The Belux real estate investment market accounts for almost 3% of the European market, amounting to €81bn in 2003, and is characterised by low volatility and relatively high returns compared to the other major cities in Europe.
Since 2000, the Belux investment market has seen major portfolio deals through mergers, acquisitions, sale and leaseback operations, and trading volumes have grown to over € 2bn a year. Before 2000, the Belux investment market reached approximately €1bn annually on average. In 2003, and also during the first half of 2004, the market was dominated by large single asset deals; the Belgian government sold part of their real estate portfolio, predominately on the basis of sale and leaseback. The majority of the buildings sold are in need of substantial refurbishment and therefore the Belgian Administration also prelet (18-year leases) large new projects near train stations in the central business district (CBD).
The positive yield gap (gap between the long-term interest rates), prime office yields and relatively weak stock exchange performance make real estate investment still attractive. As a result, the current investment market is characterised by high liquidity and a shortage of income producing product for the office, retail and logistic sectors. Yields are under downward pressure.
The total investment volume in 2003 reached €2.2 bn in Belgium and €100m in Luxembourg. During the first half of 2004, the Belgian investment volume amounted to €1.3bn. The German funds took the largest share in the Belux market during the first half of 2004 with 29% of the total investment volume followed by institutional investors (20%) and the Belgian Sicafi’s (18%). The capital inflow into German open-ended funds was relatively limited during the first half of 2004, but available liquidity remains high at €10.5bn. (Source BIV-April 2004.) The pressure of the German funds to invest remains.
By sector, offices take the largest share of the investment volume (58% - in the first half of 2004), predominately in the Brussels CBD market. The Brussels CBD market is one of the few European markets where the prime rents are increasing (by 7.3% during second quarter 2004). Office demand is underpinned by the take-up by the Administration as a result of EU enlargement, ie, demand from the European institutions, international administration, and activities related to the EU on one hand and the modernisation by the Belgian Administration on the other hand. Outside the CBD, office demand is almost 100% corporate sector. This market is starting to bottom out; the future office supply pipeline is almost none-existent and the consensus is that demand should pick up by 2005 as a result of the increase in GDP growth: 2.3% (2004) and 2.6% (2005), compared to 0.7% (2002) and 1.1% (2003).
The retail sector took a relatively high percentage of the investment total (21% - in the first six months of 2004) as a result of the sale of two shopping centres: Waasland shopping centre in Saint-Nicolas and Grans Prés in Mons. The Belux has one of the lowest shopping centre area rates per inhabitant due to regulatory controls.
The logistic sector in Belgium is very important - with Antwerp being the second largest port in Europe - and is until now predominately concentrated on the axis Antwerp-Brussels, Limbourg and Liège. There is high investor demand but due to a lack of product, the logistic investment market represented only 3% of the total market during the first half of this year.
The hotel and leisure sector amounted to 18% as a result of the sale of two leisure parks in Belgium previously owned by Six Flags.
Prime office yields in the CBD of Brussels hardened significantly during the second quarter of 2004 from 6.35% to 5.85% for buildings leased under a standard contract of three/six/nine years. Outside the CBD area, yields vary between 6.8-7.5%. Yields for buildings occupied by the Belgian Administrations under an 18-year lease contact are between 5.5-6.2%. Also in Luxembourg, yields hardened on a year on year basis from 6.75-6.35%.
Yields for logistic buildings vary between 8.0-9.5% in Belgium although the psychological barrier of 8% is bound to be broken very soon, and between 7.5-8.0% in Luxembourg. Prime yields for retail unit shops are between 5.75-7.25% in Belgium and between 6.0-7.25% in Luxembourg.
Vincent Querton is managing director at Jones Lang LaSalle, Belgium

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