Luxembourg's economic landscape: a foundation for growth
Luxembourg concluded 2024 with a growth rate of 1.01%, slightly surpassing the Eurozone average, primarily driven by positive net exports.
While fixed capital investment, particularly in construction, saw a slowdown, forecasts for 2025 and 2026 predict continued moderate growth, supported by anticipated lower interest rates and wage indexation.
Unemployment is expected to remain stable, with growth in public and social sectors balancing job losses in construction. This stable economic backdrop provides a solid foundation for businesses considering expansion or relocation within the Grand Duchy.
Luxembourg office occupational market: demand soars for premium space
The second quarter of 2025 proved to be one of the strongest for the Luxembourg office occupational market since early 2023, with take-up surging to 60,975 sq m. This notable activity was predominantly fueled by corporate demand, as businesses sought out high-quality premises. Key transactions underscore this trend:
JP Morgan secured 14,000 sq m in The Waves.
PWC leased 9,500 sq m in Eosys.
An international law firm pre-let 5,000 sq m in a Kirchberg redevelopment.
Significantly, all three major deals involved Grade A, ESG-compliant buildings, highlighting a clear preference among leading firms for sustainable, modern office environments. This strong demand for top-tier space is influencing rental dynamics. Prime rents held steady at €54/sq m/month but are projected to increase due to indexation and sustained interest in premium properties.
Average rents have already climbed to €35/sq m/month, a reflection of pre-letting activity in highly desirable developments. For the first time in several quarters, vacancy rates stabilized at 5.10%, coinciding with this uptick in demand and pre-letting, signaling growing business confidence across the market.
What to expect in the occupational market
Looking ahead, the office market is set to remain active. Businesses should anticipate continued upward pressure on prime rents, with average rents already on an upward trajectory. While overall demand is strong, some upward pressure on vacancy may occur as tenants relocate and older, less central stock is vacated. This presents both opportunities for negotiation in secondary locations and the need for swift action for those targeting prime, ESG-compliant office space.
Luxembourg office investment market: cautious optimism and quality focus
The investment market saw a modest recovery in Q2 2025, with total transaction volumes reaching €127 million, bringing the H1 cumulative to €158 million. While still below the five-year average, this indicates a cautious return of confidence.
Macroeconomic uncertainty and elevated financing costs continue to shape investor behavior, leading to a selective approach. Pontegadea emerged as the most active investor, acquiring Charlotte 10 in the CBD for €64.6 million (estimated yield 4.50%) and Vertbois in Kirchberg for €62.5 million (estimated yield 4.85%).
These acquisitions underscore a strategic focus on core, income-generating assets that meet high standards, often including ESG criteria. A private investor also acquired Urbaterre Bloc B in Leudelange.
Recent transactions point to pricing below the prevailing benchmark yield, leading to a technical adjustment of the theoretical prime yield to 4.90%. This marks a renewed compression since 2024, consistent with a gradual market normalization and signals cautiously improving sentiment for core assets that meet stringent ESG criteria.
Investment market outlook: a path to broader reactivation
The investment market is expected to remain selective but gradually become more active in the second half of 2025, with several core, ESG-compliant transactions already in the pipeline. Improving financing conditions and the availability of institutional capital suggest a broader reactivation.
This could lead to further prime yield compression, particularly if transactional evidence diversifies and overall market sentiment continues to improve. For businesses, this translates to a healthy market with continued development and availability of high-quality, sustainable office options.
Source: cushmanwakefield.com
