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Report of the Board of Directors

Market developments and trends

Economy and demographics

Dutch economy shrugs off potential impact of Brexit vote

Despite the initial fears triggered by the Brexit vote, the Dutch economy continued its steady recovery in 2016 and with economic growth of over 2% actually outpaced earlier projections. This economic growth was driven by rising business confidence and the resultant rise in business investments, on the back of a steady rise in manufacturing output and continuing export growth. The main negative uncertainties relate to events outside the Netherlands. The uncertainty triggered by the Brexit vote and the recent U.S. elections, plus a potential economic slowdown in China, may put a damper on growth and confidence, while geopolitical tensions in various parts of the world continue to pose a risk to the global economy.

Population growth continues

Recent decades have seen strong population growth and this is expected to continue in the coming years. The total population and the number of households are expected to continue growing until 2040, stimulating overall consumer spending. The current population is expected to increase from 16.9 to 17.6 million by 2025, while the number of households is set to rise by 70,000 each year from the current 7.7 million to 8.3 million by 2025 and 8.6 million by 2040. The largest growth is set to be in single-person households, which are expected to increase from the current 2.9 million to 3.3 million by 2025.

Trends and developments in the office market

Large differences between regions and locations

The highest demand for office space is concentrated in regions with employment growth well above the national average. These are the so-called core regions, which are defined by the Fund based on a healthy economic and demographic outlook. Amsterdam, Utrecht, Rotterdam and The Hague, all located in the Randstad conurbation, are the most important cities in the core regions. As the ageing population will also affect employment, this will exacerbate the regional differences in the office market. The core regions will be less affected by this demographic trend. In these regions, continuous availability of employment opportunities will lead to a steady inflow of young people, especially in the cities in the Randstad conurbation. Trends such as car sharing and the expected rise of automated (driverless) vehicles will increase the polarisation, as employees will demand an efficient, multi-functional work environment when they decide to head to the office. Cities are best-equipped to provide these kinds of dense live-work-play environments.

Flexible use of office workplaces in multifunctional areas

An increasing number of people work from various operating bases rather than one fixed workplace. This shift remains one of the main trends in the Dutch office market. The main drivers of this trend are improved IT facilities, the desire for cost cutting and increased traffic congestion. As a result, demand is growing for office space located in urban areas, near public transport facilities. These urban areas are multifunctional and give office occupiers and employees direct and efficient access to retail, food and leisure, and by doing so improving the work environment. Furthermore, multi-tenant office space is increasingly popular, as tenants are looking for smaller office spaces throughout the Randstad, offering various operating bases for their employees. This ‘flexible use of office workplaces’ is expected to remain a major trend in the Netherlands. So the demand for multi-tenant office space located in urban areas is set to grow in the coming years. An additional benefit of multi-tenant office areas is that they are less sensitive to economic fluctuations. On top of this, long-term rental contracts and annual indexation at inflation level lead to strong cash flows for investors. 

Multifunctional and multimodal locations more popular

The focus of end-users on multifunctional and multimodal accessible locations is leading to an increasing differentiation in the office market. While demand for desirable locations is remaining stable or improving, another group of locations is gradually losing tenants. This polarisation is expected to continue for the foreseeable future. However, there are encouraging signs that calls to convert existing office real estate for other purposes, like residential, are being heard by both local authorities and developers. This and the growing shortage of accommodation for one and two-person households and students could help to drive this trend and reduce overall vacancy rates in on the office market in the medium term.


Now that the office market is recovering, various new initiatives are being developed in response to trends such as the shared economy, pay-by-use, technological opportunities and the blurring lines between working and living environments. Business Centres with multiple concepts are rapidly entering the market and new technologies are ensuring easy and quick communication and data collection. 

Auxiliary services are indispensable to make and keep assets attractive for tenants. Cooperation with existing platforms and the development of new ones will provide efficient and targeted channels of distribution. In terms of office space, a wide range of solutions to accommodate tenants as effectively and conveniently is required. Full Business Centres that are part of an overall building concept will be put in place for this purpose. Modern work stations and work environments need to match the needs of related target groups. In addition, more and more tenants are choosing to share facilities such as conference rooms and company restaurants. A user-friendly system to book and pay these services will make properties more attractive to tenants. Apps with the functionality to handle these services will provide support. We believe we will see an increase of the number of platforms used to offer facilities and services available in buildings.

New leasehold conditions Amsterdam

Currently the municipality of Amsterdam is in a process of renewing the current leasehold conditions. Concept lease hold conditions have been published, which has led to quite some response and turmoil. The reaction of the municipality on this turmoil was that the municipality will review and analyse all reactions and that this may lead to an adjusted concept. At this moment  it’s unclear what the final version of the lease hold conditions will encompass and if and to what extent these possibly adjusted lease hold conditions will affect the value of the investments of the Fund in Amsterdam. The Fund has € 57 million exposure at year-end 2016 in Amsterdam for in total 4 properties. Bouwinvest is monitoring this matter closely and possible steps to mitigate any loss of investment values will depend on the outcome of the new leasehold conditions.

Implications for office real estate

Strong demand for Dutch real estate investments

After climbing to their highest level since 2007 in 2015, Dutch real estate investment volumes came in at € 13.5 billion in 2016, which is about 9% higher than the level in 2015. Of this figure about € 5.4 billion was invested in office real estate, which is 17% higher than the total office investments in 2015. Foreign investors now account for around 55% of the total investment volume and are showing continued interest in the investment market. With interest rates in the U.S. slowly increasing and real estate prices in other key markets such as London, Paris and Munich having already increased, investment momentum is picking up in continental Europe, including the Dutch real estate markets. More risk-seeking investors have become more active on both the buy and sell side. The continuing interest of both Dutch and international investors is quickly pushing up prices. Supported by the economic recovery across the country, also prices of secondary locations are expected to increase. This trend is expected to continue in the coming years. For core investors, it is now essential to have the right relationships in the market and to be a partner in the early stages of development or buying processes, as this enables them to select the right assets with an attractive risk-return profile. Compared to more opportune competitors, investors with in-depth real estate knowledge and active asset management teams will be the ones that can add value and that will therefore outperform in the long run.

Dutch office yields at attractive levels

After several lean years, in which the Dutch office market has underperformed the other real estate sectors in the Netherlands, total returns are now improving. Due to an extended period of depreciations the total return in the Dutch office market has averaged a mere 0.8% over the past five years. The price correction, on the other hand, has now increased yields for Dutch office property to attractive levels, particularly when compared to fixed-rate investments. Dutch and foreign investors have acted on these investment opportunities. Investment momentum is also increasing towards continental Europe, including the Dutch markets. This will continue to attract both national and international investors into the office market and is expected to lead to lower yields and higher prices in the near future.

Sustainability remains top priority

At fund, asset and workplace level, sustainability remains top of mind. Investors are increasingly focused on GRESB performance when monitoring or selecting real estate funds. And GRESB monitoring goes beyond environmental impact, to incorporate governmental and social issues, and these are essential to all stakeholders. Monitoring energy consumption is becoming more and more standard thanks to newly developed and improved tools. Different facilities within walking distance to offices provide an attractive live-work-play environment that employees demand. Social factors are also paramount. Office space should be a custom ‘fit’ for each occupier, stimulating interaction and knowledge spill to boost creativity and innovation. Employees should remain healthy and feel at home in their office.

Healthier outlook for central locations in big cities

Historically, offices located in the centres of big cities have shown the highest average positive growth in value. Over the coming decade, those offices are also expected to deliver above-average performance, with an improved supply/demand ratio, especially as these tend to match trends such as the growing demand for multi-user, flexible and sustainable office spaces in multifunctional environments.

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