MISSED OPPORTUNITY TO ALIGN MUNICIPAL AND INVESTORS GOALS?

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1 MISSED OPPORTUNITY TO ALIGN MUNICIPAL AND INVESTORS GOALS? On May 24 th 2018 socialist green GroenLinks, social liberal D66, social democratic PvdA and socialist SP presented their coalition agreement entitled A new spring and a new sound. CBRE s previous report signalled a shift towards a less investor- friendly environment in Amsterdam and Utrecht and more openness towards investors in Rotterdam and The Hague. In this report CBRE provides an analysis of the possible impact of the coalition agreement on the Amsterdam residential market. Similar analyses for the Amsterdam office market and an analysis of the G4 will follow. - JUNE 2018 CBRE Research 2018, CBRE B.V. 1

2 OPPORTUNITIES RISKS JUNE 2018 CBRE Research 2018, CBRE B.V. 2

3 HIGH DEMAND FOR NEW RESIDENTIAL UNITS Differing perspectives on the housing market among the left-wing parties (GroenLinks, PvdA and SP) and D66 have led to an unclear compromise. This creates uncertainty and could slow down housing production. AFFORDABLE HOUSING HIGH ON THE POLITICAL AGENDA LONG-TERM INVESTORS CRUCIAL TO REDUCE HOUSING SHORTAGE ytd: Residential investment volumes in Amsterdam by investor type Private Equity 258 INVESTMENT PERSPECTIVE Global Real Estate Funds (incl. REITs) 503 Institutional Investors 1,570 INVESTMENT HORIZON Short Long Family Offices 230 Source: CBRE 2018 Local Private Investors 70 Note: The darker the green the higher the proportion of domestic investors JUNE 2018 CBRE Research 2018, CBRE B.V. 3

4 NEW MUNICIPAL HOUSING PRODUCTION GOALS WILL INCREASE SHORTAGE New goals around housing production will increase housing shortage , , , , , , , , ' >2020 Rental > 971 Rental Rental < 711 Unknown Owner-occupied Minimum annual production needed to decrease housing shortage Annual production needed to solve the housing shortage by 2020 Source: Municipality of Amsterdam (2018), Coalition Agreement (2018), ABF Research (2017) Note 1: The figure shows the amount of approved permits up to 2020; from 2020 onwards it shows the new annual production goal. (*) Note 2: In the period , at least 26,000 new homes will be required each year to reduce the housing shortage in the Amsterdam metropolitan area. Or, 17,000 units to stabilize the current shortage. Over the last six years, an average of 50% of the new construction in the Amsterdam housing market region was concentrated in the municipality of Amsterdam. If production remains the same in other municipalities, that means housing production of 13,000 units to solve the Amsterdam housing shortage by 2020 or at least 8,660 homes per year to stabilze the current shortage will be needed. JUNE 2018 CBRE Research 2018, CBRE B.V. 4

5 HOUSING PRODUCTION WIL DECREASE The proposed housing policies will reduce the investment value of new housing projects. Consequently, developers and investors could start looking beyond Amsterdam and to other real estate segments, thereby decreasing housing production. PROPOSED REGULATION WILL DECREASE INVESTMENT VALUE AND INCREASE DEVELOPMENT COSTS... WHILE LAND PRICES ARE TOO HIGH JUNE 2018 CBRE Research 2018, CBRE B.V. 5

6 THE DEVELOPMENT OF NEW MID RENTAL UNITS BECOMES UNPROFITABLE INVESTMENT VALUE DEVELOPMENTS COSTS LAND PRICE = PROFIT/LOSS 2016 Unregulated Midsegment Investment value (per sq. m) 4,800 (NIY 4.25%) -Total development costs (per sq. m) -Land price (per sq. m) =Development profit/loss - 1,867-1,200 1, Regulated Midsegment 3,778 (NIY 3.85%) - 2,533-2,400-1,156 Key assumptions for the model: - Indications of the land price provided by the municipality: the 2016 land price policy, and a recent tender - LFA based on a Gross Floor Area of 1,400 and 1,900 respectively per sq. m - Investment value based on a Net Initial Yield of 4.25% in 2016 and 3.85% in 2018 as the result of yield compression JUNE 2018 CBRE Research 2018, CBRE B.V. 6

7 OPPORTUNITY FOR MUNICIPALITY AND INVESTORS TO ALIGN GOALS JUNE 2018 CBRE Research 2018, CBRE B.V. 7

8 CONTACTS Disclaimer: Information contained herein, including projections, 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 confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.