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Intertrust N : Real estate investment trends in the Netherlands post Covid-19

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After Dutch real estate investment demand slumped in 2020, market sentiment is starting to turn. We outline why – and look at the most attractive industries

Real estate investments in the Netherlands fell significantly in 2020 due to Covid-19. Markets like the Dutch, which are dependent on foreign capital, have come under pressure as international investors have taken a more cautious stance during the pandemic. The tenants also struggled to pay their rents.

However, the Dutch real estate market is becoming more active again: investors are optimistic and we are holding more discussions with customers – existing and new – who are looking for real estate offers.

As in most other global markets, investments in Dutch real estate in 2020 were significantly lower compared to 2019. However, the pandemic has not affected all real estate sectors equally. The hotel, office and retail markets are harder hit than other sectors such as logistics and industry. This is due to the fact that fewer people visited hotels, shops and worked in offices, while contact-limiting measures were in place.

The rental challenge for Dutch real estate investors

The impact on the hotel, retail and office sectors was compounded by rental problems. In some cases, landlords have found it difficult to get rent from their various tenants, for example in large retail parks with multiple stores (and multiple tenants) or large office buildings with different companies occupying the floors. Compare this to the logistics sector, where a property may only have one tenant – a distribution center (which probably did well during the pandemic) – and you can understand why rental problems are more pronounced in certain sectors.

The Dutch government has taken steps to help tenants, such as covering their costs or delaying their tax bill. Landlords have also taken action: their first approach is usually to propose deferred payments to tenants (if the lease is renewed). If this is not accepted, landlords will consider rent reductions. In fact, last year the courts in the Netherlands ruled that in certain cases it was fair for tenants to ask for a rent reduction.

Negotiations between landlords and tenants were difficult and in many cases still ongoing. On the one hand, the landlord doesn’t want to lose any money; on the other hand, they don’t want to lose their tenant either. We took part in board meetings with our customers and their tenants and advised on rent reductions of, for example, 10%, 30% or 50%.

What does the future of Dutch real estate investments look like?

While the uncertainty about the Delta variant of Covid remains, investor sentiment is beginning to change. In the Netherlands, the number of infections is falling, restrictions are easing and investors are more positive.

Existing customers say they are looking for real estate listings and we are seeing more interest from potential customers. We expect further investments in the second half of the year. Investors have been watching real estate wealth for a while and we believe some will be ready to get involved very soon.

The reasons why the Netherlands is attractive for real estate investments still apply. It has a stable climate and political environment, good infrastructure, tax breaks, and is a useful country for building a hub and creating a European footprint. However, investors typically want to see a property in person before they commit, so more borders will need to be reopened before we can see any significant spike in activity.

Which real estate offers are most attractive in the post-Covid Netherlands?

The popularity of property types depends heavily on the individual customer. Some focus on distribution facilities while others are more interested in hotels and retail. Some are just looking for the best opportunity.

Investors continue to be interested in inner-city real estate; the pandemic has not triggered any change here. Amsterdam, Rotterdam and Utrecht are still in demand. However, we are seeing an increasing appetite for sales and logistics facilities. The explosion of e-commerce is leading to an increasing need for logistics space. There are some good strategic locations within the Netherlands, for example in the east of the country near Belgium and Germany, but also between Amsterdam and Rotterdam.

We are also seeing a change in the way the Dutch work. Individuals work from home part of the week. What will offices look like in the future? We have a few clients who are designing offices almost like multifunctional community centers. Workers will not only sit next to their own colleagues, but also with workers from other companies. In the lower rooms there are lots of green plants and coffee bars where people come and go and socialize. On the upper floor, the office will have more breakout areas and rooms for virtual meetings. Real estate developers have to think carefully about which offices they are offering in order to attract the best investors and the best tenants in the future.

Why Intertrust Group?

  • The global presence and diverse services of the Intertrust Group make us the perfect transformation partner to promote cross-border real estate activity

  • We can help set up real estate structures that are managed via the Netherlands

  • We offer business services for Dutch Holdcos and PropCos, such as B. Domiciliation, director provision, corporate legal secretarial and accounting functions

Find out more about our Dutch office.

Check our FastTrack on global real estate structures.

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Originally Appeared Here

Seeking drivers of real estate investment

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There are compelling opportunities to invest in a variety of real estate sectors including office, industrial and logistics, retail, student dormitories, healthcare, social and affordable housing, and housing for the disabled.

There are also often new categories that need to be monitored, such as: B. Apartment buildings. Investment opportunities in real estate are closely related to social and economic trends, so it is crucial to combine knowledge of the performance drivers of real estate with the macroeconomic environment and structural changes.

For example, the shift in demand from brick-and-mortar retail to online shopping saw an increase in 2020 and rapidly accelerated a trend that was already underway. This had a negative impact on retail as passenger traffic collapsed, but demand for industry and logistics increased as retail suddenly needed significantly more storage space and distribution facilities. This trend also means that the more traditional retail sector is repositioning some assets in relation to its offerings. We are now seeing more large malls with a variety of tenants outside of fashion retail such as doctor’s offices, daycare centers and gyms to attract more customers and increase their footfall.

FIVE FACTORS TO CONSIDER

1) The macroeconomic environment

The economic situation is an important barometer for real estate, as it influences the purchasing and investment power of companies and private individuals. Factors to consider are unemployment, gross domestic product (GDP) growth, inflation, interest rate, infrastructure spending, percent income change, consumer confidence, and trade dynamics.

By evaluating these factors, we can create a forecasting model that will help predict, with reasonable probability, how key elements of a real estate investment, such as property investment, will perform. B. the rental growth.

2) The market situation

Real estate, like any other asset class, has its own cycle. It is important to understand where the cycle is in order to achieve performance, generate returns, and determine sustainability. In doing so, we take into account the rate of return / capitalization, current rents, incentives, vacancies, catchment area and tenant quality.

For example, Australia’s office sector had a strong performance before the pandemic, but the workforce moving from home to work environments during and after the lockdown is a significant challenge for the sector.

Now we see that the assets are still expensive, but their return potential has fallen – rents are falling, incentives (e.g. if the cycle shifts and prices fall below their historical level, an attractive investment opportunity can arise.

3) Social trends

Real estate is designed for social use and is therefore of course strongly influenced and influenced by social trends. Large-scale trends, such as demographic change, provide clues as to where demand will intensify and at the same time weaken.

One of the examples is flexible office space – this was considered an emerging trend three years ago and is now a recognized concept (think of companies like WeWork, Regus, WOTSO Workspace, and others). Over the past year there has been an increase in companies offering flexible office space to tenants such as tech companies, startups and venture capital. We’re constantly monitoring these trends and looking at fundamentals – the key is to find a trend that has long-term tailwinds given the illiquidity of this asset class.

4) Investment characteristics

There are a number of attractive investment features for real estate, in particular diversification advantages. Traditionally, real estate has had a low correlation with the stock and bond markets, which means that they usually don’t move in the same cycles.

However, real estate can be positively correlated with inflation, meaning it has the potential to act as an inflation hedge. Rents are often pegged to the index of consumer prices (CPI), especially in sectors like healthcare, which creates the potential for positive returns in times of rising inflation.

5) implementation

The implementation methods vary depending on the investment volume, risk tolerance and governance level. Real estate investments can be realized by: investing in pool funds with a minimum ticket size typically between 5 and 20 million US dollars; Investing in direct deals and co-investments that require a significant amount of capital; and the establishment of separate mandates, which requires strong governance and scale.

Therefore, it is often difficult for retail investors to gain access to investments due to the high minimum size requirements and complexity. Investors can gain access to real estate exposures through listed investment companies and real estate securities and should pay attention to factors such as concentration risk – i.e. exposure to one or a few assets – when making a selection.

ANALYSIS IN ACTION

Our valuation of real estate in the healthcare sector is an example of where understanding the various dynamics can reveal an opportunity.

The health sector has attractive features – on the one hand, it correlates less with economic growth, GDP and unemployment compared to sectors such as office, industry and retail. This leads to rising rents (albeit gradually) with either fixed annual increases or CPI-linked, high occupancy rates and long leases of more than 10 years. Leases are often structured as triple net leases, where taxes, insurance, and maintenance costs are all borne by a tenant.

There are other societal trends that indicate long-term healthcare opportunity. Populations in developed countries around the world, including Australia, are at longevity risk due to their aging populations. This contributes to a strong demand for health-related assets while the current supply is limited.

This sector appears attractive from a valuation perspective and there is good potential for further capital appreciation. The key for investors in this sector is having the right network of contacts to find business, given the limited supply, and then the ability to manage those assets and relationships with tenants.

Understanding what drives property performance and valuation is critical to securing a compelling investment, especially at a time in history when social, structural and economic change offers unique opportunities.

Dania Zinurova is Portfolio Manager at Wilson Asset Management.

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Originally Appeared Here