Market risk overall

Due to the sudden growth in inflation 2022 was marked by sharp policy rate increases by central banks. This led to valuation corrections in real estate from Q4 2022 onwards. Policy rates were further increased in 2023, albeit in a more moderate way as central banks were slowly regaining control of inflation. The present political instability in the Middle East will also increase geopolitical instability, with already direct effects visible in supply chain related risks. Although the economic consequences are yet unknown, a reignition of inflation is lurking.

Bouwinvest monitors and evaluates these market circumstances on a continuous basis, and they are taken into account, both in the daily management of the Fund and in the investment and divestment decision processes.

In the political landscape of the Netherlands, but also in an international context, we are seeing a shift to the political ‘right’ and further polarisation. Furthermore, following last year's elections, the Netherlands is currently governed by the outgoing administration. This leads to ambiguity on its overall vision on the real estate market and more specifically on (new) regulations.

Occupancy rate risk

The Fund has a leasing strategy for each individual retail asset to achieve an optimal occupancy rate. In most locations, but especially in district shopping centres, it is also vital to have the right mix of complementary tenants to ensure the long-term success of a shopping centre. Despite the higher level of inflation and increased (energy) costs for tenants, the Fund managed to maintain its average occupancy at a high level in 2023. The long-term impact of deferred Covid-19 tax payments, structurally higher inflation and low consumer confidence on the financial resilience of tenants is still unclear at this moment.

Credit risk

In 2023, outstanding tenant receivables declined from 2.5% (Q4 2022) to 0.9% at the end of year. The Fund expects outstanding tenant receivables to increase slightly in 2024, due to the fact that retailers are facing a major rise in operating costs, including rent, energy, deferred tax debt, materials and wages.

Liquidity risk

Within the area of liquidity risk, no material risks occurred in 2023.

Business risk

Tax risk

Fiscal structure of the Fund

Legislation prohibiting fiscal investment institutions (Flls) to directly invest in Dutch real estate has been adopted and will become effective on 1 January 2025. For this reason, a restructuring of the Fund into a tax transparent so called closed fund for mutual account (‘gesloten FGR’ in Dutch) is planned for 31 December 2024. A closed fund for mutual account is not subject to income tax. This new legislation also includes a conditional exemption from real estate transfer tax for shareholders with a so-called substantial interest (>=33⅓%) upon a restructuring that is triggered by this change in the FII rules.

Increase in rate real estate transfer tax (RETT)

After the increase of the RETT rate as per 1 January 2023. Its exact impact on the real estate market could not be specified due to market volatility.

ESG risk

Within the area of ESG risk, no material risks occurred in 2023.

Operational risk

Within the area of operational risk, no material risks occurred in 2023.

Compliance risk

Within the area of compliance risk, no material risks occurred in 2023.

There were twenty-eight data breaches with respect to the processing of personal information. Five of these were reported to the regulator, the Dutch Data Protection Agency. Some of the data breaches occurred at processors, such as property managers. All data breaches were investigated and, where necessary, additional control measures were taken. Bouwinvest has informed the data subjects.