Last year was another difficult year for real estate markets and the Dutch economy, due to continued geo-political, social, economic and financial turbulence, plus increased environmental concerns. On top of the continuing war between Russia and Ukraine, October saw a tragic escalation of the Israeli-Gaza conflict. The Ukraine war continued to push up inflation in the early part of the year, driven by high energy costs. Inflation did decline quite rapidly in the latter part of the year, taking annual inflation to around 3% for the full year. At the same time, central banks fought inflation by raising interest rates to the highest levels in 20 years. This all had a major impact on the Dutch estate market, resulting in a sharp decline in real estate valuations driven by higher borrowing costs, reduced investor confidence and appetite and increasing economic uncertainty. At the same time, the year 2023 will go down as the hottest and the wettest year since records began, once again confirming that climate change is part of our day-to-day lives and that everyone, including the real estate sector, needs to take urgent action.

The deep recession feared at the end of 2022 did not emerge last year, thanks to a surprising surge in consumer spending, although GDP growth was flat or negative for most of the year. Despite this, unemployment has remained remarkably low over the past year. In fact, there are growing shortages of workers in several sectors, which is hampering growth. And while wages have increased quite sharply, they have not been able to keep pace with inflation. Following the end of the government’s Covid-19 support measures, bankruptcies in 2023 were just over 50% higher than in 2022, with the retail sector among the most affected, possibly triggered by the end of government support and the payment of deferred taxes.

On a more positive note, environmental concerns and higher energy costs are increasing the demand for sustainable (climate-proof) and energy-efficient retail units. We have always taken the long-term view, including with regard to the sustainability of our retail assets, and we believe this will help us to weather the current storms.

Investment market

The sharp rise in interest rates had a major negative impact the real estate investment market, especially for investors that rely on leverage. Driven by higher interest rates, the yield gap also tightened significantly, putting additional pressure on prime yields. As a result, many (international) investors cut back on their investments or withdrew from the market. Additionally, the increase in the real estate transfer tax from 1 January didn't do anything good to boost declining real estate investment levels.

In late 2023, the government published the bill prohibiting fiscal investment institutions (FIIs) from investing in directly held real estate, which will come into force on 1 January 2025. In response to this, the Retail Fund is now planning to convert into a fund for mutual account (FMA - Dutch FGR) effective 1 January 2025.

Retail real estate investments dropped by 58.2% to € 890 million in 2023, with the convenience retail sector hit as hard as the experience retail sector. On the occupier side, retail vacancy increased slightly, to 6.2% from 6.0%. At the same time, take-up ended up at 590,000 m² in 2023, some 11.3% higher than the previous year, which shows the resilience of the retail market. 

On the Netherlands' high streets, footfall increased further in 2023, boosted in part by continued growth in tourism. This is a much-needed trend, as retailers are dealing with the end of government support and deferred tax bills, while also being hit hard by rising costs. 

Online retail continues to grow gradually, but is also becoming an increasingly competitive sub-sector, as it seeing more competition from Asian low-budget competitors, as well as higher costs for marketing and transportation.

The Fund’s strategy

The Fund’s fundamental strategy was unchanged in 2023, and the Fund delivered a solid performance with a total fund return of 3.6% for the full year, outperforming the MSCI index with 2.9%. This was also well above our own forecasts for the year, mainly due to the stable values of Convenience assets. The Fund’s past performance was recognised once again in 2023, as it won the MSCI European Property Investment Award for the fifth year in a row. MSCI named the Retail Fund the best-performing specialist real estate fund in the Netherlands over the previous three years through December 2022. 

We also put even greater focus on our main strategic pillars - quality, future-driven and sustainability in 2023 and delivered solid performances on all three pillars. On the quality front, the Fund completed the acquisition of De Groote Wielen shopping centre in Rosmalen-Noord, while Q4 saw the completion and delivery of the Kerschoten shopping centre in Apeldoorn. The Fund also managed to sell a non-core experience asset in Maastricht to optimise its portfolio. The Fund now has five assets on its disposal list and expects to see more traction on these in 2024, now that the investment market is picking up slightly.

On the future-proof front, the Fund completed two projects at Demer 48 in Eindhoven and the Goverwelle shopping centre in Gouda. The Fund also made preparations or started projects at four other assets: Lijnbaan Rotterdam (three projects, at Lijnbaan 111, Lijnbaan 101-105 and the Lijnbaan Albert Heijn), Spuihof The Hague (renewal of entry), WTC Rotterdam (new facade) and the Prinsenland shopping centre in Rotterdam. The efforts at the Lijnbaan centre in Rotterdam have already paid off, as the Fund signed a lease with new tenant Nike for what could turn out to be the largest Nike store in the Netherlands.

In 2023, the Fund managed to retain its GRESB 5-star rating and increased its score to 92 points, four more than the previous year. The Fund also improved its ranking to fourth out of six in the Netherlands, from sixth the previous year. The Fund also continued its efforts to gain greater insight into the energy use (and emissions) of its portfolio on the basis of actual consumption data, custom-made (asset-level) recommendations and BREEAM improvement plans. As a result, the Fund invested € 1.7 million in sustainability improvements at its Lijnbaan 111, Goverwelle and Demer 41 assets and drew up plans for an additional five projects. In Q4, the Fund conducted in-depth Paris Proof analyses for 30 assets, covering 85% of the entire portfolio. This will help the Fund to identify the most important improvements.

The Fund also reviewed its ESG performance framework, and made preparations to enable it to direct its progress on Paris Proof targets and refine its asset-level sustainability plans based on the CRREM performance of those assets. 

All that remains is for me to thank our clients for their continued trust in us and our strategy. And of course I would like to thank our team for their hard work, professionalism and collaboration over the past year. It is thanks to their hard work that we emerged in relatively good shape after another challenging year.

Collin Boelhouwer
Fund Manager Dutch Retail Investments