Economy and demographics
Leading economic indicators have improved
The Dutch economy is projected to grow healthy by around 2.0% in 2015. The healthy economic growth projected for 2015 is partly due to increased household consumption and a rise in business investments. The main negative uncertainties relate to events outside the Netherlands. Geopolitical tensions in various places around the world pose a risk to the global economy. Consumer confidence is higher than a year ago, but sentiment is still cautious.
Urbanisation and aging are key
On a national level, both the total population and the number of households are expected to continue to grow in the coming decades. The population is expected to grow from 16.9 to 17.2 million by 2020 and the number of households is set to rise from the current 7.7 million to 8.0 million by 2020. Demographic growth, however, will be mainly focused on a number of core regions in the Netherlands. The number of people older than 75 years of age is also expected to double in the next 25 years. Both urbanisation and aging will have a major impact on quantitative and qualitative demand in the coming decades.
Economic outlook indicators show improvement
The economic outlook for the Netherlands has improved strongly in recent times. Forecasts show that the Dutch economy is set to book a healthy growth of 1.5% - 2.0% per year. Employment levels are also set to rise by approximately 1% annually, while consumer confidence is higher than a year ago. Persistently low inflation is expected to boost consumer spending more than 1.5% annually. In addition, inflation is expected to remain low in 2016 and beyond, while the Dutch Central Planning Bureau is forecasting a continued rise in median household purchasing power. The improved economic outlook sets a solid foundation for the Dutch real estate market.
Trends and developments in the retail market
Physical and digital shops converge
Online shopping continues to grow and is becoming an increasingly significant factor in the retail market, with the turnover from online sales increasing annually. However, as online shopping is largely focused on certain retail sectors, such as travel, electronics, media and clothes, the overall impact on the retail landscape is limited, as these sectors make up only 5% of the total market. There is also a growing awareness among retailers that online and offline can actually be mutually supportive. For a large proportion of consumers, online research in advance is seen as a very helpful exercise that actually improves their shopping experience. That said, retailers will have to meet the high standards of consumers with respect to both online shopping facilities and the look and feel of the physical shop (brand stores, flagship stores, entertainment).
The retail market is currently changing
The transformation of the retail market was never so clear as in the last months of 2015. Department store V&D, retail chain Macintosh and pharmacist DA all filed for bankruptcy. These are examples of retailers that could not keep up with changing consumer preferences. On the other hand, new leases are predominantly signed by (international) luxury or discount formulas such as Primark and Zara, who have adapted swiftly and now have a solid position on the Dutch retail market. Retail space at prime location left vacant by bankrupt retailers is expected to be taken up quickly by retailers looking for new leases or extension of floor space. Polarisation among retailers and investors is expected to continue in the next few years. New entrants will thereby focus on opportunities in the G4 cities. International retailers show special interest on flagship stores and the city centre of Amsterdam. This focus meets the ‘experience’ or ‘convenience’ strategy of Bouwinvest.
Redevelopment is the future
Maintaining a healthy and vibrant retail real estate market will require much greater emphasis on redevelopment, rather than expansion through (even more) new shopping centres. The focus on redevelopment will avoid a worsening supply/demand ratio in the Dutch retail market. Redevelopment opportunities are expected to increase, especially in prime high street areas with strong retailer demand for large(r) floor plans. In addition, there are ample redevelopment opportunities for district shopping centres that are facing a growing need for a qualitative transformation, from one-dimensional shopping centres (or shopping areas) to multi-dimensional experience centres.
Major cities will outperform
Occupancy rates are expected to remain high in large urban shopping areas. The major cities are in the best position to take advantage of technological, demographic and economic prospects. Central shopping areas that offer the ‘fun-factor’ are expected to continue to deliver strong returns, as are ancillary district shopping centres with a focus on daily shopping needs in strong catchment areas. Central shopping areas in medium-sized and small cities will generate lower returns, as will ancillary shopping areas with few square metres devoted to non-daily shopping and peripheral shopping areas.
District shopping centres attractively priced
The strong and stable turnover development in the food segment continues to boost ancillary shopping areas with a focus on daily shopping. Complementary speciality shops, such as bakeries and quality butchers, offer consumers a wider selection, greater service and high quality. New food formulas are responding to consumer themes that are winning them continued repeat business, such as local sourcing and ecological responsibility. These are helping the large district centres and small district and neighbourhood centres to keep both occupancy and lease rates at a healthy level. The district shopping centres are attracting considerable capital with their traditionally high yield gaps. The risk of vacancy is relatively limited and thanks to the ongoing recovery in economic growth there is a chance of value growth in the medium term.
Implications for retail real estate
High streets in big cities embrace online shopping and offer experience
The increase in online sales will have less of an impact on A1 shopping areas in big cities, with Amsterdam the least affected. The larger Dutch cities have the best demographic and economic outlook, thanks to ongoing urbanisation, as well as to the fact that they offer the best ‘shopping experience’ for consumers. Location is a major factor in adding experience. On top of the continuing demand from traditional high street retailers, new opportunities are emerging from the recent trend of online retailers opening physical shops to bolster their brand.
Large retail units prime shopping streets remain attractive
The recent trend of retailers demanding larger retail units is gaining pace. Major national and international fashion chains in particular are demanding more retail space per outlet, especially in the major urban centres of the Netherlands. Due to the relatively small amount of space currently available, demand will continue to be strong, particularly in cities like Amsterdam, Utrecht and Rotterdam.
Consumer convenience drives focused shopping centres
District shopping centres with a focus on daily groceries are also well positioned to thrive in the online environment. The combination of a local meeting place with a complete offering of daily products makes these centres complementary to online shopping. This type of retail real estate remains an attractive long-term investment. Good accessibility and parking facilities are vital.
Strong demand for Dutch investment market
In addition to the increased activity of Dutch investors, the amount of foreign capital from international investors has grown dramatically in recent years. In fact, the majority of real estate investments in the Netherlands now come from international investors. While real estate prices in other key markets such as London, Paris and Munich have already increased, Dutch markets are still attractively priced. However, the continuing interest of both Dutch and international investors is quickly pushing up prices. This trend is expected to continue in the coming years.
The retail market in particular benefited from increased investors’ interest in 2015. Investment volumes reached a record high of € 2.8 billion in 2015, consisting of both single-asset as well as some large portfolio transactions. The amount of capital available to the market led to yield compression for all sub-segments of the retail market. Downward pressure on prime yields is expected to continue.
Implications for the Retail Fund
Focus on high-quality retail locations that excel in Experience and Convenience
Active asset management and redevelopment will be required to meet the challenge of strong online sales growth and moderate economic growth
Best economic outlook for our assets in the most urbanised areas
Continuous focus on improving the quality of district shopping centres, in terms of catchment area, accessibility and supply
Optimising the tenant mix in district shopping centres, making them less sensitive to online sales