BRUSSELS - Investors should target Belgian real estate investments with three to five-year lease maturities, according to Savills.
The real estate adviser makes the claim in a new report that illustrates how opportunities to maximise returns will arise from the potential for rental growth at lease break in Brussels.
The report also suggests the Brussels office market will be buoyed by large lettings in 2011, in particular from the European Union.
Average yields dropped to lows of 5% for 12-year leases and 5.4% for nine-year leases, but three to five-year lease yields remained unchanged at 6.25-6.5%.
Despite an overall slowdown in investment activity at €1.3bn caused by "euro-zone gloom", as well as a lack of prime product, the firm said the spread developing between short-term and long-term yields had widened so significantly it was a definite opportunity for investors.
Sheelam Chadha, head of Savills research in Brussels, said: "Rental growth is forecast from 2013 onward once the burgeoning pipeline is absorbed, and a real lack of grade-A space becomes an issue.
"Investors who believe in this should consider buying three to five-year leases today while capital values are low and offer good value. Renegotiating these breaks around 2013 will offer great upside once rental growth kicks in."
Savills 2010 leasing data shows prime rents and average deal sizes are increasing in the Leopold District, based on outstanding transactions.
However, overall, there was a slowdown in activity resulting in a 30% year-on-year drop and a 68% decline over five years.
Chadha added: "Although the average top rent achieved increased, the majority of power remains with tenants as landlords prioritise reducing vacancy rates. The EU is tipped as one of the biggest tenants for 2011, having increased its share by 90% in 2010."
Savills said the challenge for landlords was to reduce vacancy rates, currently at 12%, before new development returned.
The research also showed the Brussels market in 2010 was dominated by Belgian investors, representing 64% of buyers, while Germans accounted for 12.6% and the French 9%.