Garbe: shift to value-add in tight Dutch logistics market

It is all about value-add rather than core in the Dutch logistics market, delegates heard at Real Asset Media’s European Logistics Real Estate Markets: Is Now the Right Time to Invest?’ briefing, organised in collaboration with Garbe, which took place online this week.

“Scarcity of land and of supply has led to a shift to brownfield developments,” said Maurits Smit, managing director, Garbe Industrial Netherlands. “They are becoming a more attractive proposition because they offer a solution and can be brought to market more quickly.”

Last year saw a 39% decline in investments, but the market has gathered momentum this year as macro- economic conditions improve.

“There are more transactions happening now but they are of a different type,” said Smit. “It used to be German core investors buying long-term, now we see more international opportunistic investors looking for rental growth.”

The Dutch market has significant challenges: land availability is severely limited, regulations are strict, there is often opposition to logistics developments from local authorities as well as communities, and the lack of capacity of the electricity grid is becoming more of a problem. In the last couple of years high construction costs, the rising cost of capital and stricter environmental standards have made it harder to do developments.

Despite the challenges, it remains one of the top three logistics markets in Europe with Germany and the UK, with an average annual investment volume of €3.2 billion over the last few years.

It is also the second country in Europe for e-commerce sales. The port of Rotterdam, the biggest of the continent, gives the Netherlands a total freight per capita of 33.3 tonnes, compared to a European average of 6.6 tonnes.

The country’s geographical location in Europe, its strong transport infrastructure and global trade connections make it a strategic market for logistics. “This is why demand for high quality, ESG-compliant  logistics assets continues to be high,” said Smit. “As the pipeline of new developments decreases, in the next 12-18 months CBRE expects rental growth to be 4-6%, and more in some regions where take-up is highest.”

The market’s popularity is also reflected in the sharp decrease in the prime net yield, which has dropped by 183 basis points in the last four years. The market expectation now is that interest rates and yields will decrease, making this a “pivotal moment” in the Dutch logistics market.

“The fundamentals of the market remain exceptionally strong and offer significant opportunities for investors,” said Smit. “It is a very good time to invest in the Netherlands but be careful: you need to have boots on the ground, look at the location, the micro-economic context and the macro environment. Investing in logistics is not as easy as it used to be.”