(JB) Demand for office space in Luxembourg could come close to outstripping supply in the coming years as the country awaits the completion of new developments, a report reveals.

During the first semester of 2012, one in 20 offices (5.7 percent) were vacant in Luxembourg, marking the highest occupancy rate in Europe, according to the BNP Paribas Real Estate survey. And the rate is set to fall further.

“There are things which are planned but they won't be ready until 2013 or 2014,” explained BNP Paribas Real Estate CEO Martin Heyse, adding: “Things will be complicated if we don't build more.”

With the vacancy rate set to fall further in the next semester, the cost of office space is expected to rise. Presently, the average monthly Luxembourg office rental rate per metre squared is 34 euros and rising. Prime office space is valued at 40 euros per month, a high cost that catapults Luxembourg into the top five for Europe in terms of costly office space.

Luxembourg City accounts for the largest office hub in the Grand Duchy, providing 64 percent of the market. The share in Esch-sur-Alzette is slowly growing with the recent development in Belval. Financial services occupy just under half of Luxembourg's office space (49 percent), following by consultancies (20 percent) and the public sector (14 percent).

However, it looks as though demand for office space by the financial sector is to ease off in the near future. The survey explained: "Due to uncertainty surrounding the euro area debt crisis, we anticipate lower demand from the financial sector, the largest contributor to take-up in Luxembourg."

A number of new office developments are in the pipeline for Luxembourg, which is also expected to ease the demand. Among them are the new offices in Royal Hamilius, Avenue Notre Dame and at the Ban de Gasperich, where PricewaterhouseCoopers will construct new offices.