Market in Minutes
The Netherlands – Winter 2024
REPORT
Savills Research
Sustainability
Declining Take-up Due to a Slowdown of the Dutch Economy
Persistent high inflation which averaged 3.8% YOY in 2023, and high interest rates, have led to a slowdown in economic activity. As consumers and producers exercised caution by delaying spending and investments, Dutch Gross Domestic Product (GDP) contracted by 0.6% YOY in Q3 2023.
The Netherlands has, however, proven itself to be more resilient compared to its European counterparts largely due to lower inflation. Both Germany (6.0% YOY), France (5.7% YOY), and Austria (7.7% YOY) have dealt with higher inflation during 2023, while Austria (-1.6% YOY), Ireland (-5.6% YOY), and Denmark (-0.8% YOY) experienced a stronger contraction of GDP.
Introduction
A tough business climate made 2023 a lacklustre year for the Dutch real estate market. The slowdown in economic activity has had a profound impact on the real estate market, with investors and occupiers exercising considerable caution throughout 2023. Real estate investments were down 57.3% and leasing activity across all occupier markets fell by 25.8% Year-Over-Year (YOY) in 2023.
Dutch real estate transforms with global shifts. Demographics, digital disruption, and decarbonisation shape industry. Living, working, and markets evolve.
Investment Market
Business Climate
Outlook
NEXT TOPIC
Business Climate as a Challenge for the Dutch Real Estate Market
CONTINUE READING
Summer Special
report
Changing Business Climate and the Dutch Real Estate Market
Full Year 2023 – The NetherlandS
Key Findings
Leasing activity in both the office (-26.6%) and industrial and logistics (-27.2%) sectors was notably weaker in 2023 compared to 2022. The decline in office take-up was largely caused by occupiers expressing caution regarding housing decisions and the unavailability of best-in-class office space throughout 2023. The reason for lower take-up in the industrial and logistics sector is threefold. Firstly, record-low vacancy rates in the logistics sector in Q4 2022 (2.9%) have made it difficult for occupiers to find suitable space throughout 2023. Secondly, industrial occupiers are increasingly dealing with a deteriorating business climate. Average seasonally adjusted daily industrial production (1) decreased by 9.4% YOY in Q3 2023, but is still up by 2.3% compared to pre-COVID-19 levels. The machinery (-25.4% YOY) and the basic metal industries (-21.4% YOY) have been heavily impacted in the past 12 months. Thirdly, international trade is slowly declining which largely impacts economic outlooks for the Dutch trade-oriented logistics sector. In November 2023, export volumes declined by 4.5% YOY, while import volumes declined by 5.5% YOY. Consequently, vacancy rates have slightly increased to 4.4% in the logistics sector at the start of 2024, signalling the development towards a slightly healthier balance between supply and demand in 2024.
The weak business climate had a profound impact on the Dutch real estate market in 2023, with investors and occupiers exercising considerable caution. Businesses have been critical in evaluating their space requirements, while investors have been waiting until stability returns to the capital markets.
The Eve of Recovery for the Dutch Real Estate Market
Historical data suggests the Dutch economy is moving towards similar territory as the period at the end of 2012 and the start of 2013, on the eve of the post Financial Crisis recovery. Savills, thus, expects that occupier and investment activity is likely to pick up within the next 3 to 9 months, closely following the recovery of the Dutch economy. We do, however, have to be critical and acknowledge that any unexpected worldwide “shock event” can substantially impact economic outlooks and macroeconomic stability. This, in turn, might affect the recovery of Dutch real estate markets.
Leasing activity across all sectors was down 25.8% in 2023 compared to 2022, with the office (-26.6%) and industrial and logistics (-27.2%) sectors performing especially poorly due to unfavourable market conditions throughout 2023.
OCCUPIER MARKETS
Investors have been cautious about investing in Dutch real estate in 2023 as investment volumes fell by 57.3% compared to 2022, with Q4 2023 decreasing by 64.4% compared to Q4 2022. The total investment volume in 2023 was €8.03 billion. The spread between GIYs (excl. Purchasing Costs) and the yield on Government Bonds (AAA – EU – 10YR Maturity) is expected to even out between 250 BPS and 450 BPS in the coming 3 to 9 months, depending on the sector.
INVESTMENT ACTIVITY AND YIELD MOVEMENT
Leasing activity is increasingly being dominated by demand for properties that support occupiers’ ESG-demands. The share of take-up of ESG-compliant properties increased by 8.7% YOY, 4.7% YOY, and 2.4% YOY for the office, retail, and logistics sectors, respectively, in 2023.
ESG AS THE KEY DEMAND VARIABLE IN 2024
Savills believes that 2024 will be characterised as a year of recovery. Investment and leasing activity is likely to pick up with the end of ECB interest rate increases and the stabilisation of the economy in sight. However, we foresee the most sought-after ESG-compliant buildings will remain in tight supply due to the limited number of projected developments in 2024.
RECOVERY IN 2024
This Report
Other Reports
Get in touch
Contact our Team
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
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
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.
Office and Industrial Leasing
1) Seasonally adjusted daily 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.
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.
40%
A staggering 40-45% drop predicted by London's Capital Economics, the impact on commercial property values is profound.
Sustainability: ESG as the Key Indicator for 2024
The European Central Bank’s (ECB) Policy Rate increases have successfully slowed down the European Union’s (EU) economic demand. Furthermore, the historical relationship between the performance of the Dutch economy and real estate markets, suggests that both are close to being on the eve of recovery. Drawing parallels with the Dutch economy and real estate markets in 2012 – 2013, Savills expects real estate markets are bound to gradually recover with increased investment volumes and leasing activity throughout 2024 compared to 2023.
Consumer Confidence
The deteriorating Dutch business climate has affected the whole commercial real estate market. This impact is clearly visible when comparing Statistics Netherlands’ Business Cycle Tracer with real estate take-up.
A decline in the Business Cycle correlates with a decline in real estate take-up. The Business Cycle Tracer captures the performance of thirteen macro-economic indicators (excl. Gross Domestic Product) relative to their long-term trends. Since June 2022, it has moved downwards, signalling an economic downturn. Subsequently, this shift has been mirrored in real estate markets, with a visible decrease of 25.8% in the 12-month moving average of take-up (in sq m) per month across the office, industrial, and retail sectors between December 2022 and December 2023.
BUSINESS CLIMATE
December 2023
-29
December 2012
-38
Producer Confidence
-3.4
-5.6
Business Cycle Tracer
-0.95
-0.74
Market expectations are that the economy is close to reaching the bottom of the current cycle.
Investment Market: Low Investment Activity Characterised 2023
savills beds special
PBSA
ESG as the Key Indicator for 2024
Despite the challenging business climate in 2023, the Dutch real estate market did not completely stagnate in 2023. Occupiers have become more critical about their housing requirements, principally they have less financial leeway for relocation.
SUSTAINABILITY
Therefore, leasing decisions increasingly reflect a more cautious approach by occupiers. Additionally, properties are expected to meet occupiers’ sustainability criteria, including a keener focus on Environmental, Social, and Governance (ESG) factors. The shift to ESG-compliant housing is being driven by a combination of occupier demands, government regulations, and reporting requirements, such as the EPC C regulation or the Corporate Sustainability Reporting Directive (CSRD) for office occupiers. Contrary to what one might expect, occupier investment in ESG remains resilient throughout all sectors in financially challenging times. For example, even though the number of bankruptcies in the retail sector increased by 52.5% in 2023 compared to 2022 and retail take-up declined by 9.6% YOY in 2023, the share of ESG compliant take-up (take-up with an EPC A or better or a BREEAM “Very Good” or better) increased by 4.7% YOY. The office and logistics sectors had similar increases, with share of take-up of ESG compliant stock rising by 8.7% YOY and 2.4% YOY, respectively, in 2023.
Occupiers are contending for a share of the sustainable buildings which is growing more slowly due to inflated costs of building materials and labour. Consequently, prime rents for best-in-class office and logistics space are increasing across the Netherlands. In Q4 2023, prime rents for office space have increased by 9.1% YOY, while prime rents for Dutch logistics have increased by 15.8% YOY. Savills expects a further tightening of supply and demand ratios in 2024 for best-in-class ESG-compliant properties as the development capacity of new properties complying with occupiers’ ESG-requirements comes under pressure. Additionally, Savills expects rents for these types of properties to experience increased upwards pressure.
9.1%
prime rents for office space increased in Q4 2023, paralleled by a robust 15.8% YOY surge in prime rents for Dutch logistics during the same period.
Outlook: Occupiers’ and investors’ search for ESG-compliant properties
Investors have been cautious about investing in real estate in 2023, with The Netherlands being no exception. Investment volumes were down by 57.3% compared to 2022, with Q4 2023 down 64.4% YOY.
Low Investment Activity Characterised 2023
Increased (re)financing costs and a weaker occupier market in most sectors undermined transaction activity, resulting in a total investment volume of €8.03 billion in 2023. Investment activity in the office and industrial (incl. logistics) sectors were particularly weak in 2023 due to weaker market conditions. In Q4 2023, the office sector was down 75.6% compared to Q4 2022 while investment activity in the industrial (incl. logistics) sector fell by 64.3%.
Long term interest rates began decreasing towards the end of Q4 2023, while in the same period, prime Gross Initial Yields (GIYs – excl. Purchasing Costs) have increased slightly for the office sector (5.5%) and the retail sector (4.5%), while remaining stable for the logistics sector (5.0%), and residential sector (4.4%). Consequently, the spread between the returns on risk-free investments and real estate improved in the final quarter of 2023. Savills expects a “higher for longer” scenario for Dutch real estate yields, which reflects the ECB’s interest rate narrative. By comparing the current cycle to previous cycles, we expect that Prime GIYs will balance out in such a way that the spread between Prime GIYs and the spot yield on Eurozone AAA Government Bonds will even out at its 2017 - 2021 average. Depending on the real estate sector, this should be in the range bandwidth of 250 BPS and 450 BPS.
Market Yield Trends
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
INVESTMENT MARKET
€8.03 Billion
was the total investment volume in 2023, as Increased (re)financing costs and a weaker occupier market in most sectors undermined transaction activity.
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.
European Central Bank (2024); Savills Data, Intelligence and Strategy (2024); Statistics Netherlands (2024)
Clive Pritchard
Head of Country +31 6 61042339 c.pritchard@savills.nl
CONTACT
Occupiers’ and Investors’ Search for ESG-compliant Properties
The slowdown in economic activity in 2023 will continue to impact Dutch leasing markets in much of the beginning of 2024. However, there are encouraging signs that the Dutch economy is starting to recover with consumers being more optimistic as inflation eases.
Historically, real estate markets follow economic recovery, albeit slightly delayed. The difference between this, and previous cycles is that Dutch occupiers have a greater focus on ESG-compliant properties. Savills expects a slow improvement of take-up during the first half of 2024, with ESG-compliant buildings being consistent performers across all sectors throughout 2024. This could present significant opportunities for investors. Moreover, upgrading and (re)developing properties to comply with occupiers’ ESG wishes becomes more attractive throughout 2024 now that the upward movement of inflation and construction costs seems to be over. Stability on the capital markets remains a prerequisite for the recovery of the Dutch real estate investment market. Savills shares market expectations that key ECB Policy Rates will be cut from June 2024 onwards, leading to a gradual increase in real estate investment activity. Investors will undoubtedly follow leasing market dynamics and focus on sectors with strong fundamentals. Furthermore, investors are likely to remain critical in comparing the returns on real estate to the returns on other investment assets. Savills expects most investors to adopt a “wait-and-see” attitude until the real estate premiums return to their long-term average versus the risk-free rate.
MARKET IN MINUTES
Sources
Ellen Waals
Head of Agency +31 6 15282483 ellen.waals@savills.nl
Wouter van ‘t Grunewold
Market Intelligence Analyst +31 6 15821872 wouter.grunewold@savills.nl
Niek Poppelaars
Head of Logistics & Industrial +31 6 27882408 niek.poppelaars@savills.nl
Savills expects a slow improvement of take-up during the first half of 2024, with ESG-compliant buildings being consistent performers across all sectors throughout 2024.