REAL ESTATE 2018 THE NETHERLANDS - CBRE RESEARCH - Carestone Property Fund
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CB RE RESEARCH
2018 THE NETHERLANDS
R E A L E S TAT E
MARKET
OUTLOOKTA B L E O F C O N T E N T S
PAGE 3 PAGE 12 PAGE 14
Economic outlook Investment outlook Real estate finance
Future growth outpacing 5-year Strong investor demand, but scarcity outlook
average showing positive momentum of product putting investors under Lending terms increasingly
for the Dutch economy. pressure to find creative ways to favourable and growing appetite for
deploy capital. debt in real estate transactions.
PAG E 6 PAGE 16
The Netherlands analysis: Office outlook
current upturn versus previous upturn Growing occupier demand resulting in rapidly declining
Key differences are lower LTVs, softer pricing outside prime vacancy rates, but limited development potential putting
segment and more cautious investor behaviour. rents under upward pressure.
PAG E 18 PAGE 20
Retail outlook Logistics outlook
Growing investor demand for core retail properties. Growing development pipeline and opportunities for
rental growth in supply-constraint locations.
PAGE 22 PAGE 24 PAGE 26
Residential outlook Hotels outlook Healthcare outlook
As one of the most mature residential Investors will look beyond Another record investment
investment markets The Netherlands Amsterdam in 2018. volume expected in 2018.
will continue to be attracting
foreign investors.
CBRE RESEARCH © 2018 CBRE B.V.
1SHORT HEADLINE
Figure 1: GDP growth forecast 2018 compared to previous 5 years
2.3
1.7
2.8
2.6
NORWAY
SWEDEN
1.6 1.9
2.2 DENMARK
2.2
THE NETHERLANDS
1.8
1.5
1.6 2.4
UK
1.2
1.7
BELGIUM
GERMANY
1.9
1.1
FRANCE
2.7
1.9
2013-2017 AVERAGE
FORECAST 2018 1.4
0.4
SPAIN
ITALY
Source: Oxford Economics
© 2018
2017 CBRE Limited
B.V. EUROPE REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
2E C O N O M I C O U T LO O K
2017 was an exceptionally good year for INVESTMENT VOLUMES MOVING
the Dutch economy, with an outstanding AT ELEVATED LEVELS
The European economy’s good shape is reflected in real estate
3.3% annual GDP growth. It is expected
investment volumes, which are moving at elevated levels.
that new, business-friendly government Europe looks set for another year of robust activity in 2018,
policies will further stimulate sound supported by positive occupier and investment market
economic fundamentals in 2018. fundamentals (CBRE, 2017a). In this regard, despite its small
population and size, the Netherlands has become a key
investment market. It was not only the fifth largest in 2015 and
GOOD PERFORMANCE OF EUROPEAN ECONOMY 2016, but in 2017 (to Q3) its investment volume ranked third in
2017 turned out to be very positive across most of Europe. The continental Europe.
Eurozone economy saw growth accelerate to 2.4%, up from The key driver for European real estate investment markets is
1.8% in 2016. This was just above the USA, where the equivalent the continuing and rapid growth of asset-manager portfolios
figures were 2.3% and 1.5%. The big change from 2016 was that (PwC, 2017). Propelled by this increase in capital inflows,
domestic demand became a bigger driver of economic growth, globalisation of the investment industry is set to continue and
making it less reliant on exports. Although unemployment the competition for high-grade investment products to firm.
remains high in some countries, there is now a virtuous circle With major European investment markets approaching full
of rising growth, falling unemployment and rising confidence. capacity, investments are increasingly switching towards new
All of this has been achieved with only a modest rise in inflation asset categories and secondary markets. Accordingly, for
(i.e., core CPI up 1.5% in late 2017). investors the main challenge for 2018 will be the sourcing of
core deals.
POSITIVE ECONOMIC ENVIRONMENT IN 2018
Most European economies are finishing 2017 strongly and THRIVING DUTCH ECONOMY
economic confidence is within a whisker of a 30-year high. This 2017 will probably see record GDP growth: well above 3%, the
positive environment is expected to continue into 2018. In GDP highest rate of increase since 2007. The second quarter saw the
growth terms, the countries leading in the recovery are Spain, highest quarterly rise since 1999, driven primarily by a strong
Sweden, Germany and the Netherlands. Expectations for 2018 increase in exports and investment. Oxford Economics expects
and 2019 generally compare favourably with the recent past, this strong economic momentum to continue, with its
suggesting a further acceleration of economic growth. At 2.2%, indicators showing that private consumption will grow further,
that is expected to be above average and higher than the that export performance is solid and, especially, that
five-year mean in the Netherlands. investment will be the prime driver of growth in 2018. Further
spurred by increased government expenditure and supportive
Following the Oxford Economics forecast, unforeseen events fiscal reforms, it is expected that GDP growth will continue in
aside, the next major headwind for Europe will be the cyclical 2018 but at a more moderate rate: approximately 2.2%.
downturn expected in the USA in late 2019/2020. At present, the It should be noted that this strong economic performance is
USA economy is enjoying a renewed bout of growth and this will partly still a recovery from the severe and enduring financial
be reinforced by tax reform and the new budget. By 2019, crisis. Also, the recovery contains a strong element of
however, this growth spurt might be running out of steam and increasing housing prices reliant on low mortgage interest rates.
tighter monetary policy could start to bite, leading to a
slowdown in economic growth followed by a cyclical rebound NEW GOVERNMENT POLICIES
from 2021 in the USA. That said, clear uncertainties remain – in WILL ACCELERATE ECONOMIC GROWTH
both directions. The new government (Rutte III) aims to satisfy a divided
CBRE RESEARCH © 2018 CBRE B.V.
3electorate through fiscal easing and increased government
spending. Rutte III intends to shift the tax burden by lowering
income taxes and raising taxation on consumption and
environmentally-unfriendly activities. This pro-business
TOP 5 CONTINENTAL EUROPEAN government is expected to further spur the already well-
performing Dutch economy. This will have positive effects on
COUNTRIES BY INVESTMENT VOLUME (in € billion) real estate markets, in the form of decreasing unemployment,
increasing wages – on average, 3% annually – more non-
temporary labour contracts (housing and office markets),
increasing consumption (retail and logistic markets) and so on.
2017 THROUGH Q3 AVERAGE ANNUAL
2015/2016 (FULL YEAR) However, labour shortage – an issue in sectors such as logistics,
construction and IT during 2017 – could restrain economic
1
growth in 2018.
GERMANY € 39 € 53
The planned discontinuation of dividend taxes will smoothen
2 FRANCE € 14 € 27 the payout of dividends and have a positive effect for non-
domestic shareholders. However, the announced elimination of
3 THE NETHERLANDS € 11 € 13 the special Dutch tax regime for real estate investment trusts
(fiscale beleggingsinstelling, FBIs) will make investments in
these entities less profitable. Another proposal that could have
SPAIN € 11 € 14 a negative effect on the investment market is the plan to
decrease the fiscal deductibility of interest payments on debt.
5 SWEDEN € 10 € 16 This could have a price effect on leveraged properties and
development projects. The decrease in corporate taxes will
probably only partly offset this negative effect. However, exactly
how these plans will unfold is not yet clear; their adaptation
into policies and laws will be a complex process as the
government has a parliamentary majority of just one seat.
The Netherlands third
largest real estate investment
market in continental Europe
during Q1-Q3 2017
© 2018 CBRE B.V. CBRE RESEARCH
4Bijenkorf, Amsterdam
CBRE RESEARCH © 2018 CBRE B.V.
5TSHHEONRETTH
HEEA
RDLA
L INNDES
A N A LY S I S : C U R R E N T U P T U R N
VERSUS PREVIOUS UPTURN
Before turning to the outlook for 2018, C U R R E N T WAV E C O N S I S T S O F M O R E A S S E T
this section first offers a brief analysis C L A S S E S B U T I S C O N C E N T R AT E D I N K E Y A R E A S
The investment volume in the current upturn (2015-2017) is
comparing the previous cyclical upturn
with € 43 billion in total € 9 billion higher than in the previous
(2005-2007) with the last three years of upturn (2005-2007) and much more diverse in nature. Whereas
the current upturn (2015-2017). At first 59% of all transactions in the previous upturn involved offices,
sight, there seem to be many similarities that figure is just 36% for the current one. Accordingly, the
current wave of investments consists of a much wider variety of
– for example, a wave of foreign asset classes including residential, hotel and healthcare. These
investors, competitive bidding (yield ‘new’ asset categories are driven by structural dynamics within
compression) and record-high investment the Dutch political economy and are therefore likely to remain
significant in the future. Although diversity in asset categories
volumes. However, the crucial difference
has increased, transactions are increasingly concentrated in key
is that investors currently have a much markets, especially Amsterdam. Whereas in the previous
more critical attitude towards investing upturn 22% of all transactions was concentrated in Amsterdam
into Dutch properties. this increased to 31% in the current upturn.
Figure 2: Previous upturn versus current upturn investment volumes
in Billion
€ 20
€ 15
€ 10
€5
€0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Office Retail Industrial Residential Hotel Other
Source: CBRE Research
© 2018
2017 CBRE Limited
B.V. EUROPE REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
6Figure 3: Investment origin previous and current upturn S T R O N G I N T E R N AT I O N A L I S AT I O N
OF OWNERSHIP IN BOTH UPTURNS
2% 2% The previous upturn was characterised by a wave of German
3%
3% funds that became quite dominant in the office market, buying
many (mainly secondary) properties at relatively high prices.
And whereas Dutch investors were dominant in the previous
12% upturn, they have become a minority in the current upturn.
However, the extent of internationalisation varies greatly
between asset classes. Dutch office and logistical assets were
already popular among foreign investors in the previous
Previous upturn (2005-2007) upturn, representing approximately half of investment volume,
but during the current one, this share has increased to 71% and
17% 78%, respectively. By contrast, residential and retail properties
61% were bought almost exclusively by Dutch investors during the
previous upturn. But here again, foreign activity has now
increased – to 29% and 59% respectively.
The Netherlands Germany UK USA
Australia Ireland Other
4%
2% 1%
2%
2%
3%
3%
5%
Current upturn (2015-2017) 45%
8%
10%
15%
The Netherlands USA UK Germany
France China Belgium Israel
Canada South Korea Singapore Other
Source: CBRE Research
CBRE RESEARCH © 2018 CBRE B.V.
7Figure 4: Average yields previous and current upturn
8% 8%
7% 7%
6% 6%
5% 5%
4% 4%
3% 3%
2% 2%
1% 1%
0% 0%
Retail: Prime High street Retail: Secondary High street Office: Prime CBD Office: Major Provincial
Average 5 quarters previous upturn (2006 Q4 - 2007 Q4)
Average 5 quarters current upturn (2016 Q4 - 2017 Q4)
Source: CBRE Research
More cautious
YIELD COMPRESSION STRONGER IN PREVIOUS
UPTURN: INVESTORS NOW MORE CAUTIOUS
investors: wider gap
Whereas investors during the previous upturn substantially
‘loosened’ their investment criteria, in the current one investors
have adopted a more careful approach. Competition for prime
between prime and properties is fierce, bringing prime yields to historically levels.
But investors are less keen on paying high prices for secondary
secondary yields properties. This especially holds for retail assets, which have
experienced challenging market conditions in the past five to
ten years. This difference is even more pronounced when
looking at the transaction prices for offices over both periods.
© 2018 CBRE B.V. CBRE RESEARCH
8Figure 5: Office, average transaction price per sq. m. in the Netherlands
€ 2,500
€ 2,000
€ 1,500
€ 1,000
€ 500
€0
2005 2006 2007 2015 2016 2017
Previous upturn Current upturn
Source: CBRE Research
THE SAME PROPERTY TRADED IN higher and is supported by rental growth. Also, debt providers
TWO DIFFERENT UPTURNS still remember their losses on loans provided in the 2004-2007
A sample of 35 transactions involving properties that were upturn, and to some extent this is keeping them cautious.
traded during both investment booms shows the significant Nevertheless, there are also similarities: finance is cheap and
difference between prime and non-prime assets. Whereas the loan restrictions have been loosened (including the dominance
12 prime properties increased in value by 131%, the 23 of redemption-free loans). Accordingly, with record investment
non-prime properties lost 48% of their value. This confirms the volumes and increasing debt volumes, it is crucial to keep an
current investor preference for prime properties. eye on the health of debt levels.
REAL ESTATE DEBT
Whereas Loan-to-Values (LTVs) were rather high (70%+) during
the previous upturn, the current one (2014-2017) is
More attentive
characterised by equity-based investments with LTVs below
55% for core assets. Moreover, the previous period was
debt providers in the
characterised by speculative development in which investors
often bought new builds that still had to be let to tenants. And, current upturn?
with lower yields across the board and higher interest rates,
debt was relatively more expensive. In the current market
environment, the quality of financed properties is generally
CBRE RESEARCH © 2018 CBRE B.V.
9PROPERTIES TRADED IN PREVIOUS
AND CURRENT UPTURN
ATRIUM APOLLO
City Amsterdam City Diemen
Main use Office Main use Office
previous upturn current upturn
Size 19,465 sq. m.
Size 33,877 sq. m. 56,622 sq. m.
previous upturn current upturn
approximately
Transaction price € 200,000,000 Transaction price € 93,000,000 € 35,000,000
€ 500,000,000
Amundi, SEB Immoinvest, Signal, British
Quinlan, Irish private
Purchaser South Korean Purchaser German open ended private equity
investor
investment fund fund
Tishman Speyer, Icon, American Eurocommerce, Savills IM, British
Vendor Vendor
Dutch family office private equity Dutch developer investment fund
© 2018 CBRE B.V. CBRE RESEARCH
10Photography: Whit Preston
TRADE PARK ZUIDOOST KIMPTON DE WITT
City Amsterdam City Amsterdam
Main use Light industrial Main use Hotel
Size 132,985 sq. m. Size 12,870 sq. m.
previous upturn current upturn previous upturn current upturn
Transaction price € 43,000,000 € 29,800,000 Transaction price € 37,000,000 € 106,200,000
Mount Kellett, Mount Kellett,
Halverton, Austrialian Eden, British hotel
Purchaser American private Purchaser American private
investment fnd operator
equity equity
Citigroup, American Rockspring, British Intercontinental, Host Hotel,
Vendor Vendor
bank investment fund Dutch hotel operator American REIT
CBRE RESEARCH © 2018 CBRE B.V.
11I N V E S T M E N T O U T LO O K
With Amsterdam as one of the gateway AN INTERNATIONAL WALL OF
markets of Europe, the Netherlands was MONEY SEEKING TO DEPLOY CAPITAL
In 2017, 70% of all purchases were made by foreign investors
one of the best performing European
and 30% of all transactions were between foreign investors.
investment markets in 2017 with a record This illustrates how Dutch real estate is now being traded in a
investment volume of € 19.5 billion. And global marketplace, by international players. A crucial driving
with a strongly performing economy and force for the Dutch investment market is the continuing strong
growth of global assets under management – including those of
expanding occupier markets, the
the large Dutch institutional investors (PWC, 2017). A
prospects for 2018 are sound. Investors’ substantial part of these growing investment budgets is
risk appetite will increase in the year to allocated to real estate, creating high demand for new
come, putting more unconventional opportunities in this domain in 2018.
locations and6.0 investment classes more RISING INTEREST RATE
firmly on the radar. The crucial question According to the Oxford Economics forecast, the 10-year Dutch
5.0 there are enough
will be whether government bond rate will continue to rise in 2018. Following
the CBRE yield forecast (CBRE, 2017a), prime office yields will
high-quality4.0properties on the market to
be bottoming out in 2018. The attractiveness of prime office
satisfy investor demand. properties, compared with bonds, should decrease very slightly
3.0 but nonetheless remain at historical high levels (see figure 7).
Looking at secondary yields, the Dutch market is even more
2.0 attractively priced. In line with growing investor interest outside
the traditional core markets, the gap between prime and
1.0 secondary yields is expected to tighten throughout 2018.
Figure 6: Investment volume (in € billion)
0.0
€ 25
€ 20
Other The Netherlands one
€ 15
Residential
Hotel
of the best performing
Industrial
European investment
€ 10
Retail
markets
€5
Office
€0
2017
Source: CBRE Research
© 2018 CBRE B.V. CBRE RESEARCH
12INCREASING APPETITE FOR HIGHER RISK dynamics, but it is expected that all will continue to grow and
A scarcity of prime investment product is pushing investors mature in 2018.
beyond the main investment markets of the large cities.
Improving market conditions in regional centres such as ARE THERE ENOUGH AVAILABLE PRODUCTS TO
Eindhoven, Amersfoort and Den Bosch are attracting investor SATISFY INVESTOR DEMAND?
interest. By doing so, the appetite to accept higher risks is It is expected that, as long as the yield spread remains wide
increasing. However, this growing appetite for risk also relates enough and international capital remains available,
to a more open attitude to the length of rental contracts and an international appetite for Dutch properties will remain high in
eagerness to be involved in relatively new asset classes. 2018. However, as shown in more detail below, investment
properties that suit the high standards set by international
INVESTORS LOOK ING FOR NEW investors are becoming increasingly scarce. The crucial
INVESTMENT CLASSES question in 2018, therefore, will be whether there are enough
As these examples show, investment appetite is not limited to high-quality properties on the market to satisfy investor
the conventional classes of office and retail. Quite the contrary, demand. In some sectors, such as residential and logistics, this
in fact: in the search for capital deployment in times of low will further spur speculative development projects. Also,
interest rates, investors are increasingly willing to look for new investors will become more creative in allocating their capital:
classes. As the following pages will illustrate, this has led to the mergers and acquisitions or de-listing of REITs could be tactics
consolidation of niche asset categories in the Netherlands: in 2018 to source product.
hotel, residential and healthcare. Each of these has its own
Figure 7: Yield spread
7%
6%
5%
61 bps
4%
3%
376 bps
2%
1%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Prime office yield Yield, 10-Yr Dutch Government Bond
Source: Oxford Economics, CBRE Research
CBRE RESEARCH © 2018 CBRE B.V.
13R E A L E S TAT E F I N A N C E O U T LO O K
The appetite of debt providers to lend on loans. Also, many foreign banks which adopted a domestic
Dutch real estate is expected to continue focus after the credit crunch are now increasingly willing to
to increase in 2018. As will the variety of allocate capital to real estate lending in new markets. Most
importantly for the Dutch market, rising competition has
debt providers and competition between
impelled international players to lower their minimum lending
them. Borrowing costs, and in particular volumes. This is crucial for the Dutch market because it is
lending terms and conditions, will become characterised by numerous assets with relatively low capital
more favourable for real estate investors. values and thus relatively small loans. Taken together, this
increased international appetite will stimulate further demand
for Dutch property loans in 2018.
INCREASING INTERNATIONAL APPETITE FOR
DUTCH REAL ESTATE DEBT MORE COMPETITIVE LOCAL DEBT PROVIDERS
Investors’ shift in focus to continental Europe is clearly visible In 2017, domestic banks managed to secure various key loans
in the lending market. As a result of its steep recovery, the for core assets ahead of Pfandbrief-lender competitors. This is
Netherlands has become a key destination and is attracting an telling since Pfandbrief-lenders benefit from a favourable
ever-greater number of international lenders. It is expected that finance structure provided by German law, allowing them to
this internationalisation, and the diversification of debt provide aggressive margins for compliant loans. Dutch banks
providers, will continue in 2018. have been able to compete by increasingly working with
insurers through ‘club deals’, with the banks in some cases
In this regard, the revival of the CMBS market could be a key retaining a junior tranche in the deal. For this reason, it is
development. Several foreign lenders seem to be setting up loan expected that the large Dutch banks will further spur
portfolios suited to the issue of CMBS based on Dutch property competition for new loans in 2018.
Figure 8: Main debt providers in 2018
Global
CMBS
Debt funds
Perspective debt provider
Foreign banks
Pfandbrief -lenders
(foreign) insurers
Dutch banks
Domestic
Financed Property Low risk, low rate of return High risk, high rate of return
Loan characteristicsHyatt Regency Hotel Amsterdam
Photography: Bart van Hoek
MORE FAVOURABLE
BORROWING CONDITIONS
As a result of the entry of new lenders and
the increased appetite on the part of existing
ones to provide debt, competition among
debt providers will intensify in 2018.
This has several consequences.
1. Competition between debt providers to source
their product has already led to very low debt
costs for core assets (below 100 basis points over
Euribor). Consequently, competition for core assets
will increasingly revolve around easing other terms.
For instance, widening the thresholds for financial
covenants or, in the case of LTV covenants, monitoring
them less frequently. More advanced markets like the
UK have already seen signs of a move towards loans
without financial covenants.
2. Core real estate investors tend to focus on LTVs
below 55% and it is not expected that they will increase
these levels in 2018. However, opportunistic investors
might further increase LTVs, to 65%-75%. Moreover,
new developments and extensive refurbishments are
increasingly being financed on a loan-to-future-value
rather than a loan-to-cost basis.
3. Debt providers accepting higher leverage
strategies are aware of real estate risks. Therefore,
they will increasingly focus on identifying an exit
through a sale or refinancing. This includes a thorough
understanding of the quality of the financed properties,
their markets and their tenants to ensure that a
transition of risk is achievable.
4. In 2018, debt providers will compete even harder
to finance prestigious properties and investors with
an outstanding reputation. Accordingly, investors
purchasing prime properties will tend to secure the best
borrowing conditions and pricing available.
CBRE RESEARCH © 2018 CBRE B.V.
15O F F I C E O U T LO O K
WAR FOR TALENT available. However, the availability of office space in an
Increasing business activity and a tightening labour market in increasing number of these prime locations is low. Tight market
2017 have fuelled activity on the office occupier market in the conditions are already raising rents for the best locations in
Netherlands. Businesses saw demand for their products and most of the large cities.
services increase, recruited new personnel and acquired or
leased new office space to support the growth. However, they HEALTHY OFFICES
are facing ever-greater challenges as the labour market tightens When seeking office space, corporations are increasingly
and the availability of office space decreases rapidly in main prioritising multimodal accessibility and an extensive range of
locations such as Amsterdam and Utrecht. amenities in the immediate surroundings. The sustainability of
the building itself and a healthy working environment inside it
In a tightening labour market, the recruitment of talent is a are also climbing the list of priorities. Accordingly, office
growing concern for corporations. In such a ‘war for talent’, buildings that also include other amenities and are located in
providing a high-quality and appealing workplace becomes a mixed use urban districts are increasingly populair. This trend
strategic asset. This includes a focus on more flexible office reconfirms the focus of occupiers on modern office buildings
space that is well embedded in convivial, urban districts (see and prime locations driving up prices. But availability of such
CBRE, 2017b). Accordingly, corporations are concentrating in assets is expected to remain limited in 2018, driving occupiers
the prime office locations of the large cities, where talent is to also look beyond the established locations.
Copyright Gettyimages
© 2018 CBRE B.V. CBRE RESEARCH
16Figure 9: Office investment origin 2017 ROTTERDAM AND THE HAGUE LIKELY TO SEE
GROWTH MOMENTUM
China Rotterdam and The Hague are in another stage of the cycle. In
Israel both cities, the vacancy rates of high-quality buildings are
France decreasing and the regional markets are now in balance.
4% 2% The Netherlands Because of the lower growth rate of their regional economies in
Other 4% 24%
4% 2016 and 2017, however, occupier demand has not risen as
South Korea strongly as it has in Greater Amsterdam. Both cities are
8%
expected to catch up, though, with office-based employment
likely to see growth momentum in 2018 and after.
Canada 9% In The Hague, the public sector and several large corporations
are the dominant actors in the office market. After years of low
€ 6.8 billion activity, the occupier market is showing signs of a rebound
which is likely to continue in 2018. In Rotterdam, an
Germany 11% 20%
USA equilibrium of demand and supply has now been achieved in
14% the prime segment of the market but a lot of outdated office
UK
space remains in the lower quality segment. The attraction of
Source: CBRE Research
redeveloped offices to occupiers is proving that quality space is
in high demand in Rotterdam, demonstrating that there are
opportunities here despite the high overall vacancy figures.
REGIONAL CITIES
AMSTERDAM Outside the Randstad conurbation, economic growth is
After much speculation about possible relocations as a supporting the office markets of Eindhoven and other
consequence of Brexit, Amsterdam is emerging as one of the provincial cities. They are experiencing similar developments to
cities expected to benefit. The arrival of the European the big Randstad cities, with large service providers such as
Medicines Agency, related suppliers and clients and a number banks and insurance companies closing down offices and
of smaller related corporations is likely to form a solid basis for consolidating in the main regional hubs. With a strong
continued demand for office space in the years ahead. presence of traditional services and a period of government
Domestic office demand is increasing and there remains a downsizing, these markets have been held back from growth in
distinct preference for Amsterdam’s allure over other Dutch recent years. However, the emergence of technology companies
cities. This attraction relates to the advantages of both physical is now reinforcing office demand and compensating for the
infrastructure in the capital and access to a large pool of shrinkage of traditional service providers. With the current
suppliers, clients and talent. Accordingly, demand for office positive economic outlook, it is likely that the regional cities
space in this largest Dutch market is still higher than in the will continue to benefit from this trend throughout 2018.
country’s other cities. In 2017, 36% of all take-up was
concentrated in Amsterdam. Moreover, the strong demand for
hotels and housing in the same limited space is further fuelling
a highly competitive market. Consequently, vacancy levels are
exceptionally low, even in the more secondary locations. The
prime rental level increased by 4% in 2017 and is likely to see
further substantial growth in 2018.
CBRE RESEARCH © 2018 CBRE B.V.
17R E TA I L O U T LO O K
RISING CONSUMER CONFIDENCE assets. Some of the secondary space in smaller towns which has
Rising consumer confidence and growing private consumption become available through bankruptcies will probably not be
were the basis for increasing activity in the letting market in relet to retailers in the short term. In markets with strong
2017. Consumer confidence reached its highest level in 17 years fundamentals, however, it is likely that alternative uses will
and retail sales are estimated to be up by 4% in 2017. The larger gradually absorb this redundant retail stock.
cities have benefited disproportionately from this recovery, as In this regard, the high pace of vacancy growth in
their attraction to tourists, young professionals and students is neighbourhood shopping centres is striking. The units vacated
growing. To benefit, international retailers have expanded their in recent years by bankrupt retailers, mainly in the footwear
store networks in the prime segments of the shopping areas of and clothing sectors, have proven hard to relet. In a market
large cities. The most successful retailers now combine internet where consumers prefer to shop efficiently online or spend
and physical stores, clearly demonstrating that online retailing their leisure time in a large and entertaining shopping
is coming of age. In many cases, successful retailers are large destination, neighbourhood shopping centres need to explore
international corporations that can leverage on economies of alternative uses for their vacant units. And if demand from that
scale. As a result of these factors, vacancy rates in the prime quarter is weak, a decline in value seems inevitable.
high streets dropped in 2017. Based on the forecast growth in In some cases, however, when properties in the secondary
private consumption and predicted conversion of retail segment of the market (especially those in shared ownership)
properties to other uses, we expect vacancy rates in the best have been undermanaged and are suffering from substantial
parts of the market to continue to decline in 2018. The most deferred maintenance, this does not mean that these assets are
popular cities may well even see their central shopping areas no longer relevant to shoppers and retailers. Investors step in to
expand, with a mix of retail brands and continuing renewal of seize opportunities in the segment by investing considerable
the offering of bars and restaurants. The revival in the amounts of capital in them and actively manage the assets to
emergence of new start-ups in the retail and F&B sector is lift their quality and so regain visitor appeal and raise tenant
pushing this trend. satisfaction. This potential applies particularly to convenience
retail assets.
Vacancy rates in best
CONVENIENCE IS HOT
One clear example of this development is the transition that
convenience retail assets have made over the last few years. In
parts of the market the early phase of the recovery, such assets were not much in
the minds of institutional investors. Opportunistic investors,
expected to continue however, identified the potential in undermanaged convenience
shopping centres and have optimised their occupancy rates. In
to decline in 2018 2017, these supermarket- anchored assets have proven to be
solid investments for both private and institutional investors.
Their interest is based on solid fundamental consumer interest
in convenience shopping, and for that reason is likely to
SECONDARY RETAIL PROPERTIES continue in 2018.
REQUIRE ENTREPRENEURSHIP
Despite the positive signals from the prime high streets in the MODEST RENTAL GROWTH
large cities, a conservative perception persists in respect of the IN AN UNCERTAIN MARKET
secondary segments of the retail real estate market. This seems The substantial gap between prime and secondary assets has
to be justified by the high vacancy rate for secondary retail repercussions for rental growth. Prime rents in the main cities
© 2018 CBRE B.V. CBRE RESEARCH
18Leidsche Rijn Centrum
ASR Vastgoed Ontwikkeling N.V.
Figure 10: Retail investment origin 2017 have remained stable, but those in other locations – including
neighbourhood shopping centres – have weakened and are still
under downward pressure. We expect this pattern to continue
France
in 2018, with a prospect for stabilisation of secondary rents.
Other Despite the clear recovery in the Dutch retail environment,
changing consumer behaviour and the continuing integration
Switzerland 4% 4% The Netherlands
6% 20% of internet retailing bring inherent uncertainty to the market. It
is likely that innovation will continue to shape the demand for
physical stores in 2018 and beyond.
Belgium 12%
€ 3.8 billion
54%
USA
Source: CBRE Research
CBRE RESEARCH © 2018 CBRE B.V.
19LO G I S T I C S O U T LO O K
STRONG DEMAND FOR LOGISTICS Logistics corporations are increasing their investments,
PROPERTIES DRIVEN BY RETAILING especially in technology. In this regard, the recent investment
E-commerce, in particular, is a demand accelerator for logistics by UPS in a brand-new € 130 million high-tech distribution
as the handling of a product ordered online can require up to centre able to handle 50,000 packages an hour has set the trend
three times more space as a conventional sale. Nonetheless, for 2018. But the scarcity of suitable labour will also
traditional retail sales remain the cornerstone of logistics increasingly motivate corporations to establish in regions were
market performance. In this regard, 2018 looks very promising labour is still available.
as continuing economic growth will translate into a 2%
increase in consumer spending. RISING PROPERTY VALUES
SPUR NEW DEVELOPMENTS
WILL CAPACITY CONSTRAINTS International as well as domestic interest in Dutch logistics
PUT A HOLD ON GROWTH? properties has been on the rise, and acceptance of lower yield
With the unemployment level continuing to decrease, however, levels has spurred capital value growth. These continuing price
labour has become increasingly scarce in the logistics sector. increases have not only prompted many logistics operators to
This enhances the urge to work more efficiently, which is also sell their properties in recent years, but also spur new real
necessary as there is high downward pressure on delivery costs. estate developments.
Copyright Gettyimages
© 2018 CBRE B.V. CBRE RESEARCH
20In this regard, local authorities have been rather generous in as well as existing urban industrial property (multi-let assets,
allocating land for logistical uses. Increasing occupier demand storage facilities) will continue to grow. Meanwhile, the
has been met by the development of an average of 500,000 sq. requirements of last-mile delivery within crowded, dense urban
m. of new logistics properties annually, to reach a total current districts are spurring innovation. In 2018, for example, electric
stock of 25 million sq. m. Market rents have therefore been bicycles are expected to become mainstream and exciting
increasing only moderately, as a tenant-friendly competitive experiments with delivery robots and drones will also be set up.
development environment has formed. A new trend for 2018 is Moreover, as last-mile delivery centres are developed close to or
that logistical service providers will increasingly initiate new inside city centres, they will have to be integrated with other
developments themselves for subsequent sale to investors, thus urban users such as retail, offices and leisure. Accordingly, 2018
taking a development profit. might see more development or redevelopment of such
multi-use properties.
However, it is expected that land in some popular hubs – such
as Tilburg, Roosendaal, Eindhoven and Moerdijk – will become
scarcer in the coming years, putting upward pressure on rent Figure 11: Industrial investment origin 2017
levels in these areas. By contrast, some areas with a
concentration of speculative development might experience a Malaysia
downward pressure on rents. In this regard, Schiphol Airport is
an interesting area to look at. Most operations here are Other 4% The Netherlands
5% 11%
airport-related and the stock has grown strongly, including Singapore
speculative builds. However, as airport freight growth has been 6%
flat, it remains to be seen whether there is sufficient demand for UK 7%
all new developments in the Schiphol area.
CONSOLIDATION WITHIN THE LOGISTICS SECTOR
Germany 8%
The Dutch logistics industry has long been a sector with many € 2.9 billion
small and medium-sized firms. Recently, though, it has France 10%
experienced a wave of mergers and acquisitions. The resulting
38%
larger, often international, logistical service providers are 11% USA
increasingly covering the entire country or integrating their
China
Dutch operations into a wider European business. These firms
Source: CBRE Research
often aim for economies of scale, mostly by centralising
activities. Combined with increased corporate investment, this
is setting a trend for 2018 whereby logistics operators will
continue to build increasingly large, more expensive and
sophisticated high-tech properties to facilitate efficient and
concentrated activities.
URBAN LOGISTICS ARE THE NEXT CHALLENGE
The rise of e-commerce and ever shorter delivery times are
prompting retailers and logistical service providers to combine
quick access to the customer with warehouse network
efficiency. In 2018, demand for cross-dock types of city depots
CBRE RESEARCH © 2018 CBRE B.V.
21R E S I D E N T I A L O U T LO O K
Non-regulated rental market
grows while regulated market and
owner occupier market shrinks
Figure 12: Residential market structure
30% 13%
57%
Rental Market Rental Market
< € 711 > € 711
Mid segment and Owner occupier market
Source: CBRE Research, CBS non-regulated market
ATTRACTIVE CITIES, BUT LIMITED SUPPLY density of many cities is increasing exemplified by the shift
With booming labour markets, an attractive mix of amenities towards “micro-apartments” housing specific groups such as
and characteristic neighbourhoods, Dutch cities – in particular the elderly, as well as a move towards concepts that involve new
the ‘big four’ in the Randstad conurbation – have become collective amenities like car-sharing and post rooms for
popular residential locations for a diverse range of households. e-commerce deliveries. Although new construction is gradually
There is growing demand for small and shared apartments, increasing, it is still not at a level high enough to satisfy
especially in mixed-use urban districts with many amenities. demand. Nonetheless, as developers are increasingly willing to
But as families, too, increasingly prefer to live in high-density sell to investors rather than to owner-occupiers, this trend does
urban environments, demand for larger apartments and houses offer an opportunity for new residential investments.
is also strong. Moreover, with the increasing flexibilisation of The housing shortage, recent price increases and the upsurge
the labour market and high prices in the owner-occupier in housing production are all most strongly pronounced
market, renting is increasing in popularity. in Amsterdam.
However, demand and supply in most cities are seriously out of
balance. The housing shortage in the greater urban areas of NEW HOUSING POLICIES
Amsterdam, Utrecht, The Hague and Rotterdam was calculated Facilitated by the liberalisation of housing policies, rent levels
at 60,000 units in 2015 and is expected to increase to 95,000 have increased considerably – especially in popular urban
units by 2020. As a consequence, land values are rising and the neighbourhoods. Both regulated (< € 711) and unregulated
© 2018 CBRE B.V. CBRE RESEARCH
22monthly rents (> € 711) are now much more in line with the rental income, the high quality of the properties, low vacancy
Eurozone average. However, new housing policies also create levels and low non-payment rates.
uncertainties. For instance, new regulations enable local
authorities to develop their own policies for the rent levels of all COMPETITION FOR NEW RESIDENTIAL INVESTMENT
newly built properties, which can positively and negatively OPPORTUNITIES WILL INTENSIFY.
impact the development of new units. It will therefore be Not only have Dutch residential properties become very popular
important to thoroughly analyse the results of the upcoming with a wide variety of foreign investors, but Dutch institutional
local elections, in March 2018. investors also have growing investment mandates that need to
be allocated to residential properties. However, there is
BOOMING RESIDENTIAL INVESTMENT MARKET currently not enough investment product. This is pushing down
With abundant international capital searching for investment prime yields (NIY 3.35% late 2017) and encouraging Dutch
opportunities in a low interest rate environment, all kinds of institutional investors, especially, to buy at an ever-earlier stage
‘new’ asset classes have been identified in European real estate of the development process (50% of all purchases in 2017 were
markets. In this regard, within a short period of time the new developments). With many cities adopting ambitious plans
Netherlands has become one of the most mature residential to develop more rental units with rents between € 711 and
investment markets in Europe. Whereas the average annual roughly € 1,000 per month to tackle affordability issues, in 2018
residential investment volume between 2009-2013 was it is expected that more investment product will become
€ 1 billion, and purchasers were almost exclusively Dutch, since available. Still, the limited capacity within both construction
2014 that figure has more than tripled and now includes a firms and municipalities is becoming a major issue and may
significant proportion of international investors (see figure). well moderate overly ambitious housing production goals. Also,
Investors interested in European residential property now often whereas up until now foreign investors have primarily bought
look first at the Netherlands and neighbouring Germany, older portfolios from Dutch investors, in 2018 they will start to
attracted in particular by the strong link between inflation and compete for new development projects as well.
Figure 13: Residential investment origin 2017
Other
UK
Germany
1%
3% 2%
Canada
10%
USA 18%
€ 3.5 billion
66% The Netherlands
Source: CBRE Research
Note: Excludes healthcare, senior living and student housing transactions.
CBRE RESEARCH © 2018 CBRE B.V.
23H O T E L S O U T LO O K
AMSTERDAM AS A POPULAR compression. Accordingly, in the search for suitable investment
EUROPEAN GATEWAY CITY product investors will also switch to smaller markets where
2016-2017 was a record year for tourism in the Netherlands, opportunities in the midcap market may appear.
with over 30 million visitors – 26% of whom stayed in
Amsterdam. The resulting 47.2 million overnight stays GROWING DIFFERENTIATION IN HOTEL CONCEPTS
nationally reflect a booming business environment for hotel With a growing demand for overnight stays hotel operators
operators. This has also caught the interest of investors, often focus on a particular concept to create a recognizable
resulting in a record investment volume of € 1.4 billion in 2017, brand that is targeted at certain groups of visitors. In general,
€ 440 million higher than in 2016. Interestingly, like the a growth in three specific emerging hotel concepts can be
end-users, investors in Dutch hotel properties hail from a wide expected in 2018:
variety of countries and their origins differ greatly from year to
year (see figure). Ownership of an Amsterdam hotel, especially, 1. Limited-service concepts that focus on offering good quality
is often part of a wider strategy whereby these investors – in basic hotel services at competing prices.
particular those from Asia and Germany – commit to their
investments for the long term. Such ‘patient investors’ usually 2. Brands that aim at constructing popular social hubs by
appreciate rental contracts with a long duration (up to 20 years). investing in high-end food & beverage concepts and public
Also, they currently perceive Amsterdam as an important space. This may include the retail and health sectors, who are
gateway city in Europe as it is one of the best performing hotel expected increasingly to move into hotels.
markets in terms of occupancy rates and average room prices.
Successful Amsterdam hotel operators profit from a perfect 3. And concepts based on the provision of extended stays
mixture of leisure and business tourism, in a balanced market. (i.e., stay > 3 nights) that are expected to further rise in 2018
The fundamentals for 2018 are expected to remain sound. to service the needs of business travellers.
However, the main challenge facing investors will be to find
suitable properties that fit their criteria. With investment
product becoming scarce, capital values increasing and yields
decreasing, this will be harder than ever in the year to come, in Figure 14: Hotel investment origin 2017
particular in Amsterdam.
Other
INVESTORS ARE LOOKING BEYOND AMSTERDAM
With a significant part of Amsterdam’s hotel stock currently
3% The Netherlands
owned by investors with a long-term perspective, 2018-2020 13%
should also see strong interest in new projects. New UK Germany
15%
developments in Amsterdam will add approximately 7,000 26%
rooms to the current stock, probably stabilising the strongly
increased occupancy level, particularly in secondary locations.
Nevertheless, a shortage of investment product in prime
locations will continue to prompt investors to seek
opportunities further afield, in cities such as Rotterdam, The € 1.4 billion
19%
Hague, Utrecht and Eindhoven. Consequently, in 2018 both Singapore
investors and tourists will increasingly look beyond Amsterdam
24%
when investing in or visiting the Netherlands. But with fewer France
investment opportunities in them, too, there will be yield
Source: CBRE Research
© 2018 CBRE B.V. CBRE RESEARCH
24Boot & Co, extended stay, Houthaven
CBRE RESEARCH © 2018 CBRE B.V.
25H E A LT H C A R E O U T LO O K
HEALTHCARE REAL ESTATE DEVELOPS INTO A AGEING WEALTHY POPULATION WILL SPUR
PREFERRED INVESTMENT CLASS HEALTHCARE REAL ESTATE RETURNS
Although relatively small by comparison with other asset The growth in investment volume is expected to be structural,
classes, healthcare property is increasingly being seen by since the fundamentals for Dutch healthcare properties are
investors as a new long-term investment category and is already sound. Not only is the population aged 65 years old and above,
seeing strongly rising investment volumes. Prominent players who are the main target group for healthcare real estate,
include Dutch institutional investors with healthcare real estate expected to rise from about 2.1 million people in 2017 to 2.8
funds, which are concentrating on regions where they expect million in 2030, but this group is also the wealthiest segment of
strong growth, and experienced healthcare REITs with a Dutch society.
nationwide focus.
Much of their equity has been gathered through home
Numerous investors from outside the Benelux have shown ownership, and the trend that the elderly tend to sell their
interest in Dutch healthcare properties, which are often homes once they start needing permanent care and instead
adapted to the needs of particular groups of residents and have renting specialist property is set to continue. In anticipation of
lease contracts with a healthcare provider with a long duration this demand, the development of private residential care
(15-20 years) creating a stable cash flow. However, these long provision in properties with monthly rents ranging between
lease contracts could also hamper return expectations when € 1,500 and € 7,500 is already under way. As privatisation spurs
interest rates would rise substantively. Up until now, foreign competition between providers of such care, they will
activity has been limited to a few investments through Dutch increasingly focus on their core operations and sell
entities. On the one hand, this is because transactions are often off their real estate.
too small – on average, € 7 million in 2017 – for their investment
appetite, and on the other because many of the main vendors –
healthcare organisations and housing associations – and their
end users still have a certain reluctance for allowing their real
estate being transferred into non-Benelux ownership.
Figure 15: Healthcare investment origin 2017
2018: RECORD INVESTMENT VOLUME AND
ENTRANCE OF FOREIGN INVESTORS? Other
Investment volumes are expected to increase further as many
housing associations refocus on their core task, the provision of
1%
social housing, and so sell non-core assets such as healthcare
property. Also, the economic downturn and resulting period of 65% The Netherlands
austerity left many healthcare organisations with limited
resources for investment in their properties. Consequently, in
the coming years they will need to devote large sums to
Belgium 34%
improving the properties essential to their healthcare activities
– specifically, those suitable only for such functions and hard to
€ 530 million
convert to other uses. To finance these investments,
non-essential properties will be sold, typically through sale
and leasebacks with retention of use. Sales of these more
flexible assets will probably contribute to a record transaction
volume in 2018.
Source: CBRE Research
© 2018 CBRE B.V. CBRE RESEARCH
26Zorggroep Charim, Mirtehof
Photography: Topshot
CBRE RESEARCH © 2018 CBRE B.V.
27C O N TAC T S
RESEARCH CAPITAL MARKETS GLOBAL RESEARCH
Jos Tromp Erik Langens Nick Axford Richard Barkham
Head of Research, EMEA Executive Director Capital Markets Global Head of Research Global Chief Economist
+31 631 96 94 38 +31 655 84 82 13 +44 20 7182 2876 +1 617 9125215
jos.tromp@cbre.com erik.langens@cbre.com nick.axford@cbre.com richard.barkham@cbre.com
Jannes van Loon Bart Verhelst Henry Chin Spencer Levy
Analyst Executive Director Capital Markets Head of Research, Asia Pacific Head of Research, Americas
+31 61 586 8809 +31 621 26 44 05 +852 2820 8160 +1 410 951 8443
jannes.vanloon@cbre.com bart.verhelst@cbre.com henry.chin@cbre.com.hk spencer.levy@cbre.com
CBRE.nl
To learn more about CBRE Research, or to access additional research reports, please
visit the Global Research Gateway at cbre.com/research.
F O LLOW CBRE
REF E RENCES
CBRE (2017a), 2018 Europe Real Estate Market Outlook.
CBRE (2017b), Europe Flexible Office Markets – The Flexible Revolution.
CBRE Research (2018), various Dutch and European transaction databases.
CBS/Statistics Netherlands (2017), Statline.
Oxford Economics (2018), Global Economic Database.
PWC (2017), Asset Management 2020: A Brave New World.
CBRE RESEARCH
This report was prepared by CBRE The Netherlands Research, which forms part of CBRE Research - a network of pre-eminent researchers who collaborate to provide
real estate market research and econometric forecasting to real estate investors and occupiers around the globe.
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