ECONOMIC CONDITIONS
Dutch GDP expanded by 4.6%1 in 2022. While optically a healthy figure, Q4 showed a significant deceleration. Despite the high economic growth, an ultra-low unemployment rate at 3.5% and a very tight labour market, the economic mood has dampened significantly during the year, with energy security, deteriorating purchasing power, monetary tightening and strong geopolitical tensions dominating the conversation. Going into 2023 all these subjects remain largely unresolved.
In 2022 inflation (CPI) has been a major theme worldwide and the Netherlands was no exception: despite a firm deceleration in the last two months of the year, Dutch CPI was 9.9% in 2022. In the short-term inflation is expected to remain elevated, but is expected to stabilise at nearer 4% towards the end of 2023.
OCCUPATIONAL MARKET
2022 started relatively upbeat, with the expectation that the end of covid would unleash significant pent up tenant demand. Yet inflation, supply chain disruption and recession fears added an extra layer of uncertainty to potential occupiers who had already been juggling with the fallout from Covid.
The “office vs WFH” debate transitioned into a hybrid working arrangement, with many employers having adopted an official policy of a minimum days back in the office. Be that as it may, the total impact of this behavioural shift on the overall demand for office space will only become visible in the mid to long term, while factors such as labour market shortages, the economic outlook, sustainability credentials of buildings and the scarcity of Grade A space in general all injecting nuance into the debate.
Against this backdrop, Dutch office take up until Q3 2022 was 3% lower compared to the same period in 2021. The vacancy rate for the overall market has remained stable at 8.2%.
Location remains the key variable in the selection of space. With energy and service charges now having a bigger impact on total costs tenants increasingly focus on total rental cost rather than purely on rents, so that sustainability credentials of a building have become much more important. Also, given the continued war for talent and the need to re-attract employees back to the office, the overall mix of location, sustainability and services has become significantly important.
Increased polarisation is more than likely. The limited Grade A supply in prime locations, the slow delivery of new office space, the sustainability requirements and rising inflation are putting further upward pressure on prime office rents.
AMSTERDAM
Office take-up in Amsterdam in the first three quarters of 2022 was circa 73.000 sqm (vs same period 2021: 163.000 sqm), owing to both economic uncertainty and limited availability of high-quality office space.
The office vacancy rate in Amsterdam as of Q3 2022 was 7.0%, down 10bps from 2021. The vacancy in the prime South-axis market is up 40bps to 3.2%, Southeast saw the biggest increase at 8.3% (was 5.3% in 2021, surpassing the Dutch average of 8.2%). The vacancy in Sloterdijk is down by 220 bps to 6.4%. In a clear sign of polarisation prime office rents increased to €535/m2, even with significant pockets of available space in the wider Amsterdam market.
In 2022 some 160,000 m2 of new office space was delivered in Amsterdam, while around double that was initially slated for completion. Supply is expected to increase by 1 million m2 by 2027, with peak completions expected in 2025 and 2026 as a result of projects currently being postponed due to rising financing and building costs and higher uncertainty. Some 60% of this supply is speculative. With take-up having been on average 280 000 m2 per year over the last 5 years, this new supply should be readily absorbed, being on the right side of the polarisation debate.
OTHER G4
In 2022 take-up in Utrecht was soft, in line with 2020 and 2021. Vacancy decreased by 120bps to 5% in 2022, while prime rents increased to €305/m2 (€285/m2).
In Rotterdam prime rents increased to €265/m2 from €245/m2 and the vacancy was markedly down to 7.4% from 8.6% in 2021.
In The Hague, where Government is the largest occupier, the overall vacancy increased by 20bps to 4.5%.
OTHER NETHERLANDS
The vacancy rate in Eindhoven decreased to 6.9% from 7.3%, with low take-up levels in 2022 confirming the scarcity of high quality office space in the area.
Vacancy at the Bio Science Park in Leiden remains at 0%.
INVESTMENT MARKET
The end to ultra-low interest rates, which has driven investment markets for years, has significantly impacted transaction levels. Office investment volumes were down circa 30% to €2.5bn in the first 9 months of 2022, as the disconnect between buyer expectations and seller hopes grew wider. Yields have already started to move out from all-time lows to reflect this.
Some price discovery did take place towards the end of the year which suggest that prime yields in Amsterdam have moved out by up to 100bps to circa 4% at year-end. To the extent there is any distress, it appears to be largely limited to development companies with too much land on their books.
