Sébastien Berden on the office market in Belgium

By Jennifer D. Duell

Sébastien Berden is the corporate finance manager for Cofinimmo, the foremost investor in rental property in Belgium. Its core activity is office property, and the company owns a portfolio of 162 buildings. As a member of Cofinimmo’s investment team, Berden analyzes the real estate market for investment opportunities and heads the company’s acquisition process.

Why should real estate investors look at Belgium? What benefits will it provide their portfolio?
Forty-five percent of Brussels’ 12 million square meters of office space is occupied by public institutions and organizations. This figure is even higher if you include all entities whose presence and activities arise directly from these administrations.

Their rental behavior tends to be less influenced by economic cycles than that of their private/corporate counterparts, and Brussels tends to benefit from a defensive tenant base. The stability of this public demand acts as a security blanket when market conditions are difficult, and Brussels might present some similarity with Washington, D.C., in this respect.

For example, when a lot of European capitals experienced very difficult office real estate market conditions in 2003, Brussels had a decent year thanks to the fact that the Flemish Government (and, to a smaller extent, the European Union) took additional office space. By investing in Brussels, investors would thus add a low-volatility holding to their portfolio.

What are the tax planning opportunities with foreign investment?
High transfer taxes influence the way investors buy direct real estate. One of the most common techniques used is the acquisition of buildings through the acquisition of property companies set up as special purpose vehicles for that goal or through long leases. Structuring and financial know-how certainly offer a competitive advantage in this respect.

What are the challenges with investing in Belgium?
While the demand from pubic institutions and organizations is slowly increasing year by year, the demand for office space from private sector companies seems to be lackluster. In that vein, we hope that early results of the recently introduced national interest tax will reduce corporate taxes paid by private sector companies and their increasing demand for office space.

A major challenge for our market will be to restrain development that comes without pre-leasing. Unfortunately, some development is driven by deficient data on the Brussels office real estate market that does not adequately capture several rental sub-segments. We also need to further promote market transparency, permitting investors to better understand risks associated with vacancy and rental rates.

What advice do you have for investors who are entering Belgium for the first time?
While the nature of our market provides manageable risk to those who understand it, investors need to be very careful in analyzing how these market factors work. As I mentioned, investors must be cautious about generalized rental data on the Brussels office market.

We fear that a part of the excessive yield compression on the investment market recently was fueled by investors who were not truly familiar with the market, but are encouraged by unreliable data or far too bullish advisors.