In 2022, the Dutch government continued to face a vast number of fundamental challenges. In addition to dealing with the aftermath of the Covid-19 crisis, it had to deal with the Ukraine war, rising inflation, the nitrogen emissions crisis, as well as increased uncertainty in the housing market. In the national Budget Memorandum (‘Miljoenennota’) published in September, the cabinet has allocated budgets and introduced new measures to combat some of these challenges. The focus was very much on supporting the purchasing power of lower and middle-income households by introducing an energy cap, increasing the minimum wage and related social security benefits, income-related rent increases for tenants and several additional tax and allowance interventions.
The most significant elements in the new budget plans regarding real estate in general are twofold. First, the increase in the real estate transfer tax (RETT) to 10.4% from 8.0%, putting downward pressure on property prices. Secondly, as of 1 January 2025, fiscal investment institutions (FIIs) will no longer be allowed to invest in directly held real estate. If no additional measures are taken, the Fund would become subject to corporate income tax (‘vennootschapsbelasting’) as from this date. Bouwinvest will mitigate this risk by restructuring the Fund into the legal form of a so-called closed Fund for Mutual Account (FMA, or 'Fonds voor Gemene Rekening’ (FGR) in Dutch) as per 1 January 2023.
Office real estate policies
As of 2023, all non-historical Dutch office buildings need to meet C-label sustainability standards. At 1 January 2023, however, approximately 10% of all office buildings still do not meet these standards, while another 35% do not yet have an official label. Enforcement of this legislation is in the hands of municipalities and, after sending out official notifications, owners will have a maximum of 12 months to implement the necessary measures. This could ultimately result in office buildings being withdrawn from the market when leasing risks do not justify the necessary investments. These changes are likely to favour the best office locations, where the office stock generally meets the label C requirements.
While office workers have gradually returned to their desks over the past 12 to 18 months, the Covid-19 pandemic seems to have had a lasting effect: working from home for 1-2 days per week has become the new normal for many employees in the Netherlands. In the longer term, this will result in a lower total need for office space and the Fund expects this to mainly affect less attractive and secondary locations.
On the other hand, occupier activity increased in 2022 after two lacklustre years and overall take-up was 10.4% higher than 2021. While still well below pre-Covid levels, companies seem to be catching up after postponing their relocation plans for two years, while a fair number of new high-quality office buildings are now being realised. Taking the battle for talent into account, companies are 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.
Transformation of vacant office buildings is still ongoing, very much driven by the housing shortage and favourable residential pricing. As a result, vacancy in the office market dropped to 6.3% from 6.9% in 2021. Vacancy in the prime office markets remained low at 4.2% on average, down from 4.7%. The low vacancy in prime locations resulted in a further increase in prime rents in Amsterdam, Rotterdam, The Hague and Utrecht, while rents remained stable in Eindhoven.
Occupier key factors
Prime rent (/m2/yr, year-end)
Source: JLL, Bouwinvest Research & Strategic Advisory
Investor appetite remained strong in almost all real estate sectors and the overall investment volume totalled € 17.4 billion, just short of the € 18.2 billion in the previous year. Investment volumes were strong in the first half of the year, fell back in the third quarter when the economic outlook turned more negative, and finished strongly in the final quarter of the year, as investors wanted to close their deals before the increase in the real estate transfer tax from 1 January 2023.
The office investment market reached a total of € 3.8 billion over the full year 2022. This is 17.9% lower than the previous year, when two record-large transactions were recorded. The most notable investment in 2022 was the purchase of the booking.com headquarters in Amsterdam for € 566 million.
Driven by the hefty increase in interest rates and an increasingly gloomy economic outlook, 2022 saw a substantial expansion of initial yields in the second half of the year. Amsterdam, which had previously had the smallest yield gap, recorded the largest initial yield increase of the G5 cities.
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