New opportunities created by mobility infrastructure 

Luxembourg's progressive approach to urban mobility is reshaping the commercial real estate landscape in the Grand Duchy. Since implementing free public transportation nationwide, Luxembourg has positioned itself as a pioneer in sustainable urban planning, with the recent completion of a 16-kilometer tramway network in March 2025 serving as a cornerstone of this transformation. This enhanced connectivity arrives at a critical juncture, as JLL's Workforce Barometer 2025 identifies commuting time as a primary concern for professionals across the region. Luxembourg's commitment to eliminating public transport costs represents a strategic response to this challenge, fundamentally altering the parameters that influence office location decisions and workspace demand patterns. As organizations increasingly prioritize accessibility and employee satisfaction, the Grand Duchy's mobility infrastructure investments are creating new opportunities and considerations for commercial real estate stakeholders navigating the evolving office market dynamics.

While Luxembourg's occupier market has weathered economic headwinds over the past three years, properties along the tramway corridor have emerged as clear outperformers. This study aims to quantify what market observers have witnessed firsthand—examining whether data validates the tramway's catalytic effect on occupier demand and uncovering broader location-based trends that define Luxembourg's evolving commercial real estate landscape.

A development running to 2035+

The tramway project was part of Luxembourg's broader public transportation modernization strategy to reduce traffic congestion in the capital and improve connectivity to key areas including the airport, business districts and residential areas. It is expected to be completed by 2035.

The system uses modern, low-floor trams and has been well-integrated with the city's existing bus network and the national railway system. Luxembourg made all public transportation free for residents and visitors in 2020, making it the first country to implement such a policy nationwide.

The tramway network in Luxembourg City was planned in the early 2010s and developed in phases between 2015 and 2025 for the existing lines.

Existing line:

• Line T1: Opened December 10, 2017, for the first section running from Luxembourg Central Station to Pont Rouge. It was later extended to Luxexpo and later to the Airport/Findel in 2025 at one end of the line, and to Howald and Luxembourg Stadion at the other end.

Confirmed future extensions:

• Line T2: planned to connect Luxembourg City center to Esch-sur-Alzette (the country's second-largest city), crossing the office district of Leudelange (opening 2028). This would be a significant intercity connection, approximately 15-20 km long. It is planned for full completion in 2035.

• Line T1 extensions: In a later stage, the northern part of the Kirchberg district will be served. Similarly, the Hollerich district (to the west of the Central station) which is at the core of a major mixed-use redevelopment plan comprising residential, schools, parks and offices will be connected to the tramline.

• Line T3: A third line is planned along the Route d’Esch, to the West of the City.
   

These extensions will likely create new opportunities for commercial real estate development, especially around planned station areas. As such, they are crucial for Luxembourg's urban development strategy, particularly for:

• Connecting major employment centers,
• Supporting residential development along transport corridors,
• Reducing cross-border commuter traffic,
• Enhancing the attractiveness of transport-oriented commercial real estate developments.

What does transaction data say about connectivity to the tramway network?

Our comprehensive transaction analysis covering the period from 2020 through Q2 2025 examined all properties located within a 10-minute walking radius of existing or planned tram or train stations. Worth mentioning, our analysis covers Luxembourg and Esch-sur-Alzette which is currently not linked to the tramway line, but it will be the case in the coming years. For this district, we took the assumption that the train connectivity plays the same role as tramway and considered the location as connected. 
 

Key findings:

• 71% of total transaction volume (estimated at 1.3 million square meters) occurs within tram or train-accessible locations.
• Average transaction sizes along tram corridors exceed the market average by 59%
• Tram-connected properties demonstrate transaction sizes 210% larger than non-connected buildings
• This correlation is reinforced by the fact that 70% of take-up during 2020-H1 2025 consisted of new developments (existing Grade A or prelettings), that are predominantly situated along the T1 tram line.

In the second phase of our transaction analysis, we examined average rental values for buildings located within the tramway corridor compared to non-connected properties. Our findings reveal that public transport-connected buildings achieve an average rental premium of 30% over their non-connected counterparts.

Given that construction costs remain consistent regardless of public transport connectivity, this rental outperformance can be largely attributed to enhanced accessibility and transportation infrastructure. However, this analysis requires contextual consideration: market dynamics are often driven by flagship developments, and Grade A properties - which inherently command premium rents - are predominantly concentrated along tramway routes.

This suggests that while connectivity contributes meaningfully to rental premiums, the correlation may be amplified by the concentration of higher-quality developments in these strategically positioned corridors.

Public transport accessibility drives development strategy, yet quality remains paramount

Proximity to public transportation infrastructure has emerged as a critical factor for new commercial real estate developments in many office markets across the world.

Development pipeline concentrated along tram corridors

The majority of current projects strategically position themselves adjacent to tramway networks, reflecting developers' recognition of accessibility as a key value driver. Analysis of the development pipeline through 2030 reveals this trend: of approximately 629,800 sq.m. of non-pre-committed office supply planned, 66% is situated along existing or planned tramlines, or rail connections with regards to the Esch/Belval location.

Market reality: accessibility alone is insufficient for success

Despite Luxembourg maintaining one of Western Europe's lowest structural vacancy rates -approximately 4% compared to the 8% European average in Q2 2025 - proximity to public transport does not guarantee immediate leasing success. Of the circa 195,000 sq.m. currently vacant in Luxembourg, 50% benefits from direct connectivity to tramway or rail networks.

This data underscores a fundamental market principle: while accessibility has become a prerequisite for speculative development, traditional investment fundamentals remain equally critical. Economic viability, asset quality and building specifications continue to drive tenant decision-making alongside transportation connectivity.

Strategic Implications

The evidence suggests that developers have appropriately prioritized accessibility in their site selection criteria for speculative projects. However, successful developments require a balanced approach that combines strategic location advantages with robust asset quality and competitive economic terms to achieve optimal market performance.

From non-performing secondary location to desirable district: The Airport

When central business districts experience low vacancy rates and correspondingly high rents, secondary office locations become increasingly attractive as viable alternatives. Companies facing budget pressures from premium downtown rents may find that secondary markets offer significantly better value propositions - providing quality office space at a fraction of the cost while still maintaining accessibility for employees and clients. A major catalyst for this shift is the development of new public transportation connections to secondary locations - such as the Luxembourg tramway - which dramatically improves accessibility and eliminates previous connectivity disadvantages these areas once faced. This rent arbitrage opportunity, combined with improved transport infrastructure, lower operating costs, and often better parking availability, can drive significant demand toward these previously overlooked submarkets. 

The case study of the Airport district is a compelling illustration. Average vacancy rate over the 2010 – 2020 period was 10.1%, and the quality of assets was lower than in central locations.

The first milestones of the revival of the Airport as an office location was the development of the Casa Ferrero. This 30,000 sq.m. office building was completed in 2019. It was closely followed by the construction of the headquarters of Union Investment behind the airport terminal.

The second major milestone was the progressive control by Nextensa of the EBBC (European Bank & Business Center) just behind the terminal. The EBBC was losing tenants, suffered from high structural vacancy, and needed upgrade. Nextensa undertook a major refurbishment of the assets, rebranded it Moonar, got a BREEAM certification and add amenities that were missing. After renovation, rents escalated by 28% and the vacancy rate in the district progressively narrowed to around 4% early 2024.

The opening of SkyPark Business Center, anchored by Deutsche Bank, marked the last pivotal development milestone. This integrated complex provides direct airport terminal access, tramway terminus connectivity and comprehensive amenities including hospitality and retail components. It temporarily lifted vacancy higher, while at the same time fuelling additional rental growth to be confirmed with forthcoming transactions. 

Picture: MOONAR (Source: Nextensa)

Cloche d'Or: from established hub to prime destination

The Cloche d'Or district and its extension to Howald, is probably the most stunning example of a district regeneration. This established office market has undergone a remarkable mixed-use renaissance, with direct tram connectivity serving as the magnetic force attracting top-tier corporate occupiers. Besides, one of the country’s largest shopping center was developed, as well as hundreds of new residential units, a school, and the national football and rugby stadium. Among the recent office transactions illustrating this trend, let us cite:

• State Street relocating from Kirchberg

• Intesa San Paolo moved from the CBD

• Baker McKenzie departing the CBD for this newly connected hu

• Cardif Lux Vie, leaving CBD to Howald.

• PwC consolidating its presence in the district.

• Stibbe lawyers relocating from Kirchberg to Cloche d’Or

Howald: The Corner (source: Baltisse)

What does that mean for future developments?

While public transport accessibility is undeniably a major driver of development appetite and tenant demand, it's not necessarily a death sentence for less-connected areas.

Why accessibility drives development:

• Public transport connectivity significantly reduces tenant acquisition costs and expands the labor pool,
• Developers can command premium rents and achieve faster lease-up in well-connected locations (to be nuanced, as we have seen),
• ESG considerations increasingly favor transport-accessible properties
   

However, non-connected districts can maintain relevance through alternative value propositions:

• Lower occupancy costs attracting cost-conscious tenants
• Specialized industry clusters (science parks, logistics, creative sectors)
• Mixed-use environments offering live-work-play amenities within walking distance
• Unique architectural character, historic significance, green location (parks for example)
   

Adaptive strategies:

• Private shuttle services or micro-transport solutions
• Enhanced parking and cycling infrastructure
• Digital connectivity compensating for physical isolation
• Repositioning for uses less dependent on daily commuting (flex office, storage, experiential retail)
   

Market dynamics:

• Different tenant segments have varying transit sensitivity.
• Some businesses prioritize proximity to suppliers, customers, or industry clusters over transit access
• Economic cycles can shift preferences between cost and convenience
• The key is recognizing that while transit accessibility creates competitive advantages, successful districts often thrive by leveraging their unique strengths rather than trying to compete directly on connectivity. Smart planning and adaptive reuse can help these areas find sustainable niches in the broader CRE ecosystem.