentioning is Central Plaza, to be finalized in the summer of 2006. The 60 million euro project is developed by Egimo, subsidiary of Compagnie Immobiliere de Belgique, designed by Art & Build / Montois Partners. The original plan for the renovation of the Tour Centrale overlooking the Gare Centrale had to be revised as public authorities objected to a high-rise development in the area. Of the original 24 stories only 15 will now remain. The 24,400-square-meter Plaza features a 77-space parking.

Another major office project is under construction near the Midi Train Station (TGV), the South Express, a complex consisting of 20,423sqm of offices divided between two identical buildings. The project has been signed by the Atelier d’Art Urbain and developed by a group led by Soficom Development and will be completed in January 2008. The complex will provide 800sqm of storage facilities and a 130-space parking area.

Several projects are underway in the north quarter, in the area surrounding the Gare du Nord. The largest is Covent Garden, a project of l’Immobiliere du Royal Rogier. The project consists of two buildings connected by an atrium, with 68,543sqm of office space, 662sqm of shops and 1,347 mixed-use spaces. Completion is scheduled for June 2006 for the lower building and December 2006 for the tower. Covent Garden will feature a car park for 350 spaces.

WaterSide Offices under development by Pylos on Quai de Willebroek is Brussels’ first environmentally-friendly building. The development company claims that built with energy-saving materials and know-how the new development will require 40 percent less energy than conventional office projects. The 6-storied facility will provide 12,100sqm of offices and 650sqm of warehouse space, as well as a 60-space car park.

Olympiades is an 8-storied U-shaped office property, situated on the avenue linking the city center to the National Airport. Olympiades is a joint project by Besix RED and Soficom Development, finalized in 2005. The complex features 12,900sqm of offices, 1,342sqm of storages and a 195-space parking facility.

The North Quarter is a large commercial center, notable for its innovative architectural signature. The Louise Quarter is focused on transforming its space into housing rather than building anew.

The situation differs from quarter to quarter, with some offering more favorable conditions for office development. “While the Leopold Quarter’s vacancy rate is lower (7%) than the city average, on the outskirts that figure stands at 20 percent,” says Tierry Rousselle, General Manager of Real Estate, AXA Belgium Real Estate Management.

While vacancy rates are higher on the outskirts than elsewhere in the city the prospects for office development are quite favorable there. The periphery holds two major advantages – better car access than found in the center and, more importantly, it is subject to lower taxes than in the Brussels-Capital Region.

Guaranteed Prospects

Developers are likely to take interest in the developments of the 1950s and 1960s. Inspired by the successful redevelopment of other high-rises across the city, Hugenholtz Project Group has launched an overhaul of Astro Tower on the border between Leopold and the Central Business District. The project, estimated to be worth over 67 million euros, is to be finalized by 2013. Nowadays, the 33-storied Astro Tower provides 37,100sqm of offices, 3,500sqm of mixed-use space and 269 car-spaces.

Vacancy rates on the outskirts of Brussels, both in the northern periphery (Flemish-speaking) and in the southern area are soaring at 25%. The situation will change, though, as central Brussels is likely to run short of vacant building plots in near future after the EU accepts more members in 2007. Further expansion will result in a new office real estate boom in Brussels.