Public policies

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 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, an income-related rent increase 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 will become subject to corporate income tax (‘vennootschapsbelasting’). Bouwinvest will mitigate this risk by anticipating and preparing a restructuring of the Fund into the legal form of a so-called closed Fund for Mutual Account (FMA; ‘Fonds voor Gemene Rekening’ (FGR) in Dutch). 

Occupier market

In the first weeks of 2022, the remaining shopping limitations, put in place as a result of Covid-19, gradually disappeared. As a result, consumers returned to the high streets in increasing numbers, although not in the same numbers as in the time before the Covid-19 pandemic. This is of course very much related to strong increase in online shopping during the pandemic, but also to the fact that consumers do seem to have retained part of their shopping behaviour from the Covid period and are shopping more purposefully: they visit the city centres less often, but spend relatively more.

Most retail branches have been able to incorporate inflation into their price levels and as such the total retail sales increased by 6.7% in 2022. At the same time the volume of goods sold has been gradually declining since Q2 2022: consumers are trying to curb their purchasing. Retailers are walking a thin line between raising prices ánd retaining their customers. On top of this, retailers also have to deal with the rising costs of wages, energy, rents and purchasing costs, which challenges their operational bottom lines.

As a result, the retail occupier market registered lower activity and the 530,000 m² taken up was around 18.9% lower than the average of the five pre-Covid years. However, activity has not fallen to zero. Many chains are seeing opportunities in this market and are upgrading their store portfolios by moving to better located premises or expanding their overall portfolio.

Vacancy rates continued to fall throughout the year, to 6.0% from 6.8% in 2021. This decline was very much driven by a further reduction of retail stock and happened at all retail destinations. In the course of the year, both vacant and non-vacant stores were taken off the market and converted to other uses.

Despite the drop in vacancies, downward pressure on rents remained the trend at high streets. At the same time, market rents at convenience locations are generally less affected and specifically increased for supermarkets, which are best-equipped to pass on the costs of inflation to their customers.

Investment market

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, as investors wanted to close their deals before the increase in the real estate transfer tax from 1 January 2023.

In 2022, retail real estate investments came in at a strong € 2.1 billion, 17.7 higher than the previous year. A closer look at the various retail segments reveals that investments increased across the board, despite or perhaps because of the challenging market. As Covid-19 effects were fading, both sellers and buyers were able to incorporate the remaining uncertainties in their pricing and reach agreements. The one sub-segment that lagged behind concerned stand-alone supermarkets, where the gap between bid and ask prices remained too large in many cases.

Driven by the hefty increase in interest rates and an increasingly gloomy economic outlook, 2022 saw substantial initial yield expansion in the second half of the year. Net initial yields in the retail experience sector moved outward by 94 bps. MSCI data on yields for convenience shopping centres showed a substantially smaller 22 bps contraction over 2022.

The Fund believes that - while the market is recalibrating - prime retail destinations in the city centres of the largest cities will continue to see strong demand from retailers, also in the long term. Convenience shopping centres and supermarkets have performed strongly over the past period, but capital values are substantially affected by increased interest rates.