Syntrus Achmea Outlook 2020–2022 Table of contents
Introduction 3
Residential market 5
Healthcare real estate market 21
Retail market 37
Office market 55
Mixed use 67
Residential mortgages market 75
Going forward: trends, challenges and opportunities 87
Cover: Neudeflat, Utrecht
2/102 Syntrus Achmea Outlook 2020-2022 Introduction
World trends and the global economy require Retail vigilance, yet Dutch real estate and residential • Developments in the retail landscape are mortgages are still attractive as investment forcing retailers and investors alike to take opportunities. a critical look at the market. It has become increasingly clear who the winners and losers Despite the slower pace of economic growth are in the retail market, both as far as the types and an interest rate environment fraught with of retailers and locations are concerned. uncertainty, we believe that real estate and • For investment opportunities in traditional retail residential mortgages will continue to be lucrative locations, the focus should therefore be on investment categories in the years to come. The prime locations and successful retail concepts. historically low initial yields and the slowdown • In concrete terms, this means maintaining in rent increases in various real estate sectors investments in A1 areas in the larger cities, and therefore require properly substantiated investment investing in promising suburban centres where propositions, with appropriate risk-return profiles the emphasis is on food. These centres stand and good collaboration with other stakeholders, to to benefit, both socially and in terms of value, be able to meet high investor demand. through repositioning or redevelopment. Our expectations for the various market sectors are • At non-traditional shopping locations, there as follows: are attractive investment opportunities in the expanding mixed-use category and where Residential there is high traffic. These are concepts in • The housing market remains an attractive which – apart from shops – the buildings are investment sector due to the high demand for used for a range of purposes, such as cafés and (affordable) rental properties coinciding with restaurants, leisure activities and offices. supply shortages. • Locations where construction is permitted are Healthcare real estate thin on the ground. Expanding the housing • Healthcare real estate is clearly an asset that stock is important if structural improvements will have a positive social impact through in housing affordability are to be achieved. investment in real estate, Collaboration between the government, • and so long-term investment in the curative housing associations and market participants is care sector will always be attractive. That therefore essential for expanding construction said, many existing healthcare properties are opportunities. outdated; they have to be modernised and • Mid-market rental housing is a sector where made more sustainable. Institutional investors institutional investors can assume their can make a major contribution to this. social responsibility at very low risk and with • Due to the ageing population, the demand for an acceptable return. It is a sector that is residential care real estate is growing rapidly. indispensable for the throughput in the local New projects are not readily available. The housing market, while at the same time it also increasing scarcity is evident in an competitive presents an incentive for quality of life and investor market where yields are under inclusiveness. pressure. • Legislation and regulations, both at local and national level, and rising construction costs bring even more uncertainty in their wake.
3/102 Syntrus Achmea Outlook 2020-2022 Offices Residential mortgages • User and investor interest in the traditional • These loans are an interesting investment prime locations remains strong. category given their attractive value in relation • Due to high demand, the available supply is to government bonds, the way the housing falling while average rents are rising, and this market is performing and the state of the is the case at public transport hubs in major economy. cities as well. • The risk in residential mortgages is relatively • New working concepts, for instance limited. Default risk is limited because Dutch flexi-offices, are presenting opportunities at households generally have good payment traditional locations but also at mixed urban ethics and because of the rise in house prices. locations. National Mortgage Guarantee Scheme (NHG) • The office market is facing a major redevel- loans and mortgages with a low LTV represent opment challenge if it is to meet sustainability the lowest risk. requirements. Opportunities are out there • Mortgage rates have remained relatively for investors who are interested in playing an stable, but margins have increased due to integral role and contributing to responsible sharply falling risk-free interest rates. Because urban densification that will cater to a range of mortgage interest rates generally lag behind purposes. changes in risk-free interest, we expect that mortgage interest rates will fall in the coming Mixed-use real estate period. • Due to the low long-term interest rate, investors • Digitisation can improve the efficiency of the are looking for investment opportunities with a mortgage process, especially acceptance. core profile. However, as it stands now very low However, due to changing regulations, initial yields make homes, shops and offices in mortgage lenders are having to pay more the most prosperous cities relatively expensive, attention to managing mortgages. while the opportunities to buy property are very limited. • Due to a slightly higher risk premium, mixed-use real estate is a suitable alternative. Mixed-use investments have a risk-return ratio that, in the short term, should be at least equal to the average of the sectors taken separately. • Availability of this type of property is relatively good and will only increase under pressure from urbanisation. • Mixed use as an asset class still stands to benefit from growth in value, whereas traditional asset classes, for instance offices, are already somewhat further in the cycle.
4/102 Syntrus Achmea Outlook 2020-2022 The Dutch residential market
Kleefkruidstraat, Amsterdam
5/102 Syntrus Achmea Outlook 2020-2022 Outlook for the Dutch residential market
Despite huge demand, the residential property market is facing major challenges
The pressure on the Dutch residential property space needed if more homes are to be built. market is significant. The supply side of the This means that the housing market will remain market cannot keep pace with demand, which an attractive investment market for investors in turn is pushing up prices. Increasingly, in the coming years. To be able to meet the middle-income earners, starters, students and demand of housing consumers and investors the elderly are having difficulty finding suitable alike, we will have to be clever about how we housing. This is particularly the case in the use the scarce space available to us. Improving Randstad and major cities where the availability accessibility and affordability in the housing of affordable housing is limited, in both the market and meeting the ambition of building owner-occupied and rental sectors. We fully 75,000 new homes each year will require a expect that this situation will continue well into major effort, one that can only be summoned if the future, thanks to the popularity of these municipalities, housing associations and market areas in combination with the scarcity of the participants join forces.
Compagniestraat, Alkmaar
6/102 Syntrus Achmea Outlook 2020-2022 Definition
There are 7.7 million residential properties in the housing a prominent place in their local housing Netherlands as it stands now. This housing stock policies. If the (local) housing market is to function is spread across various market sectors. We have properly, mid-market rent plays a major part in the based our analysis of what these market sectors sector between social rental properties and the look like now and will look like in the future on owner-occupied housing sector. simulations generated by a housing market model (Socrates; ABF). This model charts supply and Around 400,000 homes were being let in the demand as it stands today, and the future is mid-market rent sector in 2019. According to explored based on various scenarios. the forecasts (ABF Socrates), the number of mid-market rent houses is set to rise to 540,000 in Social rent 2040 (+ 35%). Only the owner-occupied sector is The Netherlands currently has around 2.76 million growing faster in real terms (from 4.5 million to homes that are rented out for less than €720 per 5.4 million owner-occupied houses in 2040; month. This accounts for 35% of housing stock + 20%). In the longer term, the projected consumer in the Netherlands. The expectation is that the demand for mid-market rental houses is high number of homes that are rented out under the and, because it concerns a wide target group, rent control ceiling will, in the shorter term, remain it is virtually structural in nature. All in all, this fairly stable in real terms because production is means that vacancy risk is limited. The level of rent lagging behind due to the levy on lessors. In the indexation is often agreed for a longer period (10 to longer term, however, the number of rental homes 25 years), so it is possible to estimate rental income may fall slightly, depending on trends in Dutch quite accurately. High construction costs, however, incomes and the building strategy. On average, our are resulting in lower initial yields for investors. As projections up to 2040 show that approximately opposed to this, risks in this sector a more limited 31% of homes in the Netherlands are still in the and it has a stable internal rate of return, which social sector. can also lead to an attractive risk-return ratio for institutional investors, even during an economic Mid-market rentals downturn. A term that is being used more and more frequently these days is the term ‘mid-market rent’. Free sector housing By ‘mid-market rent’, we mean rented accommo- Currently, the Netherlands has 575,000 free sector dation in the private sector for which the rental houses (7.3% of the total housing stock). The is between €720 and around €1,000 per month. majority of these (400,000 homes) are rented out The housing market uses terms that sometimes in the mid-market rent sector. For the remaining change in line with different policy periods. Below 175,000 residential properties, rent is above €960 we briefly discuss the context and future of the per month. According to the projections, this stock mid-market rent. of a more expensive type of housing is set to carry on rising. For the period from 2019 to 2022, the The sharp rise in land and housing prices means housing stock of these homes is expected to rise to that large cities in particular may become less 188,000 homes at a national level, which amounts attractive for certain income groups. This makes to 5,000 homes per year. cities less inclusive, which can lead to certain (essential) professional groups having problems finding accommodation. For this reason, many municipalities have given mid-market rental
7/102 Syntrus Achmea Outlook 2020-2022 Facts and figures
Housing shortage Historical market rent growth The Netherlands has a housing shortage. To address this shortage, In 2018, the market rent growth for institutional investment properties reached the highest rate of rent 75,000 growth in the past 10 years:
homes would have to be built each year. 4,58% (Source: National Housing Agenda) market rent growth compared to 2017. (Source: MSCI)
Expansion of major cities
In proportion to the number of inhabitants, all five major cities (Amsterdam, The Hague, Eindhoven, Rotterdam, and Utrecht) have grown faster since 2008 compared to the Netherlands as a whole, and we expect this trend to continue in the coming years.
Construction costs
Construction costs in the Netherlands have risen above inflation in recent years. This is putting pressure on the affordability of building.
TRENDS IN CONSTRUCTION COSTS FOR NEW BUILD HOUSES
Index( ) Wagecomponent priceindex Constructioncosts priceindex Materialcomponent priceindex Inflation
Source: Statistics Netherlands (2019), adapted by Syntrus Achmea Real Estate & Finance
8/102 Syntrus Achmea Outlook 2020-2022 Shrinking living space
On average, a household in multi-family comparison with previous building periods. housing, for instance flats, has 65 m² of living In 2019, houses in Amsterdam (multi-family space (Statistics Netherlands). In the Randstad, housing and single-family houses) built after the average living space per person is usually 2015 have an area of 66 m² on average. smaller than in the rest of the country. If we look The average surface area for a multi-family at the housing stock by year of construction, dwelling was smaller (56 m²). Due to the rise in we can conclude that the houses being built are mid-market rent in major cities, average living getting smaller and smaller (with the exception space is expected to carry on shrinking. of Rotterdam). In densely populated areas, the surface area of living space has shrunk in
TRENDS IN AVERAGE SURFACE AREA OF MULTI-FAMILY DWELLINGS
Surfaceareainm(usablearea) - - - - -
TheNetherlands Amsterdam Eindhoven TheHague Rotterdam Utrecht
Source: Statistics Netherlands (2019), adapted by Syntrus Achmea Real Estate & Finance
Investment volume in residential properties
Investing in residential properties has shown existing housing portfolios and less on single a clearly positive trend in recent years asset deals. among Dutch and foreign investors alike. Foreign investors mainly focus on larger
INVESTMENT VOLUME IN RESIDENTIAL PROPERTIES PER QUARTER
xbillion Q Q Q Q
Source: JLL (2019), adapted by Syntrus Achmea Real Estate & Finance
9/102 Syntrus Achmea Outlook 2020-2022 Investment focus
The housing market continues to be an interesting 1 to 4. Rental prices for these properties should investment sector due to the high demand range from the rent control ceiling to €1,250 per for attractive and affordable rental properties month in urban areas. combined with shortages in supply. Apart from • We also focus on flats from 70 to 100 m² in stable and attractive yields, residential investments surface area with rental prices from the rent can make a significant contribution to corporate control ceiling up to €1,250 per month that social responsibility objectives. The focus is mainly offer care services so that people can live on opportunity map categories 1 to 4. There are independently for longer. limited prospects for opportunity map categories 5 to 7. More specifically, our investment focus is on: In the broader context, our residential • Mid-market residential properties (mid-market investments focus on: sector). Consumer demand is highest in • Multi-functional residential buildings, such as opportunity map categories 1 and 2, where the working, meeting and recreational premises (i.e. affordability of the owner-occupied housing mixed-use concepts) close to public transport. sector is under pressure. The demand for • Flats located within walking distance from mid-market rental housing, however, is not large-scale daily amenities and services, city limited to the big cities, and there are good centres, suburban shopping centres and/or prospects for mid-market rental properties in stations in urban areas or in unique locations. opportunity map categories 3 and 4. • Single-family residences in urban areas and • In opportunity map categories 1 and 2, and more peripheral regions. in particular in the five major cities (G5), the • Sustainable residential properties for which gas investment focus is on homes with rental prices free is the new norm. of up to €1,500 per month. • Long-term partnerships with municipalities, • In opportunity map category 1 there is room for developers and housing associations. Working smaller flats (30 to 50 m²) with rental prices together on urban renewal and regional just under the rent control ceiling. development. • Flats from 60 to 80 m² in size in opportunity map categories 1 to 3, with rents ranging from the rent control ceiling to €1,000 per month. There will also be demand for flats larger than 80 m². Appropriate rents in this category vary considerably depending on the municipality, and so each property has to be assessed individually. The focus is on houses close to amenities and services, and public transport. • Ground floor dwellings from approximately 120 to 140 m² in size in opportunity map categories
10/102 Syntrus Achmea Outlook 2020-2022 Opportunities and challenges
Opportunities Challenges
Being able to contribute to future housing demand The scarcity of current investments in rental through active participation in large-scale (urban) properties in combination with increased housing projects in collaboration with municipalities construction costs makes it difficult for institutional and other stakeholders. investors to find investments with the required risk-return ratio.
Increasing demand for services and service Scarcity in the market can lead to uniformity concepts for the benefit of tenants. in the types of housing and tenants. A lack of differentiation poses a threat to civil society and the inclusiveness of cities.
Climate-proof and energy-neutral residences, Rising rent levels that, in the long term, lead to combined with a healthy indoor climate. reduced affordability and rent reductions when people move (sawtooth effect).
Alternative approaches to acquisition are becoming Existing housing stock is rapidly becoming outdated feasible due to lower initial yields. These alternatives because of accelerated developments (technically, could include conversions, acquiring strategic land from the viewpoint of the resident, as well as stricter holdings and investing in mid-market rental housing. sustainability regulations for new construction projects).
Investing in the housing market can play The political agenda – especially locally – is an important role in fulfilling ambitions for increasingly making itself felt, and this is fuelling sustainability, both in terms of energy provisions uncertainty. For example, the housing evaluation and from a corporate social responsibility system used to determine the rent is becoming perspective. an increasingly influential tool when it comes to determining initial rent and rental growth. This can affect smaller homes in particular.
11 /102 Syntrus Achmea Outlook 2020-2022 Trends
• As of mid-2019, the long-term interest rate • Investors in rental properties must take into for Dutch government bonds for all maturities account the composition of households in the was negative. This is unprecedented for the future and ageing trends in the population. Dutch economy. The old laws governing how In the longer term (> 15 years), the growth in to predict interest rates may no longer apply, the number of households is set to continue and we may have reached a new paradigm. steadily, and a large proportion of the Dutch Negative interest rates may seem strange, but population will be older. Growth in the number in fact paying for a safe haven is quite normal. of households will mainly affect the Randstad, It is difficult to predict how long we will stay in the Brabantse Stedenrij and the Arnhem/ negative interest territory. According to Oxford Nijmegen urban region. The regional discrep- Economics projections, long-term interest rates ancies in price movement that arose in the (10-year government bonds) will rise slightly past will continue in the longer term. Prices in the coming years (i.e. they will be positive in markets which are under pressure are again), but will not exceed 1% until 2022. rising faster than in average markets, while • Rising long-term interest rates have a knock-on prices in shrinking markets are falling further effect on the mortgage interest rate since they and further behind the average markets. The are closely correlated. Should interest rates growth is mainly due to an increase in the rise, the prices for owner-occupied houses number of single-person households, and are expected to fall. Research shows that a these households are more likely to look for 1% increase in mortgage interest rates will accommodation in densely populated areas. In eventually lead to a 6% drop in house prices regions with an ageing population, where work (Conijn et al, 2018). The house prices will not has to be done to raise standards, larger single- change immediately since price corrections are family residences will have to become a thing of gradual, partly due to all kinds of other factors. the past, and properties may have to be divided • In 2018, the ministry of the Home Affairs agreed into separate smaller units (sold individually). with market participants, including Syntrus • The average size of homes has been shrinking in Achmea Real Estate & Finance, to reduce the recent years. As a result, residential properties housing shortage through the National Housing are being split up, especially in densely Agenda. The National Housing Agenda states populated areas. This is also known as the that its ambition is to build 75,000 houses each ‘friends concept’, whereby two or more friends year. From a political perspective, however, come together to rent one home. We are also this housing policy is increasingly being seeing a rise in housing concepts that focus on decentralised. Municipalities have a guiding living in small accommodation combined with role when it comes to housing and they are large communal areas and plenty of facilities.
the ones who are determining which target • Measures to reduce CO2 emission are producing markets will or will not be served, and under energy-neutral (i.e. passive) residential which conditions. This has led to a fragmen- properties, or even energy-producing ones. tation of legislation, with vacancy risks being The purpose of these measures is to mitigate more location related and building more houses the impact on the climate. What’s more, there is becoming less attractive in the municipalities in a growing awareness that modifying buildings question. is also inevitable because climate effects are • The minister of Home Affairs has announced already being felt; we are facing the risk of measures to improve the position of middle- floods, heat waves and ground subsidence. income earners in the housing market. For free • We are also seeing the advent of ‘smart houses’. sector housing, the announced ‘emergency These smart houses partly cater to the comfort measures’ and the cap on the values referred to of the resident but are also designed to track in Dutch property valuation legislation, which use and consumption data; see also the section is used in the housing evaluation system, are entitled ‘Trends, challenges and opportunities’. particularly important. Both instruments are intended to restrict initial rent for these houses. The measures announced by the minister are still being drafted, so it is not yet clear what the implications will be exactly. What is clear, though, is that regulation will be used to guarantee the affordability of parts of the housing stock for middle incomes in the long term.
12/102 Syntrus Achmea Outlook 2020-2022 Market trends in the users market
The rise in vacant possession value is ratio between average home value versus slowing down but is still positive average income) are still well below the • When valuing investment properties, the unhealthy pre-crisis ratios. Also, according distinction between the scenarios of selling to Calcasa calculations, there are currently off as individual units or exploitation through virtually no homes with underwater mortgages rental is important. Vacant possession values anymore, which means that there is a buffer of (investment value if the property is sold off) sorts (Calcasa, WOX Q1 2019). This is because have benefited hugely from ongoing demand house prices have been rising since the second and shrinking supply of owner-occupied houses. quarter of 2013, and are now above the level In line with our prognosis, vacant possession of the previous peak in 2008 throughout the values are rising, albeit at a slower pace Netherlands. If uncertainty grows about price compared to what we have seen in recent years. corrections in the owner-occupied housing According to the Primos report, the expectation market, it will have a negative impact on is that scarcity on the housing market will revaluations. That said, if that is the case the increase even more, and exacerbate the housing rental market may benefit from worsening shortage in the process. This will drive up prices sentiments in the owner-occupied property in the residential property market, which in turn market. will slow down growth. According to Oxford • The mortgage-to-gross-income ratio, i.e. overall Economics, residential real estate prices will housing expenses as a percentage of disposable rise sharply in 2019 (by an average of 9.0%), income, was on average 38.1% for tenants in although growth will slow in 2020 (3.3%) and 2018. At 29% on average, homeowners spent a 2021 (2.9%). smaller proportion of their disposable income • The strong recovery of the housing market, on housing in 2018. The mortgage-to-gross- driven by historically low mortgage interest income ratio has been dropping for owners rates and the housing shortage, may raise since 2012, while this ratio rose for tenants. The the question of whether a price correction explanation for this is that owners have mostly will ensue. As it stands now, we believe that benefited from falling interest rates, in contrast a credit-driven overheating in the market is to tenants who have seen their rents rise faster unlikely. The loan-to-income ratio (LTI: the than their incomes. ratio between the average loan and average income) and price-to-income ratio (PTI: the
HOUSEHOLD HOUSING EXPENSES BY OWNERSHIP (HOUSING EXPENSES/DISPOSABLE INCOME)
Percent Total Owner Tenant
Source: Statistics Netherlands (2019), adapted by Syntrus Achmea Real Estate & Finance
13/102 Syntrus Achmea Outlook 2020-2022 Market trends in the investment market
Persistent investment pressure • Locations where construction is permitted are • On the back of the ongoing demand for thin on the ground. Increasing the housing housing and the limited supply, the shortage in stock is important for structural improvements the housing market is significant, and this is not to the affordability of housing. The restricted set to change in the short term. Partly due to number of construction sites is down to local trends in the owner-occupied market and the authorities’ policies and the passive stance that persistent housing shortage, the rental market the government has adopted (Netherlands is still popular among housing consumers. Rent Bureau for Economic Policy Analysis (CPB), increases have been less extreme than purchase 2019). As it stands now, municipalities have price movements for a few years, but there are too few incentives to approve building plans, also supply shortages in the rental market. This because it is not what existing residents want is particularly evident in the major cities, where and there are no financial benefits for the rental prices are rising faster than on average. municipalities. Municipalities affect the quality This positive outlook makes the housing of homes and the locations where they are market an attractive investment category for built, and they often set high standards. This investors. As a result, investing in housing as an does not mean that more houses are being asset class was the most popular investment built, but instead that they are more expensive category last year (2018). It seems as though (and smaller) (CPB, 2019). As institutional this scenario is repeating itself in 2019, and the investors who want to invest in real estate, forecasts for the years to come are also positive we are therefore appealing to municipalities for housing as an investment category. to support plans that will offer social benefits • In the wake of this increasing popularity, the rather than financial yield. In our view, this competition in the buyers’ market new and means mid-market rental housing in the major existing houses has also increased considerably. cities. This is a sector that is indispensable for The availability of investment opportunities quality of life, inclusiveness and throughput in remains limited, and this is driving a shift in risk the municipal housing market. appetite. On the one hand, it is evident in the search for riskier locations and, on the other, in finding market segments – including in the G5 – where homes can still be purchased for attractive yields.
INVESTMENT CLIMATE FOR THE DUTCH RESIDENTIAL MARKET
Percent Riskpremium Initialyield -yeargovernment bondyield Totalreturn
Source: MSCI (2019), Oxford Economics (2019), adapted by Syntrus Achmea Real Estate & Finance
14/102 Syntrus Achmea Outlook 2020-2022 Gross initial yield (GIY) forecasts
Stabilising initial yields extent from the GIY. • According to projections (Oxford Economics), • What is striking is that the gap between long-term interest rates are slowly rising and prime and average initial yields is closing. inflation will settle back to 2% by the end of The difference in initial yields between the 2020. Economic growth is somewhat subdued major cities has shrunk because domestic and compared to previous years, and is reverting international investors are showing an interest to normal levels (i.e. around 1.5% growth in other cities, like The Hague and Eindhoven, per annum). Unemployment is and remains in addition to Amsterdam and Utrecht. This has exceptionally low, but is expected to rise in led to more pressure on yield in these cities. 2020. Buying power will improve this year. As Prices have remained stable in the top cities of it stands now, protectionism (including the US Amsterdam and Utrecht, the market on which government’s trade policy), Brexit and Italy the prime initial yields are based. Initial yields constitute major downside risks to the Dutch at prime locations are already very low, with economy (CPB, June estimate 2019). hardly any room for a further tightening in yield. • Price trends, ensuing from the macroeconomic picture of the future outlined above, mean that EXPECTED DEVELOPMENT IN GROSS INITIAL house prices will slow down somewhat year on YIELD IN THE MARKET 2020-2022 year, but will still rise in the period from 2019 to 2022. Shifts in the prices are due, on the one Opportunity map category GIY trends hand, to shifts in yield and, on the other hand, to rent growth. A tightening up of GIY will drive 1 → shifts in prices, particularly from 2019 to 2020. 2 → ↓ We can see that the GIY for 2019 has become 3 → ↓ a lot tighter compared to previous years. Our 4 → ↓ short-term forecast is that the GIY will start to 5 → ↑ bottom out and stabilise in the coming years. 6 ↑ The expectation is that risk premiums will drop 7 ↑ slightly in the course of 2020. The risk premium ↑ Adjusted upwards compared to previous period is primarily under pressure from the slight rise → Same as previous period in the long-term interest rate, and to a lesser- ↓ Adjusted downwards compared to previous period
TRENDS IN YIELDS AND RISK PREMIUM
Percent GIY‘average’(MSCI) Riskpremium ‘average’ GIY‘prime’ Riskpremium‘prime’ -yeargovernment bondyield
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
Source: MSCI (2019), Oxford Economics (2019), JLL (2019), adapted by Syntrus Achmea Real Estate & Finance
15/102 Syntrus Achmea Outlook 2020-2022 Market rent forecasts
Market rent growth will slow down and increasingly to determine the scope for rent be more in line with inflation growth, particularly in the mid-range segment • In a scenario in which landlords continue to of the liberalised rental sector. We expect rents rent out their properties, and provided they are to continue to grow in the less popular regions, rented out properly, the investment value on albeit that growth will generally be just below average in the Netherlands is expected to grow inflation. in line with inflation, plus a surcharge for the attractiveness of the location. For this we use EXPECTED MARKET RENT TREND COMPARED TO the opportunity map as a basis. Rent growth INFLATION 2020-2022 forecasts are as follows (see table opposite). Market rent growth was historically high last Opportunity map category Trends in rent growth year. • On the back of the persistent housing shortage 1 ↑ in the coming years (2019 to 2022), we expect 2 ↑ that market rents will continue to rise. Partly 3 ↑ depending on the economic conditions, we 4 → expect market rent growth in opportunity 5 ↓ map categories 1 to 3 to be on average above 6 ↓ inflation, and potentially rise further in certain 7 ↓ regions and sectors. This will mainly be the ↑ Higher than inflation inner-city areas, where a rising population → Equal to inflation combined with the limited housing supply will ↓ Lower than inflation continue to exert pressure. The affordability of rents has become a political issue and seems
TRENDS IN RENT AND VACANCIES
Percent Rentgrowth Vacancies(financial)
Source: MSCI (2019), adapted by Syntrus Achmea Real Estate & Finance
16/102 Syntrus Achmea Outlook 2020-2022 Investment cycle
Investment vision: the right housing in the mid-market sector we believe offer a stable the right locations internal rate of return with limited exposure, • The investment strategy for Dutch residential which matches the investment profile of an real estate is aimed at single-family residences, institutional investor. (medium-sized) affordable flats and • In the G5 and in the other university towns independent student accommodation. There we are seeing investment opportunities for are also opportunities for care residences (see smaller self-contained residential properties, for investment category: healthcare real estate). students for instance. The focus for investing in Besides single-family residences, (small) mixed-use properties that are predominantly flats and student accommodation, there residences is on those in opportunity map are opportunities for investing in mixed-use categories 1 and 2. We expect the highest value properties, which combine different uses such growth and rent growth to be achieved in these as living, working and recreation. regions and product types. • The focus for investing in homes is on those in • For the G5 we advise applying more core-plus opportunity map categories 1 to 4. This is where and value-add strategies, for instance structural the most opportunities for yield development participations in regional and/or district and rent growth for the coming years present developments. A core strategy is attractive for themselves. The best opportunities based on the municipalities that are located (broadly market demand lie with flats located in the G5 speaking) around the G5. In addition, the (Amsterdam, The Hague, Eindhoven, Rotterdam Brabantse Stedenrij, the axis Amersfoort- and Utrecht) where homes are rented for Arnhem/Nijmegen and the cities of Groningen, mid-market rent. The (projected) housing Zwolle and Maastricht offer opportunities for demand for mid-market rent is high, which achieving good yields, as do expanding mitigates vacancy risk. As a result, stable yields municipalities near these cities. can be expected from investing in mid-market • In the G5 the most sought-after districts/ rental housing. These investments generally locations there is leeway for rents of up to have a low initial yield. On the other hand, there €1,500 per month. This applies both to flats is a relatively high surcharge for the exit yield, and ground-level residences. Outside the G5, which can be cashed in once the property is the limit for single-family residences is often no longer subject to the mid-market rent cap. €1,250. If the pressure on the residential market Because there is a logical relationship with the drops (opportunity map categories 4 and 5), risk, the internal rate of return is somewhat we would advise maximum monthly rents of lower (compared to rental properties in the €1,000. free sector). In the long term, investments in
TIMING INVESTMENT CYCLE
Rented housing > €1,500 in opportunity map categories 1 to 4
T FA KE LL Residential properties in regions Residential properties in R IN A G outside focus areas (opportunity M opportunity map categories M G A map categories 5 to 7) N 1 to 4 for rentals from I R K K €1,000 - €1,500 A E E T
P
T
E R Mixed-use properties, K I S R student accommodation I N A and care residences G M M G A IN Single-family residences in R M Mid-market rent houses in KE O opportunity map categories 1 to 4 T OTT opportunity map categories 1 to 4 B
17/102 Syntrus Achmea Outlook 2020-2022 Winners and losers
Winners Losers
Multifunctional residential buildings, where uses Non-green homes and in particular those homes are combined within a unique concept and where in peripheral, shrinking regions (opportunity map services compliment the residence. Here we have categories 5 to 7). in mind, for instance, additional services such as flexible workplaces, guest rooms, caretakers whose main role is to be hosts, community managers, and to offer mobility solutions. These services are also known as ‘living as a service’ and they can be an additional revenue model.
Flats at locations near daily amenities and services, Properties outside the largest cities asking rents city centres and/or multifunctional public transport that are not affordable (> €1,200 per month). hubs in urban areas. Or at a unique location with its own distinctive character (Lorentz in Leiden).
Mid-market rent sector in sound locations. There is no shortage of demand for these houses now nor will there be in the future, which means that the prices are stable.
18/102 Syntrus Achmea Outlook 2020-2022 INVESTMENT OPPORTUNITIES IN RESIDENTIAL PROPERTY
19/102 Syntrus Achmea Outlook 2020-2022 20/102 Syntrus Achmea Outlook 2020-2022 The Dutch healthcare real estate market
De Makroon, Amsterdam
21/102 Syntrus Achmea Outlook 2020-2022 Outlook for the Dutch healthcare real estate market
Rising scarcity in healthcare real estate deserves attention
The healthcare real estate market is facing care sector, remains an attractive long-term a considerable challenge if it is to meet the investment option. The big ‘but’ in healthcare housing demand prompted by the rapidly real estate is that many existing healthcare growing group of elderly people who can properties are obsolete. There are too few longer live in their own homes. The current designated building areas, and development supply of healthcare real estate is outdated and refurbishment projects to cater for the and will have to be modernised if it is to enormous demand for suitable housing. meet the requirements of the climate treaty Healthcare real estate is not sufficiently on the and the wide range of housing requirements policymakers’ radar. Without a joint effort on that residents are demanding. The increasing the part of municipalities, housing associations, scarcity of current residential care real estate healthcare institutions and market participants, is also evident in the competitive investor we will be heading towards a dire shortage of market, where yields are under pressure and care residences. Institutional investors can any advantage to be had from being an early make a major contribution to the growth, adopter has largely disappeared. Yet healthcare modernisation and financing of future-proof real estate, and this includes the curative healthcare real estate.
Nieuw Overbos, Heemstede
22/102 Syntrus Achmea Outlook 2020-2022 Definition
Healthcare real estate can be divided into many ‘Cure’ refers to healthcare real estate in which the sectors, each with their own investment features. care services provided aim at curing the patient. The basic distinction is between ‘care’ and ‘cure’. Primary care, with GPs and pharmacies as the main users, is heading towards accommodation in ‘Care’ means healthcare real estate where people integrated medical centres, thanks to the clustering live. Within this investment sector, lifetime homes of functions. Increasingly, we are seeing outpatient have traditionally played an important role, but care services that can be scheduled, which were these homes are becoming increasingly similar to traditionally offered in secondary care facilities traditional homes, both physically and in terms of (general hospitals), being catered for in healthcare investment features. Typically, a good lifetime home centres. These centres have, for instance, a provides care, if required, but it is also a property diagnostic department offering blood tests and that functions well as a residence. The requirements ultrasound and X-ray equipment, or rooms where laid down in the Dutch Buildings Decree do not medical specialists from the regional hospitals hold go far enough in this respect. Preferably, there patient consultations. The combination of facilities should be care facilities in the vicinity and lifetime provided in healthcare centres brings to mind homes should be in a building that offers other care the investment features of shopping centres and services. This could be inpatient care, for instance. multi-tenant business buildings.
This inpatient care often involves care for the Specialist medical facilities that do not require elderly, but care for the handicapped and mental emergency care or general operating rooms, such healthcare are also forms of inpatient care. as dermatology, ophthalmology and phlebology Inpatient residential units are intended to address (varicose vein treatment), can also be set up more serious care needs. Broadly speaking, they separately as a clinic or independent treatment can be divided into three types: independent, centre. The individual tenants are then an essential communal housing and private sector. Healthcare assessment criterion for the investment case, just providers are involved in all cases; it is how the like in the office market. Removing care services financing is arranged that may differ. This principle from secondary care means that hospitals are of ‘separation of living and care’ means that care currently going through a transitional phase, which consumers conclude two separate contracts: should lead to a situation in which only those in a lease agreement and a care agreement. For need of acute or complex care are treated there. inpatient group housing, which is difficult to rent Tertiary care is offered in academic hospitals, out separately, it is the healthcare institution that of which there are only a select few in the generally acts as the main tenant. Much of the Netherlands. The healthcare real estate market existing inpatient healthcare real estate stock also has a range of other concepts, such as belongs to this category. Both kinds of rental are outpatient treatment hotels and ambulance possible in the private residential care sector. The centres. distinctive nature of private care residences is often decided by the type of building (small scale, large), the operator (a private healthcare company) and the target market (often medium and high segment). Despite the fact that the distinctive natures of the various living concepts in the inpatient sector are becoming less obvious, each type has its own risk profile.
23/102 Syntrus Achmea Outlook 2020-2022 Facts and figures
The number of households of 65 years The stock of inpatient healthcare and older currently living in unsuitable1 real estate is housing is
19.3 million m² 40,000 To achieve a CO2 reduction of 49% in (Source: Netherlands 2030, and thus meet the requirements Institute for Social of the climate treaty, an investment of Research) € 4.0 to € 5.7 billion
is required in this sector.
(Source: TNO (2019), The waiting list for Routekaart verduurzaming van het nursing home care in vastgoed in de langdurige zorg) 2019 has exceeded
The expectation is that investors are 15,000 set to invest more than
(Source: Dutch National Health Care Institute). € 1 billion
in Dutch healthcare real estate in 2019, which is ten times more than it was in 2013.
Testing grounds for integrated medical centres show that only In the period 2017 up to and including the first half of 2019, more than 20%
of patients need to be referred to 55% secondary care. This not only lowers the costs of healthcare, it also improves of the investments in customer satisfaction. healthcare real estate were made in the (Source: University Medical Centre Maastricht) provinces of North and South Holland, Utrecht and North Brabant.
1) Not possible to access or pass through without climbing stairs, and not possible to adapt for limited costs (<€ 10.000).
24/102 Syntrus Achmea Outlook 2020-2022 Investment focus
The healthcare real estate market is an attractive The houses are suitable for the separation of investment sector. Investing in healthcare real residential and healthcare facilities. In all cases, estate that fulfils users’ future residential and care the tenant is a financially sound and expert needs offers investment opportunities in both healthcare institution. Attractive inpatient cure- and care-related healthcare real estate. healthcare real estate is located in opportunity Apart from stable and attractive yields, investing map categories 1 to 5. in healthcare real estate can make a significant • Healthcare centres that mainly offer primary contribution to corporate social responsibility care, for instance GPs and pharmacies, in a objectives. More specifically, our investment focus stable to growing catchment area. is on: • Clinics, independent treatment centres and • Lifetime homes in opportunity map categories secondary care facilities in which predominantly 1 to 4 and the larger municipalities in insured care is provided. opportunity map category 5. • Other care-related property in which the above • Lifetime homes with mid-range rentals (€ 700 healthcare sectors are combined with related to € 1,000). The upper limit may be higher sectors, such as outpatient treatment hotels for locations in popular urban centres. The and municipal healthcare facilities. proximity of public transport, shops, welfare and social facilities and services contributes to better prospects for residences. • Private residential care locations for the mid-range segment (€1,400 to €2,500 including services) in opportunity map categories 1 to 5, in the four major cities (G4) in the higher segment (up to €4,000 including services). • Inpatient healthcare real estate which can be divided into inpatient group housing and independent homes with communal areas.
25/102 Syntrus Achmea Outlook 2020-2022 Opportunities and challenges
Opportunities Challenges
The major rise in demand for the various kinds of The investment market is extremely competitive care residences that an ageing population requires, and is placing high demands on healthcare real in combination with the challenge of living at home estate that is in short supply. Collaboration between for longer, offers good long-term prospects for government authorities, housing associations and investing in lifetime homes. healthcare institutions is imperative, if the demand from investors as well as the requirements of the consumers are to be met.
The major challenge of making healthcare real Regional staff shortages in healthcare, which are estate stock sustainable and thus ‘Paris proof’ in serious in some cases, are putting the quality of line with the sectoral roadmaps, compounded by services under pressure. the limits on financial means that many healthcare institutions face, mean that collaboration with institutional investors is required. The ‘Sustainable Healthcare Green Deal’ is an important catalyst for accelerating sustainability efforts.
Creating attractive residential healthcare concepts High construction costs and a lack of temporary that also tackle social problems, like loneliness. residential locations for those in need of care are an impediment to the feasibility of new building projects. It is crucial that investors assess whether trends in new-build developments are in line with future user requirements, and to approach sub- optimal investment propositions, such as those proposing the construction of houses that are too small, with caution.
Taking advantage of lucrative risk premiums in the Regional- and location-specific price differences in curative care sector of the healthcare real estate real estate are not based on differences in financial market. compensation for the provision of healthcare services. This is putting pressure on the feasibility of the more expensive locations, particularly those offering inpatient and curative healthcare.
26/102 Syntrus Achmea Outlook 2020-2022 Trends
• Due to the ageing population, healthcare costs • At the same time, there is a danger that the will continue to rise and the affordability of various kinds of e-health will remove the human this care will come under increasing pressure. dimension, that care consumers will become The expectation is that the policy lines in place housebound and isolated, and lose contact with to ensure that people can stay at home for society. This may exacerbate loneliness issues longer, and the decentralisation of the curative even more. Suitable housing can contribute to care, will be intensified so that even more cost tackling the loneliness problem, for instance, reductions can be achieved. The government is by having communal lounges, by combining on the retreat. Due to cost pressures, discounts functions (facilities on the ground floor of on integrated rates for care are looming. residential buildings) and by bringing together • The policy that government has deployed target groups (for example students and the is in line with care consumers’ wishes and elderly). requirements to stay in their own homes for • More and more these days, care consumers are as long as possible. Institutional investors using quality as a yardstick against which to can contribute to the creation of homes and measure healthcare institutions and healthcare healthcare centres that meet these wishes. providers when choosing a new healthcare Existing agreements on volumes reached provider. Good staff is crucial to this, and staff between care administration offices and shortages in the healthcare sector constitute healthcare institutions make it difficult for a serious threat to the quality of healthcare. newcomers to enter the healthcare market. Increasingly, healthcare institutions are having • From an economic perspective, growth to compete among themselves to find good forecasts are declining, but the healthcare staff. Attractive premises – a pleasant and sector is virtually immune to economic cycles. secure working environment – can be an The low long-term interest rate, which was even incentive. Healthcare real estate is crucial for negative in mid-2019, will raise the demand for the continuity and standards of all healthcare healthcare real estate and real estate generally, institutions. due to the relatively high spread compared to the risk-free yield. This means, on the one hand, that there are more funds available for investing in healthcare real estate, while on the other hand yields will still be under pressure. • Technological developments are increasingly being used to support the healthcare process. E-health and home automation can help care consumers who stay at home for longer. Monitoring, aftercare and consultation applications can, for instance, support the healthcare process, while providing convenience and efficiency at the same time. Suitable accommodation, providing physical and digital care, is an important prerequisite for this.
27/102 Syntrus Achmea Outlook 2020-2022 Market trends in the users market
Living at home for longer is a recurring theme people with mobility restrictions the next 10 to 20 in the context of healthcare real estate for the years, ranging from relatively minor to serious. More elderly. Not only is there a strong incentive from than 350,000 households will have to contend the government because providing home care is with this by 2035. Many homes are insufficiently cheaper than getting care at an institution, but geared to people who have restrictions. Apart from also because people generally prefer to continue the wishes of consumers and government, there living in their own familiar living environment. In is a clear need and increasing demand for lifetime tandem with the rising age of the population, we homes where low-level care, and in the long term will be witnessing a sharp increase in the number of even high-level care, can be provided.
RISE IN THE NUMBER OF HOUSEHOLDS WITH MOBILITY RESTRICTIONS
numberofhouseholdsx Serious Moderate Minor
Source: ABF Research – Fortuna Extramuraal 2018, adapted by Syntrus Achmea Real Estate & Finance
The demand for inpatient care is increasing to caring for the disabled and those providing care a limited extent, while the demand for suitable for the elderly (nursing and care homes) have inpatient residential units is also rising because very long waiting lists. The waiting list grew by of the ageing of the population. People claiming around 30% in a mere eighteen months. Even under the Dutch Long-Term Care Act [Wet though a place can generally be found for those langdurige zorg] are ending up on waiting lists needing acute care, in all likelihood care consumer because the care homes where they would like needs will not be adequately met. The demand for to move to are full. There are no waiting lists for inpatient healthcare real estate will exceed supply mental healthcare institutions, but institutions in the medium term.
WAITING LIST FOR PREFERRED LOCATIONS FOR THOSE REQUIRING LONG-TERM CARE
Numberofpeople Index(January ) Mentalhealthcare Careforthe handicapped NursingandCare Trendsintotal (rightaxis) January January May
Source: Dutch National Health Care Institute (2019)
28/102 Syntrus Achmea Outlook 2020-2022 Whereas the rise in demand for inpatient residential thousand inpatient residential units in many other properties is expected to be relatively limited in cities too. This is a separate matter to the demand the foreseeable future (up to 2025), the rise in the for replacement facing the market because existing longer term (2035) will be considerable in some healthcare real estate stock is often functionally as places, and there are major differences between well as economically obsolete. There seems to be a the municipalities. The biggest shortages are lack of urgency among government authorities to expected to be in Rotterdam, but there is demand provide for suitable future supply in their planning for expansion ranging from a few hundred to a and pricing policies.
DEMAND FOR INPATIENT RESIDENTIAL UNITS (CARE INTENSITY PACKAGE (ZZP) NURSING & CARE >=5)
Byconurbationin (thesizeofthecircleindicatestheextentofdemandin) Rotterdam
Amsterdam
TheHague Dordrecht Utrecht
Eindhoven
Groningen
Byconurbationin Source: ABF Research – Fortuna Intramuraal 2018, adapted by Syntrus Achmea Real Estate & Finance
From an international perspective, the Dutch deteriorated. According the Finance Ideas rating, healthcare landscape is very fragmented. Foreign 21% of elderly care institutions have poor credit- healthcare institutions recognise that the Dutch worthiness. At 20%, poor creditworthiness among market is organised at a local level, and that a institutions that care for handicapped people is degree of professionalisation in business operations comparable to this. With an average solvency can have attractive advantages. Through the recent ratio of 45% and a financial result that has been arrival of foreign operators, like Orpea and Korian, above 2% for many years, Finance Ideas views this we are expecting an increase in the institutionali- sector as the one performing the best – relatively sation of elderly care. Once the professionalism – speaking – in terms of finances and operational including the financial aspects – of these healthcare aspects. Mental healthcare is the most vulnerable providers becomes evident, and their reputations sector relatively speaking. 28% of the institutions in improve, this may mitigate investor exposure when this sector have poor creditworthiness. The results entering into leases. A potential disadvantage for as well as the debt service coverage ratio have investors is when these major healthcare operators decreased on average across the sector. want to own the property in the Netherlands, just like they do abroad.
According to an analysis carried out by Finance Ideas, the financial prospects for healthcare institutions in the elderly care sector are improving all the time. Various financial ratios such as the solvency ratio (40%), turnover (+5.0%), the current ratio (1.6) and the debt service coverage ratio (DSCR 1.7%) have improved for the third year in a row. As opposed to this, several operational ratios, such as sickness absence and staff turnover, have
29/102 Syntrus Achmea Outlook 2020-2022 Market trends in the investment market
Year on year, the amount of capital invested in opportunities for those developing traditional healthcare real estate is increasing. In 2018 almost homes make it difficult for many new-build €1 billion transactions in healthcare real estate developments in healthcare real estate to be were registered. As of mid-2019, the market was feasible. The trend whereby more and more on track to surpass this historical milestone. The healthcare institutions are considering transferring expectation is that the volume of transactions will part of their property to third parties, whether at least continue at this level in the years to come. or not in combination with redevelopment, is There is in any event no shortage of interest among set to continue. Alongside the many small-scale investors. Apart from the growing interest in the initiatives, more and more mixed-use developments Netherlands, European and American organisations will emerge in which a combination of residential are very active in this respect. This raises the functions catering to a range of care needs and question of whether there are enough investment offering some curative or service facilities will be products to meet this demand. Rising construction created. costs, high land prices and better earning
INVESTMENT VOLUME IN THE HEALTHCARE REAL ESTATE SECTORS
xbillion Secondaryhealthcare realestate Primaryhealthcare realestate Inpatientresidential units Privatelivingcare residences Lifetimehomes HY
Source: CBRE (2019), adapted by Syntrus Achmea Real Estate & Finance
30/102 Syntrus Achmea Outlook 2020-2022 Last year, the fall in the initial yield, i.e. the yield rate being a more important driver, but the risk shift, continued in the various healthcare real estate perception for investing in healthcare real estate sectors. Attractive investment options in secondary is also improving now that the sector has proven healthcare real estate in particular have seen a to be a stable but growing investment market with considerable tightening of yield. We expect that good prospects. This is particularly the case now the end of this yield tightening is not yet in sight that various inpatient healthcare real estate sectors for various healthcare real estate sectors. Not only are becoming increasingly similar in terms of is the available capital for investing in real estate investment features, and are more flexible in terms likely to increase (as a result of the search for of alternative uses or being turned in residential yield), with the sharp drop in the interest properties.
YIELD SHIFT IN DUTCH HEALTHCARE REAL ESTATE
Percentagepoint -yearsinterest - rate(abs) - Inpatientresidentialunits Secondaryhealthcare - realestate - Outpatientresidential - units
- Primaryhealthcare realestate - Privateliving careresidences HY HY HY HY HY HY HY HY Bron: CBRE (2019), Oxford Economics (2019), bewerking Syntrus Achmea Real Estate & Finance
The social impact of their investments is growing in importance for institutional investors. Real estate, and healthcare real estate in particular, is one of the more obvious ways to have a positive impact on society. It is a way of contributing to creating pleasant and safe residential environments for vulnerable target groups who are in need of care, while at the same time helping healthcare institutions to enhance the professionalisation of their operations. And because the healthcare sector presents a particular high challenge in terms of sustainability, investing in healthcare real estate also contributes to the process of energy transition.
31/102 Syntrus Achmea Outlook 2020-2022 Gross initial yield forecasts
High pressure on investment in general, combined In addition to the increase in interest, this with the rise in interest in healthcare real estate in expected drop also depends on the growing particular, are responsible for keeping the pressure similarity that this sector is showing with on initial yields. The pressure is evident across traditional residences. Surcharges for risk the sectors and in virtually all opportunity map premium are expected to fall, certainly if categories. For this reason, many municipalities housing can be rented out separately and has have been promoted to higher opportunity map a good alternative use. Private care residences categories in the opportunity map method applied have seen a sharp drop in recent years. The by Syntrus Achmea Real Estate & Finance. The expectation is that the lower limit will remain ‘waterbed effect’ that highly sought-after cities the same in the wake of additional risk have on the surrounding municipalities is evidence considerations regarding higher average rental of this. levels, the type of building and the kind of • For lifetime homes in opportunity map operator. categories 1 to 4, we expect the initial yield for • The curative sectors, such as healthcare centres the best product in the best location to remain and clinics, independent treatment centres and stable in the coming year compared to current secondary care properties, will also start to levels. We expect that those municipalities attract more attention, resulting in falling yields. that have moved to a better opportunity map category may undergo limited shifts in yield. In times such as these in which investment appetite The number of municipalities in opportunity and scarcity in available products coincide, map categories 5 to 7 has fallen, but we do compounded by high construction costs at the expect that these municipalities can look same time, it is imperative that initial yields paid in forward to higher initial yields. the market stay in proportion to the current and • The expectation is that inpatient residential future quality of the real estate propositions. units will mainly see a drop in initial yields.
EXPECTED DEVELOPMENT IN GROSS INITIAL YIELD IN THE MARKET 2020-2022
Sector/opportunity map category 1 2 3 4 5 6 7 Lifetime homes → → → → ↑ ↑ ↑ Inpatient (independent) ↓ ↓ ↓ ↓ ↓ ↓ ↓ Inpatient (communal housing) ↓ ↓ ↓ ↓ → → → Inpatient (private living/care residences) → → → → → → → Healthcare centres (primary care/integrated → ↓ ↓ primary and secondary care) Clinics, independent treatment centres and ↓ ↓ ↓ secondary care Other healthcare real estate ↓ ↓ ↓ ↑ Adjusted upwards compared to previous period → Same as previous period ↓ Adjusted downwards compared to previous period
32/102 Syntrus Achmea Outlook 2020-2022 Market rent forecasts
Movements in rental prices for existing healthcare healthcare real estate. For lifetime homes and for real estate portfolios are mainly driven by indexed private care residences, the market determines lease contracts entered into with healthcare rental levels because the choice of accommodation institutions or providers. If realistic rental prices are rests with the care consumer. For these homes, calculated on commencement of the lease, market and in the future also for inpatient residential rent prices can be expected to develop in line with units rented out independently, the geographical inflation. As a rule, healthcare institutions make location and physical properties of the home are rental payments based on integrated rates. Even also a factor in setting rental levels. Market rent though there is pressure on healthcare costs, the increases are expected to be above inflation due expectation is that readily marketable healthcare to current and future shortages, particularly in real estate contributes to high-quality and efficient attractive locations in opportunity map care provision so that rental price levels can stay categories 1 to 4. at a good level. The same applies to curative
EXPECTED MARKET RENT TREND VIS-À-VIS INFLATION 2020-2022
Sector Lifetime homes → ↑ Inpatient (independent) → Inpatient (communal housing) → Inpatient (private living/care residences) → ↑ Healthcare centres (primary care/integrated primary and secondary care) → Clinics, independent treatment centres and secondary care → Other healthcare real estate → ↑ Higher than inflation → Equal to inflation ↓ Lower than inflation
33/102 Syntrus Achmea Outlook 2020-2022 Investment cycle
As was the case in the past, the healthcare real locations, is expected to undergo a yield shift. estate market is predominantly in the upward curve Given the ample market demand and the need to of the investment cycle. Healthcare real estate is have care residences that also have to be ‘Paris expected to remain a sound investment sector in proof’, there is room for a reduction of the risk the future, with room for falling yield, rents that premium. Last year, healthcare centres saw a rise keep pace with inflation and few vacancies. Several in yield, and as a result they have moved up in the sectors have progressed through the cycle. Lifetime cycle. The same applies to clinics and independent homes in opportunity map categories 1 and 2 are treatment centres. There is still room for growth, currently peaking in terms of low initial yield and albeit limited, for the most marketable healthcare above-inflation rental trends. We expect that yield centres, clinics and independent treatment centres. and rentals in the coming years will continue to Other types of healthcare real estate may also be be attractive, as will the position in the investment attractive for investors looking for healthcare in cycle. In line with expectations, lifetime homes the cure sector. The situation is currently stable in opportunity map categories 3, 4 and 5 have for lifetime homes in opportunity map categories moved up in the cycle slightly. Here we expect 6 and 7. Uncertainty surrounding future market that there will be room for lower initial yields in demand and property values may result in an those municipalities that have moved to a better attractive initial yield and internal rate of return. opportunity map category. Rental price movements For the longer term, we expect that several are also either equal to or slightly above inflation. healthcare sectors may find themselves in peaking Inpatient healthcare real estate still offers plenty markets. The additional risk premiums currently in of potential for growth. This real estate, partic- the market will disappear. ularly the kind that physically resembles lifetime or traditional housing and is located in attractive
TIMING INVESTMENT CYCLE
Lifetime homes (opportunity map categories 1 and 2)
T FA KE LL R IN Lifetime homes (opportunity A G M M map categories 3 to 5) G A IN R K K A E E T
P Healthcare centres (primary care/medical centres)
T
E R K I Inpatient healthcare real estate S R I N A G M M G A IN Lifetime homes (opportunity Clinics, independent treatment R M KE TO map categories 6 and 7) centres and secondary care T BOT
Other healthcare real estate
34/102 Syntrus Achmea Outlook 2020-2022 Winners and losers
Winners Losers
Lifetime homes where good care is provided in the General hospitals offering a wide range of non-acute home. care that can be scheduled.
Group housing where residents can live Spread-out and isolated primary care facilities independently, but that offers opportunities for occupying the same competitive field as healthcare meeting people and healthcare. centres that offer a wide range of products.
Residential properties for those with minor Monumental and obsolete nursing homes no longer healthcare needs in the vicinity of facilities like have a place in the modern range of healthcare public transport, shops and cultural activities. options and do not meet the demand for high- quality housing. There is often market demand, however, and these healthcare institutions are often in excellent locations. Provided it is financially feasible, redevelopment is the best option.
Inpatient residential units with a modern feel that It will not necessarily be insufficient market demand can be rented separately and have a sound and that will be a challenge to healthcare real estate high-quality healthcare provider as the main tenant. situated in shrinking regions, but rather the lower total yields due to stable or declining property values.
Private care residences offering high standards in care provision, with a reliable operator.
Healthcare centres with GPs and pharmacies as the main tenants that are clustered with other primary and secondary care facilities.
Specialised secondary healthcare where insured care is offered, like clinics, independent treatment centres, ambulance stations, as well as rehabilitation centres and outpatient treatment hotels.
Buildings that meet the requirements for the sustainability roadmap and are thus ‘Paris proof’.
For all healthcare real estate sectors: high-density areas that are growing and becoming urbanised, and ‘spill-over regions’ with stable to growing catchment areas, such as opportunity map categories 1 to 4.
35/102 Syntrus Achmea Outlook 2020-2022 INVESTMENT OPPORTUNITIES IN LIFETIME HOMES
36/102 Syntrus Achmea Outlook 2020-2022 The Dutch retail market
Oostpoort, Amsterdam
37/102 Syntrus Achmea Outlook 2020-2022 Outlook for the Dutch retail market
Dichotomy in the retail market increasingly obvious
The current retail landscape is forcing retailers what is needed is to redevelop the shopping and investors alike to take a long hard look at centre, giving it new purposes and uses that the market. The retail market can be divided better meet the needs of the catchment area. into winners and losers. Clear winners are E-commerce is inevitable, but the impact it is those in prime locations in city centres, partic- having on the shopping landscape varies. On ularly in those cities that have a domestic and the one hand, people prefer to buy certain international allure. What we are seeing in these products online, which means that people areas, apart from traditional retail outlets, is an are less inclined to go to the shops, and are increase in catering establishments, studios and therefore less tempted to make impulse service providers. purchases. On the other hand, the strongest retailers who only sell online are recognising An obvious winner is the small shopping centres the benefits of having a physical shop, and so sector where supermarkets have a predominant they are regularly opening new branches. role. It is supermarkets in particular who are providing a lucrative stable return for the The best concept is to have a physical shop in long term. This is especially the case if other combination with an online shop and a good day-to-day or frequently visited sectors distribution network. If these concepts have a compliment the consumer’s reason for visiting. high profile (both online and physically), and are thus able to engender customer loyalty, we Major differences between the sectors are see opportunities for growth. The much-dis- emerging in the retail landscape, while at cussed advent of e-commerce has mainly had the same time it is irrefutable that there are an impact on the way in which consumers shop. segments that are struggling.It is large city Not only does online shopping reduce impulse district centres, suburban centres that are too purchases that were traditionally made in large, secondary locations in inner cities, and physical stores, it has also had a major impact small and medium-sized cities in particular that on the appeal of shopping outlets, and not all are confronted with rising vacancy rates and retailers have been able to keep pace with the shrinking rentals. We often see opportunities speed of changes in consumer behaviour. Here, to give these areas a makeover, a new purpose too, there are clearly winners and losers. with a more varied user base. In city district centres, too, we are recognising that sometimes
38/102 Syntrus Achmea Outlook 2020-2022 Definition
The most important factor, the one that is the facilities. These facilities transform suburban guiding principle in our retail strategy, is the shopping centres into proper suburban centres, function that the consumer assigns to the shopping the heart of the suburb. In these centres, we believe area. First, we distinguish between areas where that local dominance is important, as are having shopping is done for pleasure, where products are good ties with local consumers and prospects for compared, and where time is not an issue. We have the future for which the catchment area is at least selected 20 of these inner cities using a model stable. based on the size of the catchment area, size of the shopping area, urban attractiveness and Another segment that is interesting, but that is not financial attractiveness. We then divided these yet part of the traditional shopping categories, is into the following groups: traffic locations, i.e. locations where passing traffic is high. These are locations or streets situated G1 city centre: Amsterdam between two places that attract a large part of the G2-5 city centres: The Hague, Eindhoven, population who want to get from A to B quickly. Rotterdam, Utrecht These locations could be, for instance, public G6-9 city centres: Groningen, Haarlem, transport hubs, streets connecting stations and ’s-Hertogenbosch, Maastricht the core shopping area, parking hubs, airports, G10-20 city centres Almere, Amersfoort, amusement parks and other large-scale public Apeldoorn, Arnhem, Breda, Enschede, Leiden, areas. Although availability is limited, retail outlets Nijmegen, Tilburg, Zaanstad, Zwolle in these locations have good future prospects. The G20+ city centres: Other city centres same applies to shopping facilities that are part of the mixed-use trend. These include multifunc- The section that we believe will be future proof in tional buildings where living, working, shopping the long term differs depending on the shopping and recreation come together. We can see plenty area. Locations in inner cities can be divided into of opportunities for these kinds of developments in various segments based on passing traffic. In the five major cities in the Netherlands. Read about principle, the more consumers who pass by, the our comprehensive vision for mixed-use real estate. better the location is for retailers. The A1 segment has the largest volume of passing traffic; this is where between 75% and 100% of the traffic passes by. This segment is followed by A2 (50%-75%), B1 (25%-50%), B2 (10%-25%) and C (<10%). In major cities, B1 and B2 locations can also be interesting, but from G10 cities onwards, the emphasis is generally on A1 locations only.
The second important segment in our strategic focus is shopping areas used mainly for daily groceries, for which convenience, accessibility and efficiency are important factors. Suburban shopping centres must preferably have two supermarkets plus specialist shops that compliment the supermarkets and reinforce the shopping centre. The range of products and services on offer must be carefully aligned with the catchment area, and may therefore differ per centre. Increasingly, there is room in suburban centres for non-retail purposes, like services, healthcare and social
39/102 Syntrus Achmea Outlook 2020-2022 Facts and figures
Suburban The total yield on neighbourhood and shopping areas suburban centres in 2018 was
and neighbourhood centres are 11.2 % outperforming compared to 5.7% for all retail outlets in the Netherlands. (Source: MSCI)
Rent growth lags Supermarket behind inflation turnover still rising
Actual market rent growth for the MSCI Supermarket sales compared to non-food shopping universe in the Netherlands sectors has increased in 11 years by was
-2.4 % 48 % per annum during the last 10 years. (2008 Q1 as opposed to (Source: MSCI, Oxford Economics) 2019 Q1). (Source: CBS)
Restaurants and Since 1 January 2015 the number of cafés on the rise catering establishments has risen by
in city centres 10.4% in the centres of the G4 cities.
Urbanisation is Dichotomy in accelerating vacancy rates
During the past 10 years, the number of In mid-2019, the percentage of vacant inhabitants in the G5 has risen by retail outlets in the Netherlands was on average 7.0%, 2.8% in A1 locations in the G4 and 12.8% in large main 12.0% shopping areas. (Source: Locatus) The Netherland compared to 3.4% in the A1 locations G4 rest of the Netherlands. Large main shopping area
40/102 Syntrus Achmea Outlook 2020-2022 Investment focus
There are enough opportunities in retail property to • Suburban centres, supermarkets and clustered realise low-risk, stable yield in the long term. These daily facilities have potential if the retail mix opportunities lie in selecting the right locations, has a limited non-daily range of products and with the right concepts that attract consumers the retail concentration is situated in a stable shopping for a range of goods. Increasingly, or growing catchment area. These suburban investing in shops means investing in retail spaces: centres may, where possible, be supplemented mixed-use environments where retail, cafés and with alternative facilities, such as healthcare, restaurants, leisure and offices are also based, and public facilities and other facilities that reinforce where integration is sought with healthcare, and the main function in, and the connection with, social and public facilities at a neighbourhood level. the area. We believe that this is an attractive More specifically, our investment focus is on: investment sector with room for rental and • Taking advantage of investment opportunities value growth, both for the short and long term. in the top nine city centres. In the G5 cities, Profits can be made from the attractive direct these could include both A and B locations. For cash yield in relation to the risk in this sector. the other G9 cities, these would be A locations. • Taking advantage of specific opportunities in Investment opportunities are thin on the ground targeted shopping and traffic locations with because the interest in these locations is structurally high volumes of passing traffic. considerable. Prime initial yields are often very Here we have in mind the retail component in tight, and for this reason the low investment risk mix-use locations or in the vicinity of public goes hand in hand with relatively low internal transport hubs. rates of return. • For the G10 to G20 cities centres, it is becoming increasingly important to view the location in relation to the risk. We see investment opportu- nities not so much in terms of rental and value growth, but mainly in terms of attractive direct cash yield and where possible opportunities for upgrading or redevelopment.
41/102 Syntrus Achmea Outlook 2020-2022 Opportunities and challenges
Opportunities Challenges
Demographic expansion and urbanisation trends Although the average turnover in the retail trade in are prompting an increase in turnover potential in the Netherlands is on the rise, there are significant existing suburban centres and inner-city catchment differences between retailers who are able to areas. achieve high turnover, and retailers who have lost their connection with consumers. Losing ties with The rising demand for multifunctional buildings in consumers, compounded by the shift of some of the heart of the larger cities presents opportunities the spending to the internet, is responsible for the to create synergy between the various uses, current pressure on top retail rents, and even the including retail. best shopping streets are not immune to this.
Central shopping areas in inner cities are shrinking Non-traditional shopping locations where many in the wake of this shift in consumer behaviour. people congregate, and where retailers can take Consumers are still interested in shopping at stores advantage of attractive passing traffic volumes, i.e. in the top of the hierarchy, at prime locations. The so-called traffic locations. challenge is dealing with the shrinking demand for shops outside these top locations. Vacancy rates Rising to the challenge of redeveloping in secondary locations in the city centres of the neighbourhoods offers investors an opportunity medium-sized and small cities, city district centres to cater to the shopping requirements at a suburb and large suburban centres are rising faster than and neighbourhood level. This can be done in in other areas. In addition, premises in these areas collaboration with housing associations that do not tend to be empty for a long time. Some are being consider owning commercial real estate to be part transformed into mixed-use facilities, breathing new of their core business objectives. life into the neighbourhood, making it an attractive place to visit again. Developing attractive suburban centres where the ties with the neighbourhood are key and alternative facilities and services such as healthcare, hospitality The sustained low long-term interest rate means and cultural facilities can play a major role in that there is more capital available for investment addressing social issues like loneliness, care needs in real estate. Apart from an increasing focus on and quality of life. investing in real estate sectors such as housing and healthcare, Dutch institutional investors are having Addressing the sustainability challenge by taking to compete for the prime locations in the retail energy-saving measures in retail outlets, installing market with foreign and private equity companies, energy-saving lighting, water-saving sanitary which are prepared to settle for low initial yields facilities and preparing for the gas-free era. thanks to the leverage effect that borrowed capital has.
42/102 Syntrus Achmea Outlook 2020-2022 Trends
• Consumer preferences are changing. Relatively • The government is still pursuing a restrictive young people, in particular, who move to the policy in terms of expanding shop floor space, city have housing preferences and spending and an active policy with respect to removing patterns that differ from what we have seen in superfluous shop floor space from the market. the past. They are spending more on services Given the declining demand for shop floor and less on goods, and they like shopping at space, this is a good thing. It presents opportu- alternative, less traditional shopping centres. nities for locations that can be redeveloped • Consumers are more conscious in their for alternative uses, where there are often shopping habits. They want to know where prospects for building houses, offices or products come from and whether they have mixed-uses premises. This is making shopping been produced sustainably, and this applies to centres more compact, which is in keeping with daily groceries as well as non-daily shopping. the repositioning of shopping areas. If they want to remain relevant to consumers, • Risk-averse institutional investors are focusing retailers will have to cater for this. more and more on the shrinking part of the • Depending on the source, it is estimated retail market. With interest rates expected to that between 10% and 20% of products are remain low, the demand for real estate and currently bought online, and the expectation the competitive pressure among institutional is that this percentage will rise in the years to investors for prime locations in the retail market come. In addition, there are major differences will remain high. At the same time, widening in online turnover growth among the retailers spreads in terms of risk-free yield from themselves. Many web shops that only sell second-best locations are presenting opportu- online and that are quick to appear, disappear nities for implementing a high-return strategy. just as quickly because their business model is not sustainable due to the costs of returns and delivery. Other web shops, such as Coolblue, Zalando, Made.com and recently AliExpress in Madrid, are actually opening physical shops in an effort to raise their profiles so that they can improve customer loyalty and the services they offer their customers. Statistics Netherlands’ figures show that shops offering an integrated online and offline shopping experience have the most effective retail formulas. • Suburban shopping centres are increasingly serving as meeting places where, apart from shopping, people can relax or visit healthcare facilities. This change in needs presents opportunities for investors to set themselves up as partners to the city, ones who contribute to the quality of life in the retail area. They can, for example, help to organise major marketing events, neighbourhood festivities and other gatherings, so that people who come to the shopping area linger longer and meet people, thus tackling the loneliness issues.
43/102 Syntrus Achmea Outlook 2020-2022 Market trends in the users market
After several years of decline, the average vacancy shopping areas and small suburban centres. rate in the Netherlands rose again to around 7.0% Vacancy rates are rising fastest in large suburban in the course of 2019. However, there are major centres and large main shopping areas. In the main differences between the sectors and trends over shopping areas both large and small, and in the time. Below we can see that the vacancy rate large core shopping centres, it is clear to see where has risen among all sectors except in small main the vacancy issue is most evident.
TRENDS IN VACANCY LEVELS BY RETAIL SECTOR
Percent HY
centre Inner-city arealarge areasmall Citycentres centrelarge centresmall Mainshopping Mainshopping Coreshopping Coreshopping TheNetherlands shoppingstreets Coresupermarket Suburbancentrelarg Suburbancentresmall Source: Locatus (2019), adapted by Syntrus Achmea Real Estate & Finance
There are clear discrepancies in vacancy rates where vacancy levels are between 10 to 20% in between the various locations. The graph below all sectors. Investment in prime locations in the shows that vacancy levels are low in A locations strongest shopping cities incurs the least risk of in the G20 cities; there is evidence of frictional vacancy because these are the locations which vacancy, particularly in A1 locations. In sharp there is high demand. contract to this are the cities outside the G20,
VACANCY FIGURES BY SHOPPING AREA AND CITY 2019 Q3
Percent G G - G- G - G - TheNetherlands A A B B C Total Source: Locatus (2019), adapted by Syntrus Achmea Real Estate & Finance
44/102 Syntrus Achmea Outlook 2020-2022 Average sales in food shops have risen in line physical supermarkets are now offering an online with inflation in the past decade. Supermarkets service, but are still struggling to make a profit. in this sector have clearly outperformed. Because Supermarkets are also catering for changing of inflexible spending on primary necessities, consumer demands with small city shops and supermarkets are relatively insensitive to cyclical ‘to-go’ concepts. Non-food sectors lagged far movements and are not losing much turnover behind in terms of sales in the past decade, to online supermarkets. Concepts like Hello although the sales trend on average from Fresh, Picnic and even what were originally mid-2016 onwards has been positive.
TURNOVER TRENDS VERSUS INFLATION IN THE RETAIL TRADE
Index ( ) Supermarkten Legenda Winkelsin vertaling voedingsmiddelen ontbreekt Inflatie(CPI) MSCIMarkthuurgroei Non-food
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
Source: Statistics Netherlands (2019), Oxford Economics (2019), adapted by Syntrus Achmea Real Estate & Finance
Historical rental price movements between the better-performing G10 cities and good suburban various retail segments in the MSCI universe differ centres in our strategy. Rent growth in the ‘large significantly. The ‘city centres’, ‘large suburban main shopping areas’ and ‘city district centres’ centres’ and ‘small suburban and neighbourhood categories is negative in real terms. This is in line centres’ sectors are achieving above-inflation with a declining interest among consumers for less rent growth. We expect that this trend will relevant and strong shopping areas, like the ones continue in the longer term, particularly for the in these sectors.
MARKET RENT VALUE PER M² BY TYPE OF SHOPPING AREA (% YOY BETWEEN 1995 AND 2018)
x Citycentres( ) Citydistrict centres( ) Largesuburban centres( ) Smallsuburban andneighbourhood centres( ) Largemainshopping areas( )
Source: MSCI (2019), adapted by Syntrus Achmea Real Estate & Finance
45/102 Syntrus Achmea Outlook 2020-2022 Market trends in the investment market
With a share of 12% of the overall investment Average initial yields in the prime spots have been property market in 2018 and 2019, investor interest falling for many years. Most initial yields at this time in the retail market seems to be flagging. Since are very tight in comparison with the previous cycle 2011, the share of retail property has been on (2000 to 2010). The lower long-term interest rates average 18% (source: Jones Lang LaSalle (JLL)). in 2018 certainly had an impact on this and, with We have noticed that the retail investment market the current low level of long-term interest rates, is shrinking for investors, and that competition the chances of achieving much value growth in between investors for investments in the prime the inner-city retail sector through yield retail sectors is on the rise. compression are limited.
MSCI GROSS INITIAL YIELD G20 (TOTAL FOR MUNICIPALITY): CURRENT (2018) VS HIGH AND LOW IN PREVIOUS CYCLE (2000-2010)
Procent High Low Average Current( )
Breda Zwolle Leiden Tilburg Almere Utrecht Arnhem Haarlem Zaanstad Nijmegen Enschede Maastricht Groningen Eindhoven Apeldoorn Rotterdam TheHague Amersfoort Amsterdam ’s-Hertogenbosch Dutchretailoutlets
Source: MSCI (2019), adapted by Syntrus Achmea Real Estate & Finance
46/102 Syntrus Achmea Outlook 2020-2022 The average market rent growth for retail property vacancy, which has also had an negative impact on in the MSCI universe has been under pressure this growth in value as the result. That said, there are last decade. In real terms, it has been negative major differences between the retail sectors, with throughout this period in the MSCI universe as a the better inner cities and good suburban centres whole. There is a strong correlation with financial performing above average.
REAL MARKET RENT GROWTH VERSUS VACANCY LEVELS
Percent Financialvacancy Growthinvalue Realmarket rentgrowth - - -
Source: MSCI (2019), Oxford Economics (2019), adapted by Syntrus Achmea Real Estate & Finance
MSCI total yields have improved in recent years outlets/large-scale retail outlets and inner-city in the wake of declining initial yields and a drop shopping streets are performing relatively well, in financial vacancy. There are, however, major but large and small main shopping areas are differences in the sub-sectors. Small suburban lagging far behind. and neighbourhood centres, edge-of-town retail
TRENDS IN TOTAL YIELD
Percent years years
- centres Smallcore Largecore Citycentres Smallsuburban shoppingcentres shoppingcentres Totalretailoutlets Edge-of-townretail Citydistrictcentres andneighbourhood outletsanddispersed Largesuburbancentres outletslarge-scaleretail Smallmainshoppingareas Inner-cityshoppingstreets Largemainshoppingareas Source: MSCI (2019), adapted by Syntrus Achmea Real Estate & Finance
47/102 Syntrus Achmea Outlook 2020-2022 We are noticing that it is mainly the small suburban the average MSCI retail universe. The turnover and neighbourhood centres that are achieving figures for tenants in suburban and neighbourhood good yields within the Dutch retail market. centres are holding up, and generally speaking the Below we can see that this sector has clearly yields achieved in this segment are very stable. outperformed in the past ten years compared to
HISTORICAL TOTAL YIELD OF SUBURBAN AND NEIGHBOURHOOD CENTRES COMPARED TO OUTLETS (2018, PER ANNUM)
Percent Retailoutlets Smallsuburban andneighbourhood centres Dierence
year years years years
Source: MSCI (2019), adapted by Syntrus Achmea Real Estate & Finance
Between 2011 and 2016, the long-term interest risk premium in recent years. In the coming years, rate fell more than gross initial yields in the MSCI we expect the initial yield in the MSCI universe to universe. This has triggered a rise in the risk be stable or to rise slightly, and that the interest premium for retail property. Initial yields have fallen rate will remain stable or even fall slightly. For this since 2016, while the long-term interest rate has reason, we expect that the risk premium for retail risen slightly. This has led to a slight decline in the property will rise in the years to come.
INVESTMENT CLIMATE FOR THE DUTCH RETAIL MARKET
Percent Riskpremium Initialyield -yeargovernment bondyield Totalyield
Source: MSCI (2019), Oxford Economics, adapted by Syntrus Achmea Real Estate & Finance
48/102 Syntrus Achmea Outlook 2020-2022 Gross initial yield forecasts
• Initial yields in the prime inner-city locations in • On the positive side of the dichotomy in the core shopping areas in the G9 have stabilised, retail market are retail sectors with a strong and we do not expect to see a rise in the focus in daily essentials, such as small suburban foreseeable future. The low long-term interest centres, supermarkets and clustered sectors rate is responsible for persistent demand selling daily groceries in cities. We expect that pressure for prime retail property. Although a these sectors will experience a minor yield lower limit in initial yields seems to have been compression. For the prime suburban centres, reached for institutional investors, we expect we noted a relatively sharp drop in initial yields that those investing borrowed capital may last year, but the income return is still relatively sometimes settle for even lower initial yields. high in relation to the risks. This then explains • Outside the G20 cities, we have seen an the major interest that investors are showing in increase in initial yields for a few years now. this segment. In contrast to previous years, we are now • On the back of the rise in initial yield, locations expecting a rising trend in initial yields on the have become cheaper relatively speaking, and edges of the core shopping area of the G9 are increasingly lending themselves to redevel- cities, but also in the G10-20 cities. With rising opment, more so than before. Because of this, initial yields, the dichotomy in the retail market locations that were previously designated as is also still evident in city district and suburban shopping areas are now suitable for alternative centres with a volume of non-daily shopping uses. This could be for residential properties, sectors that is too large. but also most certainly for mixed-use operations in which shops, housing, offices and other uses converge.
EXPECTED DEVELOPMENT IN GROSS INITIAL YIELD IN THE MARKET 2020-2022
Sector A1 A2 B1 B2 Other G1 city centre (Amsterdam) → → → → ↑ G2-5 city centres (Utrecht) → → → ↑ G6-9 city centres (Maastricht) → → ↑ ↑ G10-20 city centres (Arnhem) ↑ ↑ G20+ city centres (Leeuwarden) ↑ City district centres ↑ Suburban centres (large proportion non-food) ↑ Suburban centres (predominantly food) and supermarkets ↓ Other clustering of suppliers selling daily groceries in cities ↓ Traffic locations ↓ ↑ Adjusted upwards compared to previous period → Same as previous period ↓ Adjusted downwards compared to previous period
49/102 Syntrus Achmea Outlook 2020-2022 Market rent forecasts
Given the trends in the users market, we expect Dutch law on rentals is slowing down any that market rent growth will continue to be limited. adjustment in market rent levels because of the There are many sectors with rent growth below method it applies for rent revisions. In the prime inflation (i.e. negative real rent growth) and we locations, there is some leeway for rental hikes if expect this to continue in the years to come. Due to there is a change in tenant or a rental revision, and the anticipated growth in turnover, especially in the if the contracted rental level has lagged behind sectors supplying daily essentials, we expect that market rentals. The opposite applies in the less rent growth from supermarkets, and by extension attractive locations. Depending on local vacancy also the smaller suburban centres and clustered levels, retailers are currently in a good negotiating daily sectors in cities, will keep pace with inflation position, i.e. it is a tenants market. in the coming years.
EXPECTED MARKET RENT TREND VIS-À-VIS INFLATION 2020-2022
Sector G1 city centre → G2-5 city centres → ↓ G6-9 city centres → ↓ G10-20 city centres ↓ G20+ city centres ↓ City district centres ↓ Suburban centres (large proportion non-food) → ↓ Suburban centres (predominantly food) and supermarkets → Other clustering of suppliers selling daily groceries in cities → Traffic locations → ↑ Higher than inflation → Equal to inflation ↓ Lower than inflation
50/102 Syntrus Achmea Outlook 2020-2022 Investment cycle
Broadly speaking, the investment cycle of the centres, albeit to a lesser extent. Having a wide current retail market can be divided into clusters. range of non-daily products that is not in line Part of the market is in a peaking phase with stable with consumer shopping needs is the main prospects. Part of the market is facing a downward cause of the problem. Limited rent reductions spiral, and part of the market has good investment and slightly increasing yields are responsible prospects. for the downward position in the investment cycle. In the longer term, these sectors may • The prime shopping locations in the inner cities become attractive again because the market of the G9 are currently in high demand, but is not facing vacancy risks and initial yields are this means they are very pricey. Because rent so high that, while they compensate for the growth is not obvious in most cases, and yield risk, they are attractive in a diversified retail compression is not expected, it is generally not portfolio. a good time to enter the market. This sector of • The best investment propositions are in small the retail market is currently at the top of the suburban and neighbourhood centres where cycle. We expect this position to persist in the supermarkets have the upper hand. Clusters coming years. A falling market scenario, i.e. the of shops selling daily essentials in cities, ones point in time in the property cycle that rentals that focus on providing daily groceries, are and values start to drop, is not envisaged. popular among consumers. Their prospects for • There is a slight correction taking place at the future are good. Investing in this segment the best locations in the G10-20 due to falling is relatively immune to economic cycles, with market rent levels. That said, we expect that the rentals that keep pace with inflation. Investor prime locations in this sector will maintain their demand for these investment products is high, position in the long term, given the important which is prompting declining initial yields. regional function that these cities have. In the However, the income return remains high in G20+ city centres, we are witnessing that the relation to the exposure. This scenario applies regional retail position is still under considerable to traffic locations because they cater to pressure. This is evident in declining rental consumers’ ‘narrow’ spending window, which levels and increasing yields. The same applies often focuses on food. to the large city district centres and suburban
TIMING INVESTMENT CYCLE
G1 city centre Amsterdam G2-5 city centres G6-9 city centres
T FA G20+ city centres KE LL R IN A G M M City district centres G A IN R K K A E Large suburban centres E T
P
G10-20 city centres
T
E R Small suburban and K I S R neighbourhood centres I N A G M M G A IN Tra c locations R M KE TO T BOT Other clustering of suppliers selling daily groceries in cities
51/102 Syntrus Achmea Outlook 2020-2022 Winners and losers
Winners Losers
Shopping spots in busy city centres where – apart Shopping precincts in inner cities not including the from retail outlets – there are also cafés and winners, i.e. medium-sized centres and small cities restaurants, leisure facilities and offices. Consumers that are not obviously distinctive. These cities are like to visit these places for day trips, and are willing of little interest to the consumer; their future role is to spend time there. expected to be relatively modest and the focus will be on local interest.
Geographically speaking, these are the best 20 city Outdated city district centres and suburban centres centres, with differences in the location of the core that are too large. The product range in these kinds shopping area. In the G5 cities, A and B locations of shops does not meet consumer expectations and may be attractive; in G6 to 9 cities, the prospects requirements. are primarily good for A locations; and in G10 to 20 cities, only the very best locations are interesting, i.e. A1 or prime locations.
Suburban shopping centres, supermarkets and Retailers who are unable to engender consumer clustered daily amenities offer good prospects if the loyalty with their range of products and services retail mix includes a limited non-daily range and the cannot compete on price, are not sufficiently retail concentration is located in a stable or growing relevant or where the expertise, service and catchment area. convenience do not match consumer requirements.
Retailers who continue to engage consumers and can therefore continue to bind them by offering suitable and rapidly changing collections, being distinctive or competitive in terms of price, providing good service and being able to offer in- store and online convenience.
52/102 Syntrus Achmea Outlook 2020-2022 INVESTMENT PROPOSITIONS FOR INNER CITIES
53/102 Syntrus Achmea Outlook 2020-2022 54/102 Syntrus Achmea Outlook 2020-2022 The Dutch office market
Stationsplein, Amersfoort
55/102 Syntrus Achmea Outlook 2020-2022 Outlook for the Dutch office market
Opportunities for new working concepts at mixed-use locations in cities
The prime locations in the Dutch office market The same applies to offices in urban mixed-use are attracting a great deal of interest among neighbourhoods, particularly if the access by both users and end investors, with high rentals public transport is good. These locations are and low initial yields as a result. The interest in benefiting from city dynamics, which more and prime locations is originating from foreign users more users believe is important. Those offering and investors among others, with Brexit and the flexible working concepts, like Spaces and search for yield being the main reasons driving WeWork, are also interested in these locations, this. For users, offices are also being used in with flexibility and subletting of smaller offices the war for talent, both as far as attracting and spaces leading to relatively high rentals in the retaining good staff are concerned. Despite this, process. Interest is not nearly as high in the chances of a growth in value in prime locations less promising, single-use locations outside are limited due to low initial yields. Scarcity the four major cities. The sustainability issue means that outdated, but potentially good, (i.e. having to have an energy label of at least office locations are being refurbished, with C) at these locations is expected to cause a residential properties and facilities being added further dichotomy in the office market, because to improve the attractiveness of offices while investing is not feasible for the owners if there at the same time addressing the densification are no users. issue. This is where investors can cash in on opportunities.
56/102 Syntrus Achmea Outlook 2020-2022 Definition
The office market in the Netherlands covers a and there are plenty of parking options. surface area of around 47 million m². The overall A C location has good connections with the stock of office premises has been gradually main road network and good parking facilities, shrinking in recent years, due in part to the but access by public transport is limited. In the transformation of premises into housing. Of the current, more intuitive, definition of the term, current stock of office premises, 35% is situated office premises are divided into prime and in office neighbourhoods and 27% in the centre. secondary locations. Sought-after office locations The rest of the office stock is situated in residential are nowadays less strictly separated than the areas or business parks. Of all office premises, traditional definition suggests: there is more and 60% are 20 years or older (source: Kantoren in more blurring in which, apart from accessibility, the Cijfers (Statistics on Offices) 2018). appearance of the property, the flexibility of the layout, and the facilities that the surrounding area In the traditional definition, the office market was has to offer are growing in importance. The more categorised as A, B and C locations. In contrast to facilities and options, the better. The trend towards the retail market, this classification refers to the mixed use is clearly reflected in this. C locations are degree of accessibility. An A location is a public no longer attractive if they are purely single-use transport location in a city centre. Access by car locations, for example along motorways or around and parking options are limited. A B location smaller cities, but the addition of residential, is easy to access by public transport, but it is shopping and accommodation facilities, among not necessarily in the city centre. However, the other things, improves their attractiveness. connection with the main road network is good
Bezuidenhoutseweg, The Hague
57/102 Syntrus Achmea Outlook 2020-2022 Facts and figures
To comply with the minimum energy label C on 1 January 2023, it is estimated that an additional
The working population increased 30 million m² by more than 50,000 in the period between 2013 and 2018. of office space has to be made sustainable. (Source: Calcasa) The proportion of employees who work from home often or occasionally rose by more than
Since 2013, the number of people employed in the business services 400,000, sector has increased by from 34% to 37% of the total working population. (Source: Statistics Netherlands) 365,000
(Source: Statistics Netherlands)
In the last three years, office rentals in Amsterdam Zuidas have risen by almost
30%
Gross initial yields at the prime from €350 per m² to locations in the G5 cities have fallen in €450 per m². (Source: JLL) three years from an average of
6.4%
to an average of
With a gross initial yield of 4.8%
(Source: JLL) 3.4%,
Amsterdam’s Zuidas is the most expensive office location in the Netherlands. (Source: JLL)
58/102 Syntrus Achmea Outlook 2020-2022 Investment focus
The office market clearly has two faces. There is a • A high standard of services in the building, or in part that benefits from users’ and tenants’ demand the direct vicinity, is essential. Office locations for attractive, modern and easily accessible offices, that lend themselves to transformation and but at the same time a large part of the office densification to become areas where residences market is outdated, not well located and has a are mixed with other facilities can be interesting relatively high vacancy rate. At the very best prime redevelopment locations where there is locations, such as the Zuidas, the considerable potential for value growth. size of the investment and very low yields are not • Focus on sustainable, ‘healthy’ and distinctive attractive for Dutch institutional investors who are office buildings. Setting up and facilitating not using leverage when purchasing. Outside these flexible working concepts with a service level areas, there are opportunities for future-proof suited to the intended target market may yields in relation to acceptable exposure: produce rent growth. • Near prime locations in the G4, as long as they are accessible. These locations are very attractive to tenants and users alike, and the liquidity of these locations for investors is good. Initial yields are not a low as they are in the prime locations and there is rental potential in some of these locations. Mixed-use developments in the G4 that have a high proportion of office premises are in this category. • A core-plus strategy at prime locations in regional office cities, like Haarlemmermeer (Schiphol), Eindhoven and Groningen, and station locations in other major provincial cities.
59/102 Syntrus Achmea Outlook 2020-2022 Opportunities and challenges
Opportunities Challenges
The high demand for those offering flexible working The demand from institutional investors financing concepts is driving the upward trend in rental levels on borrowed capital is putting huge pressure on in the G4 office cities. yield; Dutch institutional investors are struggling to compete in this environment.
Redeveloping outdated offices and densification Complying with the energy label C requirement by of office locations that offer other facilities, like 2023, which many office premises still do not meet. residential properties, can create value.
The demand for healthy working environments will Facilitating the provision of enough charging points rise. Offices should promote staff well-being and for electric cars and bicycles. enhance their performance.
Developments brought on by Brexit have seen a Current demand may lead to high-risk investments increase in demand for office space, particularly in from those offering flexible office premises, which Amsterdam. may put pressure on their financial soundness.
Trends
• More and more these days, attractive and • More and more so nowadays, office users healthy working environments are an important are demanding flexibility. Not only does it factor for prospective employees when enable them to respond easily to the growth deciding which employer to choose. In the war and shrinkage of organisations, the IFRS 16 for talent, the location and building type is regulations are also a factor in this for listed essential to employers. Facility management companies, because contracts of less than departments are not the only ones at the wheel; 12 months no longer need to be recognised on the opinion of the HR department is growing in the balance sheet. Building owners have to take importance when it comes to location and the into account contracts with shorter durations working concept. on average. • The office market is facing a significant sustainability challenge. Pursuant to the Dutch Buildings Decree, the mandatory minimum, i.e. energy label C, must be obtained by 1 January 2023 at the latest, if the premises are to be used as offices. Rising construction costs render redevelopment less feasible; however, there are opportunities in the densification of office locations with other facilities, like residential properties.
60/102 Syntrus Achmea Outlook 2020-2022 Market trends in the users market
The uncertainties surrounding Brexit have driven Since 2015, vacancy levels in the office market have many companies to the Netherlands. According fallen sharply: from more than 14% in 2015 to 9.7% to the Netherlands Foreign Investment Agency, in mid-2019. The available stock of office premises almost 100 companies have opted to move to the on offer fell in this period from 7.6 million m² to Netherlands, and there are a few hundred more 5.2 million m². Given the limited range of suitable who are considering relocation. options available to office users, the uptake in 2019 is relatively low and is expected to remain that way in the years to come.
SUPPLY, UPTAKE AND VACANCY OF OFFICE PREMISES
xmillionm Percent Uptake(leftaxis) Supply(leftaxis) Vacancy(rightaxis) Q
Source: JLL (2019), adapted by Syntrus Achmea Real Estate & Finance
In recent years, the demand for good office ensure that the rental levels will remain consid- premises in good office locations has prompted a erably higher than those for secondary locations. sharp, economic-cycle-related increase in rental In addition, the rise of flexi-offices is driving an levels, particularly in Amsterdam and Utrecht. average increase in the rent level because those Even though there are shortages in the prime providing these offices can cluster users, and, locations, rent growth in the years to come will be because of the smaller scope and high level more moderate than it was during the past two of service and flexibility, it can also demand a years. The intrinsic quality of good locations will relatively higher rent level.
AVERAGE TOP OFFICE RENTS IN THE TOP 5 OFFICE CITIES
Index( ) Amsterdam Utrecht Rotterdam Eindhoven TheHague HY
Source: JLL (2019), adapted by Syntrus Achmea Real Estate & Finance
61/102 Syntrus Achmea Outlook 2020-2022 Market trends in the investment market
Investment pressure for prime locations, applied in office premises. The availability of new prime mainly by international investors, remains high. locations is relatively restricted, which may put Amsterdam is manifesting itself as a permanent pressure on investment volumes. option in the global playing field of those investing
INVESTMENT VOLUMES
xbillion Q Q Q Q
Source: JLL (2019), adapted by Syntrus Achmea Real Estate & Finance
High demand and low interest rate, combined with with office facilities are being built. There is also financing with borrowed capital, have lead to very potential for growth in value in smaller office cities, low prime yields. From a historical perspective, too, provided the circumstances are right. In the years yields are currently very low. The prime locations ahead, with the exception of the prime locations, an seem to have reached their lower limit, certainly attractive return on office investments can still be for Dutch institutional investors. There are still realised for the other promising offices and office opportunities for increases in value in the ‘near locations, due to limited yield tightening and rent prime locations’ category in the G4 and in ‘new’ increases. locations in the G4 where mixed-use buildings
NET INITIAL YIELD FOR G5 OFFICE CITIES (PRIME LOCATIONS)CURRENT (2019) VERSUS HIGH AND LOW PREVIOUS CYCLE (2005-2010)
Percent High Low Average Current ( ) Amsterdam Utrecht Rotterdam The Hague Eindhoven
Source: JLL (2019), adapted by Syntrus Achmea Real Estate & Finance
62/102 Syntrus Achmea Outlook 2020-2022 INVESTMENT CLIMATE FOR THE DUTCH OFFICE MARKET
Percent Riskpremium Initialyield -yeargovernment bondyield Totalyield - -
Source: MSCI (2019), Oxford Economics, adapted by Syntrus Achmea Real Estate & Finance
Gross initial yield forecasts
The search for yield due to the low interest rates may stabilise. Locations that cannot meet users’ and the limited supply of relatively good office requirements, and are therefore not suitable as an premises is keeping the pressure on initial yields, office location in the long term, are more likely to and they may tighten even further during 2019 see an increase in initial yields. and early 2020. After 2020, a possible recession may put the brakes on growth in value and things
EXPECTED DEVELOPMENT IN GROSS INITIAL YIELD IN THE MARKET 2020-2022
Location Amsterdam (prime) → Utrecht, Rotterdam and The Hague (prime) → G4 (near prime and mixed use) ↓ Other stations/city centre locations in major cities → ↑ Adjusted upwards compared to previous period → Same as previous period ↓ Adjusted downwards compared to previous period
63/102 Syntrus Achmea Outlook 2020-2022 Market rent forecasts
The demand from end users for offices at the right to rise in these places in the coming one to two location (accessibility) that are flexible, have a years. A possible recession may but the brakes on good ambiance and the right level of facilities is rent growth after that. Locations or office premises high and is expected to remain that way because that cannot meet strict user requirement will be supply cannot meet demand. Demand is evident questionable in due course, and will not have in major cities in particular, and the centres/station great rental prospects. locations of other major cities. Rental levels are set
EXPECTED MARKET RENT TREND VIS-À-VIS INFLATION 2020-2022
Location Amsterdam (prime) ↑ Utrecht, Rotterdam and The Hague (prime) ↑ G4 (near prime and mixed use) ↑ Other stations/city centre locations in major cities ↑ ↑ Higher than inflation → Equal to inflation ↓ Lower than inflation
Investment cycle
TIMING INVESTMENT CYCLE
Amsterdam (prime)
Utrecht, Rotterdam en T FA The Hague (prime) KE LL R IN A G M M G A IN R K K A E Single-use oce E T locations alongside P motorways Other stations/ city centre locations T E R K in major cities I S R Other oce cities I N A G M M G A IN R M KE TO G4 (near prime T BOT en mixed-use)
Single-use locations near facilities and public transport hubs
64/102 Syntrus Achmea Outlook 2020-2022 Winners and losers
Winners Losers
Near prime locations in the G4 that take advantage Single-use office locations alongside motorways. of the shortage of properties in prime locations in those cities.
‘New’ office locations, whether or not in mixed-use Other city centre locations outside the G4, Schiphol, buildings, at locations with a wide range of facilities Eindhoven and Groningen. and services, and good accessibility.
Attractive contemporary office premises with a good ambiance, flexibility and a healthy working environment that can be used in the war for talent.
Office locations with redevelopment potential for densification and additional facilities and services.
65/102 Syntrus Achmea Outlook 2020-2022 INVESTMENT OPPORTUNITIES IN OFFICE REAL ESTATE
66/102 Syntrus Achmea Outlook 2020-2022 The Dutch market for mixed-use properties
House Modernes, Utrecht
67/102 Syntrus Achmea Outlook 2020-2022 Mixed-use: an emerging asset class
Traditional real estate sectors in the mix as an attractive alternative
In a densely populated context, the increasing functioning of these complexes is the high degree of urbanisation and the rise of urban degree of spatial flexibility in building; this target groups will make single-use real estate enhances alternative use, and so investment objects less attractive as an investment in is more attractive. Mixed-use concepts also urban property markets in the coming years. contribute to social yield: they make efficient Multifunctionality is the new credo here: use of the scarce space in the city, and complexes that include living and working enhance the quality of life for a large part facilities, where shops, hospitality, hotel, of the day. Given that the initial yields of the culture, healthcare and even education and various sectors are converging in the largest social facilities may also be part of the mix. cities in the Netherlands, mixed-use concepts Incidentally, this goes further than the amenities offer institutional investors the advantages of and services available at ground level: the total diversification and they are a good alternative is more than the sum of the parts. In other to address the limited availability of traditional words, these kinds of mixed-use concepts not core assets. The reward for the investor is only cater to user requirements, they also meet sustainable financial and social yield for an the requirement to use space in cites more acceptable risk. effectively. A precondition for the successful
68/102 Syntrus Achmea Outlook 2020-2022 Definition
Mixed-use concepts are multifunctional buildings We use the following definition for mixed-use where the demand from urban target groups concepts: buildings with their own identity in for living, working, shopping, leisure and even high-density environments where at least three social services are combined. Together with the different functions are combined. The rental flows high-density nature of the building, the mutual from the most predominant function amount to synergy within the various facility mixes offers 80% of the total at most. The varied function mix unique prospects for users, visitors and passing is geared to the surrounding urban context and traffic alike. The precise function mix differs for has a positive impact on the environment because each project because it is always part of a unique it provides an impulse to both quality of life and urban context with existing facilities and charac- vibrancy in the neighbourhood. teristics. So there is no one-size-fits-all concept to hand for mixed-use applications.
House Modernes, Utrecht
69/102 Syntrus Achmea Outlook 2020-2022 Facts and figures
Urbanisation is accelerating
During the past ten years, the number of inhabitants in the G5 cities has risen by Space is becoming scarcer
12.0% By 2025, the Municipality of compared to 3.4% in the rest of the Amsterdam intends to build another Netherlands. Further acceleration is to be expected.
50,000 residential properties within the city.
Mixed-use projects Rent growth for residential are in a positive properties and offices is threatening to slow down, stage in the cycle but in mixed-use properties we are seeing an upward trend. The same applies to growth in value.
Property in the G5 has enjoyed a high increase in yield in recent years
YIELDS IN MAJOR CITIES
Index( ) Amsterdam Rotterdam TheHague Utrecht Restof theNetherlands
Source: MSCI (2019), adapted by Syntrus Achmea Real Estate & Finance
70/102 Syntrus Achmea Outlook 2020-2022 Initial yields in the traditional sectors are converging
PRIME INITIAL YIELD FOR OFFICE PREMISES, RETAIL OUTLETS AND RESIDENTIAL PROPERTIES IN AMSTERDAM
Percent Spread Oces Retailoutlets Residential
Q Q
Source: JLL (2019)
Trends
The main drivers behind the advent of mixed-use • More and more cities are looking for concepts are: distinguishing features so that they can • An increase in urbanisation combined with differentiate themselves in a growing ongoing population growth in urban areas. competitive field. Mixed-use-buildings lend • Young people are becoming an increasingly themselves to challenging designs: bringing interesting target group in the city (see also together various facilities in one complex in a the section entitled ‘The future’). They are highly urbanised setting. convinced that there are financial benefits to • Limited availability compounded by high living in the city and go for a lifestyle in which demand for the traditional investment sectors ‘work-live-play’ are the underlying philosophy. is resulting in less attractive initial yields in the • Given the pressure on scarce space in densely core segment. This is giving investors room populated urban areas combined with, among for alternatives provided they think beyond other things, digitisation and the emergence single-use functions. of new consumer patterns, a review of the interpretation of inner-city areas is called for. Combining various functions in one building is an obvious option. • Flexibility is key for a growing group of urban consumers. This applies not only to how these people want to live or work, but also to how they use other urban facilities. This in turn is pointing to target-group-specific living concepts, flexi-offices and a blurring between retail and hospitality facilities.
71/102 Syntrus Achmea Outlook 2020-2022 Critical success factors
Locations that are eligible for mixed-use concepts The best possible mix of facilities and services in are situated in cities that have the following a mixed-use concept depends heavily on the local characteristics: needs of users and the precise location in the urban • Above-average growth in the local economy setting. This calls for targeted market research and population. and investigation into feasibility as the input for • A full range of services and facilities in the fields the conceptual interpretation. For this reason, the of culture, entertainment and recreation (public interrelationships between housing and other uses green spaces) in the vicinity. (office space, retail outlets/cafés and restaurants, • Compact cities with high walkability and bike hotel/short stay accommodation, parking for cars scores combined with a high transit score. and bikes) will differ significantly by mixed-use This means that most facilities can be reached building project. At the same time, this presents on foot or by bike, and there is a good public the opportunity to control the risk of these kinds transport system that links the city with the rest of concepts. of the country. • Highly urbanised character with the emphasis on a multifunctional environment.
Opportunities and challenges
Opportunities Challenges
Contributing to the functioning of the city. Because of the major amount of investment Because they specifically seek a connection with required for each building, the risk related to the the surrounding context, they generally boost the building is higher in comparison with investments immediate vicinity. in traditional real estate sectors. By choosing the right location, the focus can be on the marketability of the property, and commercial risks can be held in check. The designated use of the property must move with the times. If a use loses its economic value, then the location must be strong enough to be able to adapt to alternative uses.
Careful space utilisation by combining functions. The effective management of mixed-use real estate This produces, for instance, high sustainability and calls for a different approach to asset management. flexibility and/or being suitable for alternative uses Matching the various uses must be the main focus and future proof, while at the same time reducing when it comes to optimising programmatic synergy. mobility. In addition to this, asset management must have an eye for the community of users and tenants.
High diversification potential. Diversification of The ground level of the building is the link to the the various real estate sectors, tenants and lease environment. The ground level is the crucial element contracts within one real estate product is possible. to bring about the connection with the surrounding context. Provided this level is designed and programmed properly, it will boost the vibrancy as well as the quality of life in the neighbourhood.
Growing pipeline. The biggest cities are set to grow and densify in the years to come. The challenge includes having many thousands of residential properties within roughly pre-existing municipal boundaries. Mixed-use projects will be therefore be developed full speed ahead in the years to come.
72/102 Syntrus Achmea Outlook 2020-2022 Investment focus
Thanks in part to the low interest rate, interna- Given the anticipated marketability and urban tional investors in particular are in a quest for developments, it is clear that the focus will be on investment opportunities that have a core profile. the major cities in the Netherlands. These cities Initial yields in the traditional sectors have fallen have the right scale and target group that is suited sharply as a result, which in turn has prompted to the intended mixed-use concepts, and they significant growth in value in office premises and stand to benefit most from these trends. Under residential properties. Homes, shops and offices pressure from demographic trends and the growing in the major cities are now relatively expensive, shortage of urban space, large municipalities while purchasing opportunities are very few and are proving to be fully committed to including far between. Tight initial yields in traditional asset mixed-use real estate in their spatial policies. classes are driving the search for investments with a slightly higher risk premium. Mixed-use buildings Investments in mixed-use projects therefore consist are a viable alternative. Investors can acquire this of sustainable urban real estate with a risk-return property in good locations for an attractive initial profile that in the short term should at least be yield. equal to the averages of the individual sectors. The potential synergy within the function mix, the Availability is relatively good and will only increase focus of the stronger urban areas and the flexibility under pressure from urbanisation and municipal in building use will, in the process, lead to an policies designed to cater for this. In the process, expected mitigation of the risk through diversifi- mixed-use real estate as an asset class stands to cation. The mixed-use concept also gives investors profit from growth in value. In this respect, there the opportunity to build up an allocation in asset is a difference with investments in single-use core classes that actually flourish under the pressure office locations, for instance. of urbanisation, like for instance, the hospitality industry, culture and social facilities.
73/102 Syntrus Achmea Outlook 2020-2022 74/102 Syntrus Achmea Outlook 2020-2022 The Dutch residential mortgages market
75/102 Syntrus Achmea Outlook 2020-2022 Outlook for the Dutch residential mortgages market
Residential mortgages continue to be an attractive investment proposition
Residential mortgages are a steady investment The other side of this coin is that mortgage product that involves low risk and attractive lenders are faced with more and more yield. The prospects are positive thanks to the regulations and the resulting costs, such as the low (forecast) unemployment rate, residential duty of care, whereby mortgage lenders are the property values that will continue to grow, ones responsible for making customers aware and relatively attractive risk margins. Technical of the risks that mortgages entail. There are also innovations, such as ‘assessing the source’ threats lurking in the uncertainty surrounding and digitisation have made the steps in the interest rates, with risk-free interest rates falling mortgage process more efficient, both during into negative territory. the application process and when managing mortgages.
Definition
Residential mortgages are loans that are issued The latter is especially popular with remortgagers to private individuals using their homes as the who still have mortgage interest relief, but this type collateral. The Dutch market for residential is also gaining in popularity with those on their first mortgages accounts for € 715 billion in outstanding mortgage because low interest rates compensate loans; that amount has increased by more than 5% for the lack of tax benefits. Linear mortgages are in the last five years. There are various types of less popular. Other kinds of mortgages used to mortgage, distinguishable by the way they are paid be popular, like savings-based mortgages and off. The two most common types are the annuity endowment mortgages, but these have fallen by mortgage and the interest-only mortgage. the wayside because they are no longer attractive from a tax perspective.
76/102 Syntrus Achmea Outlook 2020-2022 Facts and figures
Dutch NHG mortgages, for which the guarantee fund covers 90% of 201,000 any (residual) debt, have an
mortgage applications were submitted in the AAA rating first six months of 2019. This is the highest it has and therefore qualify as been for five years. the safest loans in the world. (Mortgage Data Network)
€ 715 billion is the outstanding 90% mortgage debt in the Netherlands. of Dutch home owners have a mortgage. This puts the Netherlands at the front of the pack in terms of housing The interest rate debts in Europe. continues to fall: in mid-2019, the mortgage interest rate was
1.55% In the first half of 2019, only
(NHG 10 years, 30-6-2019) 323
foreclosure auctions were held, the lowest number since 2004. In 2011, 2,811 The price index for foreclosure auctions were existing owner-occupied held. houses in the Netherlands has risen by
38%
since its low point in 2013.
77/102 Syntrus Achmea Outlook 2020-2022 Investment focus
• Residential mortgages are an interesting • For the rest, there are opportunities for institu- investment category given their attractive tional investors in non-NHG mortgages with appreciation compared to government loans, a high LTV (90 to 100%). Here there is plenty good performances in the housing market and of space in the market given the competitive the state of the economy, for instance. The advantages that the mortgage funds, in which risk of default on payment is very limited for institutional organisations invest, have due to mortgages, thanks to the good payment ethics the more stringent capital requirements for of Dutch home owners. In addition to this, banks. The somewhat higher risk for these the margin compared to risk-free interest has mortgages is compensated by the interest risen for an improved market risk, which means surcharge of around 40 basis points compared that it is an investment product with a good to NHG mortgages (fixed for 20 years). risk-return ratio. • Extra room in the market is to be found by • Focus on a mix of mortgages with both long targeting specific target groups when issuing and short maturities. Residential mortgages mortgages, like senior citizens and those taking with a long maturity (20 to 30 years) are in a mortgage for the first time. keeping with institutional investors’ investment horizon; this means mortgages are ideally suited to matching portfolios. That said, short maturities (< 10 years) are essential for maintaining a good market position. • Focus on NHG mortgages, which are low risk because the guarantee fund covers 90% of the value. This is underwritten by the AAA status of NHG mortgages. The risk is also very low for non-NHG mortgages with very low LTVs, i.e. loan-to-value of up to 60%.
78/102 Syntrus Achmea Outlook 2020-2022 Opportunities and challenges
Opportunities Challenges
The Dutch owner-occupied property market has In the short term, the price increase of Dutch houses performed extremely well in recent years, and may level off a bit in the coming years, as a result of the long-term prospects are positive thanks to which the mortgage market will expand less rapidly demographic growth and the construction of and the risk that (new) residential mortgages will be houses that this will require. under water will grow.
From a historical perspective, Dutch home owners The supervisory authorities have sharpened their have excellent payment ethics; the number of focus on the Dutch residential property market, households that end up with payment issues has which is increasing the chances of more legislation dropped sharply in recent years. This is expected and will prompt a rise in management costs. to continue given the low (predicted) rate of unemployment.
It is now possible to computerise larger sections Risk-free interest rates fell sharply in 2019; the of the mortgage process, leading to improved expectation is that, in response to this, mortgage efficiency and a lowering of costs; this in turn is interest rates, and in due course the margins, will enhancing customer satisfaction. also fall.
The tightening up of capital requirements at the banks offers institutional organisations the opportunity to increase their exposure in residential mortgages.
Many home owners are currently sitting with equity in property and, because of this, very low LTV for their homes; for this group of home owners there are opportunities for new products, like redemption mortgages.
79/102 Syntrus Achmea Outlook 2020-2022 Trends
• Concerns about the global economy emerged Nowhere else in the world do so many home in mid- 2019, brought on by protectionism and owners have a mortgage. Added to this, at geopolitical tensions. Growth predictions across 100% the Netherlands has a high maximum the world were adjusted downwards. The Dutch LTV standard compared to the surrounding economy is expected to carry on growing, countries. This has prompted the Netherlands but the rate of growth will slow down. The Authority for the Financial Markets and De long-term interest rate (10-year yield on Dutch Nederlandsche Bank to state that the LTV government bonds) fell further in 2019 and should return to 90% so that households have ended up in negative territory in many Western a financial buffer. The lower LTV will be an European countries, including the Netherlands. impediment, especially for those getting on This is making residential mortgages with a to the property ladder for the first time, given fixed-interest rate and relatively low risk even that they will have to inject more of their own more attractive. money. • In the first half of 2019, the unemployment • Another topic that is drawing the attention of rate in the Netherlands fell to its lowest point the supervisory authority is the duty of care. since 2008. Salaries subject to collective Whereas in the past the responsibility for bargaining agreements also caught up. The informing clients about the risks of taking a unemployment rate is expected to stabilise in mortgage lay with the mortgage broker, it has the foreseeable future (according to Oxford now shifted to those providing mortgages. An Economics). The higher wages and lower levels example is informing home owners about the of unemployment are favourable, both in terms risks of taking out an interest-only mortgage. of mortgage production and the reduced risks This more stringent duty of care for mortgage of non-payment. The proportion of income that providers is increasing the costs of managing home owners spend on housing expenses fell mortgages. from 32.5% in 2012 to 29% in 2018. • The supervisory authorities are paying more and more attention to Dutch mortgages.
PROJECTION FOR THE HOUSING MARKET AND MACRO-ECONOMIC FACTORS
Percent IndexNumberoftransactionsx Forecast Housepriceindex (rightaxis) Unemployment (leftaxis) Housingtransactions (rightaxis) Governmentbond yield(-yearDutch) (leftaxis) -
Source: Oxford Economics (2019), adapted by Syntrus Achmea Real Estate & Finance
80/102 Syntrus Achmea Outlook 2020-2022 • In recent years, the residential mortgages • Going forward, innovations are mainly to be market has undergone major innovations, had in terms of links to databases. For example, increasing the efficiency of the process through the new European PSD2 payment directive digitisation and through assessing the source. was introduced in 2019, allowing borrowers to Besides this, customers are raising the bar grant permission to the mortgage lender to for mortgage providers, with the degree of (temporarily) inspect bank account information, convenience and the duration being important giving mortgage lenders additional assurances. factors in this. In terms of collateral, improvements can be • Various innovations have been introduced in the achieved by using automated valuations application process. An example of this is the models. ‘Handig!’ project, a Dutch acronym that means • Target groups are an increasingly important ‘handy’. This project is a collaboration between factor for mortgage providers. More and the Mortgage Data Network, the NHG and more providers these days are targeting several mortgage lenders and brokers. Its aim is senior citizens and starters. Mortgages can to execute mortgage applications as efficiently be customised for these target groups, by for as possible based on (validated) source data. instance taking into consideration their phase The first solution was to replace the employer’s of life as well as their future income prospects. statement. In the new system, a check of the Finally, several mortgage providers are offering mortgage applicant’s assessment income can special products for buy-to-let investors. be carried out quite simply based on an extract • Sustainability is growing in importance in from the Employee Insurance Agency. This the mortgage market. Various providers are means that sending employer’s statements offering interest rate discounts to people who and salary slips is no longer necessary. buy homes with an A energy label. Sustainable Execution-only applications, which do not homes are interesting for mortgage lenders require a recommendation, are also on the rise. because they have a better position in the This does, however, entail major risks because housing market, on the one hand, and those applicants may make the wrong decisions, and with mortgages therefore have lower monthly may not have a clear picture of future risks. costs, on the other hand. Legislation is also For this reason, execution-only mortgages promoting sustainability. For the NHG cost are often restricted to starters and applicants limit, a distinction is made between homes with in permanent employment. Automated and without energy-saving facilities; in the first recommendations or hybrid recommen- category, the NHG cost limit at €307,400 is dations, which is a fully or largely computerised higher than a home that does not have these advisory process, can be a solution for standard facilities (€290,000). For sustainable housing, products. an LTV of up to 106% and a higher LTI apply, • The innovations for existing mortgages mainly provided that the extra loan is invested in consist of self-managing mortgages and energy-saving housing or facilities. the duty of care (provision of information). Customer portals are an example of this. These make it possible to arrange things, like changing the type of mortgage, early redemption or withdrawing money from a building fund account. These portals also enable mortgage providers to comply with the duty of care by informing their clients about outstanding mortgage debts and the risks entailed. This will increase the importance of customer management, but at the same time it means that payment risks will be flagged sooner.
81/102 Syntrus Achmea Outlook 2020-2022 Market trends in the users market
In the first half of 2019, the number of mortgage buying a house with the maximum LTV of 100%. In applications increased by 1.5% (compared to HY1 the first quarter of 2019, the average mortgage sum 2018) to 201,247, the highest it has been in five rose to €316,000, which is a 5.2% increase years. The number of applications for remortgaging compared to last year. The widening of NHG in particular grew. The number of those taking a standards has led to an increase in the share of mortgage for the first time fell by 1.9%; the increase NHG mortgages (Mortgage Data Network). In 2018, in house prices is making it more difficult for the number of mortgage applications fell by 2.2% starters to get on the property ladder. Starters also compared to 2017, according to the Land Registry have to contribute more of their own funds when Office.
PRODUCTION OF RESIDENTIAL MORTGAGES
x million x
Totalsum(leftaxis) Averagesum (rightaxis)
Source: Land Registry O ce (2019), adapted by Syntrus Achmea Real Estate & Finance
Despite the drop in the risk-free interest rate, sharply and is now negative. The rising margins can mortgage interest rates remained relatively stable mainly be explained by price discipline: banks and in the 12-month period; that said, a slight decline insurers do not have much leeway to lower margins began in mid-2019. The mortgage interest rate for due to capital requirements (Basel and Solvency a 10-year NHG mortgage has been between 1.5 and directives), while mortgage funds are prepared to 1.8% for two years, while the risk-free interest rate settle for maintaining market share for a higher (10-year yield for Dutch government bonds) fell interest compensation.
INTEREST RATE TRENDS AND MARGINS
Percent Margin Mortgageinterest rate(-yearNHG) Governmentbond yield(-yearDutch)
-
Source: Oxford Economics (2019), adapted by Syntrus Achmea Real Estate & Finance
82/102 Syntrus Achmea Outlook 2020-2022 The average purchase price for a residential index (by 4.4%), although growth will slow down property in the Netherlands in the first quarter of to 2.9% in 2020 and 2021. Given that this index still 2019 amounted to € 301,279 million, an increase rose by around 8 to 9% in 2017 and 2018, it seems of 8.3% compared to a year earlier. However, there as though prices may become more stable. are substantial regional differences. For instance, in the first quarter of 2019 the average purchase price The number of transactions of the Dutch residential in Amsterdam was €472,000, while in Rotterdam property market dipped in the first quarter van it was €265,000. Yet the average purchase price 2019 at 47,400 residential properties, which is the is not a good indicator for comparing price lowest it has been since the beginning of 2016. movements over time and across the regions However, there does not seem to be a dip in the because the type and size of house may vary. That number of sales yet. It is expected that between is why we prefer to use the price index for existing 50,000 and 60,000 transactions will take place owner-occupied residences. According to Oxford per quarter in the second quarter of 2019 and the Economics’ predictions, average residential real coming quarters. estate prices will rise sharply in 2019 based on this
DYNAMICS IN THE RESIDENTIAL PROPERTY MARKET
Salestransactionshousingmarket(x )
Priceindexexistingowner-occupiedresidences( )
Source: Oxford Economics (2019), adapted by Syntrus Achmea Real Estate & Finance
Whereas home owners spent 32.5% of their incomes on housing costs in 2012, by 2018 this percentage had fallen to 29%. Tenants, on the other hand, spent a larger share of their income on housing in 2018 than in 2012 (38.1% versus 36.2%). This difference can largely be explained by the fact that home owners have benefited from rising house prices combined with falling interest rates. According to Statistics Netherlands’ figures, in 2018 redemptions were also higher than in 2008; home owners were in a position to pay off their mortgages thanks to falling housing expenses.
83/102 Syntrus Achmea Outlook 2020-2022 Market trends in the investment market
Rating agencies Moody’s and Fitch have awarded since the Land Registry Office has been keeping NHG mortgages an AAA rating, the safest kind records (2014). The number of people in mortgage of loan. In addition to the guarantees the fund payment arrears has been falling for four years gives, the high rating also has to do with the good and, at 74,000 home owners, it is now 35% lower payment ethics of Dutch home owners and the than its peak in 2015.1 Given the predictions that social safety net that we have in the Netherlands if low unemployment will more or less continue in someone loses their job. The number of foreclosure the coming years, it is expected that the number auctions has now dropped for the third year in of foreclosure auctions and payment arrears will a row. In the first six months of 2019, only 323 remain limited in the years to come. foreclosure auctions were held, the lowest number
FORECLOSURE AUCTIONS AND PAYMENT ARREARS
Number Numberx Foreclosureauctions (leftaxis) Consumersinpayment arrears(rightshaft)
Source: Land Registry O ce/Credit Registration O ce (2019)
The market for residential mortgages continued to for existing mortgages, putting many in a lower rise in 2019. In the first quarter, the total amount risk category, which in turn has led to interest outstanding in mortgages rose by €7.8 billion to discounts. This has also led to virtually no houses €715 billion. Rising house prices and the popularity having mortgages under water in the Netherlands. of annuity repayment have also reduced the LTVs
OUTSTANDING MORTGAGE DEBT DUTCH RESIDENTIAL MORTGAGES
xbillion Q Source: Statistics Netherlands (2019), adapted by Syntrus Achmea Real Estate & Finance
1) Source: https://perskamer.bkr.nl/stichting-bkr-betalingsachterstand-op-hypotheek-blijft-dalen/
84/102 Syntrus Achmea Outlook 2020-2022 The total turnover in mortgages, so including Even though the various kinds of mortgage remortgagers, totalled €22 billion in the first providers operate in the same market as Dutch quarter of 2019. With a drop of 9.6% compared to residential mortgages, these organisations are the first quarter of 2018, this was the biggest fall in subject to different rules. Pursuant to Basel turnover since 2013. The turnover from starters and regulations, banks have to maintain a fixed capital those moving through the market fell on the back buffer for the capital they lend. These requirements of the limited housing supply, while turnover from will be tightened up with the new package of remortgagers rose. measures in Basel IV, which will apply from 2022. In particular, non-NHG mortgages with a high LTV The most turnover (65%) was realised by banks, the will be given a higher risk weighting; it is therefore three major banks in particular. The market share likely that banks will focus on NHG mortgages of the smaller banks also rose during the last three and mortgages with a lower LTV. Insurers, too, years to 13% of the total. The so-called mortgage are subject to certain capital requirements. These funds also played a major role. These organisations, requirements were laid down in Solvency II when like Syntrus and Munt, issue mortgages using capital requirements for residential mortgages money from pension funds and other investors. were made less stringent at the beginning of 2019. Mortgage funds saw their market share rise to Whereas banks and insurance companies have to 18% in the first quarter of 2019. The number of contend with capital requirements, this is not the new entrants in the Dutch mortgage market has case for mortgage funds. They therefore have a been limited in the past year, and competition in clear competitive advantage. In addition to the the market is decreasing after many organisations emergence of mortgage funds, it has also led to entered the market in the period from 2014 to 2017. Rabobank taking the decision in 2018 to set up a The direct market share of foreign organisations in mortgage fund called Vista. the Dutch residential mortgages market has sat at around 3% for a few years now.
MARKET SHARES (Q1 2019)
Banks Mortgagefunds Insurancecompanies Otherorganisations Foreignorganisations
Source: IG&H & Land Registry Oce (2019), adapted by Syntrus Achmea Real Estate & Finance
85/102 Syntrus Achmea Outlook 2020-2022 86/102 Syntrus Achmea Outlook 2020-2022 Going forward: Trends, challenges and opportunities
House Modernes, Utrecht
87/102 Syntrus Achmea Outlook 2020-2022 Table of contents
Introduction 89
Trend 1: Urbanisation and shortage of space 90
Trend 2: Target groups and inclusiveness 92
Trend 3: Social isolation 94
Trend 4: Anything as a service 96
Trend 5: Climate change 98
Conclusions 100
88/102 Syntrus Achmea Outlook 2020-2022 Introduction
Much of this outlook is devoted to the expected market developments in various market sectors in the period from 2020 to 2022. However, we also think it is important to look beyond the 2022 horizon. What are the trends and developments in the Netherlands for the longer term that we must take into account? Which challenges will they present? And what opportunities do investors have to start taking these developments into consideration? It goes without saying that there is a great deal at play, but we would like to restrict ourselves to aspects that will have a clear impact for cities.
Trend 1 Trend 2
Urbanisation and Target groups and shortage of space inclusiveness
Trend 3 Trend 4 Social isolation Anything as a service
Trend 5 Climate change
89/102 Syntrus Achmea Outlook 2020-2022 Trend 1 Urbanisation and shortage of space
The migration to the city is indisputable and trend will continue at full speed in the coming urbanisation is set to continue unabated in the years. A knock-on effect of this urbanisation is a coming years. Cities are a magnet, especially for development that is causing a lot of headaches in the young, often in the first instance because of the the urban conurbations, namely the shortage of educational options they offer. And once they have space needed to absorb this growth. It calls for graduated, young people often stay there because clear choices to be made. The obvious one is to of the employment opportunities. Urban dynamics intensify space utilisation in the cities themselves and the facilities and services that accompany them by, for instance, building high-rise buildings and suit the lifestyles of younger target populations. mixing functions within one building. Obviously one Added to this, urban economies are generally can consider using extension locations, but they sound, and needless to say this also determines should preferably be linked to the expansion of future opportunities to a significant extent. The the existing public transport network, so that this populations in larger Dutch cities (G5) in particular ‘lifeline’ to the city is guaranteed. have grown significantly in recent years, and this
TRENDS IN POPULATION DENSITIES G5 CITIES
Index() G TheNetherlands
Source: Statistics Netherlands, ABF, adapted by Syntrus Achmea Real Estate & Finance
What are the challenges?
The largest cities in the Netherlands currently all the sectors. Because, apart from giving ‘new have a stretched housing market, with demand admissions’ more options, this will also boost the exceeding supply in some sectors. It is very difficult required throughput to the local housing markets. for middle-income households in particular to find Potential for new buildings must be sought within affordable housing. The scarcity has an inflationary the cities based on an intensification of space effect on house prices, so not only are prices for utilisation. It is obvious that this should be effected owner-occupied houses rising, they are driving near public transport hubs. That said, intensification rental prices up too. The biggest challenge is to must not be at the expense of quality of life, so alleviate the housing shortage, and that means that particular attention must be paid to public spaces, housing construction must be increased across parks and greenery.
90/102 Syntrus Achmea Outlook 2020-2022 Where are the opportunities?
In theory, there are plenty of opportunities for now, and by participating in area development investors to invest in the cities thanks to ongoing and transformation, for instance. The densifi- urbanisation. Capitalising on those opportunities is cation challenge also calls for creative design difficult, however. For various reasons, residential solutions. What is needed is concepts for efficient construction is not keeping pace. Sometimes this use of space, with an eye for the qualities of the can be put down to a dearth of locations that urban context. In practical terms, this means that can be developed in the short term. But unfortu- so-called mixed-use properties, which combine nately we believe that the vision, policies and several uses in one complex, will be interesting for resolute execution on the part of the municipal investors. Mixed-use objects have to be context authorities leave much to be desired or lead to specific. This means taking into account not only wrong decisions. Based on their conviction that the needs of prospective users, but the surrounding cities have future value, investors can help munici- context, too, must be used as a building block. palities by sharing their opinions on responsible Specifically, this means that the ground-floor urban development, and sharing their vision of the levels of buildings must fulfil a purpose for the city as a flexible ecosystem where living, working neighbourhood, and connectivity with public and relaxing deserve a place. They can do so, for transport must be optimal. instance, by being part of the discussion at a much earlier stage than has been customary up until
West Beat, Amsterdam
91/102 Syntrus Achmea Outlook 2020-2022 Trend 2 Target groups and inclusiveness
A gradual socio-demographic shift is under way or threatening to leave, and new families are hardly in urban areas, which has implications for living, being drawn to settle in the city. The upshot is working and leisure activities. On the one hand, the that neighbourhoods and suburbs are gradually urban population is becoming younger through changing, and there is hardly any variation in the the influx of young people who come to the city population. What is more, it is becoming more and to study, and feel at home in the dynamic urban more difficult for certain groups, including profes- context. On the other hand, it is specifically in the sional groups, to meet their housing requirements cities that the ageing of the population is evident, within their financial means. These groups are at as it is in the rest of the Netherlands. The filtering risk of marginalisation and the inclusiveness of the of the population into these two groups in the city city is at stake. is plain to see because families are leaving,
INCREASE IN NUMBERS OF PEOPLE LIVING ALONE IN THE G5 (2018-2040)
Percent TheNetherlands G
-years -years - years yearsandabove
Source: Statistics Netherlands, ABF, adapted by Syntrus Achmea Real Estate & Finance
What are the challenges?
Smaller households generally require smaller budget. It should be noted that in various cities houses. This means that they set other there is a mismatch between available supply and requirements for residential properties, particularly demand. In practice, this means that the existing those younger households who are drawn to the range on offer, which is often better suited to other city. Often they view the house in relation to its types of residents, are still ‘occupied’ by residents context. A big part of their daily lives are spent who want to leave but cannot, and so residents outside the home, and that is why they attach a who also want to live in the city are hardly given great deal of importance to having certain facilities the opportunity. Throughput and differentiating by and services, public transport and pleasant public having variation in the housing supply are therefore spaces close to where they live. This so-called the most important topics. urban lifestyle demands a new definition of the residence. As opposed to this, families need bigger houses, but these are not available in many places in the city. Either that or they exceed the available
92/102 Syntrus Achmea Outlook 2020-2022 Where are the opportunities?
It is imperative to have some differentiation in the responsibility. Investors have the opportunity the housing supply. In the process, investors must to contribute to this by focusing on specific not focus solely on target populations and their target markets, such as students, starters, senior preferences when it comes to residences, they citizens or specific professional groups. Groups must also examine whether the context suits with specific ethnic backgrounds or with physical the residence. This therefore requires a more disability can also be borne in mind. Investors can conceptual approach to investments in which ensure that in vulnerable suburbs there is variation specific target groups are served as effectively in the rental and other housing options, for instance as possible (boosting yield), and where the way by working in close collaboration with housing the urban setting is used has additional benefits associations. Investors can also invest in social real (reducing the risks). Inclusiveness calls for all estate, by ensuring that healthcare or education is those involved and operating in the social arena, possible in the same suburbs. i.e. municipalities, housing associations, healthcare institutions and institutional investors, to share
EGW, Eindhoven
93/102 Syntrus Achmea Outlook 2020-2022 Trend 3 Social isolation
Social isolation is growing in large groups in people cite their restricted social network, and that society. It is certainly not a problem that only they are struggling to make and maintain social occurs among the elderly, where it can often contacts.1 The figure in the section entitled ‘Target be explained by the disappearance of their groups and inclusiveness’ shows the increase in the social network. In fact, the problem is also one number of people living alone and unfortunately confronting young people. For this group in this is contributing to this social trend, perhaps the particular, the issue is that, despite the digital most pressing problem facing society. The figure opportunities that they have to be in constant below gives high percentages for people in the contact with everything and everybody, they are G5 who say that they are lonely. For many people, finding that in real life they are having to rely on loneliness will affect their perception of health and themselves. As the underlying reasons, young happiness.
OVERVIEW OF LONELINESS IN THE G5 AND THE NETHERLANDS
Overall percentage population socialisolation (population years) socialisolation (population years)
Utrecht Eindhoven Rotterdam TheHague Amsterdam TheNetherlands
Source: National Institute of Public Health and Environmental Protection/Ministry Health, Welfare and Sport, 2016 What are the challenges?
Urbanisation, and with it the increase in the the developments/opportunities presented by number of people living alone, brings with it the ‘e-health’2 are wonderful; from a social perspective chances of worsening social isolation. At the same they are questionable. For the elderly, in particular, time, there are many technological and smart a visit to the doctor is often seen as an outing, and solutions available for people to communicate an opportunity to have a chat with someone. And with one another, or if necessary with a robot. that is the crux of the matter: people are sociable This may be a solution, but it may also be part of beings who need actual social contact. They need the problem. From a technology point of view, encounters with other people.
1) https://eenvandaag.avrotros.nl/panels/opiniepanel/alle-uitslagen/item/ jongeren-voelen-zich-vaker-eenzaam-dan-ouderen/ 2) E-health entails deploying technology to support or improve health and healthcare, enabling people to take control of their own health. Source: https://www.zorgvisie.nl/thema/e-health/
94/102 Syntrus Achmea Outlook 2020-2022 Where are the opportunities?
Facilitating social contact is the key to counter- that the surrounding area becomes an extension acting social isolation. Investors have to be aware of the building. That said, smart technology has of the factors that affect the health and happiness to be used cleverly. For instance, by appointing of the tenants and users of their properties. In a community manager who is sent a signal via practical terms, this means focusing on well-being, this technology if residents hardly leave their for instance, by encouraging encounters between homes. Healthcare real estate often deploys these residents in the building and with residents from ingenious solutions to tackle these issues. the neighbourhood. Coincidental encounters – so-called ‘happy accidents’ – are often the impetus for social cohesion. In addition, a building with a properly programmed ground floor ensures
Julianaplein, Zaandam
95/102 Syntrus Achmea Outlook 2020-2022 Trend 4 Anything as a service
We have noticed that some economic values expensive taxi when you can use your smart card have shifted since the crisis. Actual possession to get a public transport bicycle on arrival at the is becoming less and less important, whereas station? The next step is having a mobility solution convenience is what matters (‘I want it here and I via one platform that sorts your transport from want it now’). For this reason, products are being door to door. This is also known as ‘mobility as a offered as a service. Why own a car when it only service’. This ‘complete’ outsourcing can be applied takes an app, say Greenwheels for example, to to many more needs. What until recently was organise one when you need it? Why buy a bike bought as a product for the end user can often when you can get a subscription for one, from be delivered as a service on a ‘platform’. And the Swapfiets for instance, and then you don’t have same applies to living and working. In short, we’re to worry about it at all anymore? Why get an headed towards ‘anything as a service’.
INCREASE IN SHARED VEHICLES IN EUROPE
Totalnumberofsharedvehiclesxmillion
Source: Car sharing unlocked, ING Economics Department (October 2018)
What are the challenges?
The developments related to this trend are adaptable if they are to cater for this. We expect unfolding thick and fast. This is raising expectations that this trend may also affect the renting out of among end users or consumers. So they are residential accommodation. Renting square metres behaving differently, whereby the moment and the alone no longer meets the housing requirements of mood that matches the moment determine the a growing group of tenants. The question is which needs. Take home deliveries as an example: until services should be offered to cater for these quite recently, home deliveries mainly involved housing requirements. pizzas. These days people fully expect an upmarket restaurant to deliver their signature dish to the home. Entrepreneurs have to be extremely
96/102 Syntrus Achmea Outlook 2020-2022 Where are the opportunities?
The house (the property) will only be part of a premises). Needless to say, tenants will be able wider range of services related to occupying a to afford this service, because the ‘as-a-service’ home. Renting square metres and paying service concept means that many expenses will no longer charges alone is not in keeping with the changing apply, or they may simply be prepared to pay preferences for service provision. Future tenants for the convenience. Investors must realise that a prefer to spend their money on, for example ‘living growing group of tenants are no longer thinking as a service’ where, in addition to the actual home, in terms of rent and the accompanying costs, but mobility is also provided (such as providing hire rather for them it is about the overall housing cars and bicycles), communal facilities on the budget. This change in perspective will clear the ground floor (for example laundry and drying way for some interesting prospects. facilities) but also concierge services (accepting packages and letting repair people into the
Yours, Leiden
97/102 Syntrus Achmea Outlook 2020-2022 Trend 5 Climate change
There is no doubt that current events are will have to adapt quickly to the effects of climate introducing us to climate change: various weather change that are already noticeable. The rise in records are being broken in quick succession. temperature, subsidence of the ground, heat stress Climate change is upon us and we will have to act in the cities and torrential rainfall are consequences accordingly. Clearly, the effects of future climate for which the modification of cities and buildings is change will have to be mitigated by reducing CO2. necessary. Even more urgent is the fact that the Netherlands
URBAN HEAT ISLAND EFFECT
- C - C - C – C – C – C – C – C – C – C C
Source: klimaateectatlas.nl
This chart shows the urban heat island (UHI) effect of the weather in °C. This is the average difference in air temperature between urban and rural areas in the vicinity. The urban heat island effect is strongest at night. It is the reason why the air temperature is falling less at night. The map shows a prediction of the urban heat island effect based on various underlying map data: the population density, wind speed, amount of greenery, blue areas and hard surfaces.
98/102 Syntrus Achmea Outlook 2020-2022 What are the challenges?
For a long time, climate change was an abstract foundation issues. Downpours occur regularly in notion. The scorching heat in the summers of 2018 almost all parts of the country, with major flooding and 2019 was a reality check, and prompted a as a result. Cities are unable to get rid of their heat growing awareness that we now have to anticipate due to the vast amount of concreting of surfaces, these things. The question is whether priorities can etc. It is clear that drastic measures are needed to be set. In parts of the Netherlands, subsidence due tackle the effects of climate change. to dehydration is a circumstance that can lead to
Where are the opportunities?
From the perspective of investors, mitigating measures and modifications must be taken into consideration. It has to be clear which climate effects properties are being exposed to and may be exposed to in the future. Based on this, measures can be taken to cope with the effects. However, climate adaptation is more pressing and that means that properties, but also the environment in which they stand, must be designed (or modified) to suit the new climate reality. Investors have to be aware that there is no ‘one-size-fits-all’ approach; this means that each location in the Netherlands has its own climate challenges.
99/102 Syntrus Achmea Outlook 2020-2022 Conclusions
Institutional investors can have a positive impact on society through investment in cities that offer a good quality of life. Cities with a good quality of life are cities that prioritise sustainable development, and where taking generations and relevant trends in society are taken into account.
Based on these trends, we argue that investment focus on health and happiness of end users. In the in real estate in urban areas is and remains an context of the increase in social isolation of large interesting proposition. Investors can contribute groups of people, it is also the social responsibility to solving the recent housing shortage by of investors. becoming involved in investing in areas at an earlier stage. This could boost much-needed housing The reality of climate change is forcing investors construction. Working together with other urban to act. Clearly it is about taking a range of stakeholders, such as housing associations and mitigating measures to reduce carbon emissions. healthcare institutions, will prompt throughput at But depending on the specific location in the neighbourhood level by providing variation in range Netherlands, modifying real estate will be of rental accommodation and housing on offer. necessary if we are to address the expected effects of the climate. Densification in existing urban areas is necessary due to the scarcity of space and the vertical mix of functions (through mixed-use concepts) presents interesting investment opportunities. These concepts must seek the connection with the surrounding context; that is where there are opportunities for deciding on the commercial or social programme to be offered in the ground floor of buildings.
Consumer preferences for housing are changing fast, especially in urban areas. This requires investors to take a broader view of residences. The way tenants perceive the actual square metres rented is that they are only part of the overall package, which also includes shared facilities and services.
The social return on investing in urban real estate is expressed by looking more at specific target groups and their housing needs, and investing in social real estate (healthcare and schools), but also by considering the contribution that these investments can make to inclusiveness and social interaction. It is these aspects of society that
100/102 Syntrus Achmea Outlook 2020-2022 Syntrus Achmea Real Estate and Finance, Strategy and Research Outlook
Publication date September 2019
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