Cabinet formation and plans
In January, the third cabinet led by Prime Minister Mark Rutte collapsed, and Dutch parliamentary elections were held on 17 March. After a record long formation period of 299 days, a ‘Rutte-IV’ cabinet was established in December. The coalition of four parties (VVD/D66/CDA/CU) reflects the composition of the previous cabinet. The cabinet will face the challenge of dealing with a number of major issues. Besides the Covid-19 crisis, the main focus points will be the climate and the nitrogen emissions crisis, plus the housing market. Furthermore, the government is planning to allocate more funding to education, justice and security.
As of 1 January 2021, the real estate transfer tax (RETT) for property acquisitions increased to 8%, for residential as well as for commercial real estate. To put an additional brake on record house price increases, the transfer tax for investors will be increased to 9% as of 2023. In 2021, a number of local authorities also launched a number of initiatives, such as the halt on buy-to-let within the existing housing market.
In 2021, the caretaker cabinet was for the largest part focused on fighting the Covid-19 pandemic and finding a balance between limiting the spread of the virus and keeping the economy and companies healthy. Despite the continued roll-out of the vaccination programme, lockdown measures came and went in 2021, which had a major impact on the (non-essential) retail and hotel and leisure segments. While most restrictions were lifted in the course of the third quarter, November and December in particular once again saw heavy restrictions for retailers.
The Dutch government implemented a set of emergency measures to mitigate the financial burden placed on companies by the Covid-19 outbreak. The initial plan was to end most of these measures from 1 October 2021 onwards. However, the emergence of the new Omicron variant and the another lockdown, financial measures were extended. It is notable that although the companies affected have complained that the restrictions have reduced their financial buffers substantially, 2021 still saw the lowest number of bankruptcies for many years.
Office real estate policies
As of 2023, all non-historical Dutch office buildings need to meet C-label sustainability standards. Currently, a fair share of office buildings either do not yet meet these standards or have not yet applied for a formal assessment. This could result in office buildings being withdrawn from the market when owners realise that they are not competitive enough to justify the necessary investments. These changes are likely to favour the best office locations. After all, these have the most convincing business cases, largely because they involve much lower vacancy risk.
Last year was the second year in a row that was heavily affected by the Covid-19 pandemic. Most of the time during the year the government advised personnel to work from home as much as possible. A knock-on effect of this is likely to be that a substantial part of the workforce will continue to work from home at least part of the week, even after the Covid-19 pandemic is no longer a factor. In the longer term, this will result in a lower total need for office space, while on short term the effects were clearly visible in lower occupier activity across the board.
At the same time, companies are now expected to put even more effort into making sure their offices provide high-quality work spaces and are located in vibrant and easily accessible locations.
As a share of companies are postponing potential relocations, total take-up in 2021 was very similar to 2020 and fell short by 20.2% compared with the pre-Covid 2019. On the other hand, it should be noted that the government schemes providing financial support for Dutch businesses continued for a large part of 2021 and were quite effective in terms of keeping overall unemployment levels down and limiting insolvencies. Additionally, transformation of vacant office buildings is still ongoing, due to the housing shortage and favourable residential pricing.
As a result, vacancy in the office market dropped to 7.0% from 7.6%. As some new office buildings were brought to the market in the prime office locations in the G5 cities, vacancy here increased slightly, to 4.7% from 3.6%, but is still very low.
The low vacancy in the prime locations resulted in an increase in prime rents in Amsterdam, Rotterdam and Eindhoven, while remaining on par in The Hague and Utrecht.
Investor appetite remained strong in almost all real estate sectors and the overall investment volume totalled € 18.2 billion, just short of the € 19.0 billion in the previous year. This despite the negative effects of the increase in the real estate transfer tax from 1 January 2021, which spurred many investors to close their deals in Q4 2020 and led to subdued transaction volumes in the first half of 2021. The second half of the year saw a substantial uptick in investments and saw two of the largest single asset office deals ever recorded in the Netherlands: the € 1.1 billion purchase of the Eindhoven High Tech Campus and the € 765 million purchase of the ABN AMRO head office in Amsterdam.
The office investment market started slowly in 2021, with just € 1.2 billion transacted in the first half of the year. The investment volume picked up strongly in the second half of 2021, heavily supported by the two very large purchases mentioned above. Over the full year 2021, office investment transactions reached a total of € 4.6 billion, 17.7% higher than the previous year.
In the course of 2021, prime office yields contracted again and by the end of the year yields were around the pre-Covid-19 level for Amsterdam and Rotterdam and even lower in The Hague (-40 bps), Utrecht (-10 bps) and Eindhoven (-20 bps).
The potential longer-term effects of working from home on the office sector is leading to some uncertainty in the office market, both on the occupier market and the investment market. The Fund firmly believes that this uncertainty is far greater for secondary office locations. Prime office locations have proven to be resilient in past crises and are likely to remain so.
Investor key factors
Prime net initial yields (excl. purchase costs, year-end)
Investment volumes (€ bln)
Sources: JLL, Bouwinvest Research & Strategic Advisory