Plateauing Markets Are Providing for a More Positive Outlook for the Rest of 2024
Similarly, many economic drivers of occupier demand should improve in the second half of 2024. Despite an increase in bankruptcies, which rose by 37.7% YOY in H1 2024, occupier activity appears unscathed. Take-up in H1 2024 across the leading commercial real estate sectors rose 21.8% YOY. Some sector differences are caused by contrasting underlying sector economic fundamentals. Most notably, the industrial sector was an underperformer (-2.0% YOY) in H1 2024. This extended Summer 2024 Market in Minutes examines market dynamics in the Dutch real estate market during H1 2024, and Savills looks ahead to H2 2024. The subsequent chapters provide an in-depth analysis of the current state of the Dutch economy, occupier market, and investment market.
Introduction
A more positive economic outlook in the second half of 2024 has had an encouraging impact on real estate transactions in the Netherlands. Stabilised interest rates and increased confidence in the Dutch real estate market due to better economic and political stability have led to a 17.7% year-over-year (YOY) increase in investment volumes in H1 2024, reaching €5.3 billion. Notably, this growth was mainly driven by the retail sector (+74% YOY) and the hotel sector (+101%). The I&L and residential sectors grew as well, but by a much smaller margin compared to the beforementioned.
The Dutch economy is expected to grow, supporting demand from both occupiers and investors.
NEXT TOPIC
Economics: Persistent Inflation Hinders the Decrease of Interest Rates
CONTINUE READING
Key findings
Outlook
Investment Market
Occupier Market
Savills anticipates an increase in leasing and investment activity in the Dutch real estate market during the second half of 2024. Even though slowly, the Dutch economy is expected to grow, supporting demand from both occupiers and investors towards Dutch commercial real estate.
Signs of Stability During a Patchy Recovery
However, the pace of recovery will vary across different sectors, depending on their underlying economic conditions. Although distressed sales are expected to remain largely absent, investment activity will benefit from a more stable interest rate climate. Still, differences in pricing expectations between sellers and buyers are likely to persist.
By contrast, the industrial and logistics sectors are more impacted by economic stagnation, as both import, export and production have all decreased. Nevertheless, take-up increased with 9.8% in H1 2024 compared to H1 2023, but decreasing by 3.6% compared to H2 2023, indicating a slower growth for the industrial and logistics sector. In addition, vacancy rates are rising, especially in the logistics sector. By analysing vacancy per location and construction year, secondary locations turn out to be less in demand.
Industrial Slowdown
Despite persistent economic stagnation, the office and retail sector are experiencing increased user activity, and the outlook for the second half of the year is improving. The largest growth in take-up was seen in the office market with a 16.2% increase in H1 2024 compared to H2 2023 and even a 44.5% increase compared to H1 2023. This indicates a grown interest in office space despite other significant challenges for occupiers, such as an ongoing tightness in the labour market and the subsequent increase in labour costs. The retail sector shows more stable growth in take-up, fuelled by stable purchasing power amongst consumers on the back of rising wages.
Office Growth
Investment volumes in hotels (+101% YOY) and retail (+74% YOY) have strongly recovered in H1 2024 compared to H1 2023. This reflects improved investor confidence in these asset classes, which have taken considerable hits over the last years in the context of the effects of the COVID-19 pandemic, high inflation, and a drop in consumer confidence and spending.
Investment Recovery
Large investment transactions (> €50 million) were largely absent in 2023 and H1 2024. The total investment volume of all transactions of more than €50 million summed, accounted for “just”1/3rd of the total investment volume. This follows low appetite of institutional capital towards real estate, as these investors traditionally enter with higher volumes but now aim to avoid turbulent times in the market.
Lack of large transactions
report
Market in Minutes
Divergence Between Sectors Shapes the Dutch Real Estate Market
Q2 2024 – The NetherlandS
4
2
1
3
Economics
This Report
Other Reports
Get in touch
Contact our Team
CONTENTS
Market in Minutes Q3 2023
Market in Minutes Q4 2023
Market in Minutes Q1 2024
Market in Minutes Q2 2023
Market in Minutes Q1 2023
Summer Special 2023
Logistics Confidence Index 2023
Market in Minutes Full Year 2023
SAVILLS AMSTERDAM
Claude Debussylaan 48, 1082 MD, Amsterdam +31 (0) 20 301 2000
SAVILLS UK
33 Margaret Street, London, W1G 0JD +44 (0) 20 7499 8644
Savills market intelligence content is designed to engage and immerse users in interactive experiences that are much more captivating than the surface-level, flat reports provided by printable media such as pdfs. Each Savills Netherlands report harnesses the power of a web browser to tell the rich, engaging story of the Dutch real estate market. When printing, you would lose the interactions and animations that make the content a digital experience. In addition, due to our local ESG roadmap, we want to discourage printing as much as possible. Therefore, we don’t offer hard copy or pdf reports anymore.
All content © copyright 2024 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.
VOLG ONS
Savills Beds Special 2024
Dutch Life Sciences
The Office Market of the Future
Logistics Confidence Index 2024
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.
Occupier Market: Persistent Economic Stagnation Trickles Down Into Leasing Activity
Persistent Inflation Slows the Speed of Interest Rate Decreases
Against expectations, the Dutch economy contracted by 0.5% quarter-over-quarter (QOQ) in Q1 2024.
The COVID-19 crisis, the war between Russia and Ukraine and its consequent inflation and cost-of-living crisis, a fragmented Dutch political landscape, and ongoing instability in the Middle East have all marginalised Dutch economic development.
The contraction of Dutch GDP in Q1 2024 is mostly caused by the weaker performance of the Dutch industrial sector. Both import (-1.5% QOQ) and export (-1.3% QOQ) of goods declined in Q1 2024. Similarly, the seasonally adjusted monthly industrial production was 3.2% lower in April 2024 than December 2023. Nevertheless, imports, exports, and industrial production are above pre-COVID-19 levels, with imports and exports (+25.9%) and industrial production (+19.2%) up compared to April 2019. The recent economic slowdown in the industrial sector appears to be a natural correction following a period of above-average growth from 2020 to 2022. There are reasons for optimism about the future development of the industrial sector, supported by the growing confidence of Dutch industrial producers. Industrial confidence, though still negative, has risen from -5.7 in December 2023 to -2.4 in June 2024. This recovery will likely have a positive impact on the Dutch Industrial and Logistics real estate markets, with real estate activity expected to closely align with economic demand.
Seasonally adjusted industrial production should be regarded as the volume development of added value at basic prices corrected for seasonal characteristics. The added value is the difference between production value and consumption value. The consumption value is the total of all raw and auxiliary materials, semi-finished goods, energy costs, and services incorporated in the production. Cost-increasing indirect taxes and price-reducing subsidies also play a role in determining added value.
Stable Consumer Spending, but Interest Rates Remain High
Despite ongoing challenges in the industrial sector, other sectors of the economy remained relatively stable.
As of May 2024, unemployment remains low at 3.5%, which has exerted upward pressure on wages (7.8% YOY in Q1 2024), as employers are keen on keeping their employees. Consequently, domestic consumption has benefited, as consumers have maintained spending levels, which increased by 0.2% YOY in May 2024. Rising wages and maintained consumption in the first half of 2024 have kept inflation above the European Central Bank’s (ECB) desired 2.0%, leading to uncertainty about the future direction of key interest rates. Whereas significant key interest rate cuts were expected throughout 2024, market expectations now are that the ECB will cut its interest rates gradually throughout H2 2024 after its first interest rate cut of 25 BPS in June 2024. More positive market expectations have led to a brighter outlook for the Dutch real estate market for the remainder of 2024. Capital market interest rates have reflected this optimism, with the 5-year Interest Rate Swap (IRS) declining by an average of 28.6 BPS between H1 2023 and H1 2024. Following most macroeconomic analyses, Savills expects the 5-year IRS to stabilise between 2.75% and 3.00% for the rest of 2024, with the 3-month volatility of the 5-year IRS dipping below 10 BPS again, signalling continued stability. With property devaluations seemingly over, Savills believes that the current market conditions, where capital market interest rates have already factored in much of the previously expected key interest rate declines by Central Banks, present an interesting opportunity. Stability is essential for determining exit yields, which is now possible and will undoubtedly stimulate investment activity throughout the rest of 2024.
The industrial struggle
Investment Market: Core Transactions Largely Absent, but Signs on Green for Recovery in H2 2024
Persistent Economic Stagnation Trickles Down Into Leasing Activity
Although leasing fundamentals were improving since the bottoming at the end of Q1 2024, current macroeconomic stagnation is more persistent than previously expected, impacting real estate activity in all sectors.
Total take-up in Q2 2024 increased 23.7% YOY, reaching 3,020,159 sq. m in total, a 2.2% increase compared to previous quarter (Q1 2024). Discrepancies between sectors remain to exit. The main driver of the total take-up in Q2 2024 is the office sector, where take-up increased by 35.9% QOQ and 81.5% YOY, reaching 363,230 sq. m. The office sector is thereby the first sector to outperform its five-year average post-COVID-19 average (351,838 sq m). Despite the tight labour market and increasing labour costs, businesses still have the financial means to search for new office space. The retail sector was the second-best performer, experiencing a 2.9% QOQ increase in take-up and a 15.1% YOY increase, reaching 146,959 sq m. Wages increased by approximately 7.8% YOY in Q1 2024, contributing to a relatively high and stable real income for consumers. In addition, consumer confidence is on the rise. These factors explain the retail sector's stability over the past year despite macroeconomic uncertainties.
OCCUPIER MARKET
This trend in the logistics sector is worth noting, as it shows a significant increase in empty spaces in older buildings. In 2024, the vacancy rate for logistics spaces built before 1980 is expected to reach 6.8%, a substantial change from 2022. During this time, the vacancy rate was very low and evenly distributed across different construction years, indicating a shift towards newer logistics spaces. Due to slow economic growth and growing environmental reporting requirements from the CSRD, logistics companies are more careful about renting more space and are more selective about the location and quality of the space they choose. The rise in vacant space from 2020 to 2024 is mainly because of many new buildings being completed recently.
The industrial and logistics sector has experienced mixed fortunes. In the years right after the COVID-19 pandemic, there have been sharper take-up declines compared to other sectors. In Q2 2024, these sectors continued to lag behind other sectors, experiencing the most significant year-on-year declines in take-up. Declining trade volumes and falling industrial production have affected growth in both sectors. However, this has been somewhat reversed, with a 18.7% YOY increase in Q2 2024. Nevertheless, this marks a -1.3% QOQ decrease compared to Q1 2024, indicating a diminishing return to growth for the industrial and logistics sector, struggling against macroeconomic headwinds.
THE INDUSTRIAL MARKET REMAINS SLUGGISH
Consequently, vacancy rates in the logistics sector increased to 4.4% in Q2 2024, up 112 BPS from 2023 and 179 BPS from 2022. The increase in vacancy rates was unexpected as there has been fierce competition for the limited available space. The increase in logistics vacancy, despite the limited delivery of new developments (2,448,472 sq m in 2024YTD), reflects how deeply the persistence of the economic slowdown has impacted logistics more than previously expected. Savills does, however, expect an improvement in sentiment in the industrial production sector and improvements in imports and exports, which will positively impact demand for industrial and logistics real estate towards the end of 2024.
Where Has Logistics Vacancy Risen Fastest?
As is widely known, location is one of the most important aspects in creating value in real estate.
Similarly in the logistics sector, the location of a property contributes to the cost efficiency of the distribution process. Savills refers to the most attractive locations for the logistics sector as logistics hotspots, of which the Netherlands has 11.
The vacancy in the sector has risen most in secondary locations (+409 BPS), followed by Amsterdam (+379 BPS) and Roosendaal (+374 BPS). Since reaching its lowest point in 2022, the vacancy has almost tripled in all other, secondary locations to 6.3% in total. However, there are also logistics hotspots where vacancy rates have decreased, including Eindhoven (- 170 BPS), Schiphol (-79) and Bleiswijk-Waddinxveen (- 9 BPS). The divergent trend in vacancy rates implies logistics locations close to industry are more desirable than other locations, improving the cost-efficiency of the industrial process. An outcome for small-scaled companies given the intended electrification of Europe's road transport sector that is leading to a wave of acquisitions among logistics companies in the Netherlands. With the growing environmental reporting requirements from the CSRD and higher purchase costs associated with electric trucks more and more logistics companies are being steered towards scaling up to cover the increase in costs. Especially the small-scaled logistics companies, are being forced to meet the required reduced CO2 emissions in another way, by more efficiently planning and optimizing the logistics network. Starting with choosing locations accordingly.
Source: Savills Data, Intelligence & Strategy (2024).
Graph
Vacancy development between 2024 and 2022 at logistics hotspots versus all other locations
Outlook: Real Estate’s Recovery and the Threat From a “Brain Drain”
savills beds special
PBSA
Similarly to H1 2024 and the entirety of 2023, industrial and logistics leads the way with approximately €1.7 billion invested in total, accounting for 32.0% of the total investment volume in H1 2024.
While there are few very large transactions (over €50 million), investors are attracted by the potential for rental growth, especially in properties with reversionary potential and smaller investment volumes. Buyers are taking advantage of the relatively low price levels and aiming for higher returns. This trend drives the investment markets, with buyers focusing on this segment rather than on very large, newly developed distribution centres. In H1 2024, residential investment volumes reached €1.5 billion. Notably, the proportion of newly built properties in the total volume remains low at just 30.4%, a decrease from over 59% in 2022. This decline is attributed to high construction costs and increased regulation, making new rental projects less feasible. Current market conditions also feature portfolio transactions predominantly sold to family offices, to subsequently sell all properties to private homebuyers following each change in ownership. This trend is driven by the rise in prices of homes for owner-occupiers (+13.6% YOY in 21 2024), while rents in the private rental sector have been more widely regulated since July 1, 2024. The largest residential transaction in 2024 involved the sale of a 464-dwelling portfolio by ERES, reflecting these market dynamics. ERES intends to divest its entire residential portfolio in the Netherlands due to evolving regulatory changes, while the buyer plans to sell most of the properties to private households. The increases in hotel (101%) and retail (74%) investment volumes are particularly striking. This is due to a more optimistic outlook for both occupier markets. Hotel operations have improved significantly due to a room shortage, increased tourism, and stabilised operating costs. As for retail, market rents in prime high street locations have stabilised, consumer confidence is rising, and the anticipated wave of bankruptcies has not occurred.
Core Transactions Largely Absent, but Signs on Green for Recovery in H2 2024
INVESTMENT MARKET
Industrial & Logistics Leads the Way, Hotels Recover Strongly
But for the investment market of commercial real estate, the signs are now clearly better than the previous 1.5 year(s). Lending conditions are improving, and the first decrease in the policy interest rate by central banks from 4% to 3.75% is reason for more optimism. And what is most essential for the investment market, stability, now finally seems to be present. So how has the investment market fared over the first half of 2024, and what will lie ahead for the remainder of 2024?
Investment climate
The Dutch economy as well as occupier markets have somewhat muddled along in H1 2024. In the former, this is reflected by persistent inflation, decreasing production and a hampering industry while in the latter, vacancy rates have (although slowly) increased overall. The outlook now is slow and steady overall.
Investor Optimism
Market indices such as the INREV Consensus Indicator point towards recovery. There have been significant improvements in investment liquidity among non-listed institutional real estate investors, supported by more stable financing conditions such as the 5-year interest rate swap. Consequently, there has been increased activity in the investment market, with investment volumes in Dutch commercial real estate rising in the first half of 2024. Overall, H1 2024 shows higher investment volumes, with €5.3 billion invested (+17.7%) to both the first- and second half of 2023, mostly attributable to a strong Q2.
Increasing Investor Optimism in Q2 2024
Investment volumes show that large international investors, especially foreign investors, are much less active. This reflects the cautious attitude of large institutional investors with an international focus towards commercial real estate. Raising capital for commercial real estate investments has proven to be extremely challenging, as institutional investors are reconsidering their total allocation to real estate. Earlier surveys by INREV have shown a 55% decline in capital raised for investing in European real estate. What is most striking over 2023 and H1 2024, is that large transactions (> €50 million) have most strongly dissipated. Currently, the total volume of deals above €50 million account only for 32.5% of the total volume, compared to 51.5% in 2021. Logically, such large transactions are either related to large portfolios, or single assets / portfolios characterised by high-quality properties in prime locations. These assets typically attract institutional investors with a large risk adversity such as pension funds, seeking to deploy a high amount of capital with an outlook of stable returns.
LARGE INSTITUTIONAL CORE BUYERS REMAIN LESS ACTIVE
The uncertain Dutch economy and unstable capital markets have clearly impacted the real estate market, deterring certain types of investors. However, inflation in the Netherlands appears to be stabilising just above 2%, financial markets are less volatile, and the Dutch economy is showing signs of stabilisation despite weak industrial production. As a result, there are early indications that larger institutional investors are beginning to seek opportunities to re-enter the market.
No Signs of Distress Despite Tighter Financial Conditions
The decrease in large-scale transactions in the core sector was expected due to weaker real estate market fundamentals.
However, the significant increase in interest rates led some market participants to expect a rise in distressed assets entering the market. Nonetheless, only some distressed sales have been in the residential, retail, office, and logistics commercial real estate investment markets. There are several reasons for this:
It is crucial to acknowledge that the slow progression of the market implies that distress will build up gradually rather than rapidly escalating. As a result, financial difficulties are anticipated to rise in the next few years rather than overnight. The challenge of refinancing will endure as the market adjusts to a prolonged period of higher interest rates. This situation will probably lead to more investors needing help to refinance their current properties due to adjusted valuations and the higher cost of borrowing.
1. Lenders prefer to work out solutions with their debtors rather than engage in the loan-to-own business. 2. The relatively strong fundamentals throughout this cycle have supported occupier markets, helping to mitigate some of the decline in values due to yield expansion. 3. The growth in alternative lenders has helped maintain liquidity, even as some banks have scaled back their activities. The second reason is especially noticeable in the logistics, prime office, and residential sectors. Value growth has been driven by scarcity in these areas. For prime logistics and offices, rents increased by 15.7% and 3.5% YOY, respectively. This reflects the strong fundamentals that have supported occupational markets and offset some of the decline in values due to yield expansion.
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.
Savills Data, Intelligence & Strategy
Our independent Data, Intelligence & Strategy team solves all of your real estate issues. We work together with developers, investors, municipalities and occupiers and offer them high-quality, highly detailed customized analyses without losing sight of the strategic question.
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.
Ellen Waals
Head of Agency +31 6 15 28 24 83 ellen.waals@savills.nl
CONTACT
Pascale Schellekens
Market Intelligence Analyst +31 6 21 45 05 35 pascale.schellekens@savills.nl
Dutch Statistics (2024); European Central Bank (2024); European Commission (2024); Eurostat (2024); Federal Reserve Bank of St. Louis (2024); Macrobond (2024); Savills Data, Intelligence & Strategy (2024), Savills Research (2024)
Wouter van ’t Grunewold
Market Intelligence Analyst +31 6 15 82 18 72 wouter.grunewold@savills.nl
Real Estate’s Recovery and the Threat From a “Brain Drain”
Due to this improved economic backdrop, Savills expects increased leasing dynamics and investment activity in the Dutch real estate market. However, the recovery in the real estate market will vary across different sectors, closely aligning with the underlying economic sector fundamentals.
However, some knowledge-intensive businesses, such as research and development, high-tech manufacturing, and the semiconductor industries, have raised concerns about the country's deteriorating business climate. The Dutch Government's plans to impose strict limits on student and labour migration could impact the country's growth as a leading knowledge economy. Savills believes the government should implement economic policies that create sustainable, long-term value in semiconductors, life sciences, and high-tech manufacturing sectors. On a positive note, in line with Savills’ earlier expectations, the ECB’s policy interest rate decrease in June 2024 is providing more flexibility for real estate investments. Further expectations of a 25 BPS decrease in the ECB’s policy interest rate in September 2024, contingent on Eurozone inflation moving towards the 2.0% target, will undoubtedly instil more confidence among real estate investors in the second half of 2024. Savills, therefore, expects a further uptick in real estate activity throughout the remainder of 2024. However, Savills believes that the mismatch in pricing between the sell-side and buy-side will persist in the Dutch market throughout 2024. The primary driver of this mismatch is the lack of distress in the market. Risks are becoming more manageable, making acquisitions more attractive, while disposals remain less attractive due to more positive capital value development expectations for H2 2024. Consequently, investment activity will initially be guided by postponed transactions rooted in the “wait-and-see” approach adopted by investors in 2022 and 2023. As more products are expected to slowly come to the market, Savills forecasts a total investment volume of approximately €8.6 to €9.8 billion in 2024. Occupier dynamics will largely guide investment activity, with investors closely monitoring sectors with strong fundaments, which include the hotel, retail, residential, and light industrial and logistics sector. Investors will remain strongly attentive to objects which have Environment, Social, and Governance (ESG) credentials aligned to their ESG-policy.
The economic outlook for the second half of 2024 and beyond looks positive. Forecasts indicate that the GDP will grow positively in the remaining quarters of 2024 and by 1.5% in 2025.
Sources
Savills Amsterdam
Bas Wilberts
Director Investment +31 6 55 47 49 60 b.wilderts@savills.nl
Martijn Onderstal
Head of Valuation +31 6 15 09 03 63 martijn.onderstal@savills.nl
Clive Pritchard
Head of Country +31 6 61 04 23 39 c.pritchard@savills.nl
Raymond Frederiks
Associate Marketing & Business Intelligence +31 6 11 40 39 65 raymond.frederiks@savills.nl
