Back on the investment stage

Considered “the sick man of Europe” only a few years ago, the Netherlands is increasingly 0seen as a shooting star in the eyes of investors – all the more so as its fundamentals compare favourably with other core European countries.

The Netherlands was one of the stars of the European investment markets in 2017, recording record transaction volumes of around €19.5 billion, according to data from advisory firm Savills. As the economy continues to perform strongly and occupier markets respond positively, the signs are all there that 2018 will be another stellar year. Now ranking as the fifth most powerful economy in the Eurozone, with a per capita GDP above €41,000 and one of the lowest unemployment rates around, the contrast is stark with just a few years ago.

Indeed, as the rest of Europe started to climb out of a trough in the wake of the Global Financial Crisis (GFC) at the beginning of the decade, the Netherlands was stuck on negative growth, and was even dubbed “the sick man of Europe”. What had gone wrong?

According to Sven Bertens, head of research & strategy in the Netherlands for JLL, a number of factors were involved. “After the GFC, there was a period when the Dutch government was applying austerity measures, drawing up new legislation about mortgages and pensions. But this was about making the country future proof,” he said. “Once the economy started gaining traction, the Netherlands as a whole and especially Amsterdam as the main market started to recover quite quickly. If you now look at GDP growth and rental growth, the indicators are all positive, and in fact they are outperforming most of their western neighbours.”

“The market before was characterised by a lot of leverage, in other words high rates of outside financing, and not a lot of real growth,” said Anuj Mittal, co-portfolio manager of European real estate for New York investment manager Angelo, Gordon & Co. “Even 10 years after the crisis there are still significant, distressed portfolios being sold.” But from 2012, opportunistic investors returned to the market, Bertens added, “starting with offices in Amsterdam and other major markets in the Randstad. But by the end of 2012, it was becoming clear that the Netherlands didn’t have the same weaknesses as some of Southern Europe’s markets, but possessed much stronger fundamentals and was suffering a temporary downturn.”

At that point, prices in the Netherlands and in Amsterdam in particular started looking good value, compared to their more expensive neighbours such as Germany, the UK and even France, Bertens said, and more and more investors became interested in the country. 

But some investors were already convinced of the country’s potential. For example, Union Investment acquired a considerable portfolio of first-class office buildings during the crisis years, showing its skill at making successful counter-cyclical investments at just the right time. Another example is the company’s acquisition of the First Rotterdam project development in Rotterdam from a joint venture of Rabo Vastgoed Groep and Maarsen Groep for its UniInstitutional Real Estate open-ended real estate fund in 2016. First Union lost no time in obtaining forward funding to secure the 30-storey office tower. 

”Extraordinarily limited development pipeline”

Yield compression is now the headline story. “Prime yields are at historically low levels, but the Dutch market is still very attractive for real estate investors for a number of reasons,” according to Bart Verhelst, executive director in CBRE’s Dutch capital markets team. Matched with low interest rates and inflation, rock bottom vacancy levels are driving rental growth. “It’s extraordinary how limited the development pipeline is,” he said.

We try to develop buildings that are energy-positive.
Jan Hein Tiedema, Executive Managing Director of Edge Technologies Western Europe

Indeed, the boom-and-bust cycle of speculative development around the crisis has led to stringent planning rules in the capital today. The Amsterdam Municipality is favouring office projects which are at least 70 percent pre-let, and they are increasingly frowning on single tenant schemes. “As an advisor, we feel that the Amsterdam municipality is too restrictive at the moment. They should allow for more development because we simply need more space – not just for offices but also for residential,” added Verhelst.Supply dynamics have also tightened thanks to “creative destruction”, investment manager Mittal said. “The governments made the markets more open, for a while allowing the conversion of offices to hotels, and offices to residential, which took a lot of secondary buildings out of supply.”

The shortage of office space is reflected by the level of rents. In the current study European Office Rental Growth Hotspots 2018, JLL identifies 10 markets in Europe that will experience above-average increases in rents over the next two years due to the lack of office space. The Netherlands is represented twice in the Top Ten – with Amsterdam in first place and Utrecht in tenth place. 

Advantageous “soft factors”

But it’s not just fundamentals that have once again given the Netherlands a solid place on the shopping lists of international real estate investors. The “soft factors” are also convincing. For example, the Netherlands ranks well above average in the OECD’s Better Life Index – for income, jobs, housing, education, life satisfaction, the environment, safety and health – and even comes out on top for the work-life balance, of particular interest when recruiting skilled employees. This is due to Dutch labour laws, according to Nale Lehmann-Willenbrock, Professor of I/O Psychology at the University of Hamburg: “The Netherlands has the most part-time workers in Europe. Employees are entitled to a home office, and employers must accord equal rights to part-time and full-time employees.” That flexibility results in greater satisfaction, she says. “Self-determination at work is a very important condition for people being able to reconcile their jobs and their personal lives.”

The Netherlands is also proving to be innovative in the area of sustainability and setting new standards in the building and project development sectors. With the goal of counteracting future shortages of land, raw materials, energy, natural areas and clean air, the Delta Development Group is building Park 20/20, the first business park inspired by the “cradle to cradle” philosophy, near Amsterdam (see box on page 11).

And the “most sustainable building in the world,” as project developer OVG Real Estate proudly points out, is not in Tokyo, New York, London or Paris, but rather in South Amsterdam: The Edge. It is an office building designed to help solve climate problems. “We try to develop buildings that are all energy-positive,” says Jan Tiedema, Executive Managing Director of the OVG subsidiary Edge Technologies Western Europe. He adds that his company is also taking the challenges of the employment market into account. “The constantly changing ways people work make it hard for today’s companies to retain and recruit new employees,” says Tiedema. “Our aim is for them to feel healthier in the buildings after a bit of time has passed than they did when they moved in.”

Just how important the issue of recruiting can be in the international competition among locations is shown by the Dynamic Cities Index, in which Savills IM ranks the resilience of 130 European cities and urbanised regions. The Index is topped by cities that successfully attract and keep talent over the long term, drive innovation and increase productivity – which promotes prosperity and population growth and therefore the positive development of the commercial real estate markets. The current Dynamic Cities Index rates Amsterdam is the fifth most dynamic city in Europe.

Global attraction

This also goes down well with international real estate investors. Last year, 70 percent of all real estate purchases were made by foreign investors and 30 percent of all transactions were between foreign investors, Savills data shows.


billion euros in transaction volume during the first quarter of 2018,

However, the share of cross-border investment differs greatly between asset classes and continues to shift. While Dutch office and logistical assets were already popular among foreign investors in the previous upturn, with nearly half the volumes being purchased by overseas buyers, today these two investment markets are dominated 71 percent and 78 percent respectively by international capital. Whilst residential and retail investments pre-crisis were almost wholly the domain of Dutch investors, foreign buyers are also increasing their presence for these asset classes – to 29 percent and 59 percent respectively in the most recent figures from Savills.


more than in the prior year period.

“Asian capital has been around for the last three or four years in the Netherlands, averaging around 10 percent of all investment volumes,” said Verhelst. “Middle Eastern buyers are also very active at the moment.” 

North American capital is also on the hunt. In April, New York-based Highbrook Investors completed the recapitalisation and acquisition of the €615 million Dutch Mesdag Delta portfolio, in an off-market transaction with landlord Breevast, before flipping some of its industrial assets to Urban Industrial just weeks later. The first quarter of 2018 has already registered record-breaking numbers of investments in Dutch real estate with an investment volume of around €3 billion on the books. According to CBRE, the investment volume has never before reached these heights in the first quarter, rising 5 percent year-on-year. At 56 percent, growth was strongest in the residential sector compared to the first quarter of 2017, while investments in office buildings also increased by 30 percent annually. The increase in transactions outside the four major cities is striking. In the first quarter, no less than 50 percent of all transactions took place beyond the cities of Amsterdam, Rotterdam, The Hague and Utrecht – compared to 34 percent in the first quarter of last year. And if 2017 was characterised by large deals in the first three months, the first quarter of 2018 began with more medium-sized transactions, spread across the regions.

Strong 2018 outlook

“We see a growing interest among investors for cities outside of the Randstad conurbation,” noted Verhelst. “This is due on the one hand to a shrinking supply and sharply declining initial yields in the big cities. On the other hand, the increasing economic growth leads to a more attractive investment climate in more and more cities outside the Randstad area.”

Indeed, as yields compress significantly in Amsterdam, many investors are on the outlook for more attractive deals. For some, this means seeking buying opportunities in Utrecht, Rotterdam or The Hague. “Utrecht is so interesting that we opened up an office there,” said Jordy Diepeveen, head of acquisitions at Savills. “The Utrecht office stock will expand significantly over the coming years, and demand from both occupiers and investors is expected to follow given the fundamentals of the Utrecht economy and demography.”

The Utrecht office stock will expand significantly.
Jordy Diepeveen, Associate Director Investments at Savills Niederlande

Diepeveen’s view is confirmed by new leases. Commerz Real in Utrecht recently leased 7,100 square metres of office space in the Europalaan 40 / Beneluxlaan 1010 building for some 10 years to ABN AMRO Commercial Banking. ABN AMRO will take all of Tower A of the building ensemble, which comprises almost 16,500 square metres of leased space in early 2019 – so it is now fully leased.

Rotterdam still has strong associations with logistics and trade as one of Europe’s most important ports, while The Hague has interesting characteristics of its own. As the seat of government, it was favoured in the past for its steady leasing profile, although it suffered in the crisis when the government applied austerity measures, pledging to reduce development areas in the city. “They didn’t reduce by as much as was thought,” said Diepeveen. “Additionally, a lot of vacant commercial stock in The Hague was subsequently earmarked for residential conversion, which has been extremely successful.”

The Blob, designed by architect Massimiliano Fuksas, is the entrance to the De Admirant shopping centre in design hotspot Eindhoven, part of the Randstad region.
Jon Paul Ladd

There’s also plenty of appetite for even smaller cities, such as Eindhoven, where most provincial investment has gone in recent times, as well as Den Bosch, new planned city Almere, and Amersfoort.

Hoofddorp has also recovered in recent years, not so surprising when you take a closer look. Hoofddorp is part of Haarlemmermeer, a municipality that includes Schiphol Airport, and is strategically located next to Amsterdam. This has meant both the rise of a residential community serving the airport, a growing logistics market, and an overspill office market for firms being priced out by Amsterdam rental rates.

According to Savills, Hoofddorp has 670,000 square metres of office space at the moment, mostly concentrated close to the town’s central train station, which is only one train stop away from Amsterdam South, a vibrant commercial market. Further key developments – including new business parks – are likely to transform Hoofddorp’s prospects considerably, says Mans Vroom of Savills. “If Hoofddorp continues this upward trend, it will become a part of the Amsterdam agglomeration.” Some market participants find that assessment a bit too optimistic, but everyone agrees that the bounce-back in Amsterdam, which suffered considerably during the financial crisis, is now lending new impetus to Hoofddorp, an airport community with excellent transport connections. 

In a nutshell, based on economic data, expected further growth, advantageous “soft factors” and not least the available opportunities for diversification, the Netherlands – particularly Amsterdam and the Randstad region, as well as some secondary cities – offers a very promising location for real estate investors.

By Isobel Lee

Headquarters of the online travel agent Fox – View of the entrance to Park 20/20 in Hoofddorp.
Sander van der Torren

Cradle to Cradle: Healthy buildings pay off

The Netherlands is known for innovative projects in the real estate sector – and the country has also set new standards in the area of cradle to cradle, known as C2C for short. The C2C motto – upcycling instead of recycling – means that products can be repeatedly used in a closed-loop system, producing useful raw materials, not unused waste.

The aim is to develop products that are not just safe for people and nature but that also have a positive effect. Based on this holistic and sustainable principle, Park 20|20 near Schiphol Airport will offer the world’s first cradle to cradle work environment. The volume of investment in the 80,000 square metre C2C mixed use development (a combination of housing and working spaces) is €354 million. The developer Delta Group, which with more than 130 completed projects is one of the largest developers in the Netherlands, has been implementing projects based on the cradle to cradle® principle since 2003 – and has been requiring its partners to participate as well.

Potential suppliers are asked during tendering procedures how important it is to them to take back their raw materials after their useful lives have ended. Only companies that offer a system for collecting such materials move on to the next round. During the recent years of recession, the company was able to prove that the obligation to ensure sustainability during construction and operation pays off.

“Adjacent areas had to cope with the difficult market situation, but we were still able to get prices of €200 per square metre – which is twice as much as in neighbouring zones,” reports Coert Zachariasse, CEO of Delta Development Group. It is obvious that Park 20|20 is considered a magnet for tenants and buyers; for all these reasons, its master plan has received an Honor Award from the American Society of Landscape Architects (ASLA).

Title image: Shutterstock/Ioana Catalina E

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