Housing market remains under pressure
The forecast growth in the number of households will remain a major long-term factor in the increasing demand for homes. And as new housing developments are still failing to keep pace with the increase in demand, the pressure on the residential market is only likely to increase. As the forecast residential demand will be very much focused on the largest cities in the Randstad urban conurbation and other large cities, this pressure is becoming increasingly uneven across the Netherlands.
With respect to the liberalised rental market, there is still a major lack of supply, especially in the mid-rental segment, and pressure on this segment of the market is therefore also increasing. However, affordability, in both the rental and the owner-occupier markets is becoming a serious issue in the major cities. The same applies to liveability. Bouwinvest is therefore monitoring these situations very closely.
Yield compression continues
Investor demand for residential property remained very high and resulted in record high investment volumes in 2018 and continued yield compression. Taking the prolonged investor interest for this sector into account, there is little reason to expect this to change in the short term.
However, the pressure on this market is making it increasingly difficult for institutional investors to purchase residential property in the largest cities, as it is becoming more and more difficult to meet their internal investment hurdles. Institutional investors have therefore increased their focus on new-build residential projects and second tier cities and this is likely to continue in the period ahead.
Political and economic uncertainty provides for risk
Bouwinvest has noted that new (local) policies related to the mid-rental segment are having an ever increasing impact on new acquisitions. Additional requirements are all having an impact on investment cases and the feasibility of any targeted returns. On the other hand, we do expect the mid-rental segment to have a low-risk profile in view of the strong and stable demand.
In addition to political intervention, a key risk is any potential change in the Dutch economy and the investment climate. The effect of any sudden and unexpected changes that have a negative impact on the economy constitute the greatest danger to the broader financial markets and in turn to the various real estate markets, including the residential market.
Sustainability goes mainstream
Newly developed homes will, almost without exception, be very sensitive towards sustainability, reduced energy use and lower carbon emissions. Using innovative technology, homes will increasingly generate their own energy and have near zero (or zero) GHG emissions. An increasing amount of existing stock is currently being adapted to these new demands, as future owner-occupiers and tenants are increasingly demanding energy-saving solutions.
The Fund is well positioned for the future
Due to our approach
Although the market is changing rapidly, we are still able to maintain a constant and substantial flow of investment opportunities. This is mainly a result of our professional relationship management, thanks to which we have a comprehensive network of contacts with vendors, real estate developers, real estate agents, corporations and, last but not least, local municipalities.
Over the past few years, we have seen a sharp decline in the willingness of developers to sell homes to investors. Comparable owner-occupier homes are now generating higher returns, or developers are looking to maximise profits and are therefore increasingly choosing to sell to investors via tenders. Furthermore, institutional parties in particular are focusing en masse on the same areas (i.e. the Randstad and Brabantstad urban conurbations) and the same products (mid-rental segment), because this mix offers the most favourable investment perspectives.
However, we do see that in addition to the purchase price, other criteria also come into play when a developer selects an investor. Matters such as reliability, vigour and expertise are highly appreciated and it is extraordinary important to stand out in terms of deal security, efficient and rapid (legal) structuring and decision-making. On these fronts, the Fund has a very good track record and we are therefore confident that we will be able to maintain the high quality level of the portfolio and keep it future proof.
By our focus on affordability
With approximately 73% of the portfolio having a monthly rent of between € 711 and € 1,250 and more than 40% having a monthly rent in the mid-rental segment (between € 711 and € 1,000), the Fund's focus on affordability is very clear. However, we expect to continue to expand in this segment by focusing even more explicitly on the mid-rental segment when considering or making acquisitions.
Due to our focus on sustainability
In 2018, we once again retained our GRESB 4-star sustainability rating. However, the Fund's goal is to obtain a GRESB 5-star rating in 2020. This will keep the Fund highly sustainable and make a positive contribution to the United Nations’ Sustainability Development Goals (UN SDGs).
Due to our active asset management
In addition to our acquisitions and divestments, we will continue to optimise our standing portfolio through active asset management aimed at maintaining and increasing the value of that portfolio. Our focus will be on the environmental and social sustainability of the homes in our portfolio. Furthermore, we will continue to devote a great deal of attention to developing and maintaining even closer relationships with our tenants. Customer care deserves even more attention than we give it now, and we will do our utmost to optimise and safeguard the quality of the care we provide for the long term.
Amsterdam, 20 March 2019
Bouwinvest Real Estate Investors B.V.
Dick van Hal, Chief Executive Officer
Arno van Geet, Chief Financial and Risk Officer
Allard van Spaandonk, Chief Investment Officer Dutch Investments
Stephen Tross, Chief Investment Officer International Investments