Monitoring risks is embedded in the daily activities of the responsible line manager and is an integral part of the planning and control cycle. Bouwinvest monitors all the defined risks via key risk indicators, supported by the performance reporting and business incidents reporting processes. Each quarter, the Board of Directors is provided with a risk report, including the risk indicators indicated above and actions necessary to limit or mitigate risk, if there is a deviation between the outcome and the pre-determined norm. The Fund continued to enhance its system for reporting and monitoring risk in 2018. These improvements enable management to act in a timely manner to counteract or mitigate risk.
Occupancy risk
The importance and relevance of the individual risk factors is constantly changing. In 2018, the Fund mainly focused on mitigating the market risk of lower financial occupancy in the portfolio. In addition, occupancy is an important driver for the expected return and value of the Fund. To mitigate the risk of lower financial occupancy, the Fund focused on improving the appropriate communications with (potential) tenants and launches in new trade channels and markets. Besides maintaining and enlarging our personal networks, we upgraded online channels through new websites. Automated links to a smart CRM system has improved online lead generation and we launched a new community app to improve and ease communications between tenants, lessor and property manager.
Market risk
Despite the fact that the construction of new office space would not necessarily help to raise occupancy rates, it is nevertheless important that the market offers sufficient opportunities for (new) companies. A shortage of suitable office space is also a risk, as cities and/or the Netherlands as a whole may no longer be considered sufficiently attractive and (international) companies may therefore decide to relocate to other countries. The numerous transformations of office building for other uses and the growing user market has already led to a sharp decline in vacancy rates and rising rents. The high vacancy rates of recent years resulted in a wide range of new and amended government policies aimed at regulating the Dutch office market. The government (at both national and local levels) is now assessing how to expand the current planned supply while avoiding a boom-and-bust scenario. By participating in various market consultations organised by the large municipalities and the Randstad provincial authorities and other efforts, the fund is exerting it influence on future policies. The aim is to prevent oversupply, which my affect the current positive occupier market circumstances and property valuations.
Counterparty risk
Many contractors are struggling with shortage of personel and much higher expenses for labour and building materials. This has affected the contractor of the Olympics, which resulted into Bouwinvest taking over the management of the completion of these buildings which has proven so far to be succesful. Bouwinvest has increased its monitoring of (re)developments to mitigate this risk.
Environmental risk
Another theme that could entail risk is sustainability. Climate objectives and the ongoing social debate is putting more pressure on sustainable investment. We are now subject to stricter legal requirements such as obtaining the minimum of an Energy Label C, which is compulsory from 2023 onwards. Although listed buildings are still exempt, this may change in the future. This is why the Fund is also investigating potential measures for these buildings. We have drawn up a Paris-proof plan for each building.
Fund-specific legal or regulatory risk
In 2017, the Dutch government proposed to amend the FBI-regime, potentially affecting the fiscal status of the Fund. End 2018, this proposal was repealed so this risk has not materialized. However, the Ministry of Finance announced to investigate the application of the FBI-regime by foreign real estate investors in situations that could be considered ‘abusive’. Since the application of the FBI-regime by the Fund is considered to be in line with the spirit and purpose of the law, we do not expect that the FBI-status of the Fund will be considered ‘abusive’ and hence, we expect such investigation will not have a major impact of the Fund.