Macroeconomic overview

The Ukrainian conflict which begun in February 2022 is expected to result in higher-for-longer inflation and lower growth of 2.8% for the Eurozone in 2022. Luxembourg, though, remains resistant to direct effects from the geopolitical situation, as trading impacts are expected to be very limited. Forecasts prior to the Ukraine crisis saw economic expansion of 3.5% in 2022 and 4.0% in 2023. Domestic wage earners hit a new peak in March at more than 470,000 workers and the monthly unemployment rate since the end of 2021 has fallen 0.4-point percentage.

In Luxembourg, 10-year rates increased from -0.22% at the end of 2021 to 0.55% at the end of Q1, which is still among the lowest in the Eurozone.

Take up

• Luxembourg office market remains strong and active with high demands and with a take-up of 34,701 sq m and 36,107 sq m for pre-letting transactions. 

• Take-up in Q1 is lower than last year at the same period. However, it is not necessarily a sign of a bad year to come. A positive forecast would be to expect a take-up similar to 2021 (145,693 sq m) by the end of the year.

Vacancy

• Overall vacancy rate in Luxembourg has decreased from 3.53% in Q4 2021 to 3.48% in Q1 2022. 

• The lowest vacancy rate is recorded in Kirchberg with 0.80% followed by the CBD 1.31% and Station 0.86%. There is a strong increase for the Cloche d’Or vacancy, which reaches 6.64%, due to the delivery of new buildings which are not already fully let..

Prime rents

• Prime rents remain stable compared to 2021.

• Currently prime rents in CBD stand at 51€/sq m/ month, in Kirchberg prime rents amount to 42€/sq m/month, to 37€/sq m/month in Cloche d’Or and in Station.

• In the City districts, Inner Region and in the Greater Region prime rents range between 20€ to 30€/sq m/month.

Developments in Pipeline

• Around 286,000 sq m of office spaces will be delivered in 2022 out of which 52% are already pre-let before completion.

• More and more companies try to secure office spaces by pre-letting agreements made well in advance of the building delivery. Hence tenants who are looking for high quality spaces in prime locations must be ready to commit min.12-18 months before the delivery of the new premises. 

Investment market

• After a slow-down in 2020 during Covid due to uncertainty on commercial real estate, the investment volume finally reincreased in 2021.

• 2022 started quite well with a 489 million € of investment in Q1.

• Prime yield still stands at 3.4% showing the dynamism of the Luxembourg market and the confidence of investors.