Outlook 2021: Dutch markets look to gain from e-commerce growth and Brexit

Image: Adobe Stock/Rawf8

Despite an expected slower bounce back from Covid-19, the resilient economy bodes well for real estate.

The Dutch market was more resilient than most in 2020. There was no steep fall, but that also means there will be no bounce back this year. 

“Dutch GDP felt less of a negative impact from the Covid-19 crisis than other EU countries, partly thanks to a strong and rapid response from the government,” explains Dennis Schoenmaker, associate director, research & strategy, at AEW. “The forecast is that at the end of 2021 only Germany will be ahead of the Netherlands in Europe.

“The crisis was less severe but we expect the recovery to be slower because it starts from a higher level,” he adds. “The slower vaccine rollout in the Netherlands is a negative factor and elections coming up create some uncertainty.”

Like the economy, real estate proved its resilience last year. Volumes were significantly down on 2019, but with sharp differences between sectors. “Offices were hit the worst, while residential and logistics were barely affected, because of the strong tailwinds for those sectors that are attracting many investors,” Schoenmaker says.

Risk-adjusted returns

Yields also diverged substantially. Shopping centre yields widened out in quite a dramatic way to more than 6% from less than 5%, while logistics yields fell to 3.5% because of high investment volumes and residential yields were also lower for the same reason.

However, the spreads are such that real estate is still an attractive investment, says Schoenmaker. “On an absolute level you could say that real estate is expensive because yields are low, but if compared to the equity market or fixed income then it becomes very attractive because the spreads are still at historic highs.”

AEW has looked at total returns expected in the next five years and the required rate of return to compensate investors in 100 different markets. The research highlights the Netherlands as one of the most attractive markets on a risk-adjusted basis.

“The expected rates of return are higher, certainly better than in most markets in Europe,” says Schoenmaker. “Logistics in Amsterdam and Utrecht are top of the list and offices in those two cities offer good value as well. Retail is struggling, although less than expected, and there is some repricing taking place in the market.”

‘The Netherlands has long been a pioneer in the working-from-home trend, so the pandemic has had less of an impact on the sector.’ 

Rogier Bos, Berlin Hyp

The combination of Brexit and Covid-19 is making the Dutch logistics sector even more attractive. “UK-based firms are looking for a foothold in mainland Europe and the Netherlands is the obvious place to look, as we’re just across the Channel and have a major port of entry,” says Jeroen Gerritsen, managing director of Panattoni Netherlands. “British and international firms alike underestimated the impact of Brexit, but now that it’s here we see an increase in demand.”

The country has another great advantage apart from location, he adds: “There are still opportunities to be found here and there is availability of land, while in Germany it’s increasingly difficult to find locations.”

The sector’s fundamentals are good, supported by two pandemic-related factors: the increase in e-commerce and the move away from just-in-time models to having more stock available at all times to avoid glitches in the supply chain.  

The year of logistics

“The lockdowns have swept away any reservations and absolutely everyone is doing online shopping now. E-commerce is here to stay,” says Gerritsen.

The expectation is that people will keep buying online even when the pandemic recedes and they are allowed back into shops. “The reshoring trend has been accelerated by the pandemic and there is more demand for logistics and light industrial assets in general and for facilities close to cities in particular,” says Schoenmaker. “The trajectory of demand is why logistics is now top of many investors’ list.”

According to Savills figures, last year the logistics sector attracted €4 billion in investments, a 40% increase on 2019, and the good performance is likely to be repeated this year.

“2021 will be the year of logistics,” predicts Jordy Diepeveen, director, head of acquisitions, at Savills Netherlands. 

Source (top): Oxford Economics & AEW Research; (bottom) RCA & AEW Research

As demand increases, the challenge will be finding opportunities, he adds. “There are limits to the land available for logistics development, so the trend is to go from greenfields to brownfields.”

The switch to brownfield sites creates opportunities and helps in bringing about supply but these sites have added complexities, says Gerritsen: “There are planning, mitigation and environmental issues and they can be very tricky.”

Resi the largest sector

In 2020 residential attracted the most capital in the Dutch market. “Last year residential became the largest sector in the Netherlands and it is set to remain the largest this year,” says Diepeveen.

Activity accelerated, especially towards the end of the year and the market was red-hot in December ahead of an increase in the residential transfer tax for investors, which went up on 1 January. 

Some of that tax effect will dissipate in the next few months, but the sector will continue to attract interest because of the supply and demand imbalance. 

Even niche residential sectors are becoming mainstream as investors look for alternatives. “Residential in general is number one on investors’ list and progress must be made quickly because one million houses are needed in the Netherlands,” says Claudia van Haeften, founder & CEO of real estate business platform Societeit Vastgoed. “But looking ahead the big trend will be senior housing because it is very much needed.” 

‘Residential in general is number one on investors’ list and progress must be made quickly because one million houses are needed in the Netherlands.’

Claudia van Haeften, Societeit Vastgoed

Even the most risk-averse lenders are willing to finance residential because it is seen as a safe investment, not just in Amsterdam but across the country. 

“The urbanisation trend may have stopped now because of the pandemic but it will come back,” says Rogier Bos, head of real estate finance Benelux, at Berlin Hyp. “Conservative lenders continue to focus on the residential market outside the capital as well, because the Netherlands has a great number of attractive cities where people want to live.”

Boost for Amsterdam offices

Banks are less keen on the office sector because prospects are uncertain. “The office is a complicated sector, no one knows what is going to happen and lenders are very risk-averse, as low demand and low yields are not a good combination,” says Bos. “There’s room for alternative lenders to step in and finance deals that the banks are not prepared to finance.”

However, there are reasons to be more optimistic about the office sector in the Netherlands than other countries, says Diepeveen. “The Netherlands has long been a pioneer in the working-from-home trend, so the pandemic has had less of an impact on the sector,” he says. “Investors still have faith in Amsterdam and in the core segments in other cities, but not in secondary offices. There’s a real split in the market.”

Amsterdam has been in the news, as the city has emerged as a real rival to London. Thanks to the presence of the stock exchange Euronext, in January the city became Europe’s biggest hub for trading shares with a daily average of €9.2 billion, a fourfold increase since December, while the City of London’s volumes fell to €8.6 billion after the UK left the EU. It’s a symbolic but significant Brexit boost for Amsterdam, which bodes well for the office sector.