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have peaked in 2013 (around 140,000 sq m of converted office space).
Since, the trend has started to decline, even including the remaining
90,000 sq m of office space due to come off the market for alternative
use over the next few years.
Many projects, both pre-let and speculative, are due for delivery in
the Brussels market over the next two years. The latter will have a
significant impact on the Brussels office landscape, particularly after
a number of large corporates move into their new headquarters (AXA,
Deloitte, KPMG in particular).
The Brussels office market should see strong activity at the beginning
of 2016, led by strong demand from public authorities which was not
able to be satisfied by the end of 2015. However, corporate demand is
set to remain at relatively low levels. The Brussels market must there-
fore expect to have to overcome some significant challenges over the
coming months and years.
It is also worth noting that in investment market, this trend is reversed.
Volumes are high with over € 1.5 billion invested in 2015, the vast
majority of which was in Brussels. The investment market should
remain active in 2016 with high levels of capital from Asia and the
United States and a growing appetite for both secured assets as well
as those with a higher degree of risk. A number of major transactions
are already in the pipeline and are indicative of 2016 exceeding the
investment volume recorded in 2015.
This appetite and growing competition for office assets combined with
historically low interest rates is leading to substantial yield compres-
sion. Yields now stand at around 4.25% (compared with 5% 12 months
ago) for the most recent office assets offering long-term secured
revenues and at around 5.5% (compared with 6.15% 12 months ago) for
the most recent buildings in the best locations. And compression is set
to continue in 2016.
HEALTHCARE REAL ESTATE
Cofinimmo is the investor who did the largest transaction in the
Healthcare sector in 2015 in Belgium. It was not about an acquisition
but rather the sale of the Silverstone portfolio to healthcare operator
Senior Assist for an amount of 134,5 million euros; this is to demon-
strate, if need be, that arbitrage transactions are also possible in this
sector.
The value of Cofinimmo’s portfolio in the healthcare sector represents
henceforth 42,4% of the total; it is the first time that it exceeds the
share of offices (39,6%). This relative increase is mainly due to invest-
ments in extensions and in redevelopments performed by Cofinimmo
in Belgium (€ 26 million), and by acquisitions made in The Netherlands,
Germany, and in France (€ 78 million); and by disinvestments in offices
(€ 88 million).
The Belgian market has pursued its growth with more than 350 million
invested in 2015, compared to approximately € 240 million in 2014, and
€ 100 million in 2013 (€ 260 million in 2012). Long term leases continue
to attract investors looking for long-term returns, encouraged by inter-
est rates ever lower and by uncertainties cleared with the application
of the sixth State reform to the healthcare sector.
DISTRIBUTION NETWORK – REAL ESTATE (PUBSTONE & COFINIMUR I)
Cofinimmo’s holding in distribution network real estate was estimated
at 17.2% as at 31 December 2015. The subsidiaries (Pubstone for the
café/restaurant sector located in Belgium and the Netherlands and
Cofinimur I for retail/local agencies in France) have a very diverse risk
profile, both in terms of geography and their particular nature which
spans both retail real estate and investment buildings that also have
future redevelopment potential.
Overall, the value of these two portfolios has remained broadly stable
since 2014 and the fair value of these distribution network real estate
assets stands at € 538 million.
Improvements in the economic climate and the return of consumer
confidence in Europe could contribute to improvements in this dis-
tribution network sector, although a high level of volatility has been
seen, mainly in the café/restaurant sector. Depending on the location,
variations are expected to be very different with secondary towns and
areas suffering more than others. It is also worth noting that the Paris
attacks and the threat of terrorism in Belgium only had a limited impact
on the sector towards the end of 2015.
Arbitrations in this portfolio are ongoing, Cofinimmo’s investments
are characterised by a requirement for security (long-term leases
with single tenants with a sound financial background), relatively low
rental levels and relatively attractive acquisition prices per sq m. Sale
and leaseback deals for well-located assets in attractive locations
that allow for a wide range of future uses are particularly favoured.
In addition, this section of the portfolio can also offer ‘one-off’ sales
opportunities to local investors.
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