06|2016

THE NETHERLANDS

Many investors, especially from Germany, still as-sociate sky high vacancy rates and signifi cantly falling property values with the Dutch offi ce mar-ket, symbolized by the Amsterdam city fringe or out of town offi ce locations. But with the improve-ment of the Dutch economy during the last years and investments in Dutch residential as well as re-tail rising, it is time to look at the Dutch offi ce mar-ket again, as fundamental changes are under way.

First of all, after some hard years between 2009 and 2013, Dutch offi ce total returns have recov-ered, with offi ce investment transactions follow-ing suit, to a large extend driven by international institutional investors. Since 2014, offi ce invest-ment transactions above EUR 100 million (portfo-lios and singles assets) can be seen in the Nether-lands again, pointing to a enhanced attractiveness of Dutch assets in an European context.

In addition the supply side of the Dutch offi ce mar-ket is stabilizing, indicating a turnaround in the cur-rent year. Since 2009, supply levels - measured by the vacancy rate – increased continuously reaching 17 % in 2015, a historically high level. But unlike in the past, these vacancy levels are not ascribed to a construction boom, as the percentage of available accommodation accounted for by new construction at year end 2015 was only about 2 %, equating to round about 200.000 sqm. In addition the demoli-tion and especially the transformation of unused of-fi ces to residential or other uses continued in 2015

on the high level seen in 2014. This development improves especially the situation as far as city cen-tres and (peripheral) offi ce districts are involved, as these locations often form a solid basis for attrac-tive residential developments due to the regularly very good public infrastructure available. Given the cautious fi nancing behaviour of banks limited new offi ces developments can be expected for 2016 and the coming years. In addition conversion or withdrawals will continue to play a major role in the agglomeration areas of the Netherlands, as the development of residential rents and prices

will support the appeal of conversions. Overall, this will lead to a situation in which the vacancy rate on the Dutch offi ce market should start to decline, supporting the offi ce market perfor-mance going forward.

Source: PATRIZIA, Reuters, RCA.

4%

2%

%

-2%

-4%

-6%

-8%

-10%

6%

8%

10%

12%

14%

16%

18%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150€

1.000€

2.000€

3.000€

4.000€

5.000€

6.000€

7.000€

Total Return Offi ce Transactions in milion €

OFFICE TOTAL RETURN AND OFFICE INVESTMENT VOLUMES IN THE NETHERLANDS

DUTCH OFFICES RECONSIDERED

INVESTMENTCOMPASS

PATRIZIA

An increase of offi ce investment transactions above EUR 100 million point to an enhanced attractivness of Dutch assets.

As a consequence, take up levels in the Netherlands continued their solid develop-ment seen in the years before with country wide take up of around 1.2 million sqm in 2015. Breaking down the take up fi gures shows, that accessibility by public trans-port is an important point for offi ce users, as approx. 40 % of the take-up in 2015 was realised within 750m (walking distance) from a railway station.

Given the low construction level office demand not surprising focuses mainly on existing properties. About three quarters of all transactions involved office space of less than 5.000 sqm, with offices be-tween 1.000 and 2.500 sqm being the most sought after segment (32 % of take up), followed by the 2.500 to 5.000 sqm

Furthermore, the demand side improves considerably, as the high unemployment rate begins to decline, as job growth has returned in 2015 which is set to increase in 2016. The reason that unemployment has not fallen more strongly is the increase in the supply of labour, as the number of peo-ple who were not, or no longer, active in the labour market and who are currently seek-ing employment but have been unsuccess-ful in their search to date has increased.

This development will delay a strong im-provement on the labour market for some time, but it will improve the Dutch econo-my’s long-term growth potential cushion-ing to some extend the increase in labour costs since the crisis due to increased employers’ social security premiums. In-terestingly, the improvement in the labour market is not limited to the Randstad; it’s a country wide phenomenon.

category (22 %) and offices between 500 and 1.000 sqm (15 %). Looking at the de-mand side from a sector perspective, of-fice demand from business services, the

banking & insurance industry as well as the technology, media & telecom sector increased, while public authorities were less active.

Source: PATRIZIA, De Nederlandsche Bank.

Source: PATRIZIA, Reuters.

8%

4%

2%

0%

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2003Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0,000

0,500

1,000

1,500

2,000

2,500

6%

10%

12%

14%

16%

18%

20%

New Building Construction sqm (LHS)

Vacancy rate offi ce market % (RHS)

Transformation and demolition sqm (LHS)

4%

5%

6%

7%

8%

9%

3%

2%

1%

0%

Dutch unemployment rate

NEW BUILT CONSTRUCTION, DEMOLITION AND VACANCY IN THE DUTCH OFFICE MARKET

DUTCH UNEMPLOYMENT RATE

»

Given the improvements on the supply and on the demand side rental levels in-creasingly indicate the turnaround of the Dutch office cycle, with rents stabiliz-ing across the Netherlands. At the same time, the large cities in the Randstad, es-pecially Amsterdam, saw the first indica-tions of rental growth, especially in the higher quality segment. Nevertheless, rent-free periods as well as other incen-tives remain a fact of the Dutch office

market. In this respect, serviced offices and a customer focused operation of multi-tenant office buildings becomes a crucial factor for institutional investors in order to benefit from the improvements seen in the Dutch economy. Looking at the current developments in the Netherlands, it becomes obvious that international institutional investors are finally returning to the Dutch office mar-ket, after they successfully re-entered

the residential and retail market dur-ing the last two years. Given the solid economic outlook vacancy rates should go down, creating the basis for rental growth supporting at the same time in-come returns and capital growth going forward. Overall this should bring Dutch office total returns back to levels of 5 to 8 percent p.a., mainly driven by income return levels but also supported by re-turning capital growth.

Disclaimer: This publication is purely for general information and not a prospectus. The information contained in this report is based on publicly available sources that we believe to be reliable. We cannot guaran-tee the correctness or completeness of information. All statements of opinion reflect the current estimations of the author and do not necessarily reflect the opinion of PATRIZIA Immobilien AG or its associated companies. The opinions expressed in this publication may change without prior notice.

The research reports and presentations (“analyses”) produced by PATRIZIA Immobilien AG contain selected information and cannot be regarded as complete and correct. The analyses are based on publicly accessible information and data (“information”), which are regarded as reliable. However, PATRIZIA Immobilien AG has not verified the correctness or completeness of the information and does not accept any liability for this. PATRIZIA Immobilien AG will not bear liability for any damage arising from incomplete or incorrect information, and PATRIZIA Immobilien AG will bear no liability for direct and/or indirect damage and/or secondary damage. In particular, PATRIZIA Immobilien AG will bear no liability for statements, projections or other details contained in these analyses relating to the companies examined, their associated companies, strategies, economic, market and/or competitive position, legal conditions etc. Although the analyses are produced with the greatest care, the possibility of errors or incompleteness cannot be elimi-nated. PATRIZIA Immobilien AG, its shareholders and employees bear no liability for the correctness or completeness of the statements, estimations, recommendations or conclusions derived from information contained in the analyses. If an analysis is provided as part of an existing contractual relationship, e.g. financial consultancy or a similar service, liability of PATRIZIA Immobilien AG is limited to gross negligence and intent. If fundamental information is omitted, PATRIZIA Immobilien AG shall be liable for simple negligence. The liability of PATRIZIA Immobilien AG to compensate for typical and foreseeable damage is limited according to the extent of the damage. The analyses do not represent an offer, or an invitation to submit an offer for the purchase or sale of a property, a property portfolio, a security or any other investment commitment. The opinions contained in the analyses may change without prior notice. All rights reserved.

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www.patrizia.ag

4,30 – 5,2

5,21 – 5,7

5,71 – 6,2

6,21 – 7,0

7,01 – 12,0

Unemployment Netherlands

2015 in %

Rotterdam

Amsterdam

Leeuwarden

Sou

rce:

PAT

RIZ

IA, C

BS

Sta

tist

ics

Net

herl

ands

.

-2,30 – -0,70

-0,69 – -0,50

-0,49 – -0,30

-0,29 – 0,00

0,01 – 0,60

Change in unemployment

rate 2014 to 2015 in %

Rotterdam

Amsterdam

Leeuwarden

LABOUR MARKET DEVELOPMENT IN THE NETHERLANDS

THE IMPROVEMENT IN THE LABOUR MARKET IS A COUNTRY WIDE PHENOM-ENON.