The focus on ESG compliance is yet another positive for the thriving Dutch logistics sector, experts agreed at Real Asset Media’s Netherlands Investment briefing, which took place recently at Schroders Capital’s offices in London and online on the REALX.Global platform.
“ESG is a challenge because there is a lot of older stock”, said James Farmer, Partner, Boreal Investment Management. “But we see it as a great opportunity to buy older assets and repurpose them, upgrading them with solar power, heat pumps and so on. In the next year we’ll focus on enhancing and protecting the value of our assets”.
Boreal already owns 250,000 m2 of logistics assets in the Netherlands, half of them located in the Randstad, but it is planning to invest more.
“Trends in the Netherlands are extremely positive for logistics”, Farmer said. “There’s a good road infrastructure, great ports and population density is high. We see real rental growth pushing through in key locations and we’re confident it will continue, because supply cannot keep up with demand”.
The logistics sector is performing well compared to others and because of this it can afford ever-increasing rents.
“In the Netherlands CPI correction is incorporated in all rental contracts, so we’re seeing 7-8% increases which retail and office tenants often cannot pay”, Pieter Willem Akkerman, Co-Head Real Estate Netherlands, Schroders Capital. “But in the logistics sector every tenant pays, so we’re seeing rents go up significantly”.
Land prices are also going up as land is scarce and demand is high, which has an impact on the valuation of existing stock.
“There is no doubt that the capital markets environment is weakening, but logistics is still fundamentally strong, with strong take-up and rental growth”, said Farmer. “We’re seeing less competition in the market when we are buying, but the Netherlands is very well positioned to withstand the crisis, as the economy is still growing which is not the case in the UK”.
But despite its relative resilience there are some headwinds for the logistics sector. One is rising yields: at the prime end they have moved from 3 to 4% in a few months.
“Financing covenants are coming under pressure, especially in logistics where we’ve seen extremely low yields despite strong fundamentals”, said Rogier Bos, Real Estate Finance Benelux, Berlin Hyp.
The other issue is the looming threat of more restrictive regulation.
“There are serious planning issues and a big debate about the numbers of distribution centres being built in the country”, said Simone Wijngaard, Senior Associate, Greenberg Traurig LLP. “Some people want to impose the same restrictions on big boxes as there are on data centres, which are only allowed in two locations. There is no legislation as yet, but certainly a lot of opposition to new warehouses. A ban would be very problematic”.