Balance sheet and outlook of the Luxembourg real estate market

According to JLL Luxembourg's expertise, the Luxembourg real estate market went through several phases during the year 2020, punctuated by a freeze then resumption of activities and finally a series of restrictions linked to the health context. Nevertheless, the balance sheet and prospects for the real estate sector remain attractive.

A residential market with no surprises

The residential market is only slightly affected by the health crisis. Prices remain on the rise and available space is still insufficient in relation to demand. However, from 2022, the introduction of the new housing pact should double the number of affordable housing units.

While waiting for this change, prices continue to rise (1.550€/month for the national average rent) and the average surfaces to decrease (49 sqm in Luxembourg, 72 sqm in Diekirch). The average rent in Luxembourg City is 34,5€/sqm/ month and the average selling price is 11.035€/sqm (mid-2020).

The ranking of the cantons with the most potential for residential development has changed a little. While Luxembourg City remains in the lead, there is a new interest in the cantons of Remich and Grevenmacher, as well as the arrival in seventh place of Diekirch.

There is also a strong demand for the redevelopment of existing large houses or villas into apartments, which increases the pressure on this type of property.

Investors are looking for residential projects in areas with good infrastructure and a mix of residential, commercial and office space, especially outside Luxembourg City. In addition, there is more interest in developing projects for students, coliving (which is holding up well despite the crisis) and housing for seniors.

Continuous investment

The volume of investments has decreased by 38% compared to 2019, but the number of transactions remains high (17 in 2020, knowing that the 10-year average is 15). Nevertheless, no "mega transactions" (i.e. more than 200 million euros) were recorded in 2020. "Investors remain positioned in the office market and core transactions remain at the forefront", says Vincent van Brée, head of capital markets Luxembourg at JLL Luxembourg.

With travel restrictions, the Korean investors who had been very present in recent years are no longer present in 2020. Europeans, and in particular French and German investment funds, dominate the market. "Luxembourg remains a popular destination for investors, and the confirmation of triple AAA ratings by international credit rating agencies reassures foreign investors," confirms Vincent van Brée. Luxembourg's yield of 3.9% remains attractive in Europe when compared to that of Paris or Berlin, which is capped at 2.5%.

"We have not had any fundamental questioning or any sudden halt in transactions during this year", explains Vincent van Brée. The outlook should remain in the average range of the last five years, but certainly with fewer mega deals, a confirmed appetite for the office sector and a growing interest in residential. All this with an increased focus on environmental, social and corporate governance standards.

Extract from the Paperjam article "JLL Luxembourg: un bilan 2020 positif, mais avec des nuances", January 2021.

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