THE DUTCH REAL ESTATE MARKET

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1 THE DUTCH REAL ESTATE MARKET UPDATE NOVEMBER

2 2 COLOPHON Published by Nederland BV Department Colliers Research & Consultancy BV Design Harold Kastelijn Images Shutterstock.com / Axel Bueckert [31] Publication November 2017 Contact Nederland Buitenveldertselaan VA Amsterdam Tel Amsterdam 2017 Except for the exceptions stipulated in or pursuant to Dutch copyright law, none of the contents of this publication may be reproduced by way of printing, photocopies, automated data files, the internet or in any manner whatsoever without the prior written consent of Nederland. The authors have made every effort to ensure that the publication is as reliable as possible. Nevertheless, they cannot accept any liability for any inaccuracies that may appear in it.

3 3 Contents 1 Dutch real estate market 5 2 Office market 11 3 Industrial and logistics market 15 4 Retail market 21 5 Housing market 27 6 Hotel market 33 7 About 39

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5 1 Dutch real estate market

6 6 DUTCH ECONOMY DOING WELL The Dutch economy is performing strongly. The economic forecasts for 2017 and 2018 were adjusted upwards in mid 2017 and assume an annual growth of around 2.0 to 2.5%. Companies are investing more and advertising more vacancies. Employment growth of 2.0% is expected for 2017, which would be the strongest increase in ten years. At the same time, unemployment has been falling. The unemployment rate fell to a level of 4.7% this autumn. The fall in unemployment is expected to level off somewhat in 2018, due to a slight decrease in employment growth. The Dutch government is benefiting from the economic growth. Over 2017, the government expects to receive almost 8 billion euros more in tax and contributions receipts than forecast. At the same time, spending on unemployment is falling. With a forecast budget surplus of 0.5% in 2017 and 0.8% in 2018, the public finances are in good shape. It is expected that public debt this year will be 57.5% of GDP, below the European limit of 60%, and will fall further in 2018 to approximately 54.4% of projected GDP in SINCE MID-2017, THE UNEMPLOYMENT RATE HAS FALLEN FURTHER Consumers have more confidence in their financial positions, and their consumption is increasing. In combination with low interest rates, this is also driving the housing market F GDP 2.30% 2.20% 3.30% 2.50% Inflation 0.20% 0.10% 1.30% 1.30% Unemployment (x 1,000) Unemployment % 6.90% 6.00% 4.90% 4.30% Purchasing power 1.00% 2.70% 0.30% 0.60% Household consumption 2.00% 1.60% 2.20% 2.40% DEVELOPMENT OF ECONOMIC GROWTH DEVELOPMENT OF INFLATION INTEREST TEN-YEARS GOVERNMENT LOANS PRODUCER- AND CONSUMER CONFIDENCE

7 7 THE USER MARKET The flourishing economy represents an important stimulus for the user markets. The expected economic growth in the next few years is feeding the confidence of entrepreneurs and reducing uncertainties with regard to business operations. Real estate users are increasingly prepared to conclude multiannual contracts, and rent incentives are falling. This development has been going on for some time at prime locations in the Randstad. PROSPECTS PER SECTOR / USER MARKET (COMING 6 TO 12 MONTHS) STOCK SUPPLY TAKE-UP Offices Industrial Logistics Retail Residential Hotels Explanation Prospects user markets (coming 6 to 12 months) ( growth, decline, stable) ENTREPRENEURS ARE MORE POSITIVE THAN EVER. BUSINESS CONFIDENCE ROSE IN THE THIRD QUARTER TO 15.9.

8 8 THE INVESTMENT MARKET Investors appetite for Dutch real estate remains undiminished. The Netherlands has a very stable and also relatively tight market. The supply of core assets is limited. As a result, we are seeing a shift towards mixed portfolios and value-add assets. For sellers, this means the time is right to put their real estate and other portfolios onto the market. The current market is ideal for investors who can see opportunities and are willing to take risks. As the major investment markets recover, the demand for alternatives, such as health-care real estate, hotels, and student accommodation, continues to grow. PROSPECTS PER SECTOR / INVESTMENT MARKET (COMING 6 TO 12 MONTHS) AREA MARKET RENT GIY Offices Major cities (G4) Mediumsized cities (G20) Industrial Primary Secondary Logistics Primary (hotspots) Secondary Retail City centers major cities (G4) City centers mediumsized cities (G20) Disrict and neighbourhood centers Large scaled and peripheral Residential Randstad Northern part Randstad Southern part The Netherlands other locations Hotels Amsterdam Metropolitan Region Major cities Regional locations Explanation Prospects user markets (coming 6 to 12 months) ( growth, decline, stable) INVESTMENT VOLUME (EUR)

9 9 THE DEVELOPMENT MARKET Scarcity of real estate at good locations and a lack of highquality buildings are driving buyers interest in the real estate market. Meanwhile, the conservative approach to new construction is waning and the call for new developments is getting stronger. This is expressed in both the office market and the housing market, with the major urban areas taking the lead. Characteristic of these new developments is the everincreasing importance of mixed area developments and conversion projects. These trends are clearly discernible in Amsterdam, for example. The demand for high-quality office space at easy-to-reach locations has further increased in recent years. The municipal authority estimates a demand of at least 515,000 sqm of new office space for the period up to 2030 (not taking account of Brexit). In its updated office strategy (October 2017), the municipality of Amsterdam has specified where these developments must be located. We have illustrated this in the chart below for the period up to 2020, as well as beyond. Promising areas include the urban district of Zuid (and in particular the Zuidas business district), Noord (Sixhaven), Zuidoost (Amsterdamse Poort/ Arena), and Westpoort (Minervahaven). At the same time, the growing number of inhabitants of the city (expected to top 900,000 by 2025) is driving the demand for new homes. The municipality aims to build at least 5,000 homes every year until Putting this objective into practice will result in further urbanization. THE CONSERVATIVE APPROACH TO NEW CONSTRUCTION IS LOSING GROUND AND THE CALL FOR NEW DEVELOPMENTS IS GETTING STRONGER. PROPOSED PLANS OFFICE MARKET AMSTERDAM EXPECTATIONS Population growth to continue in the coming decades; Ageing and urbanization will have major consequences in terms of urban planning; As a result of the scarcity of rural locations suitable for expansion, the development challenge will increasingly shift to converting existing real estate and increasing density in urban areas; Shortage of space will become ever more pressing. Locations with high-quality public transport will increase in importance; Government will increasingly force building owners to invest in sustainability. This also represents a major development challenge.

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11 2 Office market

12 12 DEMAND Peripheral areas and adjacent municipalities are benefiting from scarcity in the big cities: in the G5 cities (Amsterdam, The Hague, Utrecht, Rotterdam, and Eindhoven), the strong performance of the office market has had a positive impact on rental prices. As a result, demand is shifting. In Amsterdam, for example, we see Zuidoost benefiting from this renewed interest. Office investment is popular: in the third quarter of 2017, more than 2 billion of office property was traded an increase of more than 15% compared to the second quarter and almost 2.5 times more than last year. Investors are looking beyond the top segment: good investment products are scarce in the G5 cities. Investors are therefore starting to focus on the G20 cities. Dutch investors are taking the lead and have been quicker to turn their attention to the provinces. In addition, the focus is shifting to alternative segments of the office market. SUPPLY Supply in the office market is falling sharply: nationally, we have seen a decrease of almost 20% since This fall has been caused by an increase in demand (take-up) combined with the removal from the market (conversion) of unsaleable properties. The available stock has halved in cities such as Amsterdam, Rotterdam, and The Hague, with the shortage of office space being most pronounced in Amsterdam. From a peak of 1.2 million sqm in 2014, the supply has fallen to less than 0.6 million sqm in Q Increasing demand for new build: following years of consolidation and conversion, Amsterdam was the first municipality to lift its freeze on construction and embark on a major new expansion of the planned stock of offices. Locations that have been designated for this are: the Zuidas business district, Arenapoort, and Amstel Station. The new developments are needed because of the high demand for quality office space. In the other G5 cities, the most important developments are taking place around the stations. PRICE Rents are rising and incentives are falling: this development has been going on in the G5 cities for some time. Rental prices for office space are also increasing, and incentives falling, at more locations outside these cities. Yields are being increasingly squeezed in primary office areas: we expect they will remain so and may even fall further at prime locations in the G5 cities. Investment perspectives are shifting: increasingly, investors generally international investors are prioritizing income growth over value development. There are also many international investment companies among the buyers, which has shortened the average investment horizon (less than three years on average). We particularly see this category in the valueadd segment. VISION AND EXPECTATIONS Offices are following the hotel market: increasingly, offices represent an essential link in the perception of and commitment to the brand and mission of the companies based there. While employees and visitors need to be inspired, the focus on full-service and hospitality is increasingly important in terms of the facilities available in these offices. As such, offices are taking on important attributes of hotels, including guaranteed and standardized quality of the organization regardless of location. More Health by Design : health and well-being are playing a bigger role in the workplace. They will also become a differentiating factor in offices in the coming years. A Well-Being Workplace will become an important fringe benefit that new employees will favour over a traditional working environment. Sustainability and energy commitments are higher up the political agenda: when increasing the sustainability of buildings in accordance with the BREEAM principles, we expect that the well-being of employees will also start to play a more important role alongside energy performance.

13 13 STOCK OF OFFICE SPACE TAKE-UP OF OFFICE SPACE (QUARTERLY) DEVELOPMENT OF SUPPLY IN THE LARGEST CITIES INVESTMENT VOLUME (EUR) OFFICE SPACE MARKET RENTS AND INITIAL YIELDS PRIMARY LOCATIONS Q Q Q EXPECTATIONS Amsterdam Prime Yield (GIY) 5.90% 5.40% 3.50% Prime Market Rent Rotterdam Prime Yield (GIY) 6.25% 5.75% 5.00% Prime Market Rent The Hague Prime Yield (GIY) 6.50% 6.40% 5.75% Prime Market Rent Utrecht Prime Yield (GIY) 6.75% 6.50% 4.75% Prime Market Rent Eindhoven Prime Yield (GIY) 8.00% 7.75% 6.50% Prime Market Rent Explanation Prospects user markets (coming 6 to 12 months) ( growth, decline, stable)

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15 3 Industrial and logistics market

16 16 INDUSTRIAL AND COMMERCIAL PROPERTY MARKET DEMAND Users of industrial and commercial property are becoming more demanding in terms of real estate: users are focusing more on efficiency and functionality. This is reflected in an increasing desire for customization (built-to-suit) and flexible concepts within industrial spaces. Demand for small-scale industrial spaces/multi-user buildings is on the rise: this is because the number of smaller companies and self-employed professionals is increasing. However, the supply of high-quality, smaller business units continues to lag behind the fast-growing demand. The number of owner-occupiers is increasing: due to the low interest rates, it is attractive to buy a commercial property and be the owner as well as the user. SUPPLY The supply of high-quality industrial space has fallen: for example, commercial property with headroom and high quality, sustainable systems. As a result, there are fewer incentives. The stock of industrial and commercial property has stabilized: new construction consists mainly of large, modern buildings and dated properties are standing empty longer because they no longer comply with current sustainability requirements. Some of these dated properties have been removed from the market by demolition. PRICE Rental prices for commercial property are increasing slightly: this is linked to the dwindling stock of highquality properties and sustained demand. Highly regional market: a decrease in initial yields is only observable at specific industrial estates in the vicinity of the big cities. The extent of that decrease is very much determined by the location. Light Industrial attractive to investors: generally speaking, initial yields are falling less quickly than in the logistics market. Light Industrial real estate in the valueadd segment is popular with investors. VISION AND EXPECTATIONS Revitalization and conversion: older commercial premises in inner city areas are being converted or configured as creative incubators. There is a lot of revitalization of industrial estates taking place, often involving repurposing. For example, gyms are increasingly being located in industrial buildings, where this change in use is technically feasible. Pushing sustainability higher up the agenda: sustainability standards have only been upgraded to a limited extent in the industrial and commercial property market. From 2023, offices are required to have at least energy label C. This applies to buildings in which at least 50% of the surface area is used for an office function.

17 17 TAKE-UP OF INDUSTRIAL SPACE (QUARTERLY) SUPPLY OF INDUSTRIAL & LOGISTICS SPACE (QUARTERLY) RENTAL RATES OF INDUSTRIAL UNITS INVESTMENT VOLUME (EUR) INDUSTRIAL SPACE

18 18 LOGISTICS MARKET DEMAND Demand for logistics real estate has increased sharply: more and more rental transactions are taking place in the logistics sector and also increasingly involve sale-and-leaseback structures. Within the portion of the market related to E-commerce, more than 80% of transactions are rental transactions. More speculative building: due to the high demand for logistics real estate in the market and the limited stock of suitable logistics property, more and more investors are building at their own expense and risk. This is particularly significant in the Schiphol region. The demand for logistics space is rapidly shifting to secondary locations. Formerly secondary locations (such as Nieuwegein, Hoofddorp, and Born) are developing into new hotspots. SUPPLY Existing logistics real estate is fast becoming obsolete: the sector is characterized by highly dynamic technological and other developments. Many companies favour new distribution centres because they can optimize specifications and efficiency there. Transformation: for outdated logistics real estate, conversion to Light Industrial may be attractive. Increase in the stock of logistics real estate due to new build developments: logistics real estate remains an increasingly attractive investment for investors and developers. PRICE Rental prices are rising slightly in the south of the Netherlands, due to the limited supply, high demand, and the high quality of new distribution centres. There will be a slight fall in rental prices in regions with an increasing supply (such as the Schiphol region). Initial yields falling slightly, particularly at logistics hotspots such as the Utrecht-Nieuwegein region. At secondary locations, initial yields are stable. Construction costs have risen: the increase is due to a shortage of staff and higher wage costs. The delivery times of materials have also increased. This is having a negative impact on the lead times of new build projects. Due to low interest rates and relatively low development costs, real estate development remains popular. INVESTMENTS IN LOGISTICS SECTOR RISING EXPLOSIVELY. VISION AND EXPECTATIONS Robotization: logistics users are exploring the possibilities of robotization. Within E-commerce, this is an expensive process due to the heterogeneity of products. Manual order picking remains the norm. Set against that, staff recruitment is becoming more difficult as a result of labour market shortages. Ever greater interest in sustainability: due to an increased focus on the conversion and redevelopment of brownfield sites in order to achieve sustainable use of space. More foreign investment: new foreign players continue to enter the logistics market. The Netherlands has an international reputation as a safe investment market.

19 19 TAKE-UP OF LOGISTICS SPACE (QUARTERLY) INVESTMENT VOLUME (EUR) LOGISTICS SPACE Amsterdam MARKET RENTS AND INITIAL YIELDS PRIMARY LOCATIONS Q EXPECTATIONS Prime Yield (GIY) % Prime Market Rent 55 Schiphol region Prime Yield (GIY) % Prime Market Rent 80 Rotterdam Prime Yield (GIY) % Prime Market Rent 65 Utrecht-Nieuwegein Prime Yield (GIY) 5,5-5,9% Prime Market Rent 60 Moerdijk Prime Yield (GIY) % Prime Market Rent 50 Nijmegen-Geldermalsen Prime Yield (GIY) % Prime Market Rent 40 Breda-Roosendaal Prime Yield (GIY) % Prime Market Rent Tilburg-Waalwijk Prime Yield (GIY) % Prime Market Rent Eindhoven Prime Yield (GIY) % Prime Market Rent Venlo-Venray Prime Yield (GIY) % Prime Market Rent Explanation Prospects user markets (coming 6 to 12 months) ( growth, decline, stable)

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21 4 Retail market

22 22 DEMAND Positive sentiment holds sway in retail: the favourable economic climate is making consumers feel positive. With confidence in the economy and good employment, more money is being spent on the high street. As a result, purchasing power is increasing. Since 2016, all the main sectors (see chart) have displayed accelerated turnover growth. This development is expected to continue in the years to come. More expansion due to increase in confidence among businesses: we see this in the take-up (which has been achieved) and in companies growth ambitions. For example, Primera recently announced that it plans to open another 100 new branches in the Netherlands. Retail acquisitions likely to happen soon: the HEMA department store chain is currently up for sale. As a result of a strategic reorientation, the investor Lion Capital is looking to sell the chain. This year, various media outlets have reported that Blokker Holding is very close to buying several formulas. Investor Alteri has been mooted as a buyer for Intertoys, which includes Bart Smit and Toys XL. Alteri will reportedly seek to strengthen the chain s position in the online market. Increase in international retailers: the number of stores operated by foreign retailers has increased dramatically over the past ten years (by as much as 60%). Amsterdam is far and away the most popular location, followed at some distance by cities like Rotterdam, The Hague, Maastricht, and Utrecht. We are also seeing ever greater internationalization in the hospitality industry. SUPPLY Fall in vacancy rate accelerating: as a result of take-up and removal of properties from the market, the vacancy rate fell to 7.4% in late The current vacancy rate is 7.0% of stock. Wave of bankruptcies over, but possibility of surprises remains: in mid 2017, we observed that not all retailers are benefiting from the economic recovery. Whereas it was thought that the wave of bankruptcies in retail was at an end, this has not proved to be true for all businesses. Doniger Fashion Group, the parent company of clothing chains McGregor, Gaastra, and Adam, was declared bankrupt last September. PRICE Market rents stable: despite the positive signals from the sector, we observe that shop rents at prime locations in many large cities are still sluggish. In the big cities, we saw shop rents remain firm in the years of the economic crisis in particular, and as a result it is not yet time for an upward correction. Another factor is that, in the big cities, many developments have been completed in recent years (for example, the Nieuwe Haagse Passage in The Hague) or are underway (such as Hoog Catharijne in Utrecht and Forum Rotterdam). This is resulting in an increase in supply and is having a damping effect on potential rental increases at prime locations. Falling yields at prime locations: there remains strong demand for retail units at prime locations. Yields have been falling in the prime shopping streets of the most popular cities for shopping such as Amsterdam, The Hague, Utrecht, and Maastricht. In Utrecht and Eindhoven we expect a further fall in yields in the prime shopping streets over the next six to twelve months. INCREASE IN CONFIDENCE AMONG BUSINESSES CONTRIBUTES TO GROWTH IN EXPANSION PLANS AMONG RETAILERS.

23 23 STOCK OF RETAIL SPACE VACANCY OF RETAIL SPACE TURNOVER DEVELOPMENT RETAIL INVESTMENT VOLUME (EUR) RETAIL SPACE

24 24 MARKET RENTS AND YIELDS PRIMARY LOCATIONS Q Q Q EXPECTATIONS Amsterdam Prime high street yield (GIY) 4.20% 4.10% 3.75% Prime high street rent 2,900 2,925 3,050 Rotterdam Prime high street yield (GIY) 5.00% 5.00% 5.00% Prime high street rent 2,000 2,000 1,800 The Hague Prime high street yield (GIY) 5.25% 5.25% 5.00% Prime high street rent 1,525 1,550 1,500 Utrecht Prime high street yield (GIY) 4.60% 4.60% 4.50% Prime high street rent 1,475 1,475 1,500 Eindhoven Prime high street yield (GIY) 5.00% 5.00% 5.25% Prime high street rent 1,450 1,450 1,350 Maastricht Prime high street yield (GIY) 4.60% 4.60% 4.50% Prime high street rent 1,700 1,725 1,650 Explanation Prospects user markets (coming 6 to 12 months) ( growth, decline, stable)

25 25 VISION AND EXPECTATIONS More pronounced polarization: the contrast between winners and losers is becoming ever more pronounced. The most popular shopping cities (including the G4) are among the absolute winners. Many local shopping centres and the larger strips of furniture retailers are also performing well. Local shopping centres have had a tough time over the past decade, but are recovering. Many small and medium-sized town/city centres that have failed to differentiate themselves are still struggling. This is because they have too little to offer potential visitors besides shopping. From retail to experience and hospitality: consumers expect more and more entrepreneurship, service, experience, and entertainment. For this reason, retail districts need to continue to innovate, preferably based on the international model. Shopping centres that are investing heavily in experience and hospitality include Hoog Catharijne and Stadshart Amstelveen. The planned Mall of The Netherlands (opening in 2019) is also developing in this direction. In addition to a balanced offer of retail with a food court and entertainment, basic facilities such as adequate and free parking are being provided to a high standard. Ceiling height and finish quality also help to define a shopping centre of international standing. Data and visualization are increasing in significance for retail: retailers are starting to make more use of new technologies, including augmented reality. Albert Heijn and IKEA are already experimenting with this with their own apps. The Albert Heijn app is all about providing additional product information, while IKEA s shows consumers what furniture will look like in their homes. There are opportunities for fashion in this area too, such as virtual fitting rooms for different garments.

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27 5 Housing market

28 28 DEMAND The number of residential property transactions remained virtually unchanged in the third quarter compared to last year. This is primarily because the supply is drying up. In Amsterdam, the number of transactions fell by 17%. However, a new record number of residential property transactions was registered by Statistics Netherlands in the third quarter. The total number of transactions amounted to 61,000 existing homes. The pressure on the housing market remains high, especially in the big cities. The pressure is also increasing in surrounding municipalities due to the strong demand from owners and users: 1. Consumers and particularly private investors are battling to buy the same product. Due to the current and future tightening of lending conditions, firsttime buyers in particular are at a disadvantage and are finding it ever harder to buy a home. Along with rising prices, this is causing buyers to focus on alternatives often towns and cities near the G4. 2. Institutional investors are still finding insufficient investment product, although the production of new homes is now really gathering pace. The number of building permits is increasing in 2017 and the order portfolios of home builders are back to 2008 levels (source: ING). At the same time, there is more and more competition: we have observed that institutional investors are increasingly having to battle housing associations in the race to acquire new build complexes with median rents. The Rotterdam and Almere housing markets are showing signs of revival and are seriously catching up with the other G4 cities. For instance, the number of homes sold in Rotterdam by the end of Q3 (5,000) was far above the total for Last year, 2,700 homes were sold there. Almere is benefiting from the pressure on the Amsterdam region. Almere is the second most popular destination for homebuyers moving out of Amsterdam, after Haarlem, and accounting for 4% of moves (Haarlem: 5%). SUPPLY In the third quarter, a new low was recorded in the stock of available homes in the Netherlands. Following a long downward trend, the figure (63,500) has fallen to a level below that of 2007 (81,000). Over the next six months, we foresee a further increase in the number of new-build homes, particularly in areas where there is high pressure on the housing market. The pace of conversions, redevelopments, and larger area developments in the Randstad is picking up, particularly at locations that were previously less popular. For 2017, the expectation is that more than 50,000 new-build homes will be completed. PRICE Levelling-off in prices of owner-occupied housing: there are signs that the Amsterdam and Utrecht markets have peaked. House prices in the cities fell or stabilized in the past quarter. The supply is relatively small in the cities, and more and more consumers are looking to alternative housing markets in the region. In recent quarters, we have seen a strong rise in house prices in Rotterdam and The Hague. Residential rents in the big cities continue to rise due to the increasing demand for homes and the dwindling affordability of properties there. This applies to both the North and South regions and to the rest of the Netherlands. Over the past quarter, vacant value ratios have remained stable or risen slightly. Our expectation is that ratios will rise slightly further throughout the Netherlands over the next six months. In the past quarter, projects at Houthavens, Zeeburgereiland, and the Zuidas business district have shown the highest vacant value ratios and the lowest yields. DUE TO THE AVAILABILITY OF REINVESTMENT RESERVES, WE HAVE SEEN THAT TRADITIONAL HOUSING INVESTORS WITH A FOCUS ON SELLING OFF EMPTY APARTMENTS ARE PREPARED TO INVEST AT A VACANT VALUE RATIO OF 100%. PARTLY AS A RESULT, TOWARDS THE END OF 2017 WE ARE SEEING A REAL BATTLE AMONG INVESTORS.

29 29 HOUSING STOCK NEW HOUSING DEVELOPMENTS AND FORECAST HOUSING TRANSACTIONS INTEREST RATES RESIDENTIAL MORTGAGE LOANS HOUSING SUPPLY BY TYPE DURATION HOUSING SUPPLY BY TYPE INVESTMENT VOLUME (EUR) RESIDENTIAL

30 30 HOUSING MARKET INDICATORS SINGLE-FAMILY MULTI-FAMILY HOUSES DWELLING EXPECTATIONS Monthly rent Randstad Northern part 1,100-2, ,500 Randstad Southern part 1,000-1, ,100 Other locations 800-1, ,000 GIY Existing housing Randstad Northern part 4.00% % 4.25% % Randstad Southern part 4.25% % 4.50% % Other locations 4.50% % 5.00% % GIY New housing Randstad Northern part 3.75% % 4.00% % Randstad Southern part 4.25% - 5.0% 4.50% % Other locations 4.50% - 5.5% 4.75% % Value with vacant possession ratio Randstad Northern part 90% - 110% 90% - 105% Randstad Southern part 85% - 105% 85% - 100% Other locations 80% - 95% 80% - 95% Explanation Prospects user markets (coming 6 to 12 months) ( growth, decline, stable) VISION AND EXPECTATIONS In the third quarter, the total investment volume in homes exceeded 1.8 billion. We expect that for the whole of 2017, the investment volume will end up below the level for 2016 ( 4.5 billion), at over 3 billion. In the final quarter, there will be several more large transactions involving parties such as Patrizia and Vesteda. For 2018, we expect an increase in the investment volume as a result of ongoing demand combined with increased new build production: 70,000 homes in This will also lead to more existing home products coming on the market as investors seek to refresh their portfolios as a result of new build projects being delivered. In the past quarter, we have seen a fall in gross initial yields in existing build. Only in Amsterdam, we have seen the returns for new build fall below 4%. For the next six months, we expect a further fall in initial yields for both existing and new build homes. As a result of stricter mortgage requirements (100% standard), combined with an anticipated rise in interest rates, we expect consumers to borrow less in This may have a slow-down effect on prices and result in a levelling-off of the upward growth curve in house prices. This will lead to an increased focus on the regional housing market. On the other hand, nearly 50% of banks have eased their mortgage criteria in the third quarter (source: De Nederlandsche Bank). The increased competition between banks and insurance companies and a reduced risk perception are cited as reasons for the less stringent criteria. Borrowing capacity is also rising again slightly due to an increase in wages.

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33 6 Hotel market

34 34 TOURISM IN THE NETHERLANDS Netherlands as popular as ever: following a rise in the number of travellers in the first quarter of 2017, figures for the second quarter reveal even stronger growth. In total, 2.29 million overnight stays were booked in the first six months of this year an increase of nearly 10% compared to the same period in Increase in the number of international visitors: the number of international visitors in particular rose sharply. Compared to the first half of 2016, the number of overnight stays booked by international travellers rose by 12.7%. The number of overnight stays booked by Dutch travellers increased by 5.5% in this period. Big cities provide impetus behind growth: besides Amsterdam, which is the Netherlands most important destination, several cities are displaying stronger growth in the number of overnight stays than the national average. In Utrecht (+34.2%), Maastricht (+20.7%), and The Hague (+12.7%) in particular, significantly more overnight stays were booked in the first half of 2017 than in the same period a year before. Supply is lagging behind demand: at the start of 2017, the Netherlands had nearly 3,300 hotels with a total of over 120,000 rooms. This number continues to grow steadily. It is striking that the number of hotel rooms is growing at a slower pace than the number of overnight stays. Although hoteliers are seeing occupancy rates and room rates rising as a result, this is not benefiting tourism: a shortage is looming and in the event of a lack of availability, tourists will choose alternative destinations. Schiphol is the market to watch : the Schiphol hotel market is currently experiencing strong growth and this development is expected to continue. RevPAR grew by over 15% in the first 9 months of 2017 compared to the same period in 2016 and Colliers expects that 2017 will be another record year for the region. The growth in the number of passenger movements at the airport underlines this expectation. However, limits have been imposed on the further growth of the airport, forcing airlines to switch flights to other airports, such as Lelystad, Rotterdam and Eindhoven. This will undoubtedly also have an impact on the hotels in the Schiphol region. HOTEL INVESTMENT MARKET The Dutch hospitality sector is in line for a top year: in the first 10 months of 2017, a total of over 1 billion in hotel real estate changed hands. This is a record amount and unprecedented in the Netherlands. In this period, the transaction price per room was nearly 225,000 per room according to Colliers figures a rise of nearly 70% compared to the whole of Trophy assets and portfolios are popular: 2017 has been characterized by transactions of larger trophy assets and the sale of portfolios. In Amsterdam, multiple transactions have taken place involving large hotels, such as the DoubleTree by Hilton CS, W Amsterdam, and nhow Amsterdam RAI. A number of portfolios also changed hands, causing a leap in transaction volumes. For instance, Princess Hotels were acquired by Fletcher Hotels and the Dutch Bilderberg Hotels are now part of the Asian First Sponsor Group. It is expected that in the last quarter of 2017 two or three major hotel transactions will be announced in Amsterdam. It is also expected that in Amsterdam Noord there will be some (large) transactions, as many new hotels are being developed in the area and it is becoming increasingly popular among travellers. Yields fall to historic low: in line with this record volume, Colliers is also seeing yields falling further. In Amsterdam, yields below 4% have now been observed (on the basis of long-term rental contracts). Yields are also falling outside the capital to below 6.5%.

35 35 NUMBER OF OVERNIGHT STAYS (ORIGIN) NUMBER OF OVERNIGHT STAYS AMSTERDAM (ORIGIN) AVAILABILITY HOTELS AMSTERDAM AVAILABILITY HOTELS THE NETHERLANDS INVESTMENT VOLUME (EUR) HOTELS TRANSACTION PRICE PER ROOM INITIAL YIELDS HOTELS AMSTERDAM INITIAL YIELDS HOTELS OUTSIDE AMSTERDAM

36 36 WHAT DOES THE HOTELS FREEZE MEAN IN REALITY? As of 1 January 2017, the Municipality of Amsterdam has implemented a new overnight stays policy that limits the addition of new hotels to the existing market. In view of the strong growth in both the number of travellers in the capital and the number of available hotel rooms, the municipality has introduced this policy with the aim of reining in growth. There are already 60 new hotels scheduled to open in the next few years. The new overnight stays policy, also known as the hotels freeze, does not affect these projects, which have already been announced (and approved), and will only apply to new projects. The policy means that new developments in Amsterdam will not receive approval, regardless of their size, concept, or other characteristics. As a result, aside from the approximately 60 hotels already planned, no other hotels may be added to the market. This applies to the entire city, except at certain locations specified by the municipality where an opt-in policy is in operation. These locations are marked below. There, hotel developments will only be permitted if the concept makes an demonstrable and exceptional contribution to both the innovative supply of overnight accommodation and a particular aspect of the social, cultural, or economic climate. The municipal authority has drawn up strict criteria to test whether hotel developments meet this requirement. NO, UNLESS - POLICY

37 37 WHAT DOES THE HOTELS FREEZE MEAN FOR THE HOTEL SECTOR IN THE NETHERLANDS? Given the increase in the amount of global travel, the number of tourists in Amsterdam is also increasing. The hotel sector is benefiting from this development and is seeing its profits rise, which is also having an impact on the investment climate in Amsterdam. In light of this, the demand from hotel investors is increasing and project developers often regard a hotel function as added value for the building they are developing. The new hotels policy severely restricts the scope for developing new hotels. For this reason, investors are focusing on the acquisition of existing hotels in an attempt to establish a position in this popular market, as a means of getting around the policy. As a result, the prices of hotel real estate in the city are rising and initial yields are falling sharply. Colliers sees investors from new markets in Asia and other areas of the world entering the playing field and expects the prices of hotels to rise further. As a result of the limited supply and rising prices in Amsterdam, investors are switching to different locations in the Netherlands, with cities such as Rotterdam and The Hague currently attracting increased interest from these investors and developers. More and more travellers are also choosing to visit such alternative destinations in order to avoid the congested capital and see something new. This is contributing to profits for hotels in those cities, making it even more attractive for investors to shift their focus to these other locations. Because international investors in particular have experience with different concepts and brands, they bring this experience with them, and more and more new branding concepts are entering the market outside Amsterdam. Although the hotels freeze in Amsterdam is causing many restrictions for developers and investors, it is equally attracting the attention of opportunistic investors in the rest of the Netherlands. Cities which were previously regarded as secondary are becoming ever more important and are offering an increasingly diverse and more international hotel product. This is therefore a good development for the Dutch hotel sector, which is partly down to the Municipality of Amsterdam s policy on new hotels. INVESTORS FOCUS ON OTHER LARGE CITIES LIKE ROTTERDAM AND THE HAGUE. TEN LARGEST HOTEL DEVELOPMENTS IN AMSTERDAM HOTEL NUMBER OF ROOMS OPENING 1 NHOW Amsterdam RAI Congreshotel Maritim Hotel Leonardo Amstel Hotel VEN - Park Inn by Radisson Holiday Inn Express Motorkade Twin towers Zuidas Hotel Amstelkwartier Inntel Hotels Landmark Oostenburg Hotel Amsterdam North Hotel Kauwgomballenfabriek

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39 7 About Colliers International

40 40 RESEARCH APPROACH DEFINITIONS We endeavour to use clear principles in our figures. The following definitions apply to each sector: Office spaces: office premises measuring 500 sqm gross floor area (GFA) or more; Industrial spaces and logistics: industrial premises measuring 750 sqm GFA or more; Retail spaces: we do not use a minimum floor area for retail premises. However, we do assume the floor space refers to the shop floor area, unless otherwise indicated. Market rents and gross initial yields are expressed as indicative amounts. This does not include any incentives, heating and service costs, furnishing costs, VAT, etc. ACCOUNTABILITY In our analyses we use our own market knowledge and databases. This is supplemented by public data sources, including figures from CBS (Statistics Netherlands) and PBL (Netherlands Environmental Assessment Agency) and non-public data sources including Locatus, PropertyNL, RealWorks, VastgoedData, and NVM. DUTCH REAL ESTATE MARKET Dutch real estate market is a publication by Nederland. The contents of this document have been carefully compiled. Nevertheless, we do not accept any liability for the accuracy of the information which it contains. Visit our website for the latest version of the Dutch Real Estate Market update For any questions about this publication please contact: Netherlands Buitenveldertselaan VA Amsterdam Tel

41 41 ABOUT COLLIERS INTERNATIONAL represent the new real estate world and inspires trust. We believe in making society a better place by playing an active role in solving real estate issues. Connecting global market developments, data and the world of occupiers, tenants and investors, ensures that we understand what tomorrow s real estate sector looks like. We spot the right business opportunities for our clients and give wellthought advice. We are the experts on the future of real estate. These insights allow us to add value to the different stages in the real estate cycle and build strategic relationships. We offer creative real estate solutions that are not only attractive today but also relevant and sustainable in the future. In the Netherlands our 330 professionals think differently and share the best ideas in a culture of entrepreneurship and service excellence. Our clients can count on a reliable partner that gives sound advice and shows the right opportunities in the sectors healthcare, hotels, industrial & logistics, offices, residential and retail. Of course we are affiliated with the most important organizations in our field such as the Dutch Register of Real Estate Surveyors, the Royal Institution of Chartered Surveyors, VastgoedCert and the Dutch Brokers Association. Globally Group Inc. counts more than 15,000 professionals in 68 countries. Our services include: Agency Asset Services Asset Development Capital Markets Occupier Services Research & Consultancy Valuation & Advisory Services COLLIERS INTERNATIONAL IN NUMBERS ,3MRD 170MLN EMPLOYEES COUNTRIES TURNOVER SQM UNDER TRANSACTIONS MANAGEMENT 95BIL TRANSACTIONS VALUE

42 RESEARCH & CONSULTANCY Ir. Bart Stek Head of Research +31 (0) Drs. Arjen Ouwehand Senior Consultant +31 (0) Maud van Vlerken MSc Consultant +31 (0) Justin Arnolli MSc Consultant +31 (0) Petra van der Hoek MA Data- en dashboardspecialist +31 (0) DUTCH OFFICES AMSTERDAM Buitenveldertselaan VA AMSTERDAM TEL +31 (0) amsterdam.office@colliers.com s-hertogenbosch Utopialaan CE S-HERTOGENBOSCH Tel: denbosch@colliers.com ROTTERDAM Botersloot HE ROTTERDAM TEL +31 (0) info.cios@colliers.com AMSTERDAM ZUIDOOST Bijlmerdreef BP AMSTERDAM Tel: amsterdam-zo@colliers.com NIEUWEGEIN Nevelgaarde ZZ NIEUWEGEIN Tel: nieuwegein@colliers.com ZWOLLE Melkmarkt MC ZWOLLE Tel: zwolle@colliers.com EINDHOVEN Dillenburgstraat AM EINDHOVEN TEL +31 (0) eindhoven@colliers.com