Commentary: Dutch commercial property market largely unaffected, expected to improve in 2023

Unlike in the UK and some other western European countries, the Dutch property market has been significantly less affected by the economic downturn, and expectations tend to be much more positive.

David van Dijk MRICS, partner at elite global law firm Greenberg Traurig, LLP, explains his expectations regarding the commercial property market in the Netherlands. ‘The underlying values are still strong; we expect that the market will veer up with a vengeance in 2023’

Due to rising interest rates and rising yields, the emphasis in recent months has been more on pricing than previously was the case, but this is not a sign of a structural underlying problem.

The underlying values are still there. Economically, the Netherlands is one of the most stable countries in the world. We have an innovative service economy as well as an important logistics position in western Europe, which is very well aligned with the global economy and future technological developments.

We have a strong and open economy, very much geared to meet the challenges of the next decade. Unlike, for example, the UK, there is no material underlying issue in the Netherlands, such as the consequences of Brexit, the financial fall-out generated by the mini-budget and the leadership crisis in the wake of Truss' resignation. 

Such things are detrimental to the confidence in a country’s economy. We do not have issues of that magnitude in the Netherlands. Discussions about nitrogen and general confidence in politics are timeless and of a completely different order to what is currently going on in the UK.

Like 2021, 2022 has again been an extremely strong year for the Dutch property market, both commercially and residentially. Discussions about nitrogen will actually lead to a price-increasing effect in the residential sector because the nitrogen discussion is a limiting factor for (much needed) housing developments.

Investors know this and see that this will only become more significant in the coming years. This is already leading to a price-increasing effect in the residential sector.

With regard to the commercial sector, it is not much different. There is still a shortage of high-end office space. Even in the wake of the Covid-19 pandemic, we see that there is almost no supply at the prime locations.

We expect the work-from-home frenzy to fade in 2023 and the majority of people to return to working from the office. Working from home is somewhat the “open plan” idea of the current time: when it was conceived everyone was very enthusiastic, but after a while you realize that it’s not working.

That it is detrimental to the cohesion and effectiveness of teams. We therefore expect that working from home will decrease again in 2023. This will only further increase the pressure on office space.

What we are currently seeing is mainly a temporization in the market. In current deals, the topic is pricing. In some cases, this leads to postponement or cancellation of the transaction. But as soon as the new balance is reached, there will be movement again.

This new balance is not only influenced by a decrease in values. That's just one of the factors. If that were all, the new balance would be reached quickly. The reality is more complex. Because if you know that the underlying economy is strong, then you also know that after an initial small drop in value, investors will historically take advantage of the lower values and invest before the market bounces back.

That's what we're already seeing happening. And that immediately leads to an upward counter-pressure.

These are the corrections that are now taking place. This - in turn – likely creates a situation of uncertainty that makes buyers and sellers, but especially banks, temporarily more conservative. Not because there is something wrong with the underlying values, but purely because of the uncertainty and the risk-averse profile of many real estate banks. But those parties also need movement.

The interest rates are rising. That means more expensive loans, but this can also result in more savings in the bank. And therefore also more capital for banks to lend, and the need to make their returns. So things will likely move again. And when that happens, the entire market moves with it.

The first movers will do the best deals, and the rest will follow shortly after. And that in turn can lead to a boom in new property investments in the Netherlands in all segments.’


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