MAGAZINE: Dutch market ‘at the top’ as resi deals flow

The Dutch real estate sector is at its peak – or about to hit it – according to one of the biggest investors in the Netherlands.

Bouwinvest, a €12.1 bn pensions investor, has called the top of the market and predicts this high will hold for three years, it says in its new market outlook report for 2020-2022.

‘We have seen asset price inflation in all investment categories across real estate. Yields have declined to a historic low because of high investment volumes among institutional investors who have increased their real estate exposure,’ says Marleen Bosma, Bouwinvest’s head of research. ‘Yields for existing real estate in prime locations are low, but outside of prime locations there is still room and upside.’

Also fuelling the Dutch market are years of quantitative easing and rock-bottom interest rates, something that is driving asset classes across the continent. Demographics play a central role too, of course.

One eye-catching effect of the boom has been to make residential more popular with investors than offices in the Netherlands. A total of €4.5 bn has gone to housing in 2019, says advisor Capital Value, much more than the €1.9 bn to office, according to CBRE figures.

‘The residential sector has been growing in importance due largely to the rising number of households, ageing population and the huge demand for affordable and more differentiated housing,’ says Bosma.

‘The Netherlands has a long history in an institutionalised residential market which is very attractive to investors and it’s transparent. That is getting more and more important in terms of governance and ESG,’ she notes.

Housing shortage

Dutch residential is a highly fragmented segment, fuelled by solid macro-economic fundamentals, with strong demand for rental accommodation driven by an acute housing shortage and high population growth.

The Netherlands needs to build 265,000 more homes from the second half of this year to ease the shortage, according to ABF Research. The number of building permits issued in recent years has missed the government’s annual target of 75,000, declining 25% at the start of this year to the lowest level in three years.

Research by PropertyEU reveals a number of sizeable residential deals took place in the July-August period. Capitalising on the sector’s boom, two domestic residential portfolios in the Netherlands changed hands for a total of €127 mln. The sellers are vehicles linked to a private Dutch investor named Mobeta BV. Dutch asset manager Orange Capital Partners made the acquisition via its vehicle Vivada Properties.

The portfolios were purchased for €108.3 mln and €19.1 mln respectively, according to the Dutch land registry. The more expensive package comprises 218 single-family homes and apartments located across the Netherlands. The €19 mln portfolio consists of 150 apartments in The Hague and was acquired from two private investors. Back in

January, Orange paid residential specialist Amvest €58.5 mln for a portfolio of 236 homes. Also in the red-hot Dutch residential market, Swedish investor Heimstaden recently acquired 18 Dutch residential complexes from German REIT Patrizia for €97.4 mln. That deal followed a mammoth €1.4 bn Dutch residential transaction by Heimstaden earlier this year which knocked office off its perch as most popular asset class.

In a further sign of investor appetite for Dutch residential, Vesteda sold a portfolio of 18 rental properties to Canadian Apartment Properties REIT (Capreit) for €163.8 mln.

It comprises 942 residential units in urban locations, which are 98% let. Mark Kenney, Capreit’s president and CEO, said the deal was about ‘building scale’ and called the Dutch market ‘robust’.

Repurposing offices

Though offices are still the most popular asset group across Europe, the gap between that segment and residential is closing.

‘If you go back to the global financial crisis, the office market had a rough time for a couple of years and afterwards there was a lot of office space which didn’t met people’s requirements because it was not in central business districts, near public transport or for other reasons,’ says Bouwinvest’s Bosma.

‘To a large extent, these buildings have been converted into residential or hotels. The office market, especially in the five biggest cities, on infrastructure hubs, in multi-tenant buildings and mixed-use areas is very healthy.’

‘The risk profile of residential is perceived to be relatively low because it’s perceived as less cyclical and less risky than commercial sectors, such as retail and office. It is a basic necessity for people and if you look at forecast demographics they are favourable; the number of households is going to keep increasing.’

Elsewhere in European residential, DWS inked a €646.8 mln deal to buy a portfolio of eight student housing assets in six cities across the UK. The asset management arm of Deutsche Bank acquired the properties from the developer Vita Group. The deal comprises eight assets with a total of 3,198 beds.

Retail rumbles on

As residential peaks in the Netherlands, the past two months has seen more trouble on high streets for retailers across the continent.

Canada’s Hudson’s Bay Company (HBC) announced plans to pull out of Germany and is rumoured to be seeking to close stores in Amsterdam as a result of steep losses. The firm is selling its German retail assets to joint venture partner, Signa Holding, to release capital and pay off debts of €290 mln. Signa is to be released from its ‘50.01% back-to-back guarantee of certain obligations of Hudson’s Bay Netherlands’ for a total consideration of €1 bn.

Elsewhere in retail, doubts have been raised about the future of 39 Forever21 outlets in Europe, with the company reportedly nearing bankruptcy. Talks collapsed between the brand’s US-based owner and creditors, edging the firm deeper into trouble in another sign of the malaise hitting retailers, as shoppers cut the amount of time and money they spend in bricks-and-mortar locations.

The changing nature of the high street is leading to moribund retail locations being transformed for residential and office use. ‘The retail sector has taken over the baton from the office sector, as investors convert vacant spaces to other uses to adapt to changing demand,’ says Bosma. ‘Transformation of outdated retail space is expected to gather pace in coming years as the number of stores at B and C locations across the Netherlands continue to contract.

‘Fewer retail square metres are necessary per Dutch inhabitant, so we expect to see other functions for vacant retail space, in line with the shift to multi-channelling, such as pick-up points and showrooms, clicks-and-bricks purposes.

‘The retail transformation process will take time, but ultimately it will make the Dutch retail landscape more compact and future-proof and create new investment opportunities along the way.’

Though outside of the July-August timeframe, some deals that have been announced in September provide clues as to what type of retail investment might be attractive.

A joint venture between Dutch investor Sectie5 Investments and Harbert Management purchased a retail portfolio of over 80,000 m2 from local fund Dela Vastgoed. Financial details were not disclosed, but local sources suggest a deal volume of €185 mln. The shopping centres are anchored by leading supermarket chains and are geographically spread across the Netherlands. Two of the centres, in Breda and Landgraaf, have residential units on the top floor. According to Sectie5, all the assets have a strong ‘neighbourhood-oriented’ character with a focus on daily shopping.

Europe action

Elsewhere in Europe, the physical retail outlook is sunnier because fewer consumers are turning to online shopping. Of the total €547 bn spent online in the EU last year, CEE accounted for €23 bn, according to Ecommerce News Europe.

In Poland, Cromwell Property Group snapped up seven shopping centres for around €600 mln at end-August. The company exercised its pre-emptive right to acquire a third-party investor interest in the Cromwell Polish Retail Fund (CPRF), which it has managed since previous owner GE Capital Real Estate sold the investment and asset manager, back in 2013.

The acquisition was motivated by confidence in the prospects of the CEE country, the firm said. Poland has been Europe’s fastest growing economy for the past five years, with among the highest expected growths in disposable income, consumer spending and retail sales globally.

Meanwhile, there has been plenty of action in the office asset class.

Spain’s largest insurer Mapre has paid €296.1 mln for nine offices in Paris, in what is its biggest investment yet in France. The firm made the purchase with Swiss Life in a 50:50 joint venture. The deal appears to be a move to protect profitability amid the prevailing low interest rate environment, by increasing the portfolio of alternatives.

Brexit uncertainty did not stop Legal & General (L&G) spending €233 mln on two office buildings in the secondary city of Leeds, in northern England. Totalling 35,000 m2 of space, the two Grade A office buildings at Wellington Place have been fully let to local public authorities. Leeds has the largest growing workforce outside London and the second largest financial hub but suffers from an extremely low supply of high quality office space.

The deal, executed with financial backing from L&G Retirement, represents L&G's 10th government hub across the country and the largest regional pre-let in a decade, according to the firm.

Meanwhile, the trend of short supply in prime locations, properties being converted to new uses and the burgeoning alternatives sector was on display in Paris, where the former headquarters of the French army was acquired by Constellation Hotels – backed by the Qatari royal family via its Qatar Holding - for a reported €300 mln.

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