Public policies

Government plans

On  7 July 2023, the Dutch government collapsed due to a disagreement between coalition parties over asylum policies. New national elections were held on 22 November 2023 and the process of forming a new government is still underway. This is likely to take some time as at least four different parties are needed to form the new government. Until then, the caretaker government is not expected to make any major political decisions.

The Dutch government increased the real estate transfer tax (RETT) from 8.0% to 10.4% as of 1 January 2023.

Office real estate policies

As of 2023, all non-listed Dutch office buildings need to meet C energy label sustainability standards. However, as at 1 January 2024, 10% of all office floor space still do not meet these standards, while another 13% do not yet have an official label. The enforcement of this legislation is in the hands of local authorities. This could ultimately result in office buildings being withdrawn from the market when leasing risks do not justify the necessary investments.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. The Fund complies with this new legislation; 98% of the Fund's assets have an A energy label. The two assets that do not have this label are listed buildings, which are not subject to this legislation.

Occupier market

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. This will gradually result in a lower total need for office space.

The Fund expects this to mainly affect less attractive and secondary locations as occupiers will re-evaluate their existing office location and a number of them will opt for a smaller office at a better site. Taking into account the battle for talent, 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.

Last year saw a major drop in new-build office projects. High construction costs and interest rates are putting significant pressure on the potential return on new-build offices. Steep rental prices are needed to achieve a sound business case for both developers and investors, meaning that very few buildings are currently being developed.

Alternatively, investing in sustainability measures in existing buildings might provide for interesting opportunities, as tenants are increasingly open to paying a premium for sustainable office space, while at the same time cutting down on energy costs.

The combination of the effects of working from home, the low level of new-build projects and the current economic headwinds resulted in total office take-up of 765,000 m² in 2023, which was 30.8% lower than the previous year.

The transformation of vacant office buildings is still ongoing and as a result vacancy in the office market dropped to 5.8% in 2023 from 6.2% in 2022. Vacancy in prime office markets remained low and stable and stood at an average of 4.4% at year-end.

The low vacancy in prime locations resulted in a further increase in prime rents in Amsterdam, Rotterdam and Utrecht, while rents remained stable in The Hague and Eindhoven.

Investment market

The real estate investment market in the Netherlands and in most other countries came to a near standstill in the first half of 2023. The main reason for this was the rapid series of interest rate hikes by central banks to counter high inflation. As a result, initial yields increased and property values began to fall, which led to a cautious market sentiment and a growing gap in pricing between sellers and (leveraged) buyers.

In the Netherlands, additional challenges, including the above-mentioned increase in transfer tax and newly announced policies regarding tax measures for investors, also contributed to this cautious investment sentiment. Together with the increasingly gloomy economic outlook and geopolitical turmoil, this led to a sharp drop in total real estate investment volume to € 7.6 billion, from € 17.4 billion the previous year. The drop was across the board, although the second half of 2023, when inflation was tempered, did see signs of a recovery, especially in the residential and healthcare markets.

The office investment market came in at a total of € 1.4 billion over the full year 2023. This was 62.3% lower than the previous year, when two record transactions were recorded. Last year saw a drop in both the number of transactions and in the size of transactions. In 2023, only a single transaction over € 100 million was registered, the purchase of De Resident in The Hague for € 217 million.

As a result of the increase in interest rates and the challenging economic outlook, 2023 saw a further substantial expansion of initial yields. Amsterdam, which previously had the smallest yield gap, recorded the largest initial yield increase of the G5 cities over the past two years: +190 basis points. Current interest rates would indicate that we have now seen the largest part of the yield decompression.

The potential longer-term effects of working from home on the office sector is also cause for 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, although they will not be immune to short-term pressure on vacancy rates and rents.