A long-term strategy will deliver in the Dutch market
A long-term strategy that looks beyond today’s challenges will work well in the Dutch market, delegates heard at GARBE’s Investment Briefing – the Netherlands: Real Estate Outlook 2023, which took place recently on Real Asset Media’s REALX.Global platform.
“As an active asset manager with our own development company we can find opportunities in the current market, taking over companies or taking over asset management mandates,” said Michiel Dubois, managing director, GARBE Institutional Capital.
The other focus for the group is value-add development, he said, in the belief that it will deliver more value for our investors.
“We’re active managers with a long-term strategy and we build to hold”, said Maurits Smit, managing director Netherlands, GARBE Industrial Real Estate. “We intend to use the development opportunities that are arising in the current market”.
GARBE also does spec developments, despite the fact that spec financing is very hard to get in the Netherlands.
“Banks are not interested, so you have to turn to debt providers and it’s expensive,” said Smit. “But we’re convinced that the increase in rents will compensate.”
This belief in the logistics sector’s prospects is the reason why the group is continuing to invest for the long term.
“We’ve started many developments which will be completed when the current slowdown will have passed,” said Dubois.
Economic conditions are challenging in the Netherlands: GDP growth of 4.5% is higher than the European average (3.2%), but expected to slow down in 2023. In the meantime inflation has reached 12%, much higher than the 9.2% EU average. Rapidly increasing costs are having an impact on activity in the market.
“We’re seeing less transactions, and rising construction costs and interest rates mean that not everyone will be around next year,” said Dubois. “But the stronger developers will sit it out and survive.”
The market has not come to a standstill, but many investors are taking a wait and see attitude, in the expectation that prices will come down. As the saying goes, said Dubois, sellers want yesterday’s price and buyers want to tomorrow’s price.
“It’s not a pause but a slowdown, as we’re still seeing core deals being done,” said Smit. “But the pricing has changed in the last few weeks and we see more opportunistic capital coming in.”
Great opportunities in science parks sector in the Netherlands
The science and tech parks sector offers great opportunities to investors in the Dutch market, delegates heard at the GARBE Investment Briefing – the Netherlands: Real Estate Outlook 2023.
“Life sciences and tech companies’ drive to bring new products, processes and platforms will continue and indeed accelerate in the next five to ten years and beyond,” said René Buck, president and CEO, BCI Global. “Real estate has the task of providing buildings for them, but there are very few specialised developers in the Netherlands or in Europe.”
This opens up opportunities for real estate companies that want to focus on this fast-growing sector and become specialists, like many companies have done in the US which is far ahead.
“There is absolutely no risk of oversupply in this sector in the short to medium term,” said Buck. “There’s a battle for space due to strong demand from companies that want to be near Universities, tech institutes and other labs so they can collaborate. You can’t do things in isolation anymore.”
There are 35 science parks or tech campuses in the Netherlands, some already mature, some being developed and some still at the ideas stage.
“Being located on a science and technology park brings advantages to companies giving them easy access to knowledge, research facilities, recognition and services,” said Buck. “People and companies benefit from being located close to each other.”
The sector’s success in the last few years is reflected in the yields, which have gone from around 8% to 4% as science parks have been recognised as an asset class by investors.
“We’re seeing great interest in science parks,” said Michiel Dubois, managing director, GARBE Institutional Capital. “Research and development is becoming ever more important and we’ve been under-investing in Europe, despite the challenges posed by increased life expectancy.”
There is an attempt to catch up, with the EU’s Horizon programme set to invest €100 billion in R&D over the next seven years.
There is a strong ecosystem in the Netherlands, which has been boosted by the transfer of the European Medicines Agency from London to Amsterdam after Brexit.
It is important to choose the right location, said Dubois: “There is a battle for talent and the workforce wants to be near the city, not in a remote science park. We’re not interested in all 35 science parks in the Netherlands, but we’ll only invest in the four or five that have the most potential.”
It can be a tricky assessment to make: the sector is undoubtedly on a growth path but is by its very nature unpredictable.
“A new discovery or medicine can make the company fly, but it’s impossible to know when that breakthrough will happen, and in the meantime it’s difficult to predict if it needs space for one or for 250 people,” said Buck. “Life sciences is a bumpy and unpredictable business, but when it works, success is on a big scale.”
There is always the chance of success or the risk of failure.
“There can be a really high turnover of companies in science parks, and that’s why we don’t like doing build to suit,” said Dubois.
Dutch logistics sector set to outperform defying headwinds
The logistics sector will continue to outperform in the Dutch market despite the economic slowdown, experts agreed at the event.
“The sector has strong fundamentals, is supported by our great infrastructure network and is rooted in our history as a trading nation with a business mentality,” said Maurits Smit, managing director Netherlands, Garbe Industrial Real Estate.
There are three main drivers contributing to the sector’s success in the Netherlands, said Smit. The first is the country’s strategic location in Europe, with many companies wanting space in the South close to the border with Belgium and Germany.
The second driver is the country’s infrastructure, with an extensive network of roads, airports, ports and waterways that make moving freight easy.
The third driver is strong demand for high quality warehouse space and continuing low supply. “The vacancy rate is below 1%, a historical record,” said Smit. “E-commerce activity will continue to boost demand, as we expect the percentage of goods bought online to grow from the current 20% to 30% by the end of the decade. Such high demand will lead to rental increases.”
Underlying all three drivers are the country’s strong economic performance and its status as the sixth most competitive nation in the world with a “long tradition of business efficiency”, said Smit.
“Logistics is such a strong business in the Netherlands because there’s a supply shortage and the pipeline is so limited,” said René Buck, president and CEO, BCI Global. “If you find the right asset in the right location you have a strong business.”
Across Europe, the logistics sector is also supported by the reshoring trend. Just as the energy crisis has led the European Commission to encourage “strategic autonomy”, geopolitical uncertainty and supply chain problems are leading companies to want to be closer to their customer base and less reliant on suppliers far away.
During the pandemic, as e-commerce boomed, many investors jumped on the logistics bandwagon, switching their portfolios to buy more assets in the sector. The current economic slowdown, that is seeing consumer confidence and spending fall across Europe, will lead some to reconsider their investments.
“Now a number of late-comers will get out of the sector, while the long-standing, experienced specialists like Garbe will be able to continue delivering,” said Buck.