Brussels has seen a rebound in lettings activity during Q110, with lettings up 152% compared to Q109 and 8% compared to the five year average, according to Savills. In addition, the average size of each letting transaction has grown to 1,658 m² from 911 m² in Q109. Such is the improvement in market sentiment, the international real estate advisor reports investor interest has now finally broadened in the prime investment market for shorter-term contracts.
In terms of lettings activity, Savills research shows the CBD has now surpassed the outer CBD representing 67% of the lettings market in the first quarter, this is up 27% on Q109 and 11% on the five year average. Within the CBD, the Midi area accounted for 20% lettings and the North area 30%. The North saw the largest transaction in the city to BNP Paribas Fortis at 35,793 m² marking the return of corporates whilst KPM Group and L'Oreal also signed significant contracts in Brussels. Infrabel, Belgium's railway infrastructure operator, signed almost 25,000 m² in total in the South District which also boosted the pre-letting market and in turn reduced the burgeoning speculative pipeline down to 56% for 2010.
The prime rent remains unchanged at 260 m²/annum yet some letting transactions closed this quarter at prime levels not witnessed since 2007 at around 300/m²/annum. This indicates an existing willingness to pay for premium office space today and should the trend continue, Savills forecasts the prime rent could increase from its current level. Savills notes that completion levels during Q109, including non spec, were low and totalled 25,000 m² of the estimated 385,000 m² total planned for 2010.
On the investment side, Savills notes some major changes have taken place altering the scope of the core market today; a renewed interest in prime development opportunities has returned with developers beginning to envisage the next cycle; prime three/six year leases or multi-let assets, compared to firm requirements for 10 year leases in the same time period last year, are now regaining investor interest whilst lastly and most importantly, debt financing has returned to the market for core assets. These recent changes have provoked prime yield compression between Q409 and Q110 on three/six year leases down from 6.75% to 6.5% and for nine year leases down from 5.8% to 5.75% today.
Sheelam Chadha, head of research for Savills Belux, says: "The rebound in the lettings market will certainly boost confidence for 2010 and we expect to see some large letting requirements in the pipeline for the remainder of the year. We do think the positive sentiment will drive investment deals to a larger lot size of 50-100 million but this is an early stage of recovery and we will continue to see caution being exercised."