The Netherlands – Winter 2024
REPORT
Savills Research
Stable European Real Estate Investment Prospects
Stabilising Interest Rate Expectations Give Hope to European Real Estate Investors
Investor sentiment for European real estate has undergone a sharp decline, decreasing by a factor 13 since Q2 2022, hitting its lowest point ever in March 2023. However, the European Central Bank’s (ECB’s) more optimistic policy interest rate narrative in Q1 2024, is instilling greater confidence. Consequently, investor sentiment has risen from -37.8 in Q4 2023 to -31.8 in Q1 2024. Although subject to fluctuations, the improvement in sentiment is mirroring the pace of the previous year's decline, suggesting a robust recovery of confidence. Investment volumes generally fall following weakening investor sentiment, albeit with a delayed effect Since July 2022, the 12-month moving average of investment volume per month across all sectors decreased from €1,806,228,926 to €711,879,901 (-60.6%) in March 2024, closely mirroring the decline in investor sentiment. However, increasing investor confidence is reflected in the stabilisation of prime Gross Initial Yield (GIYs – excl. Purchasing Costs), with GIYs for office (5.5%), retail (4.5%), logistics (5.0%) and residential (4.65%) were unchanged in the Q1 2024.
Introduction
Increased investor’s costs of capital and a weak occupier market have combined to keep transaction activity subdued during Q1 2024. Sentiment indicators, however, suggest that the market is plateauing. Consequently, investment volumes decreased by 14.6% quarter-on-quarter (QOQ) and decreased by 2.5% year-on-year (YOY) to €1,708,817,838 in Q1 2024. Especially the logistics (68.8% YOY) and the retail market (65.7% YOY) have shown strong recovery in Q1 2024 due to robust occupier foundations. Contrarily, the residential market had its weakest quarter since Q1 2012, decreasing by 60.4% YOY in Q1 2024, largely caused by uncertainty regarding government regulations.
Dutch real estate transforms with global shifts. Demographics, digital disruption, and decarbonisation shape industry. Living, working, and markets evolve.
Although 2024 is expected to pose challenges, Savills believes that the worst has been behind the Dutch real estate market.
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Occupier Market: Disparities in Dutch Business Climate Influences Leasing Market Dynamics
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CONTENTS
Market in Minutes Q3 2023
Market in Minutes Q4 2023
Market in Minutes Q2 2023
Market in Minutes Q1 2023
Summer Special 2023
Logistics Confidence Index
Market in Minutes Full Year 2023
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VOLG ONS
Savills Beds Special 2024
Dutch Life Sciences
Difficulties will persist, however the worst is over for the Dutch real estate market. Increased investor's costs of capital and a weak occupier market continued to hinder transaction activity during Q1 2024.
The Worst is over
However, anticipated decreases in policy interest rates are poised to provide greater flexibility for real estate investments. For the remainder of 2024, transaction activity will be guided by leasing market dynamics, with investors focusing on sectors with robust fundamentals. Savills anticipates that the residential, retail, and (light) industrial markets will enjoy strong occupier demand throughout 2024. Although 2024 is expected to pose challenges, Savills believes that the worst has been behind the Dutch real estate market. Nonetheless, the current geo-political uncertainty and global economic volatility could inhibit a recovery in the Dutch real estate market.
Despite challenging business conditions, leasing activity has largely remained stable across most sectors in Q1 2024. However, conflicting macroeconomic indicators are creating disparities in leasing markets, with some sectors outperforming others. Logistics activity was particularly weak in Q1 2024, decreasing by 8.3% YOY. Office (+8.3% YOY) and retail (+11.3% YOY) leasing activity was notably higher due to stronger market fundamentals.
OCCUPIER MARKET
After hitting its lowest point in March 2023, investor sentiment for European real estate has increased by 27.9%. Even though sentiment increased, investment appetite still remains low across all sectors. Investment volumes decreased by 14.6% QOQ and 2.5% YOY to €1,708,817,838 in Q1 2024. Prime Gross Initial Yields (excl. Purchasing Costs) have remained stable across all sectors in Q1 2024. The residential market had its weakest quarter since Q1 2012, decreasing by 60.4% YOY in Q1 2024, largely caused by uncertainty regarding government regulations.
INVESTMENT ACTIVITY
Strong market fundamentals are expected to boost investment activity in the light industrial sector throughout 2024. Sustainability and electricity availability will remain challenges. The light industrial market is known for its high electricity consumption, while declining electricity availability is threatening stable business operations. 70.5% of the light industrial LFA is located in an area with no electricity availability.
THE LIGHT INDUSTRIAL MARKET
Savills expects an increase in investment market activity in 2024 as investor confidence in the European real estate market rebounds in anticipation of cuts in policy interest rate. With the resurgence of investment confidence, investors are expected to feel more assured in bringing investment products to the market, whereby activity will be guided by leasing market dynamics.
INCREASE IN MARKET ACTIVITY EXPECTED
The Office Market of the Future
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Market in Minutes
Recovering Investor Sentiment and Dutch Real Estate Activity
Q1 2024 – The NetherlandS
Stable Interest Rates
A prerequisite for further recovery of the investment climate is the stabilisation of long-term interest rates. Historical evidence suggests a strong negative correlation between investor sentiment and interest rate movements, with an increase in long-term interest rates causing an immediate response in investor sentiment for European real estate. Consequently, investors will undoubtedly closely monitor the ECB’s interest rate expectations. Policy rates are expected to remain stable until at least June 2024, whereby the ECB’s policy rate decisions will be guided by the monetary policy of the United Kingdom and the United States to not jeopardise the Euro’s strength.
Against expectations, Dutch inflation increased from 2.6% YOY in February 2024 to 3.1% YOY in March 2024, largely driven by increased prices for services due to increased labour costs.
Dutch inflation is well above the Eurozone’s inflation of 2.4% YOY in March 2024. Other larger European economies like Germany (2.3% YOY), France (2.4% YOY), and Italy (1.3% YOY) are experiencing below-average inflation. While the European Central Bank (ECB) plans to maintain higher policy interest rates until at least June 2024, other central banks are more cautious. The Central Bank of Poland, for example, has opted to remain cautious and refrain from lowering policy interest rates until at least the end of 2024. In contrast, the Central Bank of Canada is open to policy interest rate cuts, albeit in smaller magnitudes than anticipated by the ECB. Additionally, the Federal Reserve (Fed) has chosen to further postpone interest rate cuts due to higher-than-expected inflation levels.
Europe and the Rest of the World
Divergence
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Light Industrial: Stable Light Industrial Demand Expected In 2024, But Challenges Remain
Disparities in Dutch Business Climate Influences Leasing Market Dynamics
Investor sentiment is stabilising, and expectations are that occupier market fundamentals improve throughout the rest of 2024, after bottoming at the end of Q1 2024.
Macroeconomic indicators suggest Q1 2024 was harsher for occupiers than Q4 2023. The number of bankruptcies increased to 1,052 (+15% QOQ) across all sectors, while Statistics Netherlands’ Business Cycle Tracer suggests that the Dutch economy is still in a downward cycle. More encouragingly, Dutch consumer confidence has improved by 23.0% QOQ in Q1 2024, while business confidence has increased from -10.3 in Q4 2023 to -7.7 in Q1 2024. Especially the business services sector is showing confidence, with confidence up from -2.3 in Q4 2023 to 1.6 in Q1 2024.
Despite challenging business conditions, leasing activity has largely remained stable across most sectors in Q1 2024.However, conflicting macroeconomic indicators are creating disparities in leasing markets, with some sectors outperforming others. Declining import- (-9.8% YOY) and export (-2.5%) volumes at the beginning of Q1 2024 have subdued logistics demand. In Q1 2024 logistics take-up totalled at 452.219 sq m, decreasing 8.3% YOY and 29.4% QOQ. In part, lower logistics take-up is also driven by extremely low vacancy rates (4.9%) in this sector. The retail sector, on the other hand, has been stable over the last six months. Leasing volumes in Q1 2024 increased by 11.3% YOY. Savills suggests that the retail sector has been the most stable performer in both Q4 2023 and Q1 2024, with the 12-month moving average of retail take-up per month only deviating by 2.4% from its average in this period. Strong performance of the retail sector is, in part, driven by high consumer demand. A tight labour market has been accompanied by substantial wage increases and mitigated the effects of inflationary pressures on consumer spending. At the beginning of Q1 2024, unemployment stood at 3.7% while Collective Employment Agreement wages rose by an average of 6.9% YOY, well outpacing inflation of 3.7% YOY in 2023.
Leasing Disparities
Outlook: Savills Expects Postponed Investment Deals to Shape the Market in the Second Half of 2024
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The light industrial market is exempted from Energy Performance Certificate (EPC) regulations, which makes it hard to assess sustainability in this sector.
Owners only need an EPC when their light industrial unit includes another function, such as office space, which is larger than 50 sq m. If this is the case, owners are allowed to use this EPC for the whole light industrial property. Consequently, only 30.9% of the 187.6 million sq m of Lettable Floor Area (LFA) of the light industrial market has an EPC. Lacking EPC regulations are quite misleading, as the light industrial sector is precisely a sector known for its high electricity consumption. As declining electricity availability is threatening stable business operations in the light industrial sector, investing in sustainability will become increasingly important throughout 2024. As of Q1 2024, 145.5 million sq m LFA (70.5%) of the light industrial market is in areas with no electricity availability (0 MVA) for consumption. Tightness in electricity supply is expected to persist, with 110.0 million sq m LFA (58.7%) of the light industrial market predicted to experience no electricity availability by Q1 2029. However, by investing in energy-saving measures and off-grid electricity production and storage, landlords will be able to adapt to low electricity availability while also ensuring future rentability of their light industrial property.
Stable Light Industrial Demand Expected In 2024, but Challenges Remain
Challenges Remain
LIGHT INDUSTRIAL
Sustainability and Grid Capacity Challenges
+6.8%
Average rental prices for light industrial space increased from €82.66 per sq m per year to €88.25 per sq m per year (+6.8%).
Investment volumes decreased by 5.5% YOY to €154,125,561. This decline is largely due to increased costs of capital. Occupier dynamics, after all, remained fairly stable during much of 2023, with leasing activity in the light industrial sector decreasing by only 4.8% in 2023 compared to 2022. In Q1 2024, light industrial take-up reached 706,878 sq m, increasing by 0.6% QOQ and decreasing by 5.9% YOY, signalling continued stabilisation in the market. A record-low vacancy rate of 1.1% has subdued occupier activity in Q1 2024. Consequently, low availability of light industrial space has driven up rental prices. Between Q1 2022 and Q1 2024, average rental prices for light industrial space increased from €82.66 per sq m per year to €88.25 per sq m per year (+6.8%). For the remainder of 2024, fundamentals for the light industrial sector remain more positive as the business confidence is improving. Industrial Producer Confidence increased at the end of Q1 2024 compared to Q4 2023, while bankruptcies in the industrial sector are slightly lower in Q1 2024 (-1.3%) compared to its peak in in Q1 2023. Despite stable fundamentals throughout 2024, challenges persist. Much of the light industrial market is lagging in terms of sustainability, while declining electricity availability is putting pressure on occupier’s business models.
Investment climate
A weak investment climate throughout 2023 has continued to affect investment activity in the Dutch light industrial sector in Q1 2024.
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European Central Bank, 2024; Eurostat, 2024; Macrobond, 2024; Oxford Economics, 2024; Savills Data, Intelligence & Strategy, 2024; Statistics Netherlands, 2024
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Director Logistics & Industrial +31 6 27882408 niek.poppelaars@savills.nl
Savills Expects Postponed Investment Deals to Shape the Market in the Second Half of 2024
Investor sentiment appears to be slowly recovering after enduring a significant downturn during 2023. The European Central Bank’s (ECB’s) policy interest rate narrative is instilling more confidence amongst European real estate investors.
Anticipated stability in policy interest rates, with possible decreases expected to occur from June 2024 onwards, provide more flexibility in making real estate investments. Savills believes the Dutch real estate market is successfully manoeuvring itself out of one of the worst real estate cycles ever recorded. Savills expects investment activity to be dominated by postponed transactions during the second half of 2024. Many investors adopted a “wait-and-see” approach during 2022 and 2023, and postponed decisions. With the resurgence of investment confidence, investors are expected to feel more assured in bringing investment products to the market. Savills forecasts a total investment volume between approximately €8.4 and €9.1 billion in 2024. For the remainder of 2024, investment activity will be guided by leasing market dynamics, with investors closely monitoring leasing market dynamics and focusing on sectors with robust fundamentals. Savills expects the residential, retail, and (light) industrial markets will enjoy stronger occupier fundamentals throughout 2024. Investors will also show greater interest in Environment, Social, and Governance (ESG)-compliant properties, particularly in the light industrial sector. Indeed, Savills foresees that ESG will be the most important influence affecting the business operations of light industrial occupiers.
"Investor sentiment is rebounding after 2023," notes Savills. "Stability in ECB's policy rates fosters confidence, allowing flexibility in investments. Dutch real estate is emerging from a tough cycle."
SAVILLS EXPECTs
Sources
Savills Amsterdam
The effect of Environment, Social, and Governance (ESG) regulations, directives and reporting requirements will have a profound influence on the development of the Dutch office market.
The Netherlands’ susceptibility to the effects of climate change will lead occupiers and investors to increasingly desire properties better adapted to withstand these risks. One should realise that ESG will increasingly be concerned with the S (Social) aspect. Now that the E (Environment) aspect of ESG seems to be fairly crystallised and regulated, office buildings of the future which are able to mitigate their negative social influence are expected to receive increased occupier- and investor interest. Nevertheless, traditional E indicators are expected to remain important, with most EU-regulations focusing on mitigating the Environmental aspects of the Dutch office market. The future viability of the Dutch office sector largely depends on how the sector is able to cope with the effects of climate change. Analysis by Savills has shown that a substantial part of the Dutch office market will be susceptible to the effects of climate change in 2050, causing significant vulnerability. These vulnerabilities highlight the need for Dutch offices to critically analyse their risk and implement adaptive measures accordingly. For instance, many office buildings have vital infrastructure located on the lower floors and / or basement floors, which are extremely susceptible to floods. Rethinking lay-outs, and acknowledging the vulnerability of one’s office is necessary in order to adapt to changing climates.
OUTLOOK
Compliance and Adaptation Will Direct the Dutch Office Market
Outlook & Conclusion: The Dutch Office: Dead, or Reincarnated?
ESG
Technology
Hybrid Working
Economy & Demography
Managing Climate Risk: Strategies for Sustainable Dutch Offices
Environmental, Social, and Governance (ESG) requirements have had a significant impact on the Dutch office market.
Environmental, Social, and Governance
Firstly, the increased occupier- and investor interest in ESG in the Dutch office market is caused by their obligation to comply with Government regulations and reporting directives. Secondly, as the Netherlands is susceptible to the effects of climate change, occupiers- and investors are increasingly looking at properties that are able to adapt to its effects. Most notably, extreme weather including heavy rainfall, storms, and draughts, higher temperatures in urban environments, and the increased risk of river- and sea floods, are expected to drastically influence urban environments between now and 2050.
The European Commission’s Green Deal’s aim is to have a zero-emission building stock by 2050 and current and future regulations will steer towards this goal. Since sustainability is such a broad topic, legislation is extensive. Legislation ranges from energy efficiency to working conditions. This can have conflicting consequences for office investors.
There are four steps which can help to create more certainty regarding ESG-legislation for the office market.
REGULATIONS & REPORTING DIRECTIVES
ESG Legislation, Regulating the Role of Offices
The first step is to create transparency by enhancing data availability. Reporting directives such as the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) are pushing companies to publish more on their motives and performance. The purpose is to make ‘greenwashing’ more difficult, as companies will publish public reports. The current lack of data availability is considered in the implementation of new legislation. As many companies have a year that can be used as a trial to gather all necessary data. The second step is to define what is sustainable and what is not. The EU Taxonomy can be seen as a prime example of legislation that has this goal. It is often referred to as a “shopping list for green activities”. This enables investors to strive for sustainable results and to go further than merely complying. The EU Taxonomy also defines minimum safeguards. When one fails to comply with any of these, the activity can no longer be defined as sustainable. With regards to the Dutch office stock, a draw towards certificates such as BREEAM-In-Use is observed. These types of certificate schemes go beyond legislative requirements, buildings with a BREEAM label are therefore often referred to as more sustainable than non-labelled properties. The third step is to finance sustainable measures, through a mix of fiscal incentives and private finance. Fiscal incentives in the Netherlands include the Environmental Investment Deduction (MIA) and Arbitrary Depreciation of Environmental Investments (Vamil). These subsidies are tax schemes benefitting investors. MIA permits, deductions of up to 45% of the investment costs for an environmentally friendly investment, such as green roofs and solar panels, in addition to regular investment tax deductions. With Vamil allows the write-off of 75% of investment costs. Furthermore, multiple banks offer lower interest rates for the (re)financing of sustainable office buildings. Finally, the last step is to enforce minimum standards. On a European level this legislation is scarce. The fourth version of the Energy Performance of Buildings Directive (EPBD IV) is a good example. As this introduces minimum energy performance standards for non-residential buildings, an enhanced standard for new buildings and a gradual phase-out of stand-alone boilers powered by fossil fuels. The expectation is that the amount of legislation that sets these standards will grow from 2030 on. On Dutch national level the best example is the EPC C obligation for offices. This obligation will be expanded to other asset classes from 2030 on. From 2026 stand-alone boilers will have to be hybrid. The Netherlands thus takes a firmer position compared to EU legislation regarding these topics, this is no surprise as the Dutch market is much further ahead compared to other European nations.
For many environmental topics legislative processes are somewhere between the third and fourth steps. The process is less advanced in defining how office buildings should comply with social topics. Therefore, in several instances the EU has attempted to combine one with the other. For example, the Emissions Trading System 2 auctions carbon allowances with a share of the revenues flowing into a Social Climate Fund, to help, among others, vulnerable households. The system is designed to reduce emissions by 42% in 2030 (compared to 2005 levels). In line with these developments, it is expected that the upcoming years the focus regarding ESG measures in the Dutch office market will shift towards the S. As navigating the legislative office landscape of the future becomes increasingly difficult due to a myriad of regulations, Savills has visualised historic and future ESG-regulations for the Dutch office sector. It is strongly believed that knowing these regulations, and assessing whether a property complies with upcoming regulations, can ensure future profitability.
Clicking the image below will start the download of a full-size version of the ESG-timeline
Figure
Environmental, Social and Governance regulations for the Dutch office market. Now and in the future.
Source
Savills Netherlands, 2024.
Adapting To The Physical Risks From Climate Change
Damages, or disruptions, due to extreme weather events can result in significant losses for occupiers and investors. Therefore, ensuring the resilience of office buildings to climate change is essential to safeguard a healthy climate for occupiers.
CLIMATE RISKS
The Dutch office stock is particularly vulnerable to rising sea-levels and extreme weather conditions due to the Netherlands’ low-lying geography. Furthermore, with a median construction year of 1988, a significant part of the Dutch office stock has been built in a period where adaptation to the consequences of climate change was not a high priority. Recent climate scenarios by the Koninklijk Nederlands Meteorologisch Instituut (KNMI) show that the Netherlands is expected to experience a significant change in temperature by 2050. In the most pessimistic scenario, average temperatures in summer months will increase from 18.4°C in 2023 to 19.5°C in 2050. Summers will be longer and hotter, while winters are expected to experience more (extreme) rainfall. Furthermore, due to melting ice caps around the globe, the Netherlands is expected to experience a rise in average yearly sea level by 12 cm between 2022 and 2050. Combining climate scenarios from the KNMI and data from the Climate Effects Atlas (2024), reveals that much of the Dutch office stock will be vulnerable to the effects of climate change by 2050. Around 21.6% of the total Dutch office stock in terms of Lettable Floor Area (LFA) currently lacks proximity to a cool space within 300 m. Research by the Hogeschool van Amsterdam (HvA) underscores the importance of access to cool spaces, especially on hot sunny days when heat tends to linger longer in urban environments - a phenomenon known as the Urban Heat Island (UHI) effect. As the average temperature increases by 2050, the UHI effect will significantly influence the internal climate of office buildings, making cooling properties more challenging when heat remains trapped in the urban environment. Unsurprisingly, the office stock in the largest five cities (G5), is most exposed to the UHI effect, with Amsterdam particularly vulnerable. Around 80.6% of Amsterdam’s office stock will experience the UHI effect, when the air temperature in June, July, or August will be on average more than 1.5°C higher than its outside of the urban areas. By way of comparison, the Dutch average of 46.3%. The future rentability of an office building will, increasingly be influenced by the way in which it is able to ensure a healthy and comfortable indoor climate compared to its surroundings. Offices near cool places will be in demand. Most of the Dutch office stock is in densely urbanised areas, property owners can also help lower the UHI effect, by actively encouraging the development of cool, and green, spaces in and around a property, and by making use of bio-based materials such as green facades or green roofs.
Extreme rainfall and rising sea levels will also have a large impact on the office market in 2050. The chance at which intense rainfall (140 mm in two hours) can currently occur is once every 1,000 years according to the KNMI. Now that the climate is changing, the probability is expected to increase. Substantial damage can be caused by intense rainfall, especially when infiltration systems cannot cope. 49.1% of the Dutch office stock is at risk of severe flooding due to intense rainfall, at a water depth of more than 30 cm after intense rainfall based on current infiltration and sewage systems. Similarly, 59.7% of the Dutch office stock will be at risk of experiencing floods by 2050. A further 1,201,638 sq m LFA of office space is at a medium to high risk (less than 1:300) of flooding at least once a year. These risks highlight the need for Dutch offices to critically analyse physical climate risk and implement appropriate adaptive measures. For instance, many office buildings have vital infrastructure located on the lower floors and / or basement floors, which are susceptible to flooding. The changing climate and the risks associated with it, requires office owners to rethink lay-outs, and identify vulnerabilities in their office portfolios.
By including the previously mentioned risk and putting them in respective to the size of each local office market, Savills has designed the Savills Climate Vulnerability Index. This Vulnerability Index helps in assessing Climate Risks in a local market, relative to risks elsewhere throughout the Netherlands. The four largest office markets (Amsterdam / Rotterdam / The Hague / Utrecht) are all part of the 15 most vulnerable Dutch office markets, suggesting that adaptive measures are needed to ensure future viability of a large part of the Dutch office infrastructure. The map below presents an overview of the climate vulnerability per office market.
The municipal office of the municipality of Venlo has been delivered in 2016 with the aim to be one of the Netherlands’ first fully cradle-to-cradle (C2C) office buildings. The 27.000 sq m LFA property has won multiple design awards, including the Architizer A+ Award in 2017. The property is fully energy neutral, and includes various natural design features to adapt to the negative effects of climate change. Rain- and wastewater is being collected and re-used, while natural flows of air are being used to heat and cool the building. One of the eye-catchers of the property is its green façade, contributing to biodiversity and natural cooling of the property. The crux of Venlo’s municipal office is that all the bio-based design features contribute to a healthier ecosystem while also ensuring adaptability to future climate change. Using natural lighting, heating, and cooling, has resulted in less occupiers requesting sick leave.
CLIMATE ADAPTATION AND MINISING ENVIRONMENTAL IMPACT
Municipal Office Venlo, Venlo
Leading Eco-Friendly Design
Images
Ronald Tilleman
ESG: Managing Climate Risk: Strategies for Sustainable Dutch Offices
Rapid progression in technological development is likely to transform many of the office-based businesses that form the backbone of the Dutch economy.
Connectivity: Crucial to the Office of the Future
The digitalisation of the Dutch economy is not a new phenomenon. It has been influencing the evolution of most industries over the last 25 years. For instance, in 2010, only 58.0% of the working population required an internet connection for their work. By 2022, this percentage had risen to 78.0%, as reported by the European Commission (2024). Alongside Norway (89.2%), Sweden (86.8%), Finland (85.0%), and Denmark (79.6%), the Netherlands boasts one of the highest shares of employment requiring an internet connection within the European Union (EU).
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. 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?
“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
The digitalisation of the Dutch economy has been a gradual process, with some early adopters implementing disruptive technologies earlier than other businesses. Now, with Artificial Intelligence (AI) gaining momentum, an increasing number of Dutch companies are integrating these technologies to enhance productivity and maintain competitiveness.
DIGITALISATION
Connectivity’s Role in Business Relevance
For example, Deloitte has announced that AI will support all their audits in the Netherlands starting from 2025, promising time savings and higher productivity. In 2022, approximately 16% of all Dutch companies utilised AI, up from 12% in 2019. Larger companies (with over 500 employees) are leading the way as early adopters. In 2022, nearly 51% of these companies employed AI technologies, marking an increase from 45% in 2019. As the nature of office-based employment is expected to change under the influence of AI and other disruptive technologies, the way in which office buildings are valued and utilised is expected to change substantially over the coming years. For investors and occupiers, the mantra “Location, Location, Location” is evolving in a fast-changing world. Proximity to sought after amenities, alone, will no longer guarantee high occupancy rates, future value, and returns on investment. Instead, Savills expects that future office buildings will be valued according to how enable businesses to thrive through data connectivity, as well as their location.
Property owners can use technologies to provide healthy and sustainable interiors superior to the home environment. Usage of the Internet of Things (IoT) would enable individual components of a building to communicate with each other to provide for an optimal working environment. Smart sensors in office desks can count occupancy rates, and communicate this with other components of the building to adjust light, temperature, and internet connectivity to save electricity and increase the comfort of occupiers. The office infrastructure in the future will have to support this technology and be capable of handling the terabytes of data used by businesses. Being online is, therefore, an essential feature of the office of the future. Internet connectivity, facilitated by technologies such as optic fibre, is indispensable. In 2023, 14.2% of all Dutch companies boasted a very fast internet connection with a download speed of at least 1 Gb/s, slightly surpassing the EU average of 12.8%. Moreover, it's evident that larger companies (over 250 employees) tend to have superior internet connectivity, with 31.3% enjoying a connection with a download speed of at least 1 Gb/s. Unlike countries such as Spain and Portugal, where fast internet connectivity is more prevalent, the Netherlands has an opportunity to gain advantages by investing in the latest internet connectivity technologies and integrating them into office buildings that accommodate Small and Medium-sized Enterprises (SMEs). This investment is crucial to safeguarding the country’s competitive edge and maintaining its business appeal.
Sensors, Sensors, and Sensors
EDGE West, Amsterdam
EDGE West, a redevelopment by EDGE, is a 54,416 sq m LFA property delivered in 2021 in the Amsterdam Sloterdijk area. Similar to many other developments by EDGE, EDGE West strives to achieve the highest levels of health- and well-being. The property has a BREEAM “Outstanding” and WELL Platinum Certificate. The design of the redevelopment has been done in collaboration with DWA, which has developed an intelligent and dynamic model of the building which has been used to make data-driven decisions on the design of the property. The digital infrastructure of the buildings is fully future proof, running on EDGE’s technology platform which blends Artificial Intelligence and advances in the Internet of Things (IoT) to enable efficiency throughout the property. EDGE West is a perfect example of a property which has digital infrastructure that supports the business needs of its occupiers.
DIGITAL CONNECTIVITY FOR COMFORTABLE USE
Challenges do, however, remain when it comes to safeguarding the integration of technological changes in the office of the future. Most notably, the Netherlands is increasingly dealing with congestion of the electricity grid.
An increasing number of companies has to be placed on waiting lists to receive a connection to the electricity grid, with the latest estimates suggesting that approximately 9,400 companies are waiting for a connection. For the services sector, which is largely involved in office-based employment, the narrative seems a bit more positive. The services sector has managed to cut its electricity consumption from 33.25 billion kWh in 2012 to 29.28 billion kWh in 2022 (-11.9%). This decrease is largely attributable to energy-saving measures and hybrid ways of working. However, as the Dutch automotive fleet is slowly going electric, problems are expected to appear in charging infrastructure of office buildings. ElaadNL, a knowledge institute for electric mobility, estimates that there will be approximately 10 million electric vehicles in the Netherlands by 2050, with a growth of electric cars which largely outpaces the growth of charging infrastructure. As a result, ensuring adequate charging infrastructure becomes imperative for future office buildings. Savills believes that occupiers are expected to prioritise leasing office spaces equipped with reliable charging facilities, while investors must carefully assess tenants' evolving energy requirements and anticipate the growing demand for charging infrastructure. Savills believes data will be central to successful property ownership. Occupiers, developers, and investors will need to increasingly embrace the disruption from technological change. This means that properties should be able to support changing business needs, and actively be involved in data collection, analysis, and storage. The physical infrastructure of the office of the future should, thus, be able to support the digital infrastructure of its occupiers. Investors should, therefore, actively embrace technological change and implement changes according to the needs of the businesses which they desire to attract. If this does not happen, office buildings are at risk of being overtaken by their (more) technological capable counterparts.
Data Will Power the Office Business of the Future
Ernst van Raaphorst
Connectivity to the digital world
Connectivity to the physical places
Connectivity with the digital building
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
