Amcham: How has the business real estate sector evolved over the past 5 years?
Vincent Bechet. The corporate real estate sector has been very stable during the past 5 years : until COVID-19 crisis, rents were progressively growing, office stock was also growing of around 3% per year, office take up has been exceeding 200.000 m² per year and vacancy rate was tending to decrease. Of course, Year 2020 has been slightly different, and we noticed a decrease of 18% is terms of number of transactions and a decrease of 43% in terms of “rented square meters”, which is a sign that most of the office searches that have been postponed or cancelled are searched of large occupiers in Luxembourg.
In parallel to this decrease of activity, there has been a decrease in new office deliveries (most of them have been postponed to 2021 because of the 2 months of confinement where no construction company/ real estate developers were able to work.) As well, we noticed a large increase (>200% increase) of office available to Sublet, which is a sign that many companies impacted by home or remote working already adjusted their real estate needs.
How has the private real estate sector evolved over the past 5 years?
The private real estate sector has evolved very strongly over the last 5 years. The population is still growing, household confidence is still good, interest rates are low and the gap between offer and demand is still very important. All of this has led to a very strong increase in prices over the last 5 years, and more particularly last year which was a record year, with an increase of 14%.
What are the present circumstances for business real estate, most especially with regards to the impact of the Covid pandemic?
At this stage of the crisis, companies still do not have a clear view of their future needs : the particularity of Luxembourg market comes from its cross-border commuter : it is hard to estimate what will be the impact of home working on office use as long as the taxes measures are not back in force. In that context, some companies are still keeping “on hold” their office projects.
For the ones which are actively looking for new premises, we see that there are still some uncertainties / need of guidance in the way the premises will be fitted out : is it the end of “Open Space” ? are we coming back to a “single office” configuration, How / to what extend should a “shared desk” policy be implied, how to I motivate my employees to come back to work … there is actually no “one true answer” and the decision will also depend on other facts such as the companies’ activities. We can also see that some search criteria are frequently mentioned such as : external areas, opening windows, high ceilings, showers, on site services, well certification, …
What are the present circumstances for private sector real estate, especially with regards to the impact of the Covid pandemic?
In the private residential market, we cannot say that Covid has a direct impact on the market. At least not immediately. Even though we saw a shutdown of activity during the months of the first lockdown, the market picked up right away and we even saw a catch-up effect on sales.
As a company, how has the Covid crisis impacted Inowai and most especially your employees?
The COVID crisis had been enabling our ability to work remotely when necessary. During the first lockdown, the strictest one, we hence adapted ourselves while ensuring the well-being of our employees, while at the same time, maintaining regular social contacts.
Since the 2020 summer, we did put everything in place to allow our activities to resume face-to-face in the upmost safety conditions, as we believe it is critically important for our business.
On the longer term, as we had been setting up a partial teleworking policy, for those employees who wish to use it whenever it is compatible with their roles and responsibilities. This feature allows us to provide even more flexibility to our employees whenever this is appropriate.
As a senior business leader, how has this Covid crisis impacted your leadership and management perceptions and priorities.
We will not come out of this crisis unscathed. It made us aware not only of the vulnerability of our human condition, but also about the vulnerability somehow of our economic system. There will be a before and an after COVID-19.
We have started to rethink our ways forward how to work and our living spaces too, and the already porous line between private and professional has completely broken, to some extent, down in recent weeks.
These changes have nevertheless brought a new dynamic, in which new technologies will obviously play an important role. We yet observed their usefulness and their limits sometimes, but certainly not yet their full potential.
A new dynamic, hence, in which people, their health and their comfort will be as a matter of fact the priorities. Some of us will certainly view teleworking under a positive light, but at the same time, we might become more aware that it requires adapting the ergonomics of individual workspaces and special attention to the personal situations, as well as the needs of everyone.
The future will depend upon all on the return to the so-called “normal” economic activities and the impact of this crisis within the financial industry, which remains the heart of Luxembourg activity. The real estate industry is only a consequence of the dynamics of economic activity, but it is not the engine. In these circumstances, INOWAI will be present to address the market demands and will know how best to adapt to the future needs.
What are the trends for business Real estate going forward?
As mentioned earlier, different trends are going forward such as:
- Establishing closer to the borders, if not entirely, at least partly. (because of Covid, employees have been used to reduce their commuting time to office, once tax regulation will be applied again, this is a solution for the employees to limit their traffic time and a solution for employees to attract new employees
- Developing shared desk policies
- Office space will become a place where employees come to collaborate with their colleagues, and activities which will require more concentration can be done from home. In that sense, we should see an increase of areas dedicated to collaborative working, as well there should be an increase of individual meeting rooms (so called “bubbles”) where employees can isolate in order to attend video conferences.
- Office space will also, more than ever, be a reflection of the company’s culture: a tool to work, but also a tool to recruit talents. We can expect an increase in the services that will be offered to tenants such as conciergerie / reception services; shared meeting rooms, relaxing areas, …
- Labels which focus on the wellbeing of the occupiers of an office building (such as WELL certification) may become sought after.
- And of course, anything improving the safety & health of the employees (touchless lifts; UV cleaning of Lifts; improved HVAC filters; … ) should also become more popular in the years to come.
What are the trends of private sector real estate going forward?
All indications are that the residential real estate market will continue to grow even if prices will not continue to increase as strongly as in recent years. If interest rates remain low, household confidence remains high and we are still unable to produce more dwellings per year, prices will continue to rise, perhaps at a slower pace, but they will continue to increase.
Many thanks Vincent for taking the time for this interview!