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THE NETHERLANDS:
THE YEAR AHEAD
A Cushman & Wakefield report
2015 - 2016
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CUSHMAN & WAKEFIELD
CUSHMAN & WAKEFIELD
BIBLIOGRAPHY
CBS
Consensus Economics
CPB
DNB
Oxford Economics
This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part.
©2015 Cushman & Wakefield LLP. All rights reserved.
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TABLE OF CONTENTS
PREFACE
VISION FOR THE YEAR AHEAD:
• THE ECONOMY
• THE INVESTMENT MARKET
• THE LOGISTICS MARKET
• THE OFFICE MARKET
• THE RETAIL MARKET
CONCLUSION
CONTACTS
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PREFACE
Cushman & Wakefield is pleased to present The Netherlands: the year ahead. In this research paper we look forward to the coming twelve months: we give our view on what is about to come to the market and how the market will evolve in 2015 and 2016.
With over 40 years of experience in the Dutch real estate market, Cushman & Wakefield has a proven track record in the Netherlands, successfully adding value for our clients in the advisory projects we have been involved in over the past decades.
Recent successes we achieved, have helped clients entering the Dutch real estate market through investments, the opening of a new office, the opening of new logistics spaces and the opening of their first Dutch (flagship) store. Furthermore, we have advised various investors to dispose of properties, even given the difficult market circumstances of the past years. We have also been successful in acquiring real estate against the most favourable prices in the market.
However, despite the past successes we cooperatively achieved with our clients, we are keen on investing in our relationships with key and new clients. Therefore, we are pleased to present this research paper outlining our vision for the year ahead. This way, you will get a better understanding of what drivers will impact the market during 2015 and 2016.
We surely hope you will find this paper useful and are more than happy to discuss any of the outcomes with you.
On behalf of Cushman & Wakefield,
Drs. Jeroen Lokerse MSRE MRICS Michiel Boonen MRICS
Managing Partner Cushman & Wakefield Senior Consultant - Research
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THE ECONOMY
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THE ECONOMYInternational perspective for 2015
Finally, the past year has been mildly positive after years of rebounds of the world economy. Global growth picked up only slightly to 2.6% in 2014, from 2.5% in 2013. For the coming months, cautious optimism remains the key word.
FRAGILE RECOVERY
On the positive side, growth should continue its climbing route in 2015 with global growth expected to reach 3% according to the World Bank. The US recovery will likely lead higher global growth this year, while Southeast Asian countries will remain the best performing nations. Europe should also slowly come out of its long-lasted sluggishness. Below are some of the key factors underlying the growth rate of the global and European economy in 2015 and 2016.
DIVERGING MONETARY POLICYAccommodative monetary policies have been a key stabiliser of the main developed economies since the financial crisis broke out in 2008. It is likely to remain an instrumental factor during the coming twelve months. There is, however, an increasing divergence between the central bank´s policy in the United States and in the United Kingdom on the one hand, and the policy of the European Central Bank (ECB) on the other. The Federal Reserve and the Bank of England have already stopped their quantitative easing programmes. Many analysts expect them to start raising interest rates this year, even though recent low-inflation figures indicate their tightening attitude to be limited in the short term.
The ECB has conversely loosened its stand. After imposing negative deposit rates on banks last year, the central bank has started its own quantitative easing programme to fight the frighteningly low inflation in the euro area. Disagreements on monetary policies between some Northern European countries, especially between Germany and the rest of the Eurozone, have not prevented the institution from taking a bolder stance. The ever declining inflation expectations obviously removed the last hesitations.
The rising divergence in monetary policy explains the recent fall of the euro against the dollar and the pound. One can hence expect the common currency to remain weak throughout 2015, as well as volatility and continuous tensions on foreign exchange markets. Meanwhile, funding costs should remain exceptionally favourable for euro area borrowers (at least for the ones getting access to financing).
“The Netherlands is one of the countries to invest in the years to come due to the very high potential of consumer demand.
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THE ECONOMYInternational perspective for 2015
FALLING OIL PRICES EXPECTED
The dramatic fall in oil prices has been the main and most unexpected news of the last few months. Barrel’s price has lost over half its value since last June, to less than fifty-five dollars in the first months of this year. This is overall good news for the world economy as it provides extra purchasing power for oil-importing countries. These tend to spend more as a share of GDP than oil-exporting countries, which save a large share of their export revenues. As a result, this will boost global demand.
Nonetheless, this raises fears of collapsing inflation figures, leaving some economies on the brink of deflation. Such concerns are particularly acute for the euro area, where inflation has fallen to very low levels over the past few months. Some peripheral countries are already experiencing an evolution in negative pricing. If deflation expectations anchor, it can be very difficult to recover from a falling prices spiral, which will be devastating for debtors entitled to repay capital in nominal terms. The ECB has therefore started to fight this evolution among others with its QE programme.
On the international capital markets, one might observe reducing activities from sovereign wealth funds of oil-exporting countries as less money gets into their coffers. If low oil prices persist in the medium term, one may expect changing investment strategies by many of these actors. They will divest from long-term high-value assets, and replace them by recurrent yielding assets able to provide complementary revenues for government budgets.
THE EURO CRISIS (PERMANENT?)
Even though European policy-makers pretend they have fixed the euro, most analysts reckon that many structural flows remain unsolved in the euro zone. Most peripheral economies have reduced their imbalances dramatically during the last four years and some euro-wide safety nets are now in place. Still, the continent remains inadequately equipped to respond to a full-blown banking and/or sovereign crisis occurring in one or several euro member states.
Fears concerning the Greek situation are now reappearing as the hard-left party Syriza has won the recent election. It has promised voters they will renegotiate the Troika’s economic reforms package for the country and ask for a restructuring of the country’s debt. Even though financial markets have limited their negative reactions on Greek assets so far, further contagions remain a possibility should a Greek debt default or a departure from the euro (Grexit) occur.
We stand in a relatively supportive global context in which international trade could pick up, thereby helping the Dutch open and trade-based economy. Internal demand in Europe is nonetheless likely to remain modestly positive at best. Given the already substantial positive level of the Dutch current-account balance, at 10% of GDP, a significant economic boost originating from external factors is unlikely.
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THE ECONOMYDomestic perspective for 2015
The Netherlands left the recession behind in 2014. With the year-end GDP growth rate estimated at 0.8%, the country finally saw its economy grow for the first time since 2011. However, driven by external demand, growth was slack in 2014.
MODEST GROWTH
2015 will be a turning point for the Dutch economy. GDP growth is expected to come to 1.2% overall, although still mostly driven by a strong performance of the Dutch export sector. Nevertheless, domestic expenditure will slowly but steadily become a more important driver of Dutch economic growth. It is even anticipated to be the key contributing factor to GDP growth by 2016. This all points in the direction of a continuous growth of the domestic economy, with solid outlooks across various sub-sectors for 2015 and the years ahead.
Apart from the GDP growth, the governmental balance will recover further as well, although at a modest pace. While the budget deficit in 2014 will most likely have come to 2.4%, it is anticipated that this will improve to 1.8% of the country´s GDP by 2016. Furthermore, 2016 will also be the year the country´s debt will decrease for the first time since the start of the economic crisis.
EMPLOYMENT IS RISING
Over the past years, the Dutch market was characterized by rapidly increasing unemployment across the country. The turning point for employment seems to come in 2015, with an anticipated decrease of the unemployment rate by 30 bps over the year. The decrease of the unemployment rate, although at a relatively slow pace, is mostly a result of an increase in the number of available jobs, which will increase by 0.6% in 2015. In the end, unemployment will end at some 6.6% for 2015. However, it will remain on par in 2016 as a result of an increasing productivity of employees, limiting the demand for personnel.
Real wages are anticipated to grow in both 2015 and 2016, which will impact purchasing power positively. However, the growth in real wages is mostly a result of the low inflation rate more than a significant nominal wage growth. Indeed, with inflation standing at a low rate between 0% and 1%, real wages are anticipated to increase by some 1.5% per annum in both 2015 and 2016.
-4,00%
-2,00%
0,00%
2,00%
4,00%
6,00%
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GDP Growth Unemployment rate Real wage growth
Chart: Development of GDP, unemployment rate and real wage growth in the Netherlands
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THE ECONOMYDomestic perspective for 2015
GROWTH DRIVERS
Growth in 2014 was nearly entirely driven by the strong performance of the Dutch export sector. However, 2015 will see private consumption and business investments contributing to a vast share of growth as well. Nevertheless, 2015´s growth rate is slowed down by a foreseen slump in governmental expenditure. The Dutch government will still be focused on cost cutting and decreasing its budget deficit.
With the export sector being the main driver behind economic growth in 2014, economic recovery has been slack. Exports were under pressure due to the geopolitical uncertainties in, among others, the Middle-East and Ukraine. As a result, domestically produced goods have had a difficult year in 2014, which holds back the growth rate of exports.
Nevertheless, with the Netherlands´focus on throughput, mostly a result of the strong European and global position of the Port of Rotterdam, export grew in 2014. It is anticipated to remain at a comparable growth rate both in 2015 and 2016. Growth in 2014 will amount to 4.1%, whereas the anticipated growth for 2015 stands just below 4%. For 2016, the growth rate is expected to come to 4% again, still mostly driven by throughput of goods. With the growth rate remaining at par, the Dutch export sector only marginally benefits from the foreseen growth in relevant trade across the globe. However, this is mostly caused by an increasing market share of emerging markets taking over some of the Netherlands´ share.
While the consumer sentiment in recent years was subdued, consumer confidence started to increase mid-2013, slowly moving up to pre-crisis levels. Indeed, consumer confidence reached its highest level since 2008 in 2014, although still being negative. With a strong positive correlation (0.79 between 1978 and 2014) between consumer confidence and spending, it was foreseen that consumer spending would gain momentum quickly after the recovery of consumer confidence as well. Although recovering a bit bumpy, all indicators point in the direction of a solid recovery of consumer spending. Indeed, 2014´s figure will most likely equal last year’s consumer spending. This will make 2014 the first year without a decrease in consumer spending after a falling rate in five consecutive years. Real wages are likely to grow modestly over the next two years. Therefore, consumer spending is foreseen to follow a similar pace at 1.8% growth per annum, both in 2015 and 2016.
Next to increasing consumer spending, business investments will grow in 2015 by some 3%, with a continuous growth expected for 2016 at 4%. This growth will follow a volatile period in which business investments strongly increased in 2013, but showed a comparable decrease in the beginning of 2014. However, the registered decrease in 2014 was mostly a result of changed regulations, more than structural decisions of businesses.
Overall, domestic expenditure is expected to outperform the export sector as main economic driver by 2016. Both consumer spending and business investments are driving domestic expenditure.
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THE INVESTMENT MARKET
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THE INVESTMENT MARKETIn 2015
The year 2014 has been a historically good year for the Dutch investment market, outperforming the investment volume of the previous five years. However, with international capital flowing heavily across various markets, we predict there is ‘more to come’ in 2015.
MORE TO COME
It will be difficult to outperform the total market volume of 2014 in 2015, but some sectors are foreseen to grow in the year ahead. We expect investors to be less risk averse in markets with extremely scarce prime opportunities. Indeed, for the office market for example, we foresee an increasing demand for secondary opportunities in the major economic regions of the Netherlands. International investors generally perceive Amsterdam as the only prime office market of the country. However, the top ten cities of the country will now be on their radar, as well as more secondary locations in the conurbation of major cities and the Randstad as a whole.
International investors will focus on large-scale investment opportunities, while domestic investors are generally in the market for smaller (< € 20 million) investment opportunities. Although secondary product was still favourably priced in 2014, we anticipate an increasing diversification in pricing for various levels of secondary product in the office market. Some areas will see upward pressure on pricing, whereas in other parts of the country certain asset classes will still be devaluated in 2015.
AVAILABILITY OF FINANCING
Banks were hesitant with real estate financing in previous years, but an increasing volume of real estate financing slowly became available in 2014. We foresee this trend to continue and even to accelerate. The financial market is increasingly becoming an international market, with the Netherlands being of interest as a result of the relatively high spread on real estate loans. With an increasing liquidity in 2015 and the historically low interest rates that are currently registered, availability of debt will be high in 2015. As a result, investors have sufficient capital available for real estate investments, although banks are not expected to loosen their LTV covenants of 65–75%.
Despite increasing liquidity, banks remain cautious in financing assets considered more risky. Long lease contracts are important, while location has been increasingly important for banks as well. Lastly, if one is to invest in a relatively illiquid market, banks will remain cautious providing finance for such projects in 2015 as well.
The availability of finance will be widened in 2015, but financing levels are not expected to reach pre-crisis levels. This is mostly a result of the regulations that became in effect, such as Basel III, which force banks to have a larger amount of capital in-house to resist possible stress periods.
Furthermore, we expect some banks may dispose of their non-performing loan portfolios in 2015. This will widen the availability of available capital for new financing projects.
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THE INVESTMENT MARKETIn 2015
LOGISTICS INVESTMENT MARKET
Logistics assets have been highly sought after in 2014, driven by the scarcity of prime investment product and the scarcity in the occupier market. Especially the main logistics regions of the Netherlands were highly favoured, although portfolios with some assets outside of these areas still traded in 2014 as well.
In 2015, price levels for prime logistics space in the best locations are expected to come under further pressure, with yield levels expected to equal those of the best years pre-crisis. Indeed, demand is high for prime logistics assets and risk is perceived to be limited. Occupiers are hardly able to move anywhere as a result of the limited supply of modern logistics space in the best spots of the country.
Demand will again be driven by international investors, while various funds, both domestic and international, have now found their way to the logistics investment market as well. The latter investor group perceive the logistics market as interesting. The achievable returns are relatively healthy compared to the risk level coming with an investment in some other markets. Indeed, with the target returns of various funds, pricing in some other markets will hardly meet the investor criteria and as a result, this group will increasingly be active in the logistics market.
Furthermore, 2015 may be the year in which more secondary assets will be targeted too. However, this is mostly a result of the limited availability in both the occupier and investment markets of prime product. Indeed, investors may start to focus on somewhat more secondary product and locations as a result of the positive expectations for the occupier market, in which they want to act pro-actively.
We expect a greater deal of relatively small transactions in 2015. This is a result of the limited availability of domestic logistics and industrial portfolios. Besides single-asset transactions, cross-border portfolio transactions in which Dutch logistics assets are included will be seen more often in 2015 as well. Assets of cross-border investments are expected to be of slightly less quality in the Netherlands, whereas single-asset transactions will firstly be concentrated in the country’s logistics hot spots. Regions such as Noord-Limburg or Central Brabant will be geographically interesting for investors seeking assets for international distribution. The centreof the country remains interesting to investors focusing on domestic occupiers.
“Price levels of prime logistics assets willmove towards pre-crisis levels in 2015.
”
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THE INVESTMENT MARKETIn 2015
OFFICE INVESTMENT MARKET
The total investment volume in office space reached over € 2 billion in 2014. It is difficult to imagine that 2015 will be the fourth consecutive year office investment volumes rose compared to the previous year. Nevertheless, with office investments in 2006, 2007, and 2008 varying between € 4.2 billion and € 7.8 billion, it is certainly not impossible to outperform the 2014 volume.
Previously, the majority of the office market could be divided into two main areas: investors either focused on prime or secondary assets. In 2015, the office investment market will see more diversification. Especially the market area widely considered ‘secondary’ will increasingly be divided in multiple areas. For these, market performance varies widely.
We foresee the prime (or core) area of the market to remain tight with hardly any availability, resulting in limited investment activity. In 2015, we expect the upper tier (or core+) area of the market to widen and to be highly in demand. Among others, back-office locations in Amsterdam, areas in Rotterdam, The Hague, and Utrecht, as well as high-quality buildings in various locations of the Randstad with long lease contracts, will increasingly be targeted this year. As a result of the high demand, price levels for this product are expected to become under increasing pressure, with investors favouring long lease contracts with prime tenants above the location of the building.
Other areas of the secondary market may also experience a rise in demand, especially with pressure on price levels becoming obvious in the 2015 market. However, with the risk averse mentality loosening, we also see an increasing number of property developers seeking development opportunities in the market. This may be one of the greatest challenges for the Dutch office market, since there are hardly any development opportunities in prime locations. As a result, the office stock considered to be secondary will then be enriched. The current vacancy rate is already relatively high for this stock. And although slightly older, it is of major importance that local authorities, or eventually regional or national authorities, will remain strict with the issuance of development permits for office developments. These should only be issued in strategic locations in markets with a lack of high-quality product. It would be best if developers were somehow required to demolish obsolete stock prior to starting development. Otherwise, the fundamentals of the market will be affected negatively since the occupier market for office space is not looking for quantitative additions of office space, but only in need of qualitative additions.
Lastly, the area of the office market for which investor demand will most likely remain low are the solitary office buildings and office buildings in small cities / large towns. Since these towns and cities hardly have an office market, the occupier market is generally relatively quiet. As a result, there is too little liquidity for the majority of investors to be interested in this product.
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THE INVESTMENT MARKETIn 2015
RESIDENTIAL INVESTMENT MARKET
Recently, the residential market has increasingly been targeted by both domestic and international investors. This trend will continue for at least two more years. For 2015, some large portfolio deals are expected to be completed by both international investors and domestic investment funds. The latter investor class are expected to show significant investment activity for the first time after various years of consolidation and disposition. Especially portfolios with at least thirty premises seem interesting to the active buyers. Contrary to their focus of two years ago, they will now focus on optimizing the exploitation of the residential portfolio rather than selling off units individually.
With investment activity expected to remain high in 2015, the market will continue last year´s trend of high investment volumes. The investors seem to have found their way to the Dutch residential sector, for which the outlook is perceived positive.
While returns may be slightly lower than for traditional investment classes, the risk in the Dutch residential market is much lower than, for example, in the office or secondary retail market. Indeed, the occupier market fundamentals of Dutch residential premises are still strong, with a steady outlook for population growth as well.
The outlook for demographic growth is generally positive, but there are substantial regional differences. As a result, investors will increasingly compete for qualitative investment product in regions for which demographic growth is foreseen until 2040. In line with trends in other commercial real estate markets, the so-called Randstad will remain the most attractive region to focus on for investors. However, there are various other regions in which opportunities last in the domestic investment market. Based on the upcoming scarcity due to lack of good residential investment product in the Randstad area, it is expected that investors will also find their way to the other Dutch regions in the coming years.
Image: Forecasted growth of inhabitants per municipality in the Netherlands
2015 - 2020 2015 - 2030 2015 - 2040
Source: CBS and PBL
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THE INVESTMENT MARKETIn 2015
RETAIL INVESTMENT MARKET
Both the retail occupier and investment markets have experienced fundamental changes to their standards in previous years. However, both tenants and landlords increasingly embrace these changes. The retail investment market seems to be gaining momentum again with various opportunities in the market. Traditionally, it was dominated by domestic investors, but in 2015 international investors increasingly target the Dutch retail investment market. Especially the sector considered more secondary is interesting for international investors. They see opportunities in optimizing the real estate and tenant mix, decreasing occupancy costs, and refurbishing the generally relatively old shopping centres.
With the retail landscape changing drastically, retail is becoming more of a leisure activity that can be combined with other leisure facilities. Most international investors are experienced in combining retail with food & beverage, and leisure. As a result, they believe in the opportunities the Dutch market has to offer. Investing in retail real estate used to be about the acquisition of the estate. However, international investors are focusing increasingly on the operational side as well, with local asset management companies on the ground to develop the shopping centre function. Certainly positive is that the investor focuses on a qualitative impulse for the shopping centre itself as well as for the domestic retail market as a whole.
Products to look out for are, among others, relatively small shopping centres anchored by at least two supermarkets. It is common to have one full-service supermarket and one discounter in such shopping centres, although the differences between these supermarket types are diminishing quickly.
Retail warehousing is probably the sector that has struggled most over the past years, and as a result may be the sector in which pricing is most favourable for investors. However, with domestic consumers still hesitant to shop at retail warehousing locations, investing in retail warehousing more often will be a matter of cherry picking.
Concluding, the market for retail investments is filled with opportunities in 2015 and 2016. Given the focus of investors on the office market, there are various opportunities to act on. Although it varies widely per sector, especially the shopping centreinvestment market will show opportunities that may be attractive to investors.
Both domestic (private) and international investors may target domestic high streets, especially those in the prime cities of the country. In this manner, it is still possible to achieve interesting direct returns in these estates. This is mostly a result of the upward rental potential in the largest cities. Which will be driven by growing footfall from the second half of 2015, with tourism being an important driver of this growth in the major retail markets.
TRANSFTHE WAY T
WORKS, SHLIV
HOPS ANDVES
ORMINGTHE WORLD
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THE LOGISTICS MARKET
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THE LOGISTICS MARKETIn 2015
EXPORT GROWTH DRIVER
Historically, the Netherlands has been one of Europe´s main countries for logistics. With its main ports Schiphol Airport and Seaport Port of Rotterdam, the country holds two hubs that are amongst the most important logistics conurbations of the continent. With global trade still slowly increasing, the Dutch logistics sector has shown growth over the previous years as well. It is foreseen to retain its position as main driver of the Dutch economy, although by 2016, it may come in second place, being overtaken by domestic expenditure. Still, also for 2016, growth is foreseen for the export sector, which will naturally affect the logistics market positively.
Indeed, the logistics market performed extremely well in 2014, with high levels of demand for modern logistics space across all logistics hot spots of the country. As a result of the high demand and limited availability, landlords have seen an increasing competition for the best logistics space. However, some have agreed shorter lease terms to meet occupiers´ demand.
Contrary to modern logistics space, slightly older logistics space that is not so much in demand by occupiers, hardly has been targeted by major occupiers in 2014. With the increased pressure on the market this product may be in demand in 2015 and subsequent years, although occupiers are generally hesitant to move into such assets. As a result, it is more logical that occupiers will search for so-called built-to-suit solutions, which already have been in favour in 2014, and continue to be in 2015.
LOGISTICS INVESTMENTS
However, although built-to-suit solutions in general seem to be the most suitable for occupiers seeking new space, the rising commodity prices – especially those of steel – may put pressure on the built-to-suit market. With prices of steel expected to rise over the next years, starting by 2016, built-to-suit solutions may become too expensive for both developers and occupiers to start on-risk developments. By then, occupiers may start thinking about occupying somewhat older logistics estates, although these still have to be in the best locations for logistics activities of the country.
“Occupier activity will focus on modern logistics space in logistics hot spots.
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THE LOGISTICS MARKETIn 2015
E-COMMERCE AND RETAIL LOGISTICS
In general, demand for logistics space comes from various sectors. Nevertheless, we expect demand from e-commerce and retail players in the market to rise in the immediate future. Their increasing share in the logistics market may lead to some changes in the Dutch logistics landscape.
The present logistics structure for web shops and retailers is not yet entirely focused on the rapidly enlarged market share of e-commerce in the retail sector. As a result, goods are still distributed in a relatively traditional manner. Carriers currently dominate the market for e-commerce and logistics players. However, we foresee that both e-commerce players and retailers will change their distribution patterns towards a more local distribution network. This will also enable e-commerce players and retailers to take care of the so-called reverse logistics: A logistics process consisting of returning goods or products from the point of consumption to the point of origin, for the purpose of recapturing its value (re-using, repair, etc.) or proper disposal (waste).
With e-commerce players and retailers being less dependent on various modalities, we believe there will be distribution points on strategic – well accessible – locations in the main conurbations of the country. From these locations, both the so-called last mile distribution process and reverse logistics can be handled.
This approach will also enable the logistics sector to focus more on sustainability. It has been seen already, although only small scaled, that inner-city distribution is carried out by smaller – electric – vehicles without CO2 emission. It is likely, however, this trend will continue and a significant rise of electric vehicles carrying out inner-city distribution may be expected in the near future. Particularly since various municipalities have started processes to prohibit trucks from their historic centres to decrease the amount of pollution.
“Changing distribution by e-commerceplayers and retailerswill result in less polluted historic city centres.
”
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THE OFFICE MARKET
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THE OFFICE MARKETIn 2015
Traditionally, occupier activity in the Netherlands has been driven by activity from financial institutions and business services. However, in past years, activity slowed down significantly, falling by 50% between 2008 and 2012. With low but stable occupier activity registered in both 2013 and 2014, occupier activity in the market may have been set to a new standard.
With financial institutions announcing the redundancy of hundreds of jobs, activity will hardly come from this sector in the near future. However, for example ING has been a key driver of occupier activity over the past years, as a result of strategic relocations and rationalisation of their office portfolio. More activity from financials will not likely be visible in 2015 and 2016.
Also business services are not expected to be a main driver of occupier activity in the next two years. Although this sector generally generates quite some activity annually, the majority is caused by relocations more than lease extensions, or even new entrants to that market. The few new entrants who find their way to the market are expected to come from the US more than from European countries. However, the latter have been more in demand in recent years.
TURNING TIDES IN THE OCCUPIER MARKET
Then who will drive occupier activity over the next years? In general, activity is expected to be driven by so-called early cyclical sectors. Mainly the IT sector is expected to be a key driver of occupier activity in 2015 as well as in 2016. While there have been some active occupiers in this sector in 2014, demand will be fuelled in 2015 by the improving economic outlook.
LOGISTICS INVESTMENTS
Examples of occupiers driving the market are Booking.com, Travelbirdand Über. However, there are various other occupiers in the IT sector that are expected to increase their office floor print over the coming years as a result of strong company growth figures.
Although demand from this sector is more than welcome, the occupier criteria for office floors from this sector differ strongly from the more traditional office occupiers. Office floors should be more flexible and open, while the office itself has to be located in either the dynamic city centre of the largest Dutch cities, or in a multimodal office hot spot that also offers a range of amenities. As a result of the increasing focus on location and accessibility of office buildings, a growing share of these buildings across the country will be increasingly in demand.
Nevertheless, new entrants to the office market have shown to be willing to move into more secondary office locations in the major cities as well. As a result, stock in secondary locations may witness an increasing demand from new entrants in 2015 and 2016.
“IT companies are expanding rapidly, evidenced by a growing amount of leased office floor space between 2010and 2014.
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THE OFFICE MARKETIn 2015
POLARISATION OF OFFICE LOCATIONS
The distinction between prime and secondary office locations has been visible increasingly over the past years. And 2015 will surely show a further polarisation between these two categories. Driven by occupier demand, prime office locations will turn more towards landlord-friendly markets. Occupier demand is focused on well-accessible (multi-modal) locations in the major cities of the country. While the availability of large-scale office space is generally limited here, this will slowly result in rising effective rents. Although headline rents will mostly remain flat in 2015, we foresee a slow decrease of the incentives in prime markets.
Prime markets are generally characterised by accessible multi-modal locations. However, occupiers are increasingly demanding more services as well. A prime office district should combine good accessibility with a wide variety of services offered to its occupiers. While services should at least include the supply of food and beverage operators, the availability of leisure facilities (such as sports/fitness clubs) and retail facilities is also perceived favourably by occupiers. Furthermore, the location in the city is increasingly important, mostly for businesses with a vast amount of international employees who prefer the city centre both for leisure and residential purposes. As a result, office locations with good transportation and access to the city centre will be increasingly popular in the next years. Landlord Tenant
Chart: landlord vs. Tenant friendliness of the market
Inner circle: prime locations
Outer circle: secondary locations
Secondary locations on the other hand, hardly meet occupier criteria. As a result, demand for these locations has decreased significantly over the past years. Although it would make sense to assume that demand for secondary locations will decrease further, the increasing landlord-friendly prime markets may result in a slow recovery of demand for secondary locations. Especially since these still suffer from high vacancy rates, landlords tend to focus on price advantages while several have also shown the willingness to improve the internal lay-out and facilities of office buildings in secondary locations significantly. These efforts could result in a modest increase of occupier interest for secondary locations in the course of 2015. However, a notable increase might be witnessed no earlier than 2016. Pricing will remain the main selling point of secondary locations, although providing occupiers with an office ‘concept’ in which they believe also attracts their attention.
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THE RETAIL MARKET
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THE RETAIL MARKETIn 2015
The majority of economic forecasts for both 2015 and 2016 indicate a positive momentum for domestic expenditure, of which consumer spending and confidence is a vital section. With a growth rate of 1.8% per annum expected for the next two years, we foresee a cautious recovery of the retail market as well. Although there are still various retailers – mostly domestic – under pressure as a result of the declined sales of the past years, the outlook is slowly becoming more positive than it has been recently.
Consumer spending will increase in 2015 and 2016, but this will not directly result in an increasing sentiment across all retail sectors. We believe that e-commerce is only one factor driving the market, it is now embedded in every aspect of retail from value and quality through to brand and therefore in our opinion, it is transformational for the industry. Due to this central role in changing the retail industry, e-commerce will naturally contribute to increasing consumer spending too. As a result, not the entire share of boosting consumer spending will be visible in the retail sales in high streets and shopping centres.
Moreover, we expect that retailers will increasingly focus on their offline strategy and as a result will critically assess their current real estate portfolio. We foresee that the majority of retailers – both domestic and international – will focus on the Dutch largest cities in terms of population and catchment area. This will eventually lead to shrinking retail area in city centres of smaller cities and growing competition for the best locations in large cities.
Indeed, for the years ahead we foresee that new entrants and expansion from international retailers will be focused on the top 20 or top 25 cities of the country and other cities will increasingly struggle to maintain their current tenant mix. International retailers will retain their focus on large stores, preferably spread over at least two storeys. Domestic retailers will mostly remain fairly quiet in 2015 and are not expected to be drivers of growth in the retail market for at least two more years.
The majority of activity is driven by fashion retailers. Approximately 90% of expansion and new-lease activity is foreseen to be driven by this retail sector. Although these retailers have put pressure on rental levels for several years, they are now increasingly interested in creating flagship stores on multiple-storeybuildings. However, although this decreases the average rent for shopping units drastically, it is of vital importance that the inner-store traffic as well as the connection to the best location of the high street is organized perfectly. Otherwise a store might be less attractive for international retailers.
We foresee rental levels to remain on par with 2014 across the top cities of the country, although growing tourism and high demand for certain locations may result in some exceptions to this rule. For smaller cities and shopping centres in general, we foresee that rents may decrease over the next twelve months. However, active asset management, re-gearing and renovating a shopping centre, and actively managing tenants across shopping centres may result in stable rents for shopping centres with a dominant function in their catchment area.
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THE RETAIL MARKETIn 2015
THE SHOPPING CENTRE MARKET
Traditionally, shopping centres have been important in the Dutch retail landscape. With the majority of the Dutch shopping centre stock being fairly small-sized, they generally had a neighbourhood or district serving function.
With consumers increasingly being able to travel towards shopping locations, we expect a further polarization between the larger, generally anchored by two supermarkets, and smaller neighbourhood shopping centres. Shopping conditions have to be in good condition – free parking, guaranteed safety, clean and bright lay-out. However, consumers have shown to prefer somewhat larger shopping centres with additional shops and facilities above smaller neighbourhood centres only offering daily goods. Nevertheless, a major share of the shopping centres with a neighbourhood serving function is relatively old. As a result, consumers are increasingly less attracted to this somewhat outdated stock. Therefore, they increasingly move to less outdated shopping locations.
Concluding, large neighbourhoodshopping centres, anchored by two supermarkets, have the ability to show strong performances. This is also reflected in the investment market, in which private equity investors and domestic funds are focusing on the neighbourhood shopping centres. Among others, Corio has been one of the investors to sell product in this sector, focusing on large shopping centres in the city centre of the main cities.
Other shopping centres, such as district centres or in-town located shopping centres are foreseen to show stable performances, although some may struggle in 2015. Especially the latter category in historic city centreswill be less in demand than high streets. However, this is more a result of the Dutch culture than of the lay-out or age of the shopping centres.
Despite the expected difficulties in performance over the next one to two years, various international economists believe the Netherlands is one of the countries with high potential of consumer demand. As a result, the retail occupier market may be affected positively.
“Opportunities in 2015 will mostly be in distinctive retailers and brands, their productoffers and promotions.
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CONCLUSION
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Adding value for our clients has always been our key priority at Cushman & Wakefield. We are keen to retain our valuable relationship with all of our clients and continuously look for opportunities to improve our service level to them.
We look forward to working with you in the future, in a rapidly changing real estate environment. We believe we have the ability to inspire you in the way you work, shop and live but first and foremost use this knowledge to come to the best result in advising you.
Drs. Jeroen M. Lokerse
Managing Partner Cushman & Wakefield – The Netherlands
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CONCLUSIONCautious optimism
Economic recovery will come over the Netherlands in 2015 with a faster pace than in 2014. On the back of the economic recovery that will gain ground in the country, the real estate sector will slowly see a more positive sentiment as well.
The investment market was boosted by major investments from international parties. However, we foresee 2015 will be a year in which yields will move in for various sectors. Competition in pricing will become more fierce than in 2014. Eventually, this will lead to a consistently high investment volume, as already registered in 2014.
An important message goes out to all local authorities responsible for development permits for commercial property developments. While the investment market has recovered rapidly as a result of the record-low interest rates and vast interest of international investors, property developers are increasingly interested in acquiring land plots in secondary-considered locations for office, industrial, and retail space. Although it may financially be attractive to dispose of the land, this will not contribute to a sustainable recovery of the local and regional real estate market. For most local markets, including those in the economically dominant regions, the fundamentals of the occupier markets are still relatively weak, vacancy is high, and occupier demand will remain limited for the next years. As such, new developments should be assessed critically and permits should be given if no harm is done to the existing real estate market.
The occupier focus varies widely in each commercial real estate sector. While demand for prime logistics premises will remain high in 2015, demand for retail space will increasingly be focused on the best locations in the top 20 cities of the country. Lastly, demand in the office sector will remain fairly stable, with a limited number of new entrants to the Dutch office market and demand being driven by the internet and IT sector.
Across all sectors, the role of foundation cities in the Netherlands is gaining ground, although the cities to focus on vary slightly for all sectors. The Randstad remains the main area of focus for both office and retail space, whereas the so-called logistics belt will remain the main area for logistics space. However, logistics networks of domestic e-tailers and retailers might focus more on the centre of the country, from which the majority of national distribution is organised.
Concluding, based on more solid ground in the economy, the Dutch real estate market will steadily gain momentum in 2015 and 2016. Although differences across sectors are inevitable, the office market, retail market, and logistics market are foreseen to show solid performances in the year ahead. Domestic foundation cities will be key in 2015 for all sectors. Despite the recovering economy and the recovery of the real estate market with it, some fundamentals – especially in occupier markets – remain fairly weak. As such, all market parties should remain extremely careful with their real estate decisions.
JEROEN LOKERSE
Managing Partner – Retail investments
+31 (0)6 2242 2564
ARJEN BOESVELDT
Partner – Head of Retail
+31 (0)6 1093 0908
PIETER VAN DER PEET
Head of Tenant Rep & Business Development
+31 (0)6
HYLCKE OKKINGA
Partner – Head of Logistics
+31 (0)6 2157 7253
MICHIEL BOONEN
Senior Consultant - Research
T: +31 (0)20 800 2000
CONTACTS
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MATHIJS FLIERMAN
Partner – Head of Capital Markets
+31 (0)6 1588 0178
PEPIJN VAN DEN BOSCH
Partner - Retail
+31 (0)6 1172 1234
RIENS VAN DER WAALS
Associate – Office Agency
+31 (0)6 5519 6571
MICHIEL VAN DEN BOUT
Associate - Logistics
+31 (0)6 1396 6974
JUSTIN DE GIER
Partner –Capital Markets
+31 (0)6 2157 7251
GIJS VAN DEDEM
Associate - Retail
+31 (0)6 1078 6954
CHRISTIAN VAN CADSAND
Associate – Tenant Rep
+31 (0)6 2157 7250
BORIS ZIERMANS
Partner –Capital Markets
+31 (0)6 5042 0820
ARTHUR MOERMAN
Associate - Retail
+31 (0)6 1396 7111
www.cushmanwakefield.nl
Cushman & Wakefield – The Netherlands (Amsterdam Office)Atrium 3rd floorStrawinskylaan 31251077 ZX Amsterdam – The Netherlands
+31 (0)20 – 800 2000
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+31 (0)10 – 2666 888
