Commercial real estate market in Luxembourg and trends for 2025

Commercial real estate in Luxembourg and its legal basis

The commercial real estate market comprises the purchase, sale, lease and management of real estate for economic or business activities. This segment includes different types of assets, such as offices, commercial premises such as stores or shopping centers, logistics platforms, industrial buildings and hotels.

In Luxembourg, contracts for the lease or sale of commercial real estate are subject to a legal framework that combines provisions of the Civil Code with administrative and tax regulations. Below we present the most relevant legal and regulatory bases for this sector.

• 1. Luxembourg Civil Code:

  The Civil Code regulates the general aspects of contracts for the rental and sale of real estate. Of particular importance are the provisions of articles 1713 to 1762, which establish the obligations of the lessor and the lessee, and of particular importance is section III, which establishes particular rules for commercial contracts.

• 2. Commercial Leases Law of February 3, 2018:

  There are specific rules for commercial leases that complement the Civil Code, in particular the Commercial Leases Law of February 3, 2018 stands out. This law replaced the section entitled “Special rules governing commercial leases” by introducing new articles 1762-3 to 1762-13 of the Civil Code.

• 3. Urban and real estate regulations:

  In the case of the sale or exploitation of commercial property, urban and administrative regulations apply to ensure that projects comply with local development plans. These include the General Development Plans (PAG) and the Urban Planning Law of July 19, 2004. These regulations prevent, for example, a residential property from being purchased and transformed into commercial space if it is located in an area intended exclusively for residential use. It would also be prohibited, for example, to build a shopping center or a logistics platform on a plot of land where local regulations limit the square meters of construction or the number of levels of buildings.

• 4. Real estate tax regime:

  Both the sale and lease of commercial real estate are subject to specific tax regulations. Of particular note are the TVA regulations and those relating to registration and transcription fees, however, there are many other laws and regulations that impact both companies and individuals involving the commercial real estate market such as the Law concerning the Income Tax or the Double Taxation Avoidance Agreements.

• 5. Investment rules and requirements for real estate funds.

  For large-scale commercial transactions or real estate investments made by funds or companies may also be relevant the law of July 12, 2013 on Alternative Investment Fund Managers (AIFM) which regulates funds investing in commercial real estate, requiring higher levels of transparency. Additionally, the regulations on financial holding companies (Soparfi) may be relevant for certain investors as these types of legal structures can be used to acquire commercial real estate and benefit from the tax advantages of this regime.

General state of the market and trends for 2025

The outlook for real estate markets is increasingly optimistic, after a long period of inflation and rising rates, inflation is already slowing and central banks have started to cut interest rates. These conditions combined with lower borrowing costs, returning liquidity and stabilizing prime real estate yields are boosting investor confidence in the market, improving the prospects for commercial real estate financing and showing encouraging signs for 2025.

On the other hand, it is important to note that, according to the BNP Paribas REIM outlook report for 2025, investor approaches are changing. 

With this varied investor interest, no single asset class is neglected, although some sectors present particularly interesting prospects, such as logistics. However, to better understand the market we will take a look at the situation of each sector separately.

Office space

The Luxembourg office real estate market is showing remarkable resilience, especially in a global context marked by uncertainty. Despite challenges such as rising inflation and the impact of the war in Ukraine, demand for high-quality space remains robust, driven by multinational companies and financial institutions that value the country's strategic location.

Unlike many other economies, Luxembourg has bucked the post-COVID-19 remote working trend, thanks to a robust service sector and the incentive for many cross-border workers to physically commute to their offices, stemming from tax and social security arrangements. This is reflected in a low vacancy rate of between 2.5% and 5% in prime areas such as Kirchberg and Cloche d'Or, where rents average 54 euros per square meter per month, which is relatively high compared to the rest of Europe.

However, the market as a whole is under pressure. In less central areas vacancy rates have increased in recent years leading to a reconsideration of the use of space. This involves on the one hand a drive to modernize existing stock and on the other hand the conversion of older offices into mixed-use developments, with an increase in retail and leisure facilities currently sought after by tenants.

Retail and shopping centers

In the retail sector it is particularly important to stress that consumers are increasingly favoring the convenience of online shopping, e-commerce is becoming more and more relevant with retailers such as Amazon and Alibaba gaining in importance day by day. 

However, the trend towards online shopping is increasingly on the rise which has pushed local retailers such as Auchan and H&M to improve their e-commerce offerings and online shopping experience. Still, technology must also be leveraged to enhance physical shopping experiences and create innovative, customer-centric environments that attract consumers back to physical spaces.

Logistics sector

Luxembourg's strategic location in the heart of Europe enhances its attractiveness as a logistics and distribution hub. As a result, among the main real estate sectors under development in Luxembourg, the logistics sector currently records the highest investment volumes. These volumes should normally be maintained in 2025, making the sector one of the best performers over the next five years.

Investors are increasingly prioritizing green buildings that meet strict environmental regulations, and the government is also prioritizing sustainable development, which means that integrating green technologies into commercial real estate must become standard practice.

In addition, the market is influenced by multiple variables, each one adding complexity to the assessment of the market outlook. On the one hand the market must contend with the limited availability of land in prime locations which drives up prices, on the other, increasingly stringent regulatory frameworks can hinder development and other factors such as economic uncertainties, inflation and labor dynamics directly affect the demand for space adding a degree of uncertainty about future prospects.

How to buy or rent commercial real estate

Buying or renting commercial real estate in Luxembourg can be a complex process due to the complexity of regulations, tax requirements and the significant sums involved in this market. For buyers, sellers, landlords and tenants alike, it is useful to use specialized agencies such as CBRE or JLL which have mastered all aspects of the sector.

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These agencies offer in-depth market knowledge and access to exclusive listings of commercial real estate for sale or lease, as well as strategic advice to maximize the value of a transaction. For owners or landlords, these firms are essential in effectively promoting properties and attracting the right clients. On the other hand, property seekers benefit from their ability to identify opportunities aligned with specific objectives, negotiate favorable terms and ensure regulatory compliance.

The involvement of specialized agencies minimizes risks, optimizes time and ensures transactions that comply with the particularities of the Luxembourg market, guaranteeing informed and successful decisions in a competitive environment.