The Retail Fund had a good year in 2018, recording a solid return of close to 6% and a very healthy occupancy rate of 95% in what is a very challenging market. The retail market really is the most dynamic and challenging real estate market right now, as the sector is in the midst of a radical transformation. Consumer preferences and demands are changing more rapidly and more drastically than ever before, while the market itself is adjusting to a whole new reality. Online sales account for a steadily growing share of retail sales and retailers are trying to adapt to evolving consumer demands and the competition from online sellers.
Thankfully, towns and cities and the national government are now devoting attention to these issues, with the aim of preserving or reviving the vibrancy of our city centres. Many local authorities are now willing to work with us and other investors and stakeholders to address issues such as growing vacancy rates. Some have even gone as far as rezoning struggling retail areas for other purposes, to help boost occupancy in more promising locations. Everybody recognises that we need vital and vibrant shopping areas for both residents and visitors. They serve as the beating hearts and economic engines of any urban environment, as people use them for a lot more than just shopping. Not to mention the employment they create.
The strategic decision we made a few years back to focus on two very distinct elements of the retail market, Experience and Convenience, are already paying off as shown by the Retail Fund’s occupancy rate. Retail assets with a clear focus on one of these elements are proving much more resilient to trends – including online shopping – and will stand the test of time.
This is also why we devote a great deal of attention to the redevelopment of our shopping centres, both in terms of making them more effective commercially and more sustainable. De Munt in Weert and Goverwelle in Gouda are perfect examples. H&M is now taking over around 70% of unit in the De Munt that became vacant following the bankruptcy of V&D. Meanwhile the expansion and upgrade of Goverwelle will create the space needed for Albert Heijn to expand and for the addition of a second, complementary discount supermarket. Once completed, these two centres will be fit for the future and a major boost to their respective city centres. Just like, Centrumplan in Rosmalen, which opened for business in 2018.
We were also active on the acquisition and disposal fronts last year, as we continued to optimise our portfolio. We acquired two good high street assets in Tilburg, both rented out to national chains with long leases and a good direct return, plus a portfolio of 13 standalone supermarkets located across the country. Almost all of these supermarket assets have a good outlook, as they have healthy local catchment areas. Plus the food retail sector recorded higher growth than other retail segments last year and is proving resistant to online sales. We also continued to optimise our portfolio by disposing of assets that do not meet our Experience or Convenience criteria or our return requirement. These included two high street retail assets in Den Bosch.
One of the major issues that dominated the market for much of last year was the government’s plans to scrap the dividend withholding tax. One consequence of the abolition of dividend withholding tax was that Fiscal Investment Institutions (FIIs) would no longer be allowed to invest directly in Dutch real estate. This would have had a major impact on the Dutch sector funds that Bouwinvest manages and required Bouwinvest to restructure its investment funds to mitigate this impact. Thankfully, due to a strong lobby and certain circumstances, the government abandoned its plans to scrap the dividend tax and the proposal to ban direct investments in real estate for FIIs. This lifted the cloud of uncertainty that had hung over the Dutch real estate market and we saw an immediate uptick in interest from investors, who had been waiting on the sidelines to see what would happen.
As in virtually all real estate sectors, sustainability is a hot top topic right now in retail, and we once again made some big strides on this front last year, as you can read elsewhere in this report. We retained our GRESB 4-star rating and initiated action plans and measures that will help us achieve a 5-star rating in the not too distant future. After all, it’s important to have the right retail assets, in the right locations and with a distinct offering on either the Experience or Convenience fronts. And sustainable enough to meet the demanding standards of both retailers and consumers. This is also why retail requires active asset management and a proactive approach to your portfolio and your assets.
We believe our ambitions of total invested capital of € 1 billion will give us the scale and the synergies we need to safeguard our long-term return plans. This will in turn help us find the investors we will need to realise those growth ambitions. Retail real estate may not offer the same high indirect returns as other segments, but the direct returns are solid. And because most of the assets we acquire are operational, it means immediate cash out for investors, making retail an interesting sector for investors.
All that remains now is for me to thank our investors for their continued faith in our strategy and all our employees for their hard work and commitment to Bouwinvest in 2018.
Dick van Hal
Chairman of the Board of Directors