Occupier activity remains strong
Occupier activity in the office market remained strong in 2018, as economic growth and the positive outlook has made companies more inclined to relocate and/or invest in their office accommodation. This has resulted in a lack of supply in prime locations in the Netherlands, where rents are rising substantially, and is having a spill-over effect on the better situated secondary locations. The ongoing transformation of outdated office stock for other uses is supporting the overall trend of reducing supply and vacancy rates to substantially lower levels across the country.
Pressure on prime yields remains strong
Investor demand in 2018 was on a par with the record high volume of transacteions in 2017, a clear sign of the continuing interest of investors in this segment. As overall vacancy is declining and rents are on the rise in specific locations, we will see continued pressure on yields, especially in prime locations in the largest cities, but also in better situated secondary office locations.
Technology, hospitality, sustainability and flexibility are essential
Occupiers look for four key ingredients when choosing their offices, besides location. As companies tend to have an ever increasing flexible pool of employees and as more and more people are self-employed, the need for flexibility in office leases is gaining traction. Offices need to be inviting and inspire cooperation between people and departments. Innovative technology will increasingly be used to provide employees with a productive and healthy working environment, adaptable right down to individual level, and provide companies and employees with platforms for interaction. Finally, sustainability has become a given for occupiers, as well as investors. All of these trends will affect the role of the investor.
Political and economic uncertainty creating risk
Global tensions (for example in the field of trade), the upcoming Brexit and the ECB's changed monetary policy (and potential rate hikes) are among the biggest risks for the economy, for employment and thus the office market, but less so in the prime sites in the major cities.
Positive outlook for the Fund
Both the geographical spread in the composition of the portfolio and the quality of each individual asset puts the Fund in an excellent position to profit from current office market trends. The addition of Building 1931, Building 1962 and Hourglass to the portfolio in 2019 will constitute a major increase of the Fund’s invested capital in Amsterdam. And the acquisition of Central Park, scheduled for delivery in 2021, will also increase the share of the portfolio in Utrecht. This change in regional distribution is fully in line with the targeted spread of around 40% in Amsterdam and around 20% in each of the other G4 cities. The quality of the assets is marked by an extremely high level of distinctiveness, very accessible locations, solid tenants and high occupancy rates that are set to increase further in the years to come. This increase in occupancy will be due in part to the addition of fully let buildings to the portfolio, such as Building 1931, Building 1962 and Hourglass. The Fund also expects to close a number of new lease transactions, mainly for WTC Rotterdam and Central Park, which will run parallel to the investments made in these buildings.
Adding value through active asset management
In addition to acquisitions, the Fund will devote a great deal of attention in 2019 to improving its assets, with a strong focus on the use of technology and improving the sustainability of its office buildings. For instance, the Fund will use an Environmental Management System to step up the collection of data for reporting purposes, to improve the performance of technical installations and to support new business cases for investments. As part of its effort to improve services to tenants, the Fund is also planning to launch a portal, which will act as a central contact point for clients: a single location for information and for any questions (existing and potential) tenants may have. At the same time, this portal will also act as platform for interaction between tenants and to offer and reserve facilities and services, such as meeting rooms, parking spots or catered lunches. This tool will boost the digitalisation of documentation and processes and will improve efficiency, effectiveness and client focus via (automated) workflows. In 2019, the Fund will launch a new website for Central Park with a link to a new CRM system and other functionalities that will enable us to generate more and better online leads for new leasing transactions. As a final example of our active asset management approach, the Fund will be working on a number of projects related to the supply of sustainable energy, mobility and the circular economy.
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