Europe’s Undiscovered Capital
King Sturge Magazine, Autumn 2007PRICES IN BRUSSELS LANGUISH AT AROUND HALF OF THOSE IN AMSTERDAM AND LUXEMBOURG - AND A THIRD OF THOSE IN PARIS AND LONDON. BUT THERE IS NO REASON WHY BRUSSELS - THE CAPITAL OF EUROPE - SHOULD BE SO FAR BEHIND THESE MORE FAMOUS NAMES
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The Irish, in particular, have already discovered Brussels en masse, with three separate sales of 100 apartments made recently. Other new developments across the city are under offer to bulk buyers from other countries.
This enormous potential is the main reason why investors are increasingly looking at the city. Even with rather low yields - typically in the 4.5% - 5.5% range - Brussels apartments look likely to rise substantially in value over the next decade. Over the last 10 years, for example, apartment prices have increased by 10% a year on average.
King Sturge recently surveyed the market for new apartments, investigating 101 residential projects of more than 30 units. Of these, 65 were under construction and 36 were waiting for or had just obtained building permit.
For property purposes, the city is divided into five zones, and new development is not spread equally among each of these. South and Pentagon have the greatest share of large projects, whereas Brussels East has the largest reserve pipeline.
As with any city a sound market depends on population growth. In general, Brussels grew by 6.23% over the five year period from 2001 to 2006. Pentagon and West grew at the fastest rates, by well over 8% in each case.
There is a risk of oversupply in both Pentagon and South. There is not a risk of oversupply, at least for the next two years, in the other three zones of East, West and North. The number of permitted apartments and units under construction, and their relationship to the population growth, can be seen in Chart 2.
We have also analysed recent deals in the city to establish the typical sq m cost of developable floor area. The highest level is in the South, where deals are struck at around €800 per sq m - a figure that is much lower in the West and North, at €350 per sq m. However, growth is expected in these cheaper areas, whereas values will remain steady in the reminder of the city.
Developers were also asked to give maximum and minimum sales prices for their completed projects, and the results, together with prime prices, as shown in Chart 3. Average prices are around €2,500 per sq m in Pentagon, East and South, and drop to €2,000 per sq m in West and North (Chart 4).
Again, as with land values, prices are rising in the cheaper areas. West and North have shown substantial growth of between 10% and 30% over the past year, whereas prices have remained stable in the South - as the diagram above shows. Around 72% of apartments are sold by developers on delivery in the city, according to the same research.
Generally, projects offering smaller units and studios were more successful. This is mostly because 53% of the population of Brussels is single - students, divorces, widows and elderly people. The average household size in the city is only 2.03 people.
As a result of these particular demographics, the city authorities need to be convinced that more building permits for units of between 40 sq m and 60 sq m must be granted.
These new developments will provide even more opportunities for international investors - although they should be aware of the possibility of oversupply in the established areas of Pentagon and South, and the potential for growth in North and West.
