Global real estate markets flourished in 2015, with worldwide investment volumes reaching or even exceeding pre-crisis levels. Driven by low interest rates, real estate has become an attractive alternative to risk-averse investors searching for stable returns. Investment yields are well below their long-term average in all regions. However, supported by all-time low yields on risk-free alternatives, yield gaps remain healthy and are attracting more capital to real estate. Most global markets benefited in 2015 and saw solid capital growth. The favourable occupier market outlook for well-located assets now seems largely incorporated in today's prices and is starting to push some investors to slightly off-pitch properties.
Mega trends are driving demand in the occupier market. Globalisation affects the way people interact and office space demand is becoming more internationally oriented. The growing number of worldwide flights is creating solid fundamentals for the hotel market. Large international retailers are spreading their concepts across borders and now dominate local retail markets, while the huge upsurge in online retail is changing the retail landscape with an increasing demand for state-of-the-art logistics real estate. A continuous stream of people is being drawn towards urban areas, which means that demographic outlooks are very different, even within countries. This and the major increase in single person and two-person households is creating enormous demand for residential real estate, especially in metropolitan areas. Meanwhile, the worldwide ageing of the population is likely to boost demand for healthcare-related real estate, such as care homes and assisted living facilities. The urbanisation trend is also increasing the competition between individual cities and a simple country-level approach is no longer sufficient for global real estate investors.
This is why Bouwinvest incorporated a city ranking in its Global Market Monitor, which compares key indicators across countries and cities for each real estate sector. A final ranking shows regions attractive for residential, office, retail and logistics investments. On the office and logistics markets, cities in the Asian-Pacific (APAC) region are performing exceptionally well – the top ten of the Office Ranking includes eight APAC cities and the Logistics Ranking includes five. North America is performing well on all key indicators in the Global Market Monitor. Canada, the Unites States and Mexico are all in the top ten countries worldwide. Large, liquid markets like New York and Washington DC, and high-performing tech metros like Boston and San Francisco, top the rankings on a city level. European countries stand out on the residential ranking, supported by strong market activity in Germany, the Netherlands and Sweden.
The Dutch real estate market has recovered swiftly and investment appetite is growing. Dutch pension funds invested in 2015 in the Netherlands and are looking to expand their allocation to real estate in the next few years. In addition to Dutch investors, international investors are increasing their investments dramatically. In fact, most real estate investments in the Netherlands now come from international investors. Dutch prime markets are still attractively priced compared to other key markets as London, Paris and Munich, where prices have already increased to pre-crisis levels. However, the interest from both Dutch and international investors is quickly pushing up prices and investors are broadening their view from a strong focus on prime to include sub-prime locations.
After several rough years, the Dutch residential market has gradually recovered. The increased number of households and low production of housing stock during the crisis has resulted in a structural housing shortage. Driven by urbanisation, housing shortages have rapidly pushed up prices in the country’s main cities, especially Amsterdam. A combination of stable rental growth and yield shift resulted in very positive total returns in 2015. Changes to government policies have affected the housing market and increased demand for liberalised sector rental homes, a product that is perfectly suited for institutional investors looking for stable direct returns.
Office space demand is very sensitive to economic cycles. After several lean years, economic growth has picked up and prospects for the office market now look promising. However, a surge in companies looking for cost efficiencies and new technologies are changing qualitative demand. Tenants are focusing on specific location types, but are also less bound to their offices and are looking for more flexibility. Prime office locations include high-quality and multi-tenant offices, with excellent road and public transport accessibility in regions with a ready pool of highly-skilled employees. On the other hand, a group of secondary locations are gradually losing tenants, leaving large office buildings completely vacant. This polarisation trend between prime and secondary is expected to continue in the next few years.
Polarisation is also affecting the Dutch retail market. In 2015, several large Dutch retailer chains struggled to keep up with the changes in consumer market dynamics. Some were forced to file for bankruptcy, leaving a large number of square metres vacant. Others were forced to renegotiate their lease terms. On a more positive note, a large number of major international retail chains, such as Primark and Zara, have adapted swiftly and now have a solid position on the Dutch retail market. Retailer demand seems to be focused on high-quality, large-scale retail units in prime locations. Most experts expect to see further differentiation in the retail landscape in terms of prime and secondary retail real estate.