Netherlands Residential MarketView Spring 2014 CBRE Global Research and Consulting INFLATION Q1: -1.1% Y-ON-Y HOUSE PRICES Q1: -2% Y-ON-Y SOLD UNITS Q1: 21% Y-ON-Y INVESTMENT VOLUME Q1: 73% Y-ON-Y PRIME YIELD Q1: -10 BPS Q-ON-Q UPTURN IN MARKET ACTIVITY Quick Stats Movement since Q3 13 Q1 13 Rental prices Initial yield Hot Topics Figure 1: Key economic figures % GDP Inflation Unemployment Consumption 10 8 6 4 Owner-occupier market recovering 2 Dispositions of housing corporations gain pace 0-2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E First foreign entrants in investment market -4-6 Source: Oxford Economics Key Facts In line with the economic upturn in the Netherlands, the residential market appears to have bottomed out, although recovery is still focused on the lower segments and the big cities. Although preliminary calculations for 2013 show a contraction in GDP of 0.8%, modest growth is projected for 2014. Meanwhile, the unemployment rate is expected to flatten out, and, albeit gradually, consumer confidence is forecasted to increase. Demographic developments continue to put pressure on the residential market, reinforced by recent regulatory reforms. Until 2040, population and household growth are expected to raise the demand for relatively small-scaled dwellings in particular.the population is expected to increase considerably in the major cities, while rural/peripheral locations may face stagnation. However, population growth also differs among the G4 cities. Utrecht for instance is showing the largest population growth, followed by Amsterdam and The Hague, while the population in Rotterdam is expected to remain fairly stable up to 2040. On aggregate, the demand for single-person housing will increase. This is partly due to a growing proportion of elderly households. The housing shortage is also subject to lagging construction volumes. In 2013, completions reached a low of 35,000 dwellings. In addition, the amount of permits granted dropped with 30% compared to 2012. This is particularly affecting cities where housing is already scarce, such as Amsterdam and Utrecht.
Figure 2: Population growth 2014-2040 THE OWNER- OCCUPIER MARKET IS CLEARLY SHOWING SIGNS OF RECOVERY Rental segmentation Despite increasing activity in the owner-occupier segment, the quantitative pressure on the housing market has resulted in a segmentation of the rental segment. To encourage tenants in the regulated sector to move towards higher priced dwellings, a new housing covenant has been implemented allowing an income-dependent mark-up on rents (between 1.5% and 4.0% excl. inflation). On the short run however, these measures have put increasing pressure on medium-priced units, particularly in cities with tight market conditions such as Amsterdam and Utrecht. 2 Source: Statistics Netherlands Owner-occupier market After six years of decline, the owner-occupier market experienced an upturn from the second half of 2013 onwards, both in terms of sales volume and house prices. While the housing market reached a trough in January 2013 with 6,260 dwellings sold, the sales volume gradually increased towards December when 15,463 units were sold. Although activity on the housing market generally reaches its peak in December, the recovery of sales volumes is expected to continue in 2014 as Q1 has shown a y-on-y increase in units sold of 21%. In line with these developments, the downward spiral for house prices seems to have come to an end. Although average house prices still show a y-on-y decline, they gradually climbed to 214,147 in March 2014 after they reached a low in June 2013. Furthermore, the amount of dwellings for sale has declined from Q3 2013 onwards to 207,564 in March 2014, which represents a y-on-y decrease of 9.3%. Together with the increase in units sold, these developments prove the owner-occupier market is clearly showing signs of recovery. To overcome this issue, Amsterdam and Utrecht have proposed to develop a customised housing policy, with a further emphasis on variable rents and short-term or temporary lease contracts. An additional objective of the policy is to limit housing corporations to their core business by phasing out commercial activities. This ambition is in line with recent propositions for the Housing Act of 2015, in which supervision on housing corporations is expected to be tightened. Thousands Figure 3: Sold units 20 18 16 14 12 10 8 6 4 2 0 apr-12 Source: Land Registry jun-12 aug-12 oct-12 dec-12 feb-13 apr-13 jun-13 aug-13 okt-13 dec-13 feb-14
2010 = 100 Figure 4: Price index owner-occupied housing 96 94 92 90 88 86 84 82 80 78 Source: Land Registry Spring 2014 Netherlands Residential MarketView % Nominal Inflation Real 7 6 5 4 3 2 1 0-1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 apr-12 jun-12 aug-12 oct-12 dec-12 feb-13 apr-13 jun-13 aug-13 okt-13 dec-13 feb-14 According to Statistics Netherlands, rent levels have increased by 4.7% on average in 2013, which represents the highest annual increase since 1994. With respect to the annual five-year average of 2.7% this increase is considerable. It also clearly outruns inflation, which, according to preliminary calculations for 2013, amounted to 2.5%. Sell-side activity As housing corporations own the vast majority of regulated rental housing, they have been the most affected by the Landlord Levy. Supplemented by tight budgets and financial distress resulting from the economic crisis, several housing corporations have recognised the need to enter the sell-side of the market. Vestia for instance, has put 6,595 residential units on the market, the first portion of a bulk of 30,000 dwellings to be sold by 2022. Rental growth In addition to these restrictions, tax burdens implied by new regulations are also likely to affect housing corporations. The Landlord Levy Act compels owners of regulated housing to pay a levy based on the property tax value ( WOZ-waarde ). The levy is applicable to any entity holding more than ten units in the regulated rental sector. To compensate for the expenses, the government allows landlords to charge extra rent based on the income of the tenants. As the majority of the rental segment consists of regulated units, the income-dependent rent increases have a large impact on average rental growth. Figure 5: Rental development THE DISPOSAL OF PORTFOLIOS BY HOUSING CORPORATIONS IS AN INCREASING SOURCE OF INVESTMENT VOLUME The disposition of residential portfolios by housing corporations is also supported by more lenient policies towards selling regulated rental properties. As a result, the disposal of portfolios by housing corporations is an increasing source of investment volume. However, most portfolios sold consist of liberalised dwellings, since investor demand for regulated rental housing is low and price discounts are required. This is because certain policies regarding regulated housing still apply. These include an obligatory 30 years of profit sharing and the restriction to resell properties after at least 7 years of ownership. Source: Statistics Netherlands 3
Investment market In Q1 2014, the investment volume in residential real estate amounted to 247 million, representing a y-on-y increase of 73% compared to the 143 million in Q1 2013. Most investment deals in 2014 concerned dwellings in Amsterdam and nationwide portfolios. The rise in investor appetite already became notable in Q4 2013, when investments almost doubled with respect to Q4 2012. Increasing investor activity is expected to carry on in the course of 2014. The investment market for residential properties is currently largely dominated by private investors. With favourable price levels of residential units in the Netherlands compared to other key European countries and positive growth projections for the commercial rental segment, interest of foreign investors is increasing. As of April 2014, this foreign interest has resulted in the first actual acquisition with the purchase of 265 dwellings from Amvest by German investment fund BNP Paribas REIM. Following the increase in investment activity, net initial yields have sharpened slightly in Q1 2014, both for single- and multi-family housing. Investments in unregulated dwellings are largely fueled by new construction. In addition to unregulated housing, investor interest is targeting alternative segments of the residential market such as student housing or specific starter units, with a high value per sq m. Student housing often concerns the redevelopment of obsolete office buildings. Figure 6: Investment volume (excl. corporation purchases) mio 600 500 400 300 200 100 0 Source: CBRE 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 interest of foreign investors is increasing 4 Source: CBRE Stijnstijl Fotografie
Source: CBRE Stijnstijl Fotografie Figure 7: Purchasers (excl. corporation purchases) Q3 2013 - Q1 2014 Figure 8: Vendors (excl. corporation purchases) Q3 2013 - Q1 2014 Private Institutional, Investment fund Corporation Other Developer Institutional, Investment fund Corporation Private/ Other 0.4% 8.0% 10.4% 26.2% 19.6% 51.4% 40.2% 43.8% Source: CBRE Source: CBRE 5
Table 1: Prime net initial yield Q2 2013 (%) Q3 2013 (%) Q4 2013 (%) Q1 2014 (%) Single-family 4.50 4.50 4.50 4.40 Multi-family 4.70 4.80 4.80 4.70 Table 2: Key investment transaction Q3 2013 - Q1 2014 Location Type Purchaser Vendor Status Price (mio ) Number of units Netherlands Nationwide Netherlands Nationwide Netherlands Nationwide Mixed Private investor BPFD Existing 138 987 Multi Quadrigo ASR REIM Existing 95 965 Multi BNP Paribas REIM Amvest Existing 40 265 Rotterdam Student SSH Vestia Existing 38.9 1,422 The Hague Student Duwo Vestia Existing 37.6 850 Amsterdam Student Bouwfonds European Residential Fund Foolen & Reijs Real Estate New 25.7 354 Barendrecht Single Syntrus Achmea Amvest New 16.3 101 Amsterdam Multi MN Services BAM New 11.7 46 Alphen aan den Rijn Single Syntrus Achmea Amvest New 11 54 Source: CBRE 6
outlook Spring 2014 Netherlands Residential MarketView Source: CBRE Stijnstijl Fotografie The owner-occupier market is showing signs of recovery, with stabilising house prices and rapidly increasing sales volumes. Amsterdam and Utrecht have already witnessed price increases, while other cities are expected to follow. The rising demand for housing is also reflected in a decline in units for sale. On the long term, this increase in demand is likely to continue - particularly in the G4 cities - as projections of population growth are supplemented by an increase in the number of households. The developments in the owner-occupier market will have implications for the rental segment as well. Given the current market conditions, home owners are less likely to be forced into subletting their property while waiting for a potential buyer. Short-term lease contracts have provided a temporary solution for both home owners and a tight supply of rental housing. So while the owner occupier-market seems to recover, pressure on the rental segment is expected to remain high. Prospects of a prolonged shortage of rental housing do provide opportunities for investors as the commercial rental segment in the Netherlands is still rather small. Compared to other key European countries with a more mature unregulated segment, yields on residential property in the Netherlands are relatively high. Supplemented by stable cash flows from rental income and positive growth prospects for commercial housing, the Dutch residential market is increasingly attractive for foreign investors. In addition, new policies have been adopted in the wake of the financial crisis providing more lenient regulations towards rent increases and the disposition of dwellings by social housing corporations. In line with the announcement of Vestia to offer a large bulk of residential properties on the market, more housing corporations in financial distress are likely to follow. However, as certain restrictive regulations still apply, investor interest will particularly be focused on unregulated housing. In order to sell regulated housing properties price discounts are expected to remain customary. Given the current differentiation in the residential market, institutional funds continue to pursue core properties in the Randstad area and new developments. Private investors are largely focused on other regions with higher risk, but more favourable property values. Overall, particularly value-add portfolios with a higher vacancy, which are easily transformed into higher rental value segments (according to the so-called points-system for rental housing), will provide interesting investment opportunities. 7
CONTACTS For more information about this MarketView, please contact: CBRE Research and consulting Machiel Wolters Director Research and Consulting CBRE B.V. Gustav Mahlerlaan 405 1082 MK AMSTERDAM t: +31 20 626 26 91 e: machiel.wolters@cbre.com Raphaël Rietema Consultant Research and Consulting CBRE B.V. Gustav Mahlerlaan 405 1082 MK AMSTERDAM t: +31 20 626 26 91 e: raphael.rietema@cbre.com Nick van Wijk Consultant Research and Consulting CBRE B.V. Gustav Mahlerlaan 405 1082 MK AMSTERDAM t: +31 20 626 26 91 e: nick.vanwijk@cbre.com CBRE Capital Markets Alexander Buijs Associate Director Capital Markets CBRE B.V. Gustav Mahlerlaan 405 1082 MK AMSTERDAM t: +31 20 626 26 91 e: alexander.buijs@cbre.com +FOLLOW US LINKEDIN linkedin.com/company/cbre-nederland TWITTER @CBRENederland GLOBAL RESEARCH AND CONSULTING This report is prepared by the Research and Consulting team at CBRE Netherlands, part of CBRE Global Research and Consulting - a network of leading market researchers and consultants who work closely together to deliver real estate market research, forecasting and strategic advice to investors, financiers and end-users worldwide. 8 Disclaimer Information herein 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 independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE. www.cbre.nl