Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Netherlands Residential MarketView November 2014 CBRE Global Research and Consulting INFLATION Q1-Q3: 1.0% HOUSE PRICES Q3: 4.8% y-on-y SOLD UNITS Q1-Q3: 37.9% y-on-y INVESTMENT VOLUME Q1-Q3: 231.7% y-on-y PRIME YIELD (MULTI) Q3: -10 BPS q-on-q GROWING CROSS-BORDER INVESTMENT ACTIVITY Quick stats Movement since 14 Q1 13 Q3 Rental prices Initial yield Figure 1: Key economic data Consumer confidence (LHS) Favourable conditions for large purchases (LHS) Unemployment (RHS) Hot Topics Continued recovery of owneroccupier market Growing regional differentiation Record high investment volumes Strong foreign investment activity Institutional investors shifting to the buy side 0-5 -10-15 -20-25 -30-35 -40-45 -50 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1 Key Facts Supported by gradual economic recovery and a better sentiment, the Dutch residential market has entered a recovery phase. The Dutch economy grew by 0.2% on a q-on-q basis in the third quarter of 2014. Also, the unemployment rate is declining. However, in recent months economic growth is surrounded by increased uncertainty. Leading indicators, such as consumer confidence and the number of temporary workers hired, are pointing at weaker growth for the months ahead. Despite this increased uncertainty, the economic growth is expected to strengthen throughout 2015. Export as a driver of growth is expected to be substituted by consumer spending, which is a sign of sustainability. Source: Oxford Economics & Statistics Netherlands This shift towards consumption-led growth already started during the second quarter of 2014. Household consumption as component of economic growth was up by 0.4% on a q-on-q basis. Along with the increasing household consumption, retail sales rose as well. This was most notably the case in the food segment of the market, but also DIY spending increased. Spending growth on other durable goods was still negative, though. Based on these early signs of recovery activity in the residential market is growing. Household-related internet searches are on the rise, as well as the number of mortgage applications.
Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Thousands November 2014 Netherlands Residential MarketView Owner-occupier recovery The owner-occupier residential market has seen increasing activity and a modest growth in average price levels. However, there is a large regional variety in the recovery. The economic core regions in the west of the country are reporting solid price increases, whereas in the peripheral parts of the country price levels are still declining. Moreover, the current upturn in price levels and transaction volume is still a long way from pre-crisis levels. After six years of decline, the owner-occupied market transaction prices are still 19% below the peak in August 2008. In terms of transaction volume current activity is about 34% below the peak in December 2008. Generally, price increases in the owner-occupied market correlate positively to rental growth in the rental market. However, the rental market in the Netherlands is still mostly regulated with rents capped by the government. The nonregulated rental market covers only 4% of the total housing stock and is showing recovery dynamics largely in line with the owner-occupier market. Rental segmentation Average rental prices in the non-regulated segment of the market have been increasing gradually throughout the first three quarters of 2014. Also in this market, the geographical variance is substantial. According to broker Pararius, for example, new renters pay on average 16.56 per sq m per month in the economic core province of North Holland and 7.86 in the peripheral province of Drenthe. Within the province of North Holland, Amsterdam clearly stands out in terms of rental levels and rental growth. Here, average rental levels are the highest in the Netherlands and are expected to remain high due to ongoing demand pressure, particularly in the mid-segment where availability is scarce and demand high. In the other three large cities, Rotterdam, The Hague and Utrecht, rental levels are about at least 5 lower than in Amsterdam. These numbers illustrate a clear pattern of divergence in the non-regulated rental market, where differences occur at city/regional level. Figure 2: Household growth 2014-2040 Figure 3: Sold OOC units 20 18 16 14 12 10 8 6 4 2 0 Source: Statistics Netherlands 2 Investment market In the first three quarters of 2014 the investment volume in residential property amounted to over 1.8 billion, representing a stunning y-o-y increase of 232% compared to the first three quarters of 2013. Especially the second and third quarter of the year showed record high investment volumes of respectively 690 and 870 million. Most of the investment deals in 2014 concerned properties in Amsterdam and nationwide portfolios. This is reflecting the fact that investors are mostly targeting large portfolios and are focusing on the core areas with economic and demographic growth. In the past few years, institutional investment managers have been the most active parties on the sell side, as they actively sought to clean up their portfolios. Now, they are gradually returning to the buy side as they have acquired new capital and mandates and have created room for new inflows in their portfolios. Source: Land Registry Figure 4: Price index existing OOC dwellings 2010 = 100 90 89 88 87 86 85 84 83 82 81. Source: Land Registry / Statistics Netherlands
2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 / sq m / year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E Figure 5: Rental development % Nominal Inflation Real 7 6 5 4 3 2 1 0-1 Source: Statistics Netherlands Figure 6: Unregulated market rents 14.0 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 Source: Pararius More strikingly, international investors have made a big entrance in the Dutch market, mostly reflected by large-scale purchases of investors such as BNP Paribas REIM and Round Hill Capital. The largest (foreign) transaction concerned the purchase of a portfolio (5,500 units) from distressed housing corporation Vestia by German investor Patrizia, for more than half a billion euros. Although the transaction must still be approved by the Minister, a price agreement has been reached. With this transaction, the first step towards the sale of large housing corporation portfolios is a fact. It is expected that housing corporations will increasingly replace the institutional investors on the sell side of the market. Following the growing interest and increasing investment activity, net initial yields have recently sharpened to a level of 4.5% for multi-family housing and 4.3% for single-family housing. It should be noted that yields move out quite rapidly when the location is subprime and in the case of older and partially sold multi-family complexes ( Swiss cheese ). Debt The recent increase in investment deals has been fueled by favourable developments in the debt financing market for residential investments. Availability of debt finance has been steadily returning to the residential market since the last quarters of 2013 with deep liquidity back since the last three quarters of 2014. Interest is now coming from a broad group; Pfandbrief lenders, international insurance companies and debt funds, but local lenders ABN AMRO and especially ING are also more active again. The international investor interest in housing corporation portfolios has prompted many international lenders to spend time in understanding the Dutch market, something they are now trying to deploy on other transactions as well. With that background these lenders are slowly getting more comfortable with Dutch market particulars such as shared ownership (through a homeowners association), leasehold and rent regulation. November 2014 Netherlands Residential MarketView 3 Figure 7: Investment volume x Mio 1,000 900 800 700 600 500 400 300 200 100 0 Source: CBRE The availability and terms of financing are, however, strongly influenced by the need for a higher overall loan volume as well as the volume per complex, although granular high-quality portfolios are also attracting attention. With the current low base rates all-in interest costs for the better assets can easily come in below 2%. Lenders specifically look for professional sponsors and partners with an ability to manage residential portfolios. Lending conditions on the owner-occupier side of the market have been influenced by two contrasting developments. Stricter fiscal regimes introduced in 2013 and tighter conditions set by banks have made borrowing more expensive. However, persistently decreasing interest rates and increased competition on the lending side of the mortgage market have had a downward effect on the borrowing costs. The downward pressure on interest rates has in fact outweighed the stricter lending policy, resulting in lower overall financing costs for homeowners. Due to this, the owner-occupier market is offering increasing competition for the unregulated rental market. 3
November 2014 Netherlands Residential MarketView Figure 8: Purchasers 2014 Q1 2014 Q3 71% 2% 1% 26% Table 1: Prime net initial yield Private Institutional, Investment Fund Corporation Other 2013 Q4 Source: CBRE Figure 9: Vendors 2014 Q1 2014 Q3 38% 2014 Q1 6% 17% 2014 Q2 39% Developer Institutional, Investment Fund Corporation Private / Other Source: CBRE 2014 Q3 Single-family 4.50 4.40 4.30 4.30 -family 4.80 4.70 4.60 4.50 Table 2: Key investment transactions 2014 Q1 2014 Q3 Location Type Purchaser Vendor Status Price (mio ) Number of units Netherlands Nationwide Mixed Patrizia Vestia Existing 578 5,500 Netherlands Nationwide Mixed Round Hill Capital CBRE DRES Existing 180 1,534 Netherlands Nationwide Mixed Quadrigo BPFD Existing 138 987 Netherlands Nationwide Mixed Aventicum Capital Bouwinvest Dutch Institutional Residential Fund Existing 100 723 Netherlands Nationwide BNP Paribas REIM Amvest Existing 40.1 265 4 The Hague Amsterdam The Hague The Hague Amsterdam Student Bouwfonds European Residential Fund Bouwinvest Dutch Institutional Residential Fund Syntrus Achmea Value Added Residential Partnership Bouwinvest Dutch Institutional Residential Fund Bouwfonds European Student Housing Fund Stebru New 54 456 Dura Vermeer / NJ de Nijs New Est. 50 300 Provast New 40 149 Pinnacle New Est. 30 154 Foolen & Reijs Vastgoed (City Pads) New 25.7 354
OUTLOOK Market recovery has set in, but it is very uneven and focused on the major cities in the west of the country, particularly (Greater) Amsterdam and Utrecht. Due to this development there is a growing differentiation in the Dutch market. This is resulting in well-performing regions with increasing house prices and a strong demand pressure on the one hand and less-performing peripheral regions where recovery is lagging on the other. On the long term, this differentiation is likely to strengthen as projections of population and household growth in the various regions differ strongly. Pressure on the Dutch government and the housing corporations to limit access to social housing to those that really need it, i.e. the lowest income groups, has resulted in new regulation. Since 2013 the government has agreed on a housing covenant, implementing additional income-based rent increases in order to stimulate higher income groups to move up and out of regulated rental units. This will put more pressure on unregulated rental housing, especially the midsegment, where there is a tight supply of available units. Recently, the government made a proposal to determine that the maximum allowed rent in the regulated sector should not only be based on the housing valuation system, known as the points system or WWS, but also adding the tax value ( WOZ-waarde ) as a factor. By doing this, rents will be higher in desirable areas, which should further facilitate the movement towards the unregulated, commercial rental market. It should be noted that pressure on the unregulated rental segment is partially relieved by an increased affordability of mortgage loans, which might divert some of the outflow of the social housing sector to the owner-occupier market. In another response to tight market conditions, new (re)developments and transformations have started to pick up, also targeting the mid-segment of unregulated rental housing. This is particularly the case in Amsterdam, but also in The Hague. In the capital, a considerable number of eyecatching new development schemes have started or are being marketed. They are often located at work/leisure locations near the inner city, underlining the increasing interdependence of working, leisure, shopping and living. A growing pipeline together with the prospects of a prolonged shortage of rental housing provide opportunities for investors, as the commercial rental segment in the Netherlands is still rather small. Besides, rents have increased by 4.7% on average in 2013 and 4.4% in 2014, largely thanks to the impact of government regulation. For the years to come, these rent increases are expected to remain on elevated levels, exceeding inflation substantially. The interest from investors in the Dutch housing market has increased strongly since the second half of 2013 and is expected to continue in the years to come. Foreign investors have prominently entered the market in 2014, which was previously dominated exclusively by a group of Dutch institutional investment managers and a group of large private property companies and family offices. They are accompanied by more liquidity on the debt market, a result of the entrance of new providers. The sell side of the market, on the other hand, will increasingly be fed by the disposal of portfolios of housing corporations. November 2014 Netherlands Residential MarketView 5 5
November 2014 Netherlands Residential MarketView CONTACT For more information regarding the Dutch Residential Market, please contact: CBRE Research and Consulting Machiel Wolters Director Research and Consulting e: machiel.wolters@cbre.com CBRE Capital Markets Alexander Buijs Associate Director Capital Markets e: alexander.buijs@cbre.com Joep van Vliet Senior Consultant Research and Consulting e: joep.vanvliet@cbre.com CBRE Valuation Advisory Pieter Broumels Director Valuation Advisory e: pieter.broumels@cbre.com Nick van Wijk Consultant Research and Consulting e: nick.vanwijk@cbre.com + FOLLOW US LINKEDIN linkedin.com/company/cbre-nederland TWITTER @CBRENederland Global Research and Consulting This report is prepared by the Research and Consulting team at CBRE Netherlands, part of CBRE Global Research and Consulting - a network of leading market researchers and consultants who work closely together to deliver real estate market research, forecasting and strategic advice to investors, financiers and end-users worldwide. 6 Disclaimer Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE. www.cbre.nl