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July 2016

Tucked amidst the European economic giants, Belgium’s under-supplied industrial market offers sustained growth and steady returns, experts claim.

Even as neighbours Netherlands and Germany are witnessing a sharp upturn in industrial and semi-industrial activity, Europe’s regional stronghold Belgium is emerging as a stable industrial market for the booming SME and logistics businesses.

Despite severe constraints of land supply and tight labour legislations, the sheer geographical advantage of Belgium – and the solidity of its economy in a troubled Eurozone – is making it a preferred destination for new industrial activity. Entrepreneur organisations Unizo and UCM have signalled in their annual study that Belgian SMEs are in good financial health and are ready to invest, marking a positive signal for the semi-industrial market, not to mention the arrival of international players expanding in the region.

An industrious nation

Analysts estimate that Belgium’s indicators with a bearing on the industrial sector are due to peak in the next two years with manufacturing at 2.07% in 2017. In the medium term, their growth is tipped to follow similar evolutions from 2018, demonstrating a sustained growth chart steadily up to 2021.

On the employment front, despite the relatively slow economic recovery, employment is expected to increase by 1.3% (30,000 jobs) by the end of 2016 in Belgium. According to experts, job creation should remain positive up to 2020, even if at a decreasing rate. In Brussels alone, total employment is expected to reach more than 750,000 jobs by the end of the year, thanks to further increases in the public administration, service firms and professional activities sector, which in turn will fuel economic growth and industrial activity.

“The Belgian market is one of the most mature markets in Europe with a traditionally stable economy and political climate. It’s industrial-logistics market focuses on the ‘golden triangle’ of Brussels–Antwerp–Gent, with the highest population density in Belgium and good access to the European motorway network and the port of Antwerp, which is the second largest in Europe and one of the largest in the world,” says John van Paassen, Head of Capital Markets, Knight Frank Belgium. According to van Paassen, the country’s industrial market is in good health and will witness smart yields for years to come.

Market overview

Solid take-up levels were registered in Belgium’s semi-industrial properties in 2015, totalling 1,031,000 square metres – a 10% increase on the average of the previous five years. A record 688 transactions were registered last year – the highest in the past ten years – with the average size of the transaction logging in at 1,500 square metres. Investments to the tune of 45 million euros were routed to Belgium’s semi-industrial properties in 2015 alone, and prime rents swelled to EUR 60 per square metre per annum, under pressure of the solid demand levels. The final quarter was the top quarter of the year, accounting for 36% of the annual take-up volume. The ‘golden triangle’ attracted 68% of the transactional volume in 2015, followed by the provinces of West Flanders (10%) and Liège (8.5%). In the top 3, the province of Antwerp attracted the biggest volume of 325,000 square metres, which is 17% above the average volume recorded in the province in the 2010-2014 period. In 2015 alone, a total of EUR 339.7m was invested in industrial properties, of which approximately EUR 295 million was in logistics.

Stable market, strong returns

Belgium’s mature industrial market not only safeguards capital but also assures stable rental returns, experts say. Prime rents rose from EUR 55 to EUR 60 per square metre per annum at the beginning of 2015, and have remained stable since then. This prime rent applies to the Brussels Capital Region and the Flemish periphery.

To the South of Brussels, in Walloon Brabant, prime rents range between EUR 48 and EUR 55, while in Antwerp, rents vary from EUR 43 to EUR 48. While prime rents in East and West Flanders, Hainaut and Limburg remained stable at EUR 43, in the Walloon provinces of Liège and Namur, prime rents are slightly lower at EUR 42 per square metre per annum. “In theory the highest yields are obtained in the riskiest locations. In Belgium this means areas where occupiers are less interested in establishing activities, i.e. outside of the highly networked ‘golden triangle’,” says Shane O’Neill, Research Analyst at Cushman & Wakefield Belgium, adding that these opportunities are rare and foreign investors would be advised to restrict their investments to the ‘golden triangle’ for safety of capital and assured returns.

Beyond the industrial market, Brussels and Antwerp occasionally offer unique investment opportunities in very niche asset classes. “One of these was the David Lloyd Leisure Centre, which was a classic case of transformation of a semi-industrial property into a retail project,” says Knight Frank’s van Paassen, adding that another such opportunity will be the upcoming sale of four buildings on the UNESCO heritage site of the Brussels Grand Place, with the option to convert them into a boutique hotel.

Speed breakers

As much as Belgium is strongly emerging as the hub for industrial and semi-industrial activity, there are factors that are proving to be hurdles in the growth. “Belgium is competing with the Netherlands, France and Germany for industrial and logistics developments. The weakness of Belgium is that night work is currently illegal and flexibility of work is an issue,” says Pierre-Paul Verelst, Head of Research at JLL Belgium, adding that logistics companies prefer investing in neighbouring countries that have less constraining employment legislation. However, plans are afoot to relax the night working legislations, which in turn will attract new retail companies and supply chains.

Foreign investors considering investments in Belgium should also be wary about the country’s complex legislations on soil contamination and environmental aspects, besides conducting due diligence of the vendors. The limited availability of land remains an issue, but the sheer geographical advantage in terms of access to the region gives Belgium a big edge.

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