Market analysis of the Belgian Serviced Office Sector 2017 - 18

1. fin POWER
From business and coworking-centers to ‘serviced offices’
A fast evolving market with growth expectations
SERVICED OFFICE MARKET IN BELGIUM
Key financial figures
B.W.A. Conference, October 2018

2. I. Introduction & situation within ‘Office market’
II. History and evolution of # flexible workspaces
III. The business centre market : actual situation
IV. Key financials of the business centres in Belgium
V. Conclusions
INTRODUCTION

3.  Business & coworking-centers in Belgium :
 See list in annex
 What is a business or coworking-center ?
 Uses this as name of his business (business center or coworking-space or both)
 Business center : full-time reception available – cfr. VAT-regulation for business centers
 Coworking-center : focus on ‘community’, community manager, no full time reception necessary
 Serviced offices = full time reception services or community-manager
 Used figures :
 Published financial data (Belgian National Bank)
INTRODUCTION
“Definitions and limitations”

4. Offices (x 1,000 m²) prgn. 18
Brussel 12 675 000
Antwerpen 2 128 000
Gent 1 550 000
4 other 'office' - cities 400 - 500,000
(Liège, Mechelen, Leuven, Namur)
15 'regional cities' 150 - 350,000
(f.ex. Kortrijk, Roeselare, Brugge, St. Niklaas, Aalst, )
Total office spaces in 'cities' : 23 600 000
# Business centres (in m²)
Number : 245
Average surface : 2 203
Total surface occupied : 539 677
in % of office market : 2,29%
# Co working centers
Number : 135
Average surface : 590
Total surface occupied : 79 623
in % of office market : 0,34%
in % of business center market : 14,75%
Total serviced office surface: 619 300
% oppervlakte 'serviced offices' 2,62%
INTRODUCTION
Situating within the total ‘OFFICE MARKET’
4
 Office-market in Belgium
 Market of ‘larger cities’ very well documented
 Estimate of regional cities and total market in collaboration with CBRE.
 Total ca. 24 Mio m², accommodation for > 1 Mio collaborators (employees + civil servants in office
environments)
 Stable market with appr. 24 Mio office space
 Business center market
 Definition of ‘business center : ‘
 Flexible contracts, Including services
 Excluding ‘joint-office-buildings’ with no ‘reception’
 Total : ca. 240 business centers, appr. 500,000 m² office space.
 Accounts for appr. 2,2 % of total office space in Belgium, growing market-share.
 Fast – growing market, including more and more the coworking-aspect
 Co working market
 New, upcoming market
 Total of appr. 135 Coworking spaces in Belgium, totaling appr. 80,000 m² office space.
 Growth rate of market was high, but stabilizes since more and more coworking-
initiatives expand to the business center market.
The business and coworking-market covers
appr. 2,5 % of the total office market in Belgium.

5. INTRODUCTION
Situating within the total ‘OFFICE MARKET’
5The office market is shifting towards the ‘serviced offices’
Serviced Office market
Flexible contracts (month/year/…)
Focus on services and community
Office market
‘long term contracts’
No flexibility
Limited services (facilities)
 Limited ‘new constructions’ < 2 % of
market
 Decreasing demand due to NWOW
Coworking market
< monthly ‘memberships’
Flexible, focus on ‘community’
Limited but increasing services
 Market growth > 20 %/year
Business centre market
Flexible ‘yearly’ contracts
Flexible, focus on ‘services’
Limited but increasing community
 Market growth 10-20 %/year
Decreasing
market ?
Increasing market
Difference is fading away

6. INTRODUCTION
Situating within the total ‘OFFICE MARKET’
6
The (declining) office market is shifting fastly towards the
‘serviced offices’, which could support a further decline …
Bron : CBRE, data 2018
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prgn.18
Key figures Brussels Office Market
Office Stock Take-up Vacancy rate
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Brussels Office market 2018
vs. London
Service office Traditional offices

7. II. HISTORY
“A market with a rich history”
• First boom of business centres was
between 1985 and 1990.
• Then, 95-2005 : more failures then
start-ups in our market until …
• 2005-6 : start of the ‘New Way of
Working’
• From then, we see an acceleration
of the growth of locations from 5-10
% (2005-2010) to 10-20% actually
• Actually, the market has grown to
more then 350 flexible workspace
locations in Belgium – double of the
number 5 years ago.

8.  Total appr. 340 “serviced office locations” in Belgium :
 50% of the market are ‘individual players’
 IWG is the biggest ‘operator’ with 35-40 locations
 (Semi-public’ initiatives remain important,
 28 ‘BC’s’, Bedrijvencentra, no central management
 Citydev, Cowallonia, LRM and Bar D’Office > 5 locations
 Limited number of private groups having > 3/5
centers (only Officenter and Multiburo have more
then 5 centers)
 20 ‘owners’ have 2 centers.
 In 2011 : ca. 135 BC&CW centers, which means an
medium annual growth of appr. 20 %/year !
 Failure rate limited appr. 3 % of the centers, but
higher then real-estate market (appr. 1 %)
In Belgium, we have a relatively fragmented market, where only 40-
50% of the centers is operated by a ‘group’.
III. BUSINESS CENTERS IN BELGIUM
3.1. Operators of business and coworking-centers

9.  The medium penetration of the
serviced office market is appr.
2,5 % in Belgium
 Brussels is with 2,0 % still
substantially ‘lower’ penetrated
 Most cities have between 3 and
4 % of ‘service offices’ (incl.
Antwerp, Liège, Leuven and
Charleroi)
 Hasselt, Louvain-La-Neuve,
Turnhout, Genk and Ieper have
a more then 5 % market
penetration of serviced offices
 Namur, Brugge, Aalst Mechelen
en Namen are cities were the
penetration of serviced offices is
only appr. 1 %, half of the
Belgium average.
The ‘local’ situation in the different cities is clearly very different.
III. BUSINESS CENTERS IN BELGIUM
3.2 Business centers by location
Sources: CBRE, Finpower
# BC/CW m² BC/CW m² offices
% BC/CW
m²
Brussel 144 262 805 12 653 000 2,08%
Antwerpen 54 60 804 2 128 000 2,86%
Gent 31 65 739 1 550 000 4,24%
Liège 15 18 200 500 000 3,64%
Hasselt 11 17 070 275 000 6,21%
Leuven 10 15 499 440 000 3,52%
Kortrijk 7 8 590 350 000 2,45%
Charleroi 6 7 823 450 000 1,74%
Louvain La Neuve/Waver6 12 200 150 000 8,13%
Mechelen 5 20 565 500 000 4,11%
Namen 4 4 530 400 000 1,13%
Ieper 4 4 540 50 000 9,08%
Sint-Niklaas 4 4 170 100 000 4,17%
Tournai 3 1 900 100 000 1,90%
Roeselare 3 2 580 190 000 1,36%
Genk 3 6 460 100 000 6,46%
Turnhout 3 5 850 100 000 5,85%
Brugge 3 2 050 150 000 1,37%
Aalst 3 2 950 150 000 1,97%
Oostende 2 3 600 75 000 4,80%
0,00%
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% BC/CW-m² pro city
% BC/CW m² # BC/CW

10. IV. FINANCIAL DATA OF BUSINESS CENTER MARKET
4.1. Turnover evolution
• Turnover
– Total market turnover appr. 135 Mio €
– The market is equally divided between three
types of owners
• International players (Regus, Multiburo, …)
• Public, semi-public and associations
• Private, Belgian operators
• Growth rhythm
– The ‘market’ growth in turnover has been
fluctuating between 6 and 12 % the pas 10
years
– Much more ‘stable’ and ‘lower’ then the
growth in number of centers and in m²
• Stable: logic given the ‘start-up-growth’ in turnover of a
new center  faster growth in number and m² then in
turnover
• Lower : indication of ‘price-erosion’ seen in the market
from 2006 – 2012.
– Actually still present due to the increased competition ?
– Very difficult to measure
The turnover of the Belgian business center market is experiencing growth
rates of 6-12 % until 2017. This is lower then the increase of the ‘number/m²’ of
the market, which may indicate a price-erosion due to increased competition

11. IV. FINANCIAL DATA OF BUSINESS CENTER MARKET
4.2 Operational profit (EBIT) of business centers
• The profitability of business centers is
very differentiated.
• Most important : start-up vs. mature
centers, see next slide
• But, also ‘conjunctural’ aspects and
offer/demand – aspects are important
• The most profitable periods, we see
profits of 3-5 % in our market
• But, the last years, the total profit in
the market was near to zero (appr. 1,2
Mio in 2017)
The profitability of our market remains a challenge, where 3-5 %
seems a ‘maximum’ profitability for the ‘overall’-market.

12. IV. FINANCIAL DATA OF BUSINESS CENTER MARKET
4.2 Operational profit (EBIT) of business centers
• Main ‘financial’ issue of our market : start-up costs of new business or coworking centers
• If we look at the financial figures, centers opened in 2015-16 or 17 realized only 11 Mio turnover in 2017,
generating a operational loss of more then 4 Mio €
– More then 10 newly opened centers realized a operating loss of more then 150 k€ in 2017 – with a ‘mean’ of appr. 200-350 k€ !
– One ‘international’ group stopped operations in 2017 in Brussels, due to a lack of profitability.
• Making abstraction of those ‘start-up-losses’, the medium profitability of the market is appr. 4,5 %, where
only a few operators have a profitability of more then 7-8 %.
The ‘median’ mature business centers realizes an acceptable
operational profit of 3-6 % on turnover, but start-up losses are
increasing to more then 300-500 k€/center.
Turnover Operating profit in % of turnover
Total, all centers : 134 658 1 454 1,08%
New centers 2015 - 2017 11 212 -4 063 -36,24%
Total 'mature centers' 123 446 5 517 4,47%

13. Conclusions
• The business and coworking market are ‘integrating’ more and more towards a service-
office market
– Business Center groups are ‘incorporating’ the coworking ‘community’-concept, coworking-operators are
elaborating their services.
• The number of ‘service office centers’ has increased to more then 350 in 2018, again a
growth of appr. 15 %
• But, the surface occupied has increase with 20-25 %, indicating an increase in the
medium size of a ‘business center’ to more then 2,000 m² actually
– This means that the market-share of the serviced office market is market has increased in 2017 from 2 to 2,5
% of the total office market in Belgium.
– Still lagging behind the levels in the U.K. and the Netherlands (> 3-5%)
• The profitability of the ‘mature’ market remains around our 3-6 % ‘target’, but the sum
of the start-up losses of the ‘new’ centers are nearly as high as the total profit of the
‘mature’ centers !

14. Annexes
1. Advantages of scale in our market
2. Different ‘business models’ pro segment

15. Annex 2 : Advantages of scale in our market
• There are clearly a lot of advantages of scale in
the business center market
– Commercially (website, referrals, …)
– Purchasing power, also on management-level
– Strategically and ‘best practices’
• But, the medium turnover of a business center
is declining ….
– And, we have not included the coworking-centers in this
comparison …
• We have put the ‘profitability’ of a center compared with the ‘size’ of each
center.
– Profitability = profit margin on turnover
– Size = turnover by center
• The ‘regression-line’ clearly demonstrates
– The substantial losses that a business center makes in his 1-2 starting years
(between 100 and 500 k€)
– A ‘break-even’ level of a ‘median’ center around 500 k€ turnover
– Above 600-700 k€ turnover, most of the business centers are profitable.

16. Annex 3 : Different financial models in our market
• Asset – efficiency of ‘International market’ is very high – no investment in ‘own’ buildings
– Private and public sector operators mostly have invested in the building
• Financial leverage of public sector very limited (cash > loan volume)
The ‘international’ operators focus optimizing their financial
leverage with ‘renting’ their buildings, the private (partially) and
public sector (mainly) focus on owning the real-estate.
Turn-
over
Fixed
Assets
Assets/
Turnover
Own
Funds
Own
Funds/
Assets
Own
funds/
Turnover
International 26.295 5.480 0,2 -8.223 -1,5 -0,3
Private 45.944 132.465 2,9 63.353 0,5 1,4
Semi-public 25.241 112.922 4,5 107.489 1,0 4,3