News

Luxemburg — the office market

News

Estates Gazette

20 May 1989

by Colin Bird

Luxembourg is the smallest country of the European economic community and enjoys a very high standard of living –above that of even Denmark and West Germany. It has enjoyed almost zero inflation for the last three years and offers to its residents considerble tax advantages, one of the more significant of which is the lack of tax at source on interest earned.

The city of Luxemburg has a population of some 80,000 people, this being about a fifth of the total population of the country. The city has seen a strong and continuous evolution over the last 30 years in the financial sector which has resulted in there now being 124 different banks represented. The banks were followed by many insurance companies, thus consolidating the growth of a strong financial sector.

This background is important to an understanding of the Luxemburg office market which is centred on the capital city and has as its principal and almost only source of stimulation the requirements of the finance market. Prime rents in the city centre are to be obtained in the Boulevard Royal, although there are other office areas of slightly less value. There are few other significant economic forces creating interest in the office market.

Conservation of existing buildings has remained of great importance to the city authorities and planners, to the extent that recent revisions to restrictions have not only imposed reduced height limits — down from 20 m to 18m — but also demand the inclusion of 25% residential content in any office scheme.

The result of this increasingly tight planning control has been to force certain organisations to establish themselves outside the main city centre, towards the main line station and the Common Market office sector.

Prime site values have been stimulated by the restrictions in supply to the extent that prices now range from BFr50,000 to BFr70,000 per m² (£70 to £100 per sq ft). The price of new or refurbished buildings, including land, is now between BFr140,000 and BFr220,000 per m² (£212 to £230 per sq ft). Rental values range from BFr9,600 to BFr15,600 per m² (£13 to £21.50 per sq ft), based on net internal areas and an internal repairing and insuring lease for nine years with a mutual right to break every three years, the break option being employed in a rising market as a rent review mechanism.

Yields vary between 6% and 7% on net purchase price after deduction of costs and registration duty and 5.5% and 6.25% before such deductions, registration duty being 10.5%.

Thus, as demands for financial services increase, it is to be expected that the Luxemburg office market will follow suit.

by Colin Bird Luxembourg is the smallest country of the European economic community and enjoys a very high standard of living –above that of even Denmark and West Germany. It has enjoyed almost zero inflation for the last three years and offers to its residents considerble tax advantages, one of the more significant of which is the lack of tax at source on interest earned. The city of Luxemburg has a population of some 80,000 people, this being about a fifth of the total population of the country. The city has seen a strong and continuous evolution over the last 30 years in the financial sector which has resulted in there now being 124 different banks represented. The banks were followed by many insurance companies, thus consolidating the growth of a strong financial sector. This background is important to an understanding of the Luxemburg office market which is centred on the capital city and has as its principal and almost only source of stimulation the requirements of the finance market. Prime rents in the city centre are to be obtained in the Boulevard Royal, although there are other office areas of slightly less value. There are few other significant economic forces creating interest in the office market. Conservation of existing buildings has remained of great importance to the city authorities and planners, to the extent that recent revisions to restrictions have not only imposed reduced height limits — down from 20 m to 18m — but also demand the inclusion of 25% residential content in any office scheme. The result of this increasingly tight planning control has been to force certain organisations to establish themselves outside the main city centre, towards the main line station and the Common Market office sector. Prime site values have been stimulated by the restrictions in supply to the extent that prices now range from BFr50,000 to BFr70,000 per m2 (£70 to £100 per sq ft). The price of new or refurbished buildings, including land, is now between BFr140,000 and BFr220,000 per m2 (£212 to £230 per sq ft). Rental values range from BFr9,600 to BFr15,600 per m2 (£13 to £21.50 per sq ft), based on net internal areas and an internal repairing and insuring lease for nine years with a mutual right to break every three years, the break option being employed in a rising market as a rent review mechanism. Yields vary between 6% and 7% on net purchase price after deduction of costs and registration duty and 5.5% and 6.25% before such deductions, registration duty being 10.5%. Thus, as demands for financial services increase, it is to be expected that the Luxemburg office market will follow suit.