Lack of suitable stock is frustrating would-be investors, and prime yields for offices and retail have remained static as few deals are completed. Yields are forecast to fall, however, as more liquidity seeps into the market.
The collapse of Belgian property company Comuelé with an estimated debt of BFr 10bn in mid-1995 signalled a “return to reality” in the country’s property market, according to Bernheim’s Jean-Francois van Hecke. “Comuelé bought at the top of the market and their buildings had a horrible layout,” says van Hecke. “They didn’t consider the real estate qualities of what they bought.” The resulting caution, allied with several other factors, has delivered a highly-nervous investment market to the country for 1996.
Anhyp, the principal lending bank for Comuelé, has had to set aside a BFr 6bn reserve to deal with bad property debts after pursuing a lending policy which offered loan to value ratios of up to 95%. The bank itself is now for sale, despite amortising a swathe of debt through selling assets, including its 4% stake in the developer Immobel, worth BFr 403m. “This situation had to happen,” adds van Hecke. “Comuelé was technically bankrupt two years ago. Reality is taking its revenge.”
Although the collapse of Comuelé was dramatic when it came, it has not made a great impact on the domestic market: “It is not something that has really frightened investors,” points out Philip Coates of Müller International. “It was an isolated case rather than a sign of the health of the market.” Of more concern, he feels, is the lack of suitable property in which to invest, which is turning fund managers away from property and into other fields.
Another drag on investment is the tax structure: capital transfer tax is a weighty 12% in Belgium, compared with 1% in the UK and zero in the Netherlands. Corporation and capital gains taxes are equally severe (both 40%), to the distress of Belgian real estate professionals, who bemoan the consequent lack of international attention. “The government is very greedy,” claims Coates. “It doesn’t realise that we have seen £1.2bn fly over our heads into England from Germany, and another NFl 1bn has gone from Germany into the Netherlands. I honestly don’t know why the government allows this. It’s really short-term protectionism.” Coates pins his hopes on EU legislation forcing Belgium into line, since he believes the political climate is too rigid to shift on its own.
A further ramification of the tax structure is that foreign companies are almost obliged to work with a Belgian partner if they want to invest. This was how the Scandinavians were able to gain a foothold in the market, albeit a slippery one, which soon loosened under the strain of falling values. The Swedes, in particular, are still in the process of divesting their Belgian holdings, and in the past few months have dropped their prices again, with some results, according to Philip Coates. “I have seen some triple A locations sold for under BFr 50,000 per m2, and I think we will see more of this in 1996,” he adds.
Belgium has traditionally been a steady, if unspectacular property investment market; average values fell only 15% from their 1992 peak, which is barely a third of the losses suffered by neighbouring countries.
This may in part be due to the conservative nature of the governmental policy on property: there have not been waves of investment flooding in from other European countries or from the US, and Belgian investors have been relatively restricted in their ability to invest outside their own country. But even now, as the government announces that insurance companies are permitted to invest outside Belgium, observers predict that few will actually do so. “There is enough for them in the home market,” says Pierre Bondele at JLW.
Pierre Pozzi at DTZ notes that, since interest rates are edging down, he has seen fresh interest from property investors, but this is rarely matched by owners wishing to sell. Apart from the forced sales of the Comuelé break-up, and the Swedes mentioned above, owners refuse to consider selling. Pozzi has strong words of encouragement for prospective investors: “We believe that within the next three to six months will be the best time to enter the Belgian property market. Prices have fallen, but this hasn’t worked through to yields yet; we think they will fall to 5.5%.”
Prime yields are now 6.75% to 7%, with other good locations running at between 7.25% and 7.75% and lesser locations on the outskirts fetching 8% to 8.25%.
The Belgian institutions have been the most active buyers and sellers. Significant deals of 1995 included the purchase of Codic’s Airport Business Centre by Belgian insurance company CGER.
P&V Assurance acquired a 50% stake in the BFr 1.5bn White Park office development, and sold a controlling stake in the company that owns the 17,000 m2 Lux-Bourg building in rue du Luxembourg to Lonhro Belgium for BFr 1.4bn, reflecting a yield of 7.85%. In addition, Royale Belge have bought space in the Waterloo Office Park and in the Woulwe Office Garden.
Non-Belgian investors include the Dutch-registered Schroders International Property Fund, which bought two office investments in the Quartier Léopold from Norwich Union last spring at yields of more than 8%. These were a fully-let 5,900 m2 building in avenue de Cortenbergh, let to the Austrian High Commission, and a part-let property in rue d’Arlon, where a rental guarantee expires in February next year.
UK-based Slough Estates is planning a major business park development at Diegem, close to the airport. Last autumn, it acquired a 7.8ha site from IBM, next to the former Goodyear site it already owned. Some 20,000 m2 of warehousing and office space has been leased back to IBM, while Slough is pursuing planning permission for a further 55,000 m2 of office space.
The planning climate in Belgium has become stricter with the recent introduction of the national government’s Plan Régional de Développement (PRD), which explicitly seeks to restrict office development in favour of residential space. The restrictions are also intended to encourage public transport and discourage cars, so the distribution of property may begin to reflect these changed priorities over time.
Against this background, the emergence of the SICAFI scheme, which resembles the American REIT (Real Estate Investment Trust) or the Dutch and German open-ended funds in that it offers a quoted, indirect investment medium to a wide range of investors, promises to be a shot in the arm for the entire sector. “The structure fits in very well with what the market is asking for – both domestic and international,” says Bernard Cardon de Lichtbuer of property company Cofinimmo, which is planning to adopt the Sicafi structure early this year.
As Philip Coates of Müller remarks: “If you talk to institutional Dutch investors, they are all following the trend of investing indirectly. It is like a domino effect. A while ago they deserted the Belgian market, but now they can see the Sicafi structure is a good tool to allow them to return.”
Retail investment in Belgium follows a similar narrow focus to office development. Very few new schemes are underway, and so there is rising demand on those which have the green light, along with high prices to dissuade the uncommitted. Belgian small retailers have a loud voice in local and national government decisions, and have successfully opposed most applications for new out-of-town shopping centres.
Brokers such as Pierre Pozzi at DTZ are advising their clients to invest in retail where possible, but the physical opportunities rarely present themselves. “There is good reason to think of retail as security in diversification, and it is usually easy to manage,” says Pozzi. Yet because the majority of Belgian retail space is in the hands of family companies who aren’t interested in selling, the market is once again stagnant. Pozzi’s colleague at DTZ, Steve Webster, has set up an operation specifically to hunt out retail investment opportunities. He feels confident that this will produce results in 1996, with the retail warehouse market continuing to perform despite stricter planning legislation.
Indeed, all retail development is becoming subject to tighter laws. “At the moment, everyone wants to invest in retail,” says Jean-Francois van Hecke at Bernheim, “so I have to be doubly careful because there is some over-pricing, and there are very stringent laws on centre development. We are working on three different schemes at the moment, but I don’t think that any will come out in 1996.”
