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Report of the Board of Directors

Market highlights

International markets

The year started with a slowdown in Chinese economic growth, and a major dip in Asian stock markets, which did eventually rebound. Growth may be slowing, but China is still recording annual GDP growth between 6 and 7%, putting the rest of the world’s economies in the shade. The Brexit vote in the UK came as another major surprise to most and led to a great deal of uncertainty in Europe and beyond, testing the fragile economic recovery in most European markets. The potential impact of Brexit on both the UK and its main trading partners is still very uncertain and Europe-wide annual GDP growth forecasts have been revised downward to an average of 1.7%, from a previous forecast of 1.9%. The run-up to the US elections and the surprise victory of Donald Trump added to the prevailing uncertainty and this is likely to persist for the foreseeable future, or at least until the political direction the US will take under a Donald Trump presidency has become clearer. On top of this, political unrest is on the rise, with large numbers of voters in Europe unhappy with the current political status quo.

On a brighter note, the sheer weight of capital looking for investments buoyed sentiment in the world’s real estate markets. Due to persistent low interest rates and extremely volatile stock markets, real estate has become a very attractive alternative for risk-averse investors searching for stable returns, like pension funds and other institutional investors. Investment yields are well below their long-term average in all regions. However, supported by all-time low yields on risk-free alternatives, yield gaps remain healthy and are attracting more capital to real estate. Real estate was set to attract some USD 1 trillion in 2016. Most global markets benefited from this movement in capital in 2016 and saw solid capital growth. The favourable occupier market outlook for well-located assets now seems largely incorporated in today's prices and an increasing number of investors are now turning to slightly off-pitch properties.

Dutch market

The Dutch real estate market has recovered swiftly in the last two or three years and investment appetite is still growing. Dutch pension funds once again increased their real estate investments in the Netherlands last year and are looking to expand their allocation to real estate in the years ahead, driven by persistent low interest rates, low returns on bond markets and overly volatile stock markets. On top of this, international investors have now set their sights firmly on the Dutch market, and they now account for over 50% of real estate investments in the Netherlands. Dutch prime markets like Amsterdam, Utrecht, The Hague and Rotterdam are still attractively priced compared to other key European markets such as London, Paris and Munich, where prices are already above pre-crisis levels. However, the interest from both Dutch and international investors is quickly pushing up prices and investors are being forced to broaden their view from a strong focus on prime to include real estate in a number of sub-prime locations.

After several rough years, the Dutch residential market has recovered to pre-crisis levels. The ever-increasing number of households and low production of housing stock during and after the crisis further boosted structural shortage of housing. Driven by the ongoing urbanisation trend, housing shortages in the country’s main cities have rapidly pushed up prices, with Amsterdam leading the pack, but closely followed by the likes of Rotterdam, Utrecht and The Hague. A combination of stable rental growth and yield shift resulted in very positive total returns in 2016. There is a huge demand for liberalised sector rental homes. This is pushing up prices and increasing competition for high-quality assets in prime locations.

Due to stable population growth and the ageing of the population, the demand for healthcare real estate is expected to show very solid growth in the coming decades. While overall population growth will be concentrated on the main cities of the Netherlands, households with residents aged 65 years and older are set to grow right across the country. The number of elderly people is forecast to grow in all 390 municipalities for at least another 15 years. In total, the number of elderly in the Netherlands is expected to increase to 2.9 million households in 2030 from 2.0 million in 2015. This makes healthcare a very interesting sector for institutional investors.

Office space demand is obviously very sensitive to economic cycles and thanks to the continued firming of Dutch economic growth and a fairly solid rise in business confidence, the prospects for the office market look more promising than they have for some time. This is partly due to falling unemployment, which dipped to 5.6% in 2016. However, qualitative demand has changed, driven by companies searching for cost efficiencies and the advent of new (mobile) technologies. Tenants are focusing on specific location types, but are also less bound to a single office and are looking for more flexibility, such as smaller satellite offices. These days, prime office locations tend to include high-quality and multi-tenant offices, with excellent road and public transport links in regions with a ready pool of highly-skilled employees. The flip side of this is that a growing number of secondary locations are gradually losing tenants, leaving large office buildings completely vacant and with little prospect of future tenants. This polarisation between prime and secondary (in terms of both locations and real estate) is now evident and is expected to continue for the foreseeable future.

This polarisation is also affecting the Dutch retail market. The bankruptcy of several large Dutch retailer chains in late 2015 left a large number of square metres vacant. Other retailers were forced to renegotiate their lease terms. On a more positive note, a large number of major international retail chains, such as Primark and Zara, have adapted swiftly and now have a solid position on the Dutch retail market. Retailer demand is focused on high-quality, large-scale retail units in prime locations. Thanks to this demand, the take-up of a large part of the retail property left vacant by the 2015 bankruptcies has been fairly swift. However, most experts expect to see further differentiation in the retail landscape in terms of prime and secondary retail real estate.

Another real estate sector set for solid growth and stable returns is the hotel sector, as tourism in the Netherlands continues to grow. The number of tourists visiting the country increased by 7% in 2015 and increased by another 3% in 2016. Amsterdam in particular benefitted from the increase in foreign tourist arrivals. The depreciation of the euro also helped to push tourism from outside the euro region. In reaction to this strong demand from tourists, the Dutch hotel market has increased in size significantly in recent years. The Dutch star-rated hotel market consists of approximately 2,160 hotels and more than 100,000 rooms, with 30,000 of these rooms in Amsterdam. Thanks to the rapid pace of hotel development in Amsterdam, the city is already set to add approximately 6,500 rooms to its current stock. New restrictive hotel development policies will limit the development of new hotels, which should be favourable for existing stock after 2020, when the majority of new supply will have been added to the total stock.

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