This website uses cookies to remember your personal preferences and gather statistics. Click here for more information about cookies.

Yes, I agree No, I do not agree X

Report of the Board of Directors

Market developments and trends


The Dutch economy continued to perform strongly in 2018, although momentum did weaken in the second half of the year. Private consumption was the primary driver of this economic performance, while the growth of exports flattened. High levels of consumer confidence in combination with low interest rates fuelled house price increases and boosted housing market related sectors.

Real GDP growth amounted to 2.6% in 2018, which makes the Netherlands one of the most flourishing economies in Western Europe. All the drivers of economic growth showed positive figures, but private consumption was clearly the strongest. The 9.3% increase in house prices had a positive impact on other economic segments. However, economic forecasts show a diverse but lower growth path for the years ahead. Firstly, a steady decline in housing affordability had affected consumer confidence by the end of the year and this is expected to have a negative impact on private consumption going forward. Secondly, higher interest rates are likely to flatten economic growth. The European Central Bank had ended its stimulus programme by the end of 2018 and this is expected to result in higher policy interest rates.

The Dutch labour market performed very strongly as a result of both job growth and the decline in unemployment rates to record low levels. However, the record number of job vacancies has resulted in a very tight Dutch labour market. Over the course of 2018, consumer prices increased slightly and forecasts indicate a further increase to slightly below the 2% plan inflation rate. Although the outlook for the Dutch economy looks good, especially in a European context, forecasts signal a trend towards lower growth.

This outlook coincides with greater ambiguity due to several factors. The European economy is facing the challenge of the (still unknown) outcome and impact of Brexit, but also of political tensions and anti-European, populist sentiments in specific countries. On a global scale, geopolitical tensions and protectionist policies will lead to growing uncertainty in the years to come.

Retail spending is closely linked to the overall economic situation and consumer confidence. In line with the positive economic growth, retail spending improved further over the course of 2018 and was up by 3.0% year-on-year in the third quarter of 2018. It has to be noted that growth in the food sector (+4.0% year-on-year) remains much stronger than in the non-food sector (+0.8% year-on-year).

Public policies

For most of 2018, the Dutch institutional investment market was dominated by the debate on the Dutch government’s plans to abolish the 15% withholding tax on dividends from shares in Dutch companies. The government’s 2019 Tax Plan stated that due to the abolition of the dividend tax, Fiscal Investment Institutions (FIIs) would no longer be allowed to invest directly in Dutch real estate. This measure would also have impacted the Dutch sector funds that Bouwinvest manages. However, the coalition parties were divided on this measure and following certain specific market developments, in October 2018 the government withdrew its plans to scrap the dividend tax. This led in turn to the immediate withdrawal of the proposed ban on direct investments by FIIs. Consequently, Bouwinvest no longer needed to adjust the structure of its Dutch sector funds.

The most significant political theme for the retail market is the extent to which municipal authorities will be able to use zoning plans to determine land use in the future. Dutch zoning plans are currently highly prescriptive and determine the extent to which each sector may or may not do business in a certain area. However, due to a pending court case this practice may be called into question. Following consultation with the European Court of Justice, it was found that the retail trade falls under the so-called Services Directive, which stands for the principle of “freedom of establishment”. The municipality in which the court case is taking place has now been given until end-2018 to provide better grounds for its assertion that the retail vacancy rate in the town centre will increase further if clothing and other stores set up shop in the periphery of the town.

Sustainability and climate change

One of the many consequences of not meeting the Paris climate control goals will be a temperature rise. If global temperatures increase by four degrees, for instance, it is difficult to predict what the consequences will be. We do know that weather conditions will become more extreme with both flooding and droughts. As a result, agriculture will be impacted and areas will become uninhabitable. This will push migration and once again increase the pressure on habitable areas. This is a scenario we have to prepare for.

In mid-2018, the Dutch Social Economic Council (SER) announced the main concepts of the Dutch Climate Agreement to comply with the Paris Climate Agreement. On the built environment front: before 2050, seven million homes and one million other buildings (including retail buildings) will have to be made sustainable one way or another to convert them to low (or even net-zero) carbon emissions. This pertains largely to existing buildings, as newly constructed buildings will have to be close to energy neutral from 2020 onwards. However, a great deal of the technology required already exists, and companies are gearing up to start the transition. One hot issue the affordability of the measures for lower-incomes. In a move aimed at addressing this issue, the government has said it is is willing to increase the tax on natural gas and reduce the tax on electricity. This will create an incentive to insulate homes and install sustainable heating systems. In rental situations, the issue of the split between investments and financial profit still needs to be addressed. Other challenges that will need to be overcome include: the availability of skilled workers, cutting the cost of measures, the development of new technologies, the digitalisation of the building process, the availability of proven solutions and resources.

Sustainability and the retail market

Before 2021, local governments will come up with plans for the energy transition and map out the availability of sustainable heating at district level. Asset owners will embed this into their sustainability plans and also integrate the reuse of building materials and elements in the building life cycle. In addition to recognising the need to mitigate the effects of climate change, we recognise that climate change is already having an impact and real estate assets need to be resilient. For example, so they are able to recover following an extreme weather event.

What we are seeing at the moment is that investors are looking for assets and pilot projects that help them demonstrate their commitment and contribution to the delivery of climate goals. Furthermore, the industry is adopting the UN's Sustainable Development Goals (SDGs) to demonstrate its contribution to society.

On the retail market front, this is increasing the focus on sustainability. This is also in line with demand: both investors and tenants are increasingly focusing on this aspect.

Demographics and social changes

The growth of the Dutch population is expected to continue in the decades ahead. The population is expected to increase by close to one million inhabitants to a total of 18.1 million in the period to 2040. This population growth will stimulate consumer spending and boost retail demand. However, Dutch population growth will not be evenly spread across the country. The largest cities will see the strongest growth in relative terms and will offer the most potential, partly due to the fact that these cities will be less affected than other parts of the country by the ageing of the population.

With regard to ageing, the Dutch population is undergoing what is termed double ageing; not only is the number of elderly growing, but people are on average living to an increasingly advanced age. The number of 65+ households as a proportion of the overall population is expected to increase from the current 28% to 38% in 2040.

Due to the ongoing urbanisation trend, the majority of these extra households will be concentrated in the urban regions of the country, with the highest concentration in the Randstad urban conurbation. Due to the influx of student and starters, the ageing of the population will be far less pronounced in the major cities than in the rest of the Netherlands.

These demographic shifts in population, urbanisation and ageing are long-term trends that will continue to have an impact on living, shopping, working, mobility and leisure. These trends make it even more important to align the products in the real estate investment market with the future demands of both users and investors.

The growth of the largest cities coupled with the influx of (younger) people, indicates that the largest cities will continue to offer the best retail opportunities for experience oriented shopping, especially in prime locations. The ageing of the population will likely affect shopping behavior, but could be an opportunity rather than a threat for neighborhood centres. That is, provided these centres respond effectively to the wishes and preferences of older people, in terms of convenient parking, accessibility, lay-out and tenant mix.

Other significant trends seen over the past few years and that will continue to have an impact in the coming period include:

  • Consumer focus on inexpensive versus high-end; the middle segment will continue to struggle

  • Continued growth of online shopping

  • Trend towards ‘use’ versus ‘ownership’

  • Continued growth of the hospitality sector in shopping streets

  • Increase of retail supply in high-traffic locations

Technology and innovation

We are seeing the development of new technologies that improve the quality and productivity of business operations and people’s lives on an almost daily basis. This is also true for the real estate sector. Solutions for the current problems faced by today’s construction industry, i.e. the lack of skilled workers and the future shortage of building materials, may be found in the technology of smart robots, the development of new (bio-based) materials and improved circularity. Innovations in other industries, such as ultra-fast trains and driverless cars, could change the choices people make in terms of how and where they live, work and shop. This will have a direct impact on the quality of the locations in terms of how we value them (financially). The growing amount of (big) data may offer a solution. By using new technologies, we will be able to use this data to make more accurate predictions regarding the attractiveness of individual stores and other retail locations.

Consumers are embracing technological change more and more quickly and are becoming increasingly mobile. Retailers are adding online stores to their physical stores to offer a fully-fledged multi-channel supply that sets them apart from the dominant online players such as Amazon and Alibaba. These players are very competitive online thanks to the use of the most up-to-date analyses, robotics and logistics technology, such as drones that take care of ‘last mile’ transport. However, the lack of physical stores means they have no opportunity to bind customers with a personal approach. Technology also makes it possible for retailers to connect with each other and initiate joint campaigns to attract customers. The addition of virtual and augmented reality are making products and services even more attractive for consumers.

Blockchain technology gives retailers the opportunity to gain more trust from consumers, for instance by guaranteeing the origins of products. For landlords, it holds the potential for self-executing contracts, due to the fact that blockchain can be used to settle financial transactions without the intervention of a single person. This could be interesting for the likes of rental contacts and the outsourcing of work.

To continue to attract (new) tenants to deliver added value to all stakeholders, it is essential to integrate new technologies, innovations and ancillary services in the retail environment. This makes it important to work with new market entrants who are developing these applications.

Occupier market

The retail occupier market shows a mixed picture. On one hand multiple retail chains are now unveiling expansion plans, including those that for the past few years have been focusing primarily on consolidation. Last year also saw a number of (international) retailers opening their first Dutch stores, such as Uniqlo, MSCH, NA-KD and Arket. On top of this, a number of retail chains are now experimenting with new formulas and a lot of (new) food and beverage operators are eyeing major expansion in shopping areas.

Still, the risks in this market are lurking below the surface as multiple retailers are still in the midst of transformation processes as they attempt to adapt to tougher competition, changing consumer behaviour and ever-increasing online shopping. As a result, a number of retail chains, like Blokker, Hema and Hudsons’ Bay, are focusing their attention on improving their retail formats and optimising their location strategy. This has put the focus of the users market firmly on the best locations in city centres, primarily in the 20 to 25 largest cities in the Netherlands.

The drop in vacancy rates in these major city centres and the limited supply of good locations (due in part to the lower number of bankruptcies) have put a dampener on take-up figures. Outside the city centre areas, the take-up of retail space has been driven primarily by supermarkets, which once again saw a strong rise in turnover in 2018 (+ 4.7% year-on-year in in Q3 2018).

Vacancy rates have been slowly declining for the past three years, from 7.5% in 2015 to 7.0% in 2018. However, there are marked differences per type of location. In city centre areas, vacancy rates have declined from 7.2% to 5.8%, while vacancies in district centres have increased from 7.9% to 9.1%. While the transformation of poorly functioning retail stock will continue to drive down vacancy rates, the growth in online sales and the difficulty some retailers are having adapting to changing consumer demand, is creating risks in the retail segment, both in terms of local vacancy and in terms of rent levels.

Investment market

Given the low interest rate environment and the yield spread offered by real estate, investors’ capital inflow into real estate markets remained strong during the past year. In 2018, around € 21 billion was invested in the Dutch real estate market, just short of the record high € 21.9 billion invested in the previous year. This large investment volume was driven by both domestic and international investors, although the market share of the latter group remained dominant. In 2018, international players accounted for 59% of total investments, compared to 76% for the full year 2017.

On the buy side of the investment market, we are seeing a clear shift. Opportunistic and value-add funds used the positive momentum in the market and moved towards the sell side, most notably in the residential market. In contrast, institutional investors remain among the biggest buyers, although they remain active on the sell side too, as they dispose of non-core properties and continue their roll-over strategies.

However, potential threats are looming over the real estate investment market. Prices are high for all financial assets, including property, while the ECB's quantitative easing policy has come to an end and the ECB is expected to raise interest rates from mid-2019 onwards. The impact of Brexit and unfolding trade wars might also prove stronger than expected, while affordability is becoming a major issue in the residential market.

Still, we expect investors’ appetite to remain high for real estate investments, due to the fact that real estate continues to prove its value in terms of adding diversification to investment portfolios and the total returns it offers compared to interest rates and other asset classes.

The Dutch retail investment market accounted for a healthy chunk of this investment volume and saw € 4.25 billion in investments in 2018, more than double the figure recorded in 2017. The sub-segments that saw increased investments included retail warehouses and shopping centres, while investments in high street properties showed a marked drop, as only a few portfolios were traded.

Market opportunities and risks

The retail market is facing a number of threats. The first is related to the impressive growth in online sales, which has already had a substantial impact on a number of retail categories. On top of this, the online retail sector is constantly expanding the range of goods it offers, which is in turn creating ever-greater challenges for the bricks-and-mortar retail market. The second threat is related to the extent to which zoning plans will be able to prevent the arrival of regular shops in large-scale and peripheral retail zones in the future. This situation will be clearer in the course of 2019, but this could have far-reaching consequences for both large-scale and peripheral retail zones and for city centres and supporting shopping centres. Thirdly, there are still a number of large retailers that are finding it difficult to to adapt to changing consumer demands in this highly competitive market. Finally, while economic forecasts remain positive, growth is slowing and potential economic and geo-political threats are looming. These threats make it more important to identify and invest in assets within healthy catchment areas.

While these threats are substantial, the retail market is also resilient. If the economic growth remains healthy, this will have a positive impact on the entire retail sector. In many of the largest cities, population growth forecasts are substantial, which will give a significant boost to overall consumer spending power. Additionally, the ageing of the population is creating new market opportunities for retailers and store owners catering to this segment.

  • Share this article