Netherlands Real Estate
Market Update August 2014
Whilst real estate market fundamentals are still to return to a period of sustained
recovery, investors have already returned to the market, initially focusing on the
prime locations in Amsterdam they are increasingly prepared to go further afield.
Dutch commercial real estate has historically been one of the
main targets for institutional investors in Europe.
NL Transactions % European
Activity
6
4
2
Q1 2014
Q3 2013
Q1 2013
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
0
Q1 2009
The open, export driven economy in combination with easy access to
modern office stock has historically attracted investors who have been
comfortable increasing allocations to the Netherland‘s mature locations.
Efficient tax structures attractive to German insurers and pension funds
meant they often invested into one of the numerous business park
locations along the major arterial roads. However, an accommodating
planning regime allowed for local administrations to compete against
each other for tenants of the many office hubs located in peripheral and
non core office locations. The development response of 2004/2005
drove the market to a position of over supply, and the subsequent
financial crisis removed demand from the market resulting in almost
eight million square meters of office space remaining vacant across the
Dutch office markets today.
Source: Real Capital Analytics July 2014
Several factors expected to dampen Dutch economic growth.
Dutch economic overview (%)
7,5
5,0
2,5
0,0
-2,5
-5,0
Q1 2005
Q1 2006
Q1 2007
Q1 2008
Q1 2009
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Q1 2016
Q1 2017
Q1 2018
Deleveraging, by private households and by the public sector will result
in domestic demand some way below historic averages and Dutch
consumers have to deal with a weak labour market and house price
adjustment. Banks continue to consolidate their balance sheets which
will keep the lending environment relatively tight, furthermore, the Dutch
government will have little flexibility to deviate from its current path of
fiscal austerity. The size of the Dutch work force is expected to shrink
over the coming years and an aging work force would need to be offset
by a higher participation rate or by rising immigration. However, the
latter has become subject of ongoing political discussion as populist
parties have started to occupy the space in recent years. Latest
1
forecasts by Oxford Economics suggest, that the Netherlands will be
running below their potential output growth rate until at least 2020, as a
result, the Dutch economy is expected to only growth by 1.1% pa
between 2013 and 2022.
GDP Growth
Retail Sales
Unemployment
Source: Oxford Economics July 2014
1
Oxford Economics world Overview July 2014
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Office market
Typically there’s a lack of transparency in the Dutch office markets, as
prime effective rents can differ significantly from headline rents.
Furthermore, secondary space is often heavily discounted on the
leasing market, as competition remains fierce. Driven by low
construction levels over this cycle and a gradually decreasing amount of
modern space in prime locations, prime rents are expected to grow by
1.6% per annum over the next five years with growth set to improve
3
from 2015 onwards.
Office rents (LHS Index 2008) Vacancy %
125
20
115
15
105
85
5
75
0
Vacancy
Prime rents
Source: DeAWM Research, PMA
Retail market
Dutch households have suffered from a prolonged period of negative
real income growth and rising unemployment. Households are expected
to remain cautious for some years and consumers will likely remain
4
cautious. This has consequences for retailers, as real retail sales
figures have been negative for 11 successive quarters.
10
95
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
We can expect that long established central submarkets in Amsterdam,
Rotterdam and regional hubs such as Utrecht and Eindhoven will likely
start to experience prime rent growth from 2015. The Hague, with its
vast public sector exposure might need longer to remove its excess
capacities. However, given the ongoing slump in economic activity,
prime rents in Amsterdam don’t appear cheap. At € 345 sqm/year in
prime locations like the Zuidas in the CBD are above the pre crisis level
2
of 2008.
Real Retail Sales Growth % pa
10
5
0
-5
2
DeAWM Alternatives Research, PMA
DeAWM Alternatives Research, PMA
4
Oxford Economics World Overview July 2014
3
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-10
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Tourist destinations such as Amsterdam are better placed. The prime
high street segment has performed relatively well and core locations are
in demand by international operators often willing to accept higher rents.
Occupier markets are less favourable in the Shopping Centre segment,
where prime rents have adjusted slightly over the last 24 months, the
outlook appears worse for the larger and medium sized secondary
centres. In contrast, smaller neighbourhood schemes, which provide a
strong grocery anchor, have seen relatively stable performance and will
continue to do so.
France
Germany
Netherlands
Spain
United Kingdom
Source: Oxford Economics July 2014
Logistics market
Of thel three key real estate sectors in the Netherlands, we expect the
logistics sector to outperform as investors continue to benefit from a
broader inward yield shift and moderate rental growth.
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8
7
6
5
Office
ShC
Source: DeAWM Research, PMA
Logistics
2018
2016
2014
2012
2010
2008
2006
2004
2002
4
2000
Given the Netherlands prominent location close to a number of
dominant northern seaports it has retained its strong position in Europe.
In terms of tenant demand, the Dutch market is trailing only (the much
larger economies) of Germany and France. Much of the recovery of the
logistics market is linked to a rise in global trade. A large chunk of
European exports and imports are shipped trough Rotterdam,
Amsterdam and Belgium’s Antwerp, which is south of the border. But
there are other drivers too. The Netherlands is also experiencing a
general shift from high street to online trade and the larger cities are
also subject to urbanization. However, many logistics operators may be
attracted by the easy access to ports whilst at the same time reaching a
consumer base of 60-70m people within a radius of five hours drive.
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