Report of the Board of Directors

Market developments and trends

Occupier market

The Dutch residential market has recovered in 2014 and the Dutch residential rental market as a whole offers stable rental income. After years of devaluations, market dynamics are increasing, with cities in the Randstad outperforming the market as a whole. The office market has been suffering from over-supply and downward pressure on lease prices for an extended period. The premium segment of the office market is in a much stronger position, however, with generally stable lease prices and occupancy rates.

Dutch retail assets have generated good returns over the past few years, but are facing a challenging period on the occupier market. There are signs of over-supply, partly due to trends such as online shopping, the ageing of the population and (overly) ambitious construction plans from the past, and these trends are likely to result in further polarisation among both users and investors. In the retail sector, A1 shopping streets in the major cities and local or neighbourhood shopping centres appear to be the best-equipped to resist these trends and are the most attractive investment category in this sector. The major cities are also the most attractive locations for hotels, led by Amsterdam, thanks to its position as the leading tourist and business destination in the country.

On a global scale, the highest growth is in the Asia-Pacific region, with the North American region coming in a close second. The growth outlook is lower in Europe, but the region does offer much greater stability. And even within these regions, we are seeing major differences between countries, cities, sectors and segments. The focus of our core investment strategy is on stable, transparent, large-scale, dynamic and liquid markets.

Investment market

The investment dynamic in the global real estate market fell sharply in 2008. In the intervening period that dynamic has gradually climbed back to pre-2008 levels. Investment volumes have now almost reached pre-crisis levels after a record-breaking last quarter in 2014. Over the past few years, a great deal of capital has fled to core markets and assets. These high-quality assets have largely regained a good deal of their value, with some markets approaching all time low yields. Lower quality or secondary assets, however, are still suffering from the downturn. The resulting polarisation we are seeing among both users and investors has resulted in a sharp drop in liquidity and negative pricing. However, what we did see last year was an increase in risk appetite, among both new and existing investors, with the risk appetite certainly higher than in 2013. This is because risk premiums have risen, especially in secondary markets. Investors are still cautious with leverage and are relatively risk-averse compared with pre-crisis sentiment.

Global real estate transaction volumes came in at around € 700 billion in 2014, with the EMEA and US regions booking the strongest growth. Both regions experienced huge transaction volumes in the last quarter. US cities formed half of the world’s top 20 investment destinations with secondary markets interest growing remarkably. Growth in the Asia-Pacific region was concentrated in Australia, China, Japan, with a marked upswing in interest in South Korea and New Zealand. In Europe, London was a very lively investment market and saw transaction volumes of around € 45 billion in 2014.

The Dutch real estate market peaked with growing activity from Dutch and foreign investors. Last year saw some € 10 billion in registered transactions in the Netherlands. The long-term average transaction volume in direct Dutch real estate is around € 6 billion. Over the past few years, however, transaction volumes have dipped to roughly € 4 billion a year. The office segment is traditionally the largest segment, but recent years have seen a sharp increase in investment activity in the residential market.

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