Ireland Commercial Real Estate Market Update
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Netherlands Commercial Real Estate Market Update 2nd Quarter 2020 Kurt Wright, CFA Nathan Harries ® Chief Executive Officer Senior Analyst (404) 316-5252 (770) 686-2235 Atlanta, Georgia • London, England [email protected] [email protected] www.quadrantrea.com NETHERLANDS COMMERCIAL REAL ESTATE MARKET UPDATE 2nd Quarter 2020 Table of Contents The Netherlands Market Summary....……………………………………………………………………………………… ....2 Office Market……………..………………………………………………………………………………………………………….. ....6 Retail Market..…………………..………………………………………………………………....................................... …. 7 Industrial Market…………………………………………………………………………………………………………………………. 8 Residential Market…..…………………………………………………………………………………………………..............… .9 Exhibit A - Transactions………………………………………………………………………………………………................1 2 Addendum - Definitions………………………………………………………………………………….............................1 5 Sources…………………………………….…………………………………………………………………….............................1 6 Important Disclosures………………………………………………………………………………….…….……………………...1 6 Kurt Wright, CFA About Quadrant Real Estate Advisors Chief Executive Officer +1 (404) 316-5252 Quadrant Real Estate Advisors LLC (“Quadrant”) is a United States SEC registered investment [email protected] adviser and Australian Securities and Investments Commission (“ASIC”) Foreign Registered Corporation (ABN 39 123 863 963). Quadrant has been approved by the Central Bank of Ireland Nathan Harries to act as an Investment Manager on behalf of Investment Funds. QREA Europe LLP ("QREA") is a Senior Analyst subsidiary of Quadrant and is authorised and regulated by the Financial Conduct Authority +1 (770) 686-2235 (registration number 610613). As of June 30, 2020, Quadrant had approximately $1.25 billion of [email protected] commercial and multifamily real estate investments under management on behalf of institutional investors. Clients include insurance companies, pension funds and sovereign wealth management funds. ® Since 1993, Quadrant’s senior management has worked together as a team providing the firm’s Atlanta, Georgia • London, England clients with access to both privately placed and publicly traded commercial real estate debt and www.quadrantrea.com equity investments through commingled funds and single client accounts. In addition to experience, senior management controls 100% of the firm, thereby providing true alignment of interests and accountability. The firm’s executive leadership includes Kurt Wright, Chief Executive Officer; Walter Huggins, Executive Vice President; and Jessica Eggins, Executive Vice President. Quadrant Real Estate Advisors LLC 1 www.quadrantrea.com NETHERLANDS COMMERCIAL REAL ESTATE MARKET UPDATE 2nd Quarter 2020 Netherlands Market Summary • 2020 GDP is forecasted to be -6.4% . Real Gross Domestic Product (“GDP”) growth in the Netherlands year-on-year for the quarter ending June 30, 2020 is estimated to be -8.4%, down compared to the same quarter for 2019 at 1.7% (revised). Key Economic Indicators 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% -8.00% -10.00% -12.00% Real GDP YoY Growth Unemployment Rate 10 Yr. Gov't Bond CPI YoY Source: Bloomberg Real GDP YoY Growth 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% -8.00% -10.00% Source: Bloomberg Quadrant Real Estate Advisors LLC 2 www.quadrantrea.com NETHERLANDS COMMERCIAL REAL ESTATE MARKET UPDATE 2nd Quarter 2020 Consumer Price Index 110 5.0% 4.5% 105 4.0% 3.5% 100 3.0% 95 2.5% 2.0% CPI (2015=100) 90 1.5% 1.0% 85 0.5% 80 0.0% CPI CPI YoY (%) Source: Bloomberg Employment • According to the Dutch Statistics Office the number of employed people in Q1 2020 is 7.93 million people (annual positive change of 120,000 people). • The unemployment rate increased to 3.77% for Q2 2020 as a result of the pandemic, however, unemployment remains near historic lows. 8,200 9.00% 8,000 8.00% 7,800 7.00% 7,600 6.00% 7,400 5.00% 7,200 4.00% 7,000 6,800 3.00% 6,600 2.00% Total Employment (in thousands) 6,400 1.00% 6,200 0.00% Total Employment Unemployment Rate Source: Bloomberg Quadrant Real Estate Advisors LLC 3 www.quadrantrea.com NETHERLANDS COMMERCIAL REAL ESTATE MARKET UPDATE 2nd Quarter 2020 Interest Rates • The European Central Bank (“ECB”) has an inflation target of approximately 2.00% over the medium term. Euro Inflation decreased 40 basis points to 0.3% in Q2 2020. Interest rates on bank reserves remain unchanged at -0.5%. The ECB’s Quantitative Easing program has been expanded as a result of the COVID-19 pandemic. The Pandemic Emergency Purchase Program (“PEPP”) increased by €600 billion to a total of €1,350 billion (previously €750 billion). Purchases under PEPP started on 26 March 2020 and were expanded in June 2020 to continue until at least the end of 2021. 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% 6/30/2000 6/30/2001 6/30/2002 6/30/2003 6/30/2004 6/30/2005 6/30/2006 6/30/2007 6/30/2008 6/30/2009 6/30/2010 6/30/2011 6/30/2012 6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019 6/30/2020 ECB Marginal Lending ECB Deposit Facility 10 Yr. Gov't Bond Source: Bloomberg Historical Capital Trends • The Netherlands has the most open economy in Europe. Imports and exports have increased 66% and 68%, respectively, over the past decade. Dutch real estate investment volume has increased 278% over the same period.5 • For the past five years, foreign investors have accounted for more than 50% of investment inflows.3 • A wide real estate yield gap has contributed to increased foreign real estate investment. Over the past 10 years, foreign real estate investment grew six times faster than national real estate investment. In 2018, foreign investors invested 9.5 times more than was invested 10 years prior.5 • Historically, most of the capital invested in Dutch real estate originated from other European countries. However, in recent years there has been more diversification with an increase in foreign capital from North America, Asia and the Middle East.5 • The Brexit vote has led to an increase in Foreign Direct Investment (“FDI”) activity in the Netherlands as organizations establish a presence in Europe to prepare for post-Brexit. According to the Netherlands Foreign Investment Agency, nearly 100 companies have relocated or established an office in the Netherlands from U.K. in order to have a presence in the European Union. Additionally, 325 organizations have announced their intention to relocate. Quadrant Real Estate Advisors LLC 4 www.quadrantrea.com NETHERLANDS COMMERCIAL REAL ESTATE MARKET UPDATE 2nd Quarter 2020 Capital Trends - COVID-19 Pandemic Update • The pandemic has decreased the number of real estate transactions in the Netherlands. In the first half of 2020 investment volume totaled €6.9 bn, down 16% compared to the same period last year. 9 • According to CBRE projections, total real estate investment volume will end 2020 between €14 and €16 billion – a decline of roughly 25% - 35% compared to 2019. Sector projections include: . Hotel: €300 to €500 million; 85% to 75% decline year-over-year . Retail: €1.2 billion; 40% decline year-over-year . Office: €4 to €4.5 billion; 25% to 30% year-over-year . Residential: €6 billion; 20% decline year-over-year . Logistics: €2 to €2.5 billion; 20% to 0% decline year-over-year • Despite concerns surrounding the pandemic, the real estate market is more stable than during the Global Financial Crisis. Fewer speculative developments, higher availability of capital, more conservative loan-to-value ratios, and no signs of withdrawal by international investors help to provide market resiliency. 9 • According to CBRE, investment volume has diversified across sectors over the past decade. In 2007 and 2008, office investments represented 68% and 40% of all transactions, respectively. Residential investments have increased from 9% of all transactions in 2007 and 2008 to 35% in 2019 and 46% in the first half of 2020. • However, despite increased investment across sector types, the pandemic has caused transactions to be more concentrated in the major cities. Lenders have become more selective including a significant reduction in financing by Dutch banks and increased spreads depending on risk profile. 9 Quadrant Real Estate Advisors LLC 5 www.quadrantrea.com NETHERLANDS COMMERCIAL REAL ESTATE MARKET UPDATE 2nd Quarter 2020 Office Market • Amsterdam is the largest city in the Netherlands and top business location for international companies. The city offers the largest regional economy and labor market with the presence of all major industries, including recent growth in the FinTech and medical/pharmaceutical sectors. Amsterdam is a tight office market with limited availability and high demand.8 • Rotterdam is the second largest city in the Netherlands and is best known for the Port of Rotterdam which is vital to the Dutch economy. Offering the largest port in Europe, Rotterdam is often associated with its shipping, trade and distribution industries. International companies such as Shell and Coca-Cola have large presences here.8 • The Hague is best known for its role in international politics and appeals primarily to governmental bodies and non-profit organizations. • Utrecht has one of the highest educated work forces in the country. The city has a diverse range of industries and is home to several international companies (DHL, Mercedez-Benz, Capgemi, PepsiCo). The recent improvement in office quality has contributed to the increase in demand in recent years.8 • Eindhoven is part of the Brainport region and benefits from the highest level of investment in innovation in the Netherlands and is a major European tech center. The city attracts many technology and manufacturing companies. • According to Cushman & Wakefield, relocating organizations accounted for 1.4 million square meters of office take up in 2019, an increase of 13% compared to 2018. However, the pandemic has decreased activity in the occupier market with a take up decline of 12% year-over-year for the first half of 2020 and a decline of ~10% in search demand by occupiers for office space.