Dutch retail sector braces for heavy weather

Interest in the Dutch residential sector may be heating up, but the retail sector is gearing up for some heavy weather, according to Clive Pritchard, managing director of Savills Netherlands.

‘The worst is still to come,’ he said, pointing to growing vacancy levels in smaller regional cities. The problems are being exacerbated by ongoing migration in the north and the south of the country to larger urban centres as well as the effect of ecommerce, he added.

The struggling Dutch office sector also continues to attract interest from foreign investors, including German fund managers such as Union Investment, Deka and Real IS. With prime properties still fetching yields of 6%, the Netherlands remains relatively inexpensive compared to Germany or the UK, Pritchard pointed out. ‘But the prime market is tiny, there are more buyers than sellers.’

The same is true of the secondary market where repricing is drawing increased interest from foreign investors such as US opportunity funds. While economic recovery remains elusive in the Netherlands, the arrival of the opportunity players could be seen as a signal that the market is starting to bottom out, Pritchard said. ‘It could be an indicator. The opportunity funds are very smart.’

Despite the relatively attractive yields, most sovereign wealth funds tend to stay away from the Netherlands, Pritchard said. 'Foreign wealth funds tend to focus on hotels and large assets, and freehold ownership. Amsterdam has relatively smaller lot sizes compared to London and Paris and most of the ownership is leasehold.'

And with office vacancy levels at an average of 15% nationwide and double that in some areas, the Netherlands remains the most 'underdemolished' country in Europe according to market watchers. Pritchard: ’We don’t need more investors, we need more tenants.’

While foreign investors are not exactly flocking to the Dutch retail and office sectors, they are lining up to buy residential portfolios from Dutch housing corporations, Pritchard said.

Recent legislative changes will provide an impulse to investment in the sector but he warned that it would most likely take another 12 months before sales start getting under way. ‘There will be opportunities, but not now,’ he said.

Under recent legislative changes, Dutch housing corporations can now sell portfolios at market values. The changes are aimed at incentivizing the corporations to focus on their core activity and build more new social housing.

While rental levels in the regulated housing sector are relatively low, they are very stable, Pritchard pointed out. ‘They won’t get any worse and there’s still a nice spread.’

According to Eddy Smit, director of Dutch asset manager MVGM, German and UK players are particularly interested in the Dutch residential sector. ‘House prices here have fallen more sharply than in those countries, while rents continue to rise. It is possible to realise good returns, while the risks are relatively limited.’

Smit said he was already in advanced talks with a number of foreign investors interested in the Dutch residential sector. ‘I expect to sign one or more agreements in the near future.’

Earlier this year, UK family office Hanson Asset Management signed an agreement with the municipality of The Hague to develop and acquire both private and social rental homes.

Housing corporations have traditionally held a dominant role in the Dutch residential sector and are the major player in the rental market. The private rental market is still relatively small in comparison to the regulated sector and demand by far exceeds supply.