Office occupier market
The Dutch office market offers a diverse mix of cities, types of location and office occupier segments. The four largest cities account for 30% of the total office stock and have historically played a dominant role in the office market. Amsterdam leads the pack and has a fair share of financials and tech companies, while Rotterdam has always had more of a focus on blue-collar companies, as well as the creative sector. The Hague is the city with the largest concentration of (Dutch and international) public sector organisations, Utrecht is oriented towards the business services, while Eindhoven, a tech-oriented city, is closing the gap with the G4 cities. All of these cities have prime office stock located close to their main train stations, but also provide less expensive office stock for start-ups and innovative companies.
The Covid-19 outbreak had an immediate impact on the occupier side of the office market. Bouwinvest expects demand from office users to gradually recover, as companies cannot postpone their plans forever and because the impact of home working on their future office needs will become clearer as we move forward.
The fundamentals of the office market are actually better than they have been for a long time, despite close to two years of Covid-19 and the associated restrictions. As a result, the office market, especially the prime locations, is expected to remain relatively resistant in the period ahead.
Office investor market
In recent years, annual real estate investment volumes have averaged between € 18 billion and € 20 billion. This continued in 2021 when, despite the Covid-19 crisis, the investment volume came in at € 18.2 billion. At the same time, initial yields have either contracted or remained stable and relatively low in almost all real estate segments. This indicates that investor interest in real estate has remained high.
Overall, in the persistent low interest environment, the yield spread of real estate compared to bonds still provides interesting investment opportunities. Bouwinvest therefore expects investor interest to remain substantial for growth sectors, specific opportunities and for core properties. Bouwinvest will closely monitor inflation and potential impact on interest rates.
Overall, the Fund expects to see a continuation of the trend - for both occupiers and investors - of focusing on mixed-use locations with good access and on sustainable office buildings with added emphasis on wellness and smart services.
The Russian invasion of Ukraine and rapidly escalating events in late February and in March 2022 are a significant tragedy for the people and is causing disruption to business and economic activity in the region and worldwide. This qualifies as a non-adjusting subsequent event. These events and the related market uncertainty could have an adverse impact on the Fund, including but not limited to the fair value of its investments and/or cash flows. At this moment it is not possible to provide an estimate of the financial impact of this crisis worldwide and on the Fund. The Fund screens periodically its existing business relationships, including sanction lists where required. In respect to Russia and Belarus no determination of direct breaches of any current sanction rules were noted nor any material matters that affect the going concern of the Fund. The Fund will continue to monitor market conditions as information becomes available and evaluate potential impact, if any, on the value of the Fund’s real estate investments and its operations going forward.
Office Fund plan
The Office Fund has a strategy of moderate growth and investment to optimise and future-proof its portfolio. The Fund is targeting invested capital of € 1,484 million by year-end 2024. This implies growth of € 245 million in the period 2022-2024, based on the portfolio at year-end 2021. This growth will come from positive revaluations and new transactions. It will be a challenge to make new acquisitions that meet the Fund’s return requirements, but Covid-19 may create opportunities on this front. Any acquisitions will also depend on the Fund’s ability to attract new investors or new commitments. The Fund is well-positioned, thanks to the quality and sustainability of its portfolio, its lack of leverage and continued investor interest in the office market.
Bouwinvest believes that it can only generate long-term stable financial returns for its investors if it takes societal impact into account in every decision it takes. The Fund’s focus is on the city of the future and it aims to create real value for life by investing for the long term in a responsible manner. The Office Fund works with its peers, public sector bodies and other stakeholders to create healthy working environments and meeting places that meet today’s demands and those of the future. In addition, the Fund aims to reduce the environmental impact of its portfolio, striving for a net-zero carbon, nearly energy-neutral and climate-resilient Paris Proof portfolio before 2045.
The pandemic will leave its mark on the real estate markets. Many developments that had already been initiated before the pandemic, such as online meetings and working from home, accelerated during the crisis. At the same time, the Fund is convinced that once Covid-19 measures are lifted, people will want to travel and meet each other again in a work setting. With its long-term investment scope, the Fund focuses on adding value for its investors, tenants and stakeholders by continuing to invest in attractive meeting and working environments.
Amsterdam, 21 March 2022
Bouwinvest Real Estate Investors B.V.
Dick van Hal, Chief Executive Officer and Statutory Director
Rianne Vedder, Chief Financial & Risk Officer and Statutory Director
Mark Siezen, Chief Client Officer
Allard van Spaandonk, Chief Investment Officer Dutch Investments
Stephen Tross, Chief Investment Officer International Investment