Market developments and trends

Economy and demographics

Main economic indicators show improvement

The Dutch economy is projected to grow slightly by 1.5% in 2015. The modest economic growth projected for 2015 is partly due to increased household consumption and a rise in business investments. The main negative uncertainties relate to events outside the Netherlands. Geopolitical tensions in various places around the world pose a risk to the global economy. Consumer confidence is higher than a year ago, but sentiment is still cautious.

Low inflation continues

Inflation will remain low at 1.0% in 2015. The Dutch Central Planning Bureau (CPB) is also projecting an increase in median purchasing power of 1.5% following four years of decline. Median household purchasing power is set to improve by 0.75% this year.

Randstad ‘winner’ of changing demographics

The number of inhabitants in the Netherlands will continue to grow in the decades ahead. The current 16.8 million people will grow to 17.4 million in 2025 and 17.8 million in 2040. The majority of the growth will be in people above the age of 65. Bouwinvest focuses on Dutch regions with above-average demographic (and economic) growth. The major cities in the Randstad conurbation will see relatively higher growth, in line with the urbanisation trend.

Trends and developments in the office market

Average occupancy rate around 84%

According to DTZ, around 7.9 million m² of lettable floor area is physically vacant in the Netherlands, corresponding to an average occupancy rate of around 84%.

Local authorities increase focus on (re)development

The number of new building permits being issued is expected to be at a low level in the coming years. Many local authorities have restricted office developments to just one or two locations, often more multifunctional and multimodal in nature. For the coming years, the focus is likely to be more on the redevelopment of existing stock rather than on building new office buildings.

Prime yields at attractive levels

Prime yields for Dutch office property have risen to attractive levels, particularly when compared to fixed income investments. The yield gap with the risk-free rate is high. Prime yield levels in Amsterdam are attractive compared to international core markets and, more importantly, far from the low point in the cycle.

The Dutch knowledge economy

A knowledge-based economy is a rather abstract economic concept. What it actually means is that a significant proportion of economic growth in society is generated by (technical) knowledge. The Western world, including the Netherlands, has taken this route in recent decades.

New World of Work: more flexible use of office work space

A more flexible use of office work places is expected to lead to more efficient use of floor space, particularly among larger, corporate users. This implies that relocations will be the main driver of vacancy rates. Occupiers continue to move to better, mostly smaller, more suitable places, while leaving vacant premises behind at B-locations outside the Randstad conurbation. In most cases, the new volume of office space rented is substantially lower than previously occupied.

Urbanisation of office users

The supply in the labour market is playing a major role in the migration of office users towards the west of the country. This trend is largely prompted by demographic changes, as the urban agglomeration in the west of the country continues to attract people from other parts of the country. The big cities in the Randstad have regained competitive strength vis-à-vis the surrounding regional towns and many office users are now returning to the better locations in Amsterdam, The Hague, Rotterdam and Utrecht. That trend is expected to continue over the next decade.

Focus and cooperation

Developers, investors and local authorities make clear choices for ‘winning’ office locations, where investments and developments are focused. Government policy is aligned with market input. Cooperation is seen as a key factor in urban regeneration.

Implications for office real estate

Multifunctional and multimodal locations more popular

The focus of end-users on multifunctional and multimodal accessible locations is leading to an increasing differentiation in the office market. While demand for desirable locations is remaining stable or improving, another group of locations are gradually losing tenants. This polarisation is expected to continue for the foreseeable future.

Healthier outlook for central locations in big cities

Historically, offices located in the centres of big cities have shown the highest average positive growth in value. Over the coming decade, those offices are also expected to deliver above average performance, with an improved supply/demand ratio, especially as these match trends such as the New World of Work and sustainability more effectively.

Prime assets attractively priced

Yield movement for high-quality office buildings in the best locations remained stable. The overall weak fundamentals were offset by the market's ‘flight to quality’, resulting in increasing competition for prime assets. Rental contribution to capital growth will be limited in the next few years. The lower office segments are likely to be hit harder in the long term, as back-office work is still declining.

Implications for the Office Fund

  • Continuing focus on multifunctional locations with excellent transport links
  • Active acquisition strategy focusing on central locations in the four big cities of the Randstad
  • Divestment of non-core assets
  • Investments to support New World of Work concepts
  • Active approach to improve energy efficiency and sustainability
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