Savills Beds
The Netherlands – Winter 2024
REPORT
Savills Research
PBSA
The Dutch Beds Sectors: Adapting to a New Reality
Household growth, above expectations, and a strong economy, led to high demand and strong rental growth for Multi- & Single-family rental housing. Private and institutional investors were attracted to the sector, which also benefitted from the low interest rate environment, causing record-breaking investment volumes between 2018 and 2020.
The market size of Dutch Purpose Built Student Accommodation (PBSA) has also grown substantially. It has been stimulated by the Dutch Government’s focus on reinforcing the knowledge economy and the subsequent anglicization of the Dutch education system. The domestic and international student population grew rapidly over the last 10 years, which also attracted investors towards the Dutch PBSA market; still being dominated by social housing associations but increasingly appreciated by both Dutch institutional and foreign investors. The strategy of reinforcing the Dutch knowledge economy also helped the emergence of the Co-Living sector. Co-living mainly targets young knowledge workers in larger cities, by offering often furnished, smaller dwellings. Demand is even higher as they’re largely developed at desirable locations in larger cities. Finally, Hotels have also experienced tremendous market growth. The rise of global tourism coincided with Dutch policies that encouraged tourism as an engine of economic growth. The increase in the number of visitors to the Netherlands followed sizeable investment in expanding the capacity of airports such as Schiphol and Lelystad. Similarly, marketing strategies like the famous “IAMsterdam” campaign succeeded in attracting tourists. This growth helped draw in investors, with record breaking investment volumes recorded in 2018 and 2019. However, the investment markets now appears to be dormant, as multiple challenges have emerged on the financing side (interest rates), on the construction side (building costs), on the fiscal side (taxation of income on investments for private individuals and RETT), on the environmental side (importance of implementing ESG and preparing to become Paris proof) and last but not least the regulatory side (rent control in order to maintain affordability). All of these challenges together force the investor to approach the beds’ sectors in a different way, as we will describe in this report. Nonetheless, the Dutch ‘beds’ sectors offers significant opportunities for those willing to manage these challenges, across Core-, Value Add and Opportunistic strategies alike. The following chapters explore market fundamentals, challenges within investment markets and where opportunities are likely to arise.
Introduction
The residential and hotel markets, or ‘beds’ sectors, have prospered in the Netherlands in recent years, especially between 2016-2021. It has been supported by low interest rates and strong market fundamentals. But since the second half of 2022, market circumstances are completely different. In this report, we will cover multiple market segments, to provide a thorough overview of the current Dutch residential and hotel markets have shifted.
Dutch real estate transforms with global shifts. Demographics, digital disruption, and decarbonisation shape industry. Living, working, and markets evolve.
Co-Living
Multi- & Single family
Outlook
decline in investment volume of the beds sectors in 2023 compared to 2022, mainly due to higher interest rates and regulatory uncertainties
-49.2%
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Multi- & Single family homes: Towards a new normal in the Dutch rental market
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CONTENTS
Housing Shift
Market in Minutes Q3 2023
Market in Minutes Q2 2023
Market in Minutes Q1 2023
Summer Special 2023
Logistics Confidence Index
SAVILLS AMSTERDAM
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SAVILLS UK
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Market in Minutes Q4 2023
Key findings
Strong demand drivers for all beds’ sectors Lower investment activity against the context of falling overall commercial real estate investment Continuing supply obstacles Tougher regulatory backdrop as response to market excesses ESG as a requirement for maintaining legitimacy Strategic shift from passive to active asset management
Market in Minutes Full Year 2023
VOLG ONS
All content © copyright 2023 Savills. All rights reserved. Savills Nederland Holding B.V., established and registered in the Netherlands. Located: Claude Debussylaan 48, 1082MD Amsterdam. Chamber of Commerce (KvK) number: 33202244.
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At the end of 2013, the supply of properties in the Dutch private rental sector has been falling remarkably, pushing asking rents and transaction prices upward.
40%
A staggering 40-45% drop predicted by London's Capital Economics, the impact on commercial property values is profound.
Population and household growth have been higher than expected, contributing to scarcity. Population growth exceeded earlier estimates, mainly due to higher levels of immigration. In 2010 Statistics Netherlands predicted that the Dutch population would rise to 17.8 million people in 2040. The Dutch population reached 17.8 million in 2023. An ageing society has contributed to labour shortages in the Netherlands, making the economy increasingly dependent on productivity for growth. The Dutch Government (Rutte II, 2012-2017) made strengthening the knowledge sector a priority, aiming to achieve or exceed the OECD average. This resulted in a strong influx of knowledge and other labour migrants seeking housing, increasing the demand for private rental sector housing.
Population- and household growth greater than expected
PBSA: Even more a crucial linchpin of the Dutch knowledge economy?
An average annual growth of rental transaction prices on a yearly basis of five percent, low availability and decreasing affordability, sparked widespread protests against the ‘housing crisis’ in 2021 . In Amsterdam, the median asking price for a rental dwelling increased to €2,494 / month at the start of 2024, unaffordable for the vast majority of households. Critics cited especially excessive rents for low quality housing, as investors in were used as an example, and the Dutch private rental sector as well as its investors came under further scrutiny. How did this came to be, and how did this change the investment market as we know it today?
Market Fundamentals
Alongside the growth in immigration, the rise in single person households as society ages, is increasing the demand for rented housing. The number of single-person households is expected to increase by 10% by 2030 and a further 6% by 2038. Finally, there is a growing preference, particularly among migrants, to live in large urban areas. This process of urbanization contributes to notable differences between regions in household growth. This can lead to greater shortages within urban areas, where demand for PRS is structurally higher. The current housing shortage in the Netherlands is 390,000, a 24% increase on 2022 or 4.8 percent of the existing housing stock.
The growing housing shortage over the last decade, to 390,000 homes currently, highlights how development has not kept pace with rapidly increasing demand.
A perfect storm hindering multi- & single family rent - developments
Moreover, the rate of new developments are declining, due to higher construction costs and increased interest rates. In the first quarter of 2022 building costs rose 15% compared to the previous year as the war in Ukraine contributed to higher prices for materials and rising energy costs. Labour costs are also increasing and expected to have a lasting effect due to structural shortages. Developers maintain lower land prices are necessary for the construction of affordable housing. Yet only one in ten municipalities have done so, which prevents construction, The total number of building permits granted for both private rental and owner-occupied properties has declined, instead of increased over the past 2 years. This decline was sharpest among market parties for rental homes and owner-occupier housing. To reduce the housing shortage to the desired two percent of the housing stock maximum, 114,000 houses per annum will need building between 2024 and 2031. A declining number of permits granted already points to falling short of addressing the 114,000 homes needed every year until 2031. It’s consequence is undeniably, higher scarcity and more pressure on the existing rental stock.
Although the Dutch private rental sector just comprises 14% of the total housing stock, it’s extreme examples in terms of scarcity and asking rents have caused the heaviest government intervention in the housing market. Examples are a higher RETT (from 2% in 2020 to 10.4% in 2024) for investors, wealth tax for private investors and the proposed ‘Affordable Housing Act’*. The Netherlands however, far from an exception in terms of increased regulation. Discussion about the legitimacy of investors in the housing market have been raised across many pressured housing markets in major cities in Europe. Examples of rent caps also seen in major European cities such as Berlin, Barcelona and Dublin.
The extension of the WWS and a maximum annual rent increase (average CLA wage increase + 0.5%) aims to give middle-income tenants better rent protection. The WWS already exists for the lower rental segment. These are homes up to around 148 points, often social housing. The main measures of the law are the extension of the Housing Rating System (WWS) to 187 points (€1,129.38, price level July 2023) and making the WWS compulsory when new contracts start. The affordable housing act was aimed to be implemented at 1-1-2024, but due to the fall of the Dutch cabinet Rutte IV per 7 July 2023, new elections were hosted and parliamentary voting was postponed. Furthermore, the Dutch Council of State raised concerns about the bill, especially regarding its effect on the total supply of rental housing as landlords might divest their rental housing portfolio’s. Currently, the affordable housing act is aimed to be implemented at 1-7-2024.
The Affordable Housing Act
Investment Market
From ‘you snooze, you lose’ to sleeping on it before investing
With just 2.2 billion invested in 2023 in the Dutch private rental sector, investment volumes dropped to more than 3 times lower compared to the record years 2018, 2019 and 2020 with approx. 8 billion in volume.
But compared to these years, supply- and demand fundamentals are even better from an investment perspective, as described in previous paragraphs. This would suggest more instead of less capital moving towards the market. Although the vast majority of new CRE funds raised still target the Residential sector (57%), total capital raised targeting the residential sector decreased in 2023 compared to 2022. Where the residential market was extremely competitive from a buyer perspective in the beforementioned years, two key reasons are at the root of a new reality. And these are mutually reinforcing each other.
The first gamechanger for the residential investor is, as beforementioned, the changed regulative environment. Rapidly increasing rents as well as in the owner-occupier sector popularised restrictive measures for residential investors, which were often blamed for exploiting scarcity within the housing market, Increases in RETT as well as possibly regulating a large share of the current the total private rental stock in terms of pricing*, have so far discouraged numerous investors. Although earlier research from Savills suggests a higher sensitivity for older stock in city centres which are usually owned by small private investors (<8 dwellings in portfolio), institutional investors such as CAPREIT, Blackstone and Heimstaden announced to divest due to a combo of (possible) regulative changes. And secondly, higher interest rates, which have led to a softening of Dutch residential gross initial yields by 145bps since 21Q2. Moreover, residential is the most expensive of the major sectors with prime residential yields 85 bps lower than prime offices (5.5% GIY). The spread to the 10 year government bonds yields is 260 bps. Consequently, high leverage investment strategies are less attractive, causing many more levered buyers to at least temporarily withdraw from the residential investment market. Recent movements from both GIY’s for Residential as well as the Eurozone AAA bonds spot yield should be hopeful in that regard as both have diverged, leading to a greater bond-yield spread.
Dominant investor strategies seen in the market have shifted from Core to Core+ or Value add, also as a consequence of availability of lower quality product. As the investment market shifted from a seller to a buyer market, purchasers often try to ‘discount’ investments in sustainability for existing stock into their bids, often leading to further price expectations between buyers and sellers. For new-builds, high construction costs and high costs of leverage are the investors burden. Dutch institutional investors are still relatively active buyers but employ higher levels of equity, while also being increasingly driven by impact strategies. Historically the most sought after markets Amsterdam, The Hague and Utrecht, appear to have lost momentum given low returns. In 2023, ‘just’ 27% of total investment was in the 4 major cities in the Netherlands, compared to 37% in 2022. Foreign investors were particularly reluctant to invest in the residential investment market with their share of total investment volumes decreasing to just 18% in 2023. The largest acquisitions by foreign investors happened outside the 4 major cities of the Netherlands, including Greystar’s 407 unit acquisition in Rijswijk (The Orchard), and M&G’s purchase of 206 units in Leiden (More5). Another strategy dominant in the current market is the sale of individual dwellings to private households (privatization). Vacant possession values have only marginally decreased (and now going up) while price corrections for rental product have been more severe, making this strategy more financially attractive particularly to Dutch private investors. The approach is supported by the scarcity in the segment affordable of the owner occupier market, anticipation of lower future mortgage interest rates and the effect of (possible) regulation. In 2023, 55% of the residential portfolio’s transacted in terms of volume were acquired by Dutch private investors, compared to just 8% in 2019.
Sustainable financing & Impact funds marked for further growth
The relationship between more sustainable dwellings and their property values is increasingly demonstrated.
ESG
Furthermore, in the proposed affordable housing act, investing in sustainability leads to higher returns, as a higher energy label is rewarded with higher WWS-points. In many cases, upgrading the sustainability of a dwelling could lead to lifting the dwellings to the unregulated segment. And regulation on national- and international levels, such as a minimal label to lease (in 2030), force investors to implement measures in terms of sustainability. But another incentive for ESG for the residential real estate investor comes from a completely different sector: the financial sector. As new generations grow more critical towards financers funding unsustainable practices, financers will face increased difficulties raising their funding in doing so. This will lead to a larger focus, especially from larger banks, on sustainable financing. This results in either discounts in financing for green projects, or difficulties in finding financing for less sustainable buildings which also lack a proper plan to upgrade it’s sustainability. As such, the financial sector is now pushing the real estate sector towards ‘green’ investments. Institutional investors are also becoming more aware regarding the environmental and societal impact of their investment strategies. This is furthermore driven by a changing client base, where especially younger generations are becoming more demanding in terms of where their pension contributions are headed. As such, impact funds are gaining momentum, especially given current market circumstances. While generally providing lower financial returns, their aim to diminish housing scarcity increasingly draws in institutional investors such as pension funds. More than likely, we will see more capital from investors moving to impact funds, as they could also prove a welcome addition to investors’ legitimacy in the housing market.
The combination of regulatory uncertainty and a challenging macro-economic environment is a considerable contrast to 5 years ago, when residential investment volumes peaked. The Dutch Government’s market-led approach after 2010, was typified by its yearly publication about the Dutch residential sector the ‘state of the housing market’.
In contrast, the annual report is now called the ‘state of public housing’ and the role of ‘minister of public housing’ has been reinstated. It shows a clear intention for a greater role for government in the Dutch housing system. A similar trajectory is seen in other countries, where scarcity and high asking rents in the private rental sector are resulting in more government intervention. In addition, ECB policy rates are projected to remain at their historically high level until at least the second half of 2024, and forecasted to only gradually decrease thereafter. As such, leveraging will remain more expensive. But this combination of governmental intervention and interest rates needs to be placed in historic perspective. Government policies had not been as liberal as in the period 2010 – 2022 and interest rates never as low as between 2012-2022, while also being accompanied by elevated housing demand. These market excesses were bound to normalise, and perhaps previous market circumstances have been historically good instead of the current historically bad. Still, these market circumstances will require a paradigm shift from the perspective of an investor, as they have to navigate a tension field between achieving returns while also delivering social / environmental value. As such, strategies in the Dutch residential market will shift towards adding value in a broad sense, integrating financial as well as environmental and social goals. As the role of investors in the Dutch housing market will remain under a magnifying glass, the latter will become crucial for maintaining legitimacy, or further backlash toward the investor could unfold.
ESG strategies to maintain investors’ legitimacy
“Although we’ve witnessed a drop in investor activity across all sectors because of the unprecedented increase in the cost of capital – as euro rates are up +/-450bps since July 2022. The sharp decline in Dutch private rental sector investment signals more than a temporary market adjustment. Regulatory uncertainties, higher interest rates, and shifting investor strategies are shaping a new investment landscape. This isn't just a pricing equilibrium; it's a re-set reflecting structural changes, particularly in regulations and the government's role in the housing system. Navigating these shifts will be crucial for real estate investment strategies in the evolving Dutch market."
Robert Ciggaar
Co-Living: Relieving or adding to housing market pressures?
savills beds special
PBSA: Even more a Crucial Linchpin of the Dutch Knowledge Economy?
There was shortage of 23,700 student-housing units in the PBSA markets in academic year ’22-’23. This gap is expected to increase, with expectations varying between 39,600 (best case) and 56,700 (worst case) in the twenty largest Dutch university cities. At the same time, the total number of students in Dutch higher education is stabilizing.
Since 2015 the Government has been promoting Dutch higher education to international students.
Government policy promoted the Netherlands’ distinctive strengths, such as quality of its higher education system, the wide range of English Taught Programs (ETP’s) and the practice-oriented focus towards the labour market with internationalization of education reinforcing the knowledge economy. The number of ETP’s, which are especially common in master programs, increased significantly and the Netherlands became increasingly attractive for international students. The number of international students increased to 16 percent of those taught in 2023, well above the global average of 2.7 percent. The number of international full-course students is expected to grow by 38.5 percent in the eight years to 2030-’31, or 165,700. This will impact demand for PBSA, as housing must be available on the day international students arrive in the Netherlands. PBSA houses 69% of international short-stay students, and is attractive for international students because units are often offered furnished. Consequently, the increasing demand for PBSA is largely due to the growing share of international students in the Netherlands. The reintroduction of the basic grant in academic year ’23-’24 is another source of demand. Its abolishment in 2015 led to widespread protests because the affordability of student accommodation decreased as they lost a crucial part of their income. According to a survey by Kences the average student living away from home builds 325 euro in debt each month by using the loan system to meet their costs. The average student living away from home with a basic grant of 439.20 euro in the current academic year should not need to borrow. The change could contribute to a substantial increase in demand for PBSR. Almost half (48%) of students indicate that affordability is the reason for living at home,
Internationalization of Education and Reinstatement of The Basic Grant
The functioning of the PBSA sector is closely intertwined with the private rental sector.
Approximately half of students, especially domestic students, rent in the private rental sector. This varies between cities, and is much higher in Amsterdam, for example, than in Wageningen. As a result, the supply of PBSA is much higher in Wageningen (over 80 percent) compared to Amsterdam (under 50%). Rising rents have made renting in the PRS less affordable for students with fewer private rental properties listed on student-housing platforms. Students will try to find accommodation through PBSA which is usually more affordable, driving up the demand in cities such as Amsterdam and Utrecht. The National Student Housing Action Plan agreed between municipalities, educational institutions, housing corporations, private investors, and the government to realize 60,000 student homes between 2022 and 2030, was drawn up in response to the expected growth in demand for PBSA on top of existing shortages. Currently, there are only firm plans for 20,000 homes to be built by 2030 . Despite the ambition of policy makers and high demand for PBSA, developers are unable to get their plans off the ground.
A Steep Increase in Private Sector Market Rents Pushes Students Towards PBSA
The Dutch PBSA investment market has been no stranger to diverging expectations between buyers and sellers, showing a steep decline in investment volume with a total volume of just 32 million in 2022.
In 2023, the market showed slight recovery with a volume of approx. 155 million. This was mainly driven by the transaction of ‘The Ridge’ in Delft, a transformed former office property which AXA IM acquired in Q1 2023. Other transactional activity in 2023 applied to smaller scaled properties acquired by Dutch housing corporations.
Investor attitudes towards PBSA are more favourable than the Dutch investment volumes would suggest. In Savills’s EME Investor Sentiment survey in October 2023, respondents expressed more optimism about PBSA compared to the previous year. 58% of respondents said they aspired to invest in student housing in the next 12 months, compared to 48% in 2022. PBSA was more popular than CBD offices. The key reasons underlying the optimism were PBSA’s structural supply-demand imbalance and anti-cyclical properties, as student numbers tend to rise during economic downturns when the job market is weaker.
Anti-cyclical properties, but still a similar decline in investment volumes
And as the amount of PBSA investment product is limited compared to multifamily, the ‘easier to manage’ new built product is scarce. Older, available PBSA stock will need renovating or active management to meet the standards institutional investors need to achieve to conform to SFDR requirements. Most PBSA investors however, are willing to commit to refurbishments. According to the Savills & The Class Foundation PBSA report, 62% of PBSA investors within its survey stated plans to refurbish properties that don’t meet ESG credentials. A hopeful statistic, where investors thus will add quality into the Dutch PBSA market. And although 23% is willing to sell properties not matching ESG credentials, this creates investment opportunities for investors with value-add strategies.
PBSA will play a pivotal role in providing housing for students but also in influencing Dutch education policy and the wider knowledge economy.
A lack of student housing is already fuelling a debate about the desirability of encouraging inflows of foreign students, and the pressure it contributes to the PBSA market . Meanwhile, key knowledge intensive Dutch companies are facing personnel shortages and lean on an inflow of foreign knowledge workers. Entire knowledge intensive economies are structured around that influx, such as ‘Brainport Eindhoven’ and Leiden Bio-Science Park. In Denmark, the policy which limited foreign student inflows was reversed as the impact on the economy was too large. Dutch universities point out similar risks to the Netherlands from capping the numbers of foreign students. The PBSA market faces a conundrum: PBSA has become a crucial enabler of the Dutch knowledge economy. Attracting sufficient qualified personnel in future, could depend on new PBSA developments. The PBSA market would benefit greatly from capital aimed at additional development. An additional task is however, that investing PBSA also requires adding value in several areas, even more so than before. Sustainability of product is often lacking, while adding social value could greatly benefit more individualistic, younger generations.
More Debate Forthcoming about Anglicisation of Dutch Education, while PBSA Shortages Rise
“Student housing in the Netherlands, particularly Purpose-Built Student Accommodation (PBSA), emerges as a crucial linchpin for the Dutch knowledge economy, driven by a persistent shortage of units, an influx of international students, and the reinstatement of the basic grant. Despite a decline in investment volumes, investor optimism prevails, fueled by PBSA's structural supply-demand imbalance and anti-cyclical properties. As the debate on the Anglicisation of Dutch education intensifies, the PBSA market's role in influencing education policy and supporting the knowledge economy becomes increasingly pivotal.”
In the context of rising interest rates, real estate investors will be forced to look after higher risk exposures. However, underlying market fundamentals remain solid within the current economic downturn regarding PBSA. Although the spread between prime PBSA and regular multi-/single family rental housing has narrowed in recent years, there’s still a significant gap of 165 bps. Furthermore, PBSA investments in secondary student cities in the Netherlands, such as Maastricht, Delft and Eindhoven, albeit prime or secondary product, offer higher yields. However, compared to prime cities, these markets are less able to profit from the shift of students from renting in expensive private rental sector properties towards PBSA, as secondary cities generally have a larger stock of affordable private rental sector property.
Adding Quality as a Key Objective
PBSA faces a quality / sustainability conundrum in many cases. Despite a sizeable yield spread, many PBSA properties still have a way to go in terms of quality.
Bas Wilberts
Hotels: just recovering or room(s) for growth?
Co-living in the UK has experienced unprecedented growth in recent years, driven by strong trends of population growth, urbanization and changing housing preferences.
Co-Living: Relieving or Adding to Housing Market Pressures?
This relatively nascent sector is seen as the way to counter the housing crisis, with shared affordable, high quality accommodation. The number of operational beds in the UK more than doubled last year to 3,422, with another 4,999 beds currently under construction. In total 21,559 are still in the pipeline. In the Netherlands, the first Co-Living scheme was only delivered in 2012. In the decade that followed, this sector has grown to 64 schemes already. This demonstrates strong appetite from developers, investors, operators and lenders, and of course, its future tenants.
Co-living schemes are purpose-built and managed residential developments for rent, which include a combination of personal and shared amenity spaces . They offer shared affordable, high quality accommodation, predominantly for 18-40 years old, with fully furnished private living units, communal areas and often flexible working spaces. Tenancies typically range for shorter periods, often from 3-12 months .
What is Co-Living?
Demand is mainly driven by international knowledge workers moving new to the country, such as expats, that seek the ideal environment from which to establish new roots through the sense of community and social activities that Co-Living schemes offer. They are also pulled by more practical considerations, such as the flexible lease lengths, all-inclusive bills and fully furnished accommodation units. The number of international knowledge workers increased on average with four percent per year since 2010 and is equal to 227,780 in 2020. This growth is expected to have stabilized since then due to the pandemic. A significant percentage of 74% of the knowledge workers is between 25 and 40 years old and belongs to the core target group for co-living. Most of the knowledge workers are living in the ‘Randstad’, especially the MRA (Metropoolregio Amsterdam) region. However, Co-Living schemes are not only limited to cities, but can be viable in any market with strong employment opportunities.
The growth of knowledge workers as the main foundation of growth
And not just domestic young professionals that value location, flexibility and affordable housing are drawn towards Co-Living. The current pressure on supply in the Dutch private rental sector causes rising market rents. Next to this, individualization among younger generations creates more single person households, where moving in together or starting a family is increasingly shifted to later ages. As such, demand can only be expected to increase in the coming years also among a growing target group of younger one- or two-person Dutch households. Lastly, driving demand is that Co-Living can deliver in terms of offering social value. Statistics show that younger generations feel increasingly lonely. On the other hand, a study by The Collective found that 71% of Co-living residents felt that living in a shared community had improved their social life. Co-living has been shown to be particularly appealing to millennials, who greatly value the social and community aspects of the lifestyle. Dandi Wembley also recently conducted a study of its residents using LifeProven, an ESG property consultancy, and 82% of residents said that living in the scheme had improved their quality of life.
In the last ten years, the share of Co-Living schemes in the Netherlands increased substantially in response to extensive population growth, urbanization and changing housing preferences under younger generations.
Co-Living used as an alternative for redundant offices
Many schemes have only been very delivered, where especially a strong growth between 2017 and 2021 was visible, as seen in graph 3.1.
A remarkable statistic is that 59% of all Co-Living schemes in the Netherlands are transformed office buildings. Of the schemes delivered in 2023, one-third are transformed offices. This is substantially higher than the share of office transformations in the added housing stock, where just 15% of new dwellings are dwellings that are transformed offices. That offices are relatively more often transformed into Co-Living is likely because offices are better suited to Co-Living in terms of creating smaller apartments, fitting easier into the existing construction. Furthermore, superfluous lobby space can more easily be transformed into for example, large communal areas. In addition, the preferred location for Co-Living appears to fit well with the location of offices: within or near cities with good public transportation connections.
That offices are relatively more often transformed into Co-Living is likely because offices are better suited to Co-Living in terms of creating smaller apartments, fitting easier into the existing construction. Furthermore, superfluous lobby space can more easily be transformed into for example, large communal areas. In addition, the preferred location for Co-Living appears to fit well with the location of offices: within or near cities with good public transportation connections. But, Co-Living schemes can be viable in any market with strong employment opportunities and flexible working and other lifestyle preferences, not necessarily cities. In the UK, the regional markets are expected to be the main driver of future growth with most beds under construction. Currently, the Netherlands knows a small number of thirteen operational co-living schemes. Over the past 10 years, these operators have expanded to more and more locations throughout the country due to strong lease-up rates and growing rental values. More and more bank and non-bank lenders are also willing to provide financing now that it is becoming clear that the growth of this still nascent sector is subject to a more permanent shift in residential demand for flexible tenancies, amenities, and social spaces. The banning of temporary leases could however, put pressure on the Co-Living business model as it mostly offers furnished apartments on a short-term basis.
Social Value, but for Whom?
Although Co-Living offers social value due to the emphasis on communal spaces and social activities, the affordability is often raised as a subject of discussion, as asking rents are usually all-inclusive.
For knowledge workers, this is often more convenient than none, as little furnishing expenses are needed. Nationals generally have less need for fully furnished units and an in-house gym for example, as they’re more often already rooted in the area. The affordability of the rent, which can sometimes be as high as €1400, is therefore often subject of debate especially regarding Dutch students or young professionals who lease in such properties. But the added amenities do offer proven social value. A study by The Collective found that 71% of Co-living residents felt that living in a shared community had improved their social life. And especially foreign knowledge workers are less rooted, which offers them an opportunity to find like-minded people within their property and thus resulting in social value especially for that target group. And next to this, co-living offers environmental value. Our data shows that 59% of co-living complexes are transformed offices. Existing buildings can therefore get ‘a better life’ again through co-living.
In contrast, the annual report is now called the ‘state of public housing’ and the role of ‘minister of public housing’ has been reinstated. It shows a clear intention for a greater role for government in the Dutch housing system. It effectively ends the liberal market approach, as the next Cabinet, which is currently in formation talks, is not expected to return to a market-led approach given rising housing shortages. In addition, ECB policy rates are projected to remain at their historically high level until at least the second half of 2024. Consequently, finding new private rental sector investment opportunities will remain difficult. However, current developments can also be seen in the context of Dutch housing history. Government policies had not been as liberal as in the period 2010 – 2022 and interest rates never as low as between 2012-2022, while also being accompanied by elevated housing demand. Putting this in perspective, this market excesses were bound to normalise, and perhaps previous market circumstances have been historically good instead of the current historically bad. Despite a tougher investment environment than a couple of years ago, current market circumstances still offer opportunities for long-term oriented investors, especially from an impact perspective. Politicians have expressed a wish for a larger role for housing corporations in the middle rental segment. Nonetheless, housing corporations face with their own constraints in terms of personnel as well as liquidity. For example, on 1 January 2023 the ‘verhuurdersheffing’ was abolished. This will structurally reduce the burden on housing corporations by approximately 1.7 billion € per year and creates space to invest in affordable housing. But another agreement has been made about phasing out housing corporations’ housing stock with energy labels below D in 2028. As this covers 25 percent of the current stock, much of this newly freed up capital will have to be used for improving the sustainability of these properties. Therefore, the growth of Dutch rental housing and potentially within the mid-rent segment, couldlargely still likely be dependent on investors, despite a more regulated market. This process is referred to ‘regulated marketisation’ in academic literature , where a regulated market is still driven by market parties operating within the bounds of increased regulation.
Focus on ESG as a Lifeline for Investors’ Legitimacy?
The terms for a further growth of the Dutch Co-Living seem present. Increases in rents in the Dutch private rental sector for example, serve as a major push-factor towards Co-Living.
The amount of knowledge workers as well as Dutch younger one-or two person households in larger urban areas is expected to grow further. But the emergence of the Dutch Co-Living sector has not been without criticism. Academic literature around this subject has dubbed the sector as being products with high rents, which are marketed around notions of ‘community,’ ‘togetherness’ and ‘co-working’. The same criticisms can be found in local media, dubbing it ‘little rooms, high service costs’. But apart from the cost increases, criticism of the product also refers to the way Co-Living schemes add to housing uncertainty for younger generations, as the apartments are often offered with temporary contracts. Perhaps also as a response to this development, the ‘Fixed Leases Act’ was proposed and is aimed to be implemented at 1 July 2024. This act tends to make indefinite lease terms the norm, although there is still room for exceptions such as leasing to expats. This could still put brakes on Co-Living developments, as they often depend on offering temporary leases. And although temporary leases are more uncertain, they do cater to a specific target group, specifically the more flexible, foreign knowledge workers. It’s convenience by offering furnished apartments while also providing social value, speaks to this target group. Eventually, by subtracting Co-Living from the housing stock, many of these households in this target group will have to resort to private rental housing, which would just increase housing shortages further. As such, the sector could still relieve housing shortages, but increasingly with growth pains compared to previous years.
Co-Living Destined to Grow, but not without Growth Pains
"Co-Living in the Netherlands is on a trajectory of growth, fueled by population expansion, urbanization, and evolving housing preferences. With a surge in operational beds and a significant pipeline, this sector addresses housing crises, particularly attracting international knowledge workers seeking community, flexible leases, and all-inclusive living. The transformation of offices into Co-Living spaces is notable, comprising 59% of schemes in the Netherlands. While the outlook is optimistic for further growth, challenges emerge, including criticisms of high rents and housing uncertainty. Regulatory changes, like the 'Fixed Leases Act,' may impact the sector's trajectory, highlighting the need for balance in addressing housing shortages while addressing potential growth pains.”
Savills UK has defined the core target group as follows: Currently live in the private rented sector Between 18 and 35 years of age Live in households without children Classified within an affluent demographic, with a high propensity to live in shared accommodation (City Prosperity, Prestige Positions, Rental Hubs, Aspiring Homemakers) Have personal incomes such that they can afford the median one-bed property in their local authority, if spending a maximum of 35% of their gross income on rent
1 2 3 4 5
Rive Republic
Capelle a/d Ijssel
Co-working spaces, laundry area, common room
Operated by Holland2Stay
Operated by The Cohesion
Amsterdam
Rooftop terrace, co-working spaces, meditation area, common room
Lofts
Operated by OurDomain
Diemen
The Dutch ‘Beds’ sectors outlook: adapting to a new reality
OurDomain
Raymond frederiks
The continuous growth of tourism before the Covid-19 pandemic caused increasing tensions between the goals of liveability and the economic benefits of tourism.
This led to new policies regarding locations earmarked for new hotel developments, for example in Amsterdam. The pandemic temporarily relieved this pressure, but tourism recovered remarkably in 2022 and 2023. In 2023, incoming and domestic visitor numbers were 3 percent and 12 percent, respectively, above the levels of 2019. With this, the Dutch sector dominates compared to the rest of Europe.
During the pandemic, there were some expectations that it would bring about lasting changes in the field of tourism and flying demand, as travellers become increasingly aware of their carbon footprint. However, the number of passengers increased by 14% in 2023 compared to 2022. This is still 11 percent below the pre-pandemic level in 2019.
Recent overnight stay statistics show tourism is back on the growth track
Rather, Covid-19 actually seems to have been a booster of just more tourism. In the long run, the increase in tourism is expected to continue. Only business travel lags in terms of recovery. The simplicity of digital meetings apparent during the pandemic reduced the need for in-person gatherings. And on top of this, businesses are reducing spending as the economy weakens. Amsterdam also hosted significantly fewer international congresses compared to other cities in Europe, which has further limited business travellers coming to the Netherlands.
Alongside the recovery in overnight stays, occupancy rates in the Dutch hotel sector have almost returned to 2019 levels.
Alongside the recovery in overnight stays, occupancy rates in the Dutch hotel sector have almost returned to 2019 levels. There are differences in the speed of recovery between Amsterdam and Schiphol, and the rest of the Netherlands. Amsterdam saw a much steeper decline and needed longer to fully recover as it is more dependent on international tourism and business travel. Nevertheless, Average Room Rates (ARR’s) have increased substantially since the recovery of global tourism, surpassing pre-pandemic levels. This is, however, also related to the increased costs of operating hotels since 2022.
Due to the structural tightness in the labour market for bars, hotels & restaurants and high inflation, wages have started to rise and expected to have a lasting cost effect. Besides, in the wake of the pandemic and as a result of growing international demand for energy, energy prices started to rise. This was compounded by the war in Ukraine, reaching a record high in 2022. Despite this development, the average profits upped again compared to 2021, because most of the costs were possible to be passed on to the consumer in terms of rising room prices.
Rising Wages and Energy Costs Impact Hospitality Profits
Prior to Covid-19, many municipalities were struggling to keep up with higher and higher demand from tourists.
Have Restrictive Policies Been a Blessing in Disguise?
They try to manage the growth of the hotel sector and sometimes to slow it down, for instance in Amsterdam with the ‘hotelstop.’ The Hague also instituted a temporary ‘hotelstop’ to allow the market to recuperate from the pandemic. In other municipalities, the establishment of new hotels is still welcomed, contingent upon the municipality is allowed to direct the location and sometimes even the concept. However, hotel permits are no longer automatically extended to on national level reduce excesses in term of tourists, which explains the decline in hotel stock in 2023 from especially hotels with three or less stars. Besides that, the hotel sector faced bankruptcies from hotels suffering from too high cost increases and low returns during Covid-19. Bankruptcies in 2023 are mainly due to the deferred tax payments that had to be paid that year, and other Covid-19 support measures that no longer apply. And next to this, repurposing has caused a decline in stock, for example to Centraal Opvang Assielzoekers (COA) to temporarily harbour asylum seekers. Or other operators aimed at accommodating labour migrants in cases of acute housing shortages for this target group, often entailing permanent transformations. In some cases, this has actually become a welcome alternative for some hotels to lease to COA, where major needed refurbishments to make the hotel competitive could at least temporarily be avoided.
While 2020 and 2021 were strong years for overall CRE investment in the Netherlands, Covid-19 impacted hotel investor sentiment contributing to a large drop in hotel volumes.
There was a gradual recovery in 2022, but 2023 has been the lowest in terms of total investment volumes since 2010. The cause of this is similar to the other beds’ sectors. However, the future for hotel investments seem more promising than suggested by recent weak investment flows. The explosive growth of tourism in recent decades encouraged many investors to take on management contracts, managing hotel operations alongside the hotel property. This discouraged investors during the pandemic years, but the flipside is that price corrections already took place during the period when hotel operations suffered. The assumption is that the hotel market already made corrections in terms of pricing before other asset classes did. Prior to the pandemic, hotel prices had largely tracked other sectors in 2019 and 2020. Gross Initial Yields between hotels (in lease situation) and prime residential started to diverge in 2021. The current spread is 110 bps. Hotel operations appear to have solid prospects as well, backed by the strong recovery in tourism. A key reason for this if of course, the strong recovery of the Dutch hotel market. While the Covid-19 pandemic temporarily distorted the image of the hotel sector as growth market, any lasting effects in terms of behavioural change regarding tourism have failed to materialize. Furthermore, a fall of interest rates is likely given the already visible downward trend in terms of inflation, narrowing the bid-ask spread. And lastly, (expensive) refinancing might force the hand of sellers, especially in case of hotels which also require significant CAPEX in order to remain competitive. Al together, distressed sales are likely to attract private equity, while increased institutional interest will grow through the course of 2024 as interest rates decline.
Recovery of hotel investment market brutally halted in 2023
Covid-19 was supposed to have a lasting effect on our travel behaviour, but air travel has recovered to levels similar to pre-pandemic.
This will keep causing pressure both on environmental as well as social aspects. As a further growth of tourism unfolds, municipalities are also likely to become more critical towards tourism, given their responsibility to manage liveability issues caused by over tourism. As such, Dutch municipalities will maintain their restrictive policies or tighten them further regarding new hotel developments. From an environmental perspective, hotels will face more pressure to implement more environmentally sustainable operations, both from the consumer side as from the regulative side. Hotel investors will have to manage these criteria as well as increased costs of labour and materials, but fundamentals of this market remain strong. And secondly, hotel investors are also able to benefit financially from more sustainable operations, especially those investing on management contract basis. As policies regarding new developments remain restrictive and creating scarcity, hotel refurbishments are more likely to be monetised through higher room prices. While also the tourist increasingly demands more sustainable ways of travel. Although growth in terms of new hotels is increasingly restricted through municipal policies, there is still a strong case for more pro-active asset management regarding hotels. A clear momentum exists both to invest in the property as well as in hotel operations themselves.
Market circumstances favour pro-active asset management
"Despite the recent dip in hotel investment volumes, the Dutch hotel market shows promising signs of recovery. The strong rebound in tourism has contributed to increasing occupancy rates and average room rates, signaling a resilient market. The decline in hotel stock due to restrictive policies and repurposing has led to increased scarcity, providing an opportunity for higher room prices. Proactive asset management will be key in navigating municipal regulations and rising costs, making it crucial for investors to adapt to the evolving landscape of controlled growth in the Dutch hotel sector."
Ruben Schuuring
Sustainable Tourism and Labour Shortages Triggering Sustainable Operations
The number of flights above expectations after the pandemic logically has negative environmental impact.
Furthermore, ‘overtourism’ has created pressure on local liveability. But a more ‘ESG’ responsible sector does not seem far away, bottom-up pressures will result in a transition of the sector. The first one is driven by labour shortages, which are already driving up costs of labour (Graph 4.4). In order to draw in the much desired workforce, hotel operations will have to reshape towards a personnel-friendly operation as possible. The second is a higher demand for sustainable tourism. Although air-travel has far from diminished, a growing environmental awareness does lead to significantly higher demand for more sustainable tourism. For investors, especially those with management contracts and thus profiting from hotel operations, investments in sustainability of product thus have a clear payoff. Energy costs can be reduced by improving green credentials, while also being able to rebrand hotels towards a target group looking for more ‘sustainable’ ways of travel.
Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK, continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.
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Our advice is based on a solid combination of reliable data and in-depth market knowledge of the various market segments within the real estate market. In our analyses we focus on factors that influence the supply and demand of real estate. The product we deliver always depends on your wishes. We offer a wide variety; from a smart one-pager, an extensive research report to a tailor-made dashboard. Our product will support you in making well-founded property decisions.
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CONTACT
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Associate Marketing & Business Intelligence +31 6 11 40 39 65 raymond.frederiks@savills.nl
Statistics Netherlands, Savills Data, Intelligence & Strategy, Horwath, Kences, Decisio, UVN, Vereniging Hogescholen, NVM, Eurostat, ICCA, Kamernet, ABF Research, RCA, Brainbay, MSCI
Director Investment +31 6 55 47 49 60 b.wilderts@savills.nl
Associate Director Hotel & Residential +31 6 14 58 17 53 robert.ciggaar@savills.nl
Associate Director Investment +31 6 24 88 78 47 ruben.schuuring@savills.nl
The environment for beds’ investors in Dutch markets is more challenging than the period prior to Covid-19 and the Ukrainian war. Previously, investors enjoyed supportive occupier market circumstances and a low interest rate environment.
Now, occupier fundamentals within the Dutch beds sectors are still favourable from the investor perspective. Housing shortages are expected to grow in the Multi- & Single family rental segments. Hotels have not been impacted by the prediction of less air-travel due to more sustainably minded consumers. The reality has been the opposite as tourism came back stronger than before the pandemic. Furthermore, older generations are slowly being replaced by younger generations of consumers more focussed on collecting experiences, generating higher demand for hotels. Lastly, PBSA and Co-Living are increasingly sought after especially by small households as rents in the Dutch private rental sector keep rising. But these occupier dynamics are no longer automatically leading to market growth driven by investors in the respective segments. Demand growth in the respective sectors has become more difficult to manage, leading to tensions such as (over)tourism and local liveability. International students are unable to find accommodation before the start of their academic years, contributing to the enormous shortages in the PBSA stock. For regular rental housing, the investor has often been the scapegoat of the current housing shortage, with extreme rental prices asked used as an example. These tensions have also led to political backlash, with investors watched much more critically. As such, investors are challenged with investing ‘responsibly’ against a backdrop of societal criticism and regulation, or else they risk their legitimacy to invest in the beds’ sectors being increasingly questioned. Within this context, all aspects of ESG investing has become a main issue instead of a side issue in the beds’ sectors. Secondly, rising interest rates have made the beds sectors significantly more expensive for investors. But despite high interest costs, beds remain an investor favourite, and not without reason. All have excellent fundamentals within the Dutch context, and unlike offices and industrial properties, are less affected by economic downturns. Opportunities can even be found in even more pro-active asset management by for example, investing in sustainability in case of residential properties, or refurbishments in the case of hotels. Additional returns can be found in adding additional quality, where on the long term, it’s payoff is also clear in terms of high scarcity. As the Dutch housing shortage is sizeable and hotel developments are restricted, investing in adding quality could result in additional added value in the context of extremely low competition.
“As we guide our clients through the transformed Dutch beds sectors, the challenges of societal expectations and regulatory shifts are undeniable. Investors, facing new plateaus in the market, must navigate these pressures adeptly to invest responsibly and align with evolving public sentiments. While interest rates rise, the resilience of beds sectors remains a solid anchor for strategic investment. Our advisory approach emphasises pro-active asset management strategies, urging investors to seize opportunities in sustainability for residential properties and strategic refurbishments for hotels. In an environment of increased scrutiny and competition, our commitment to insightful and strategic investment advisory aims to empower clients in navigating the dynamic Dutch beds sectors.”
Sources
BAS Wilberts
Continued shortages
The demand fundamentals have become even more compelling. Household growth, and ageing population and ongoing demand for highly educated migrants - while supply remains massively constrained - will support rental growth and high levels of occupancy.
Beds investors will increasingly have to cope with societal and regulatory pressures, as the markets have reached their own plateaus.
Regulatory pressures
Although market circumstances have surely worsened, this must be placed in perspective. Especially in the 5 years preceding the 2022-2023 inflation boom, interest rates have been particularly low and market circumstances thus simply ‘too good’.
Normalising market circumstances
In short, this has led to 5 new realities to take into account as a developer or investor in the Dutch beds sectors:
Beds markets will require more pro-active asset management in order to either maintain or to achieve higher returns, as passively generating returns has become significantly more difficult.
Passive to active strategies
The beds sector still offers compelling opportunities, and increasingly for ESG minded investors. Despite the tougher regulatory backdrop and capex challenges, there’s already evidence that more Impact minded investors can see opportunities (eg Bouwfonds/APG initiative to develop affordable housing).
Focus on Impact
Demographic Disruption
Utrecht City Special
Amsterdam City Special
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demographic Disruption
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Many of the increases are associated with holdings that have been under-rented
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chapter Disruption
Puzzle
Conclusion
