Dutch pension fund investor APG Asset Management plans to invest more in the domestic real estate market in the coming years, notably in the mid-priced rental housing segment.
In a corporate Q&A published on APG’s website in early August, Robert-Jan Foortse, head of European real estate, said the group was looking ‘explicitly’ at investment in housing in a bid to ease the current shortage which is said to be as severe as it was just after World War II.
With the backlog in newbuild houses currently running at 390,000, the Dutch government has set a goal of building 900,000 homes by 2030. However, recent research suggests this target will not be met as the construction sector grapples with a combination of delays in securing planning permits, tighter environmental regulations, and high demand.
‘We are eager to contribute to this housing challenge on behalf of our pension fund clients,’ said Foortse, noting that APG has already invested €2.5 bn in Dutch rental housing in the mid-priced segment. ‘That could still increase, but we can also invest in retirement homes, starter homes or care homes. We are now at the drawing board, looking at the how and what. We are emphatically doing the same with other parties in the Netherlands, to see what works for them and what works for us, in order to achieve both the financial and social return that our clients are looking for.'
APG ranked in 45th place in PropertyEU’s latest Top Dealmakers ranking, based on real estate acquisitions and disposals in Europe during 2022. The pension fund giant chalked up €1.6 bn of acquisitions and recorded €277 mln of disposals last year.
Sector regulation
Recent reforms to the Netherlands' social housing sector will see rents for some 300,000 homes cut by an average of €190, but this need not make investing in rental housing less attractive for investors, remarked Foortse. ‘Regulating a housing market does not necessarily affect its attractiveness. Investors do struggle when the rules change every year. That creates uncertainty, which leads to higher required returns.’
He added: ‘Incidentally, we understand the political desire to keep housing affordable; that is our desire as well. However, we see in other countries that more regulation usually leads to fewer new homes. And I think everyone agrees that we actually need more new housing. So amended regulation can lead to increasing affordability in the short term, but in the longer term it leads to less new supply, which in turn will drive prices up.’
Foortse stressed that for APG, the Dutch housing market remained ‘just as attractive in the longer term’. In the shorter term, however, he said the situation was ‘somewhat more challenging due to higher inflation, higher interest rates, higher construction costs and falling house prices. As in any cycle, this will also create opportunities for us, and we are specifically active in identifying those opportunities’.
While measures such as indexing rents can offer some protection against inflation in some sectors, this was not the case for rental housing, particularly in the current inflationary environment, according to Foortse. ‘It is impossible to raise the rents of Dutch homes by an inflation rate of as much as 10 percent. For hotels, on the other hand, it can be done,’ he said.
‘After the Covid crisis, people started travelling en masse again, and we expect this trend to continue this year as well. Because of Covid, hotels took a big hit, but the recovery is shaped like a very steep “V”, while the trend for other sectors is more like a “U”.‘
Distribution centres
Besides housing, APG plans to continue investing in logistics real estate, with Foortse suggesting a shift in focus to smaller distribution facilities. ‘At the beginning of the trend toward more online shopping, we were very focused on investing in those new large facilities. There was a shortage of those at the time, so they were an attractive investment. At some point we said we wanted to get closer to the consumer with distribution centres, because locations close to cities are currently scarce.’
He added: ‘We are also looking at how best to deal with these “boxes” in terms of ESG, for example by looking at how sustainably they are built. As an investor you are there primarily for financial returns, but in everything we do we are also looking for social returns, or ways to make the world a better and greener place. It’s about looking for the right balance between containing the potential negative impact of distribution centres and their positive impact. That includes ensuring that these centres create much-needed jobs.’
