After two particularly weak quarters, office space take-up will pick up in the third quarter of 2023. This is the m² take-up* of offices has increased substantially (+32 percent) compared to the same period in 2022. The main reason is the revival in the Amsterdam office market. However, outside the five major cities there is no question of a recovering market and after three consecutive quarters it is still a mediocre year. The total office take-up in 2023 (635,000 m2) will lag well behind previous years. The demand for small-scale and flexible office spaces remains high. There is also a great need for sustainable offices in good locations. This applies in particular to the Randstad, where the need is growing faster than in other parts of the Netherlands. The m² recording of industrial properties, on the other hand, has fallen by 18 percent, mainly because the number of transactions in the 5,000 to 10,000 m² category has fallen sharply. There is still a mismatch between supply and demand in the commercial real estate market across the board, according to the ‘Commercial Real Estate Quarterly Update’ from NVM Business. This is an analysis of developments in the commercial real estate sector based on purchase and rental transactions and survey research among NVM Business members.
The significant increase in the take-up volume and the number of offices put into use (+3 percent) is mainly the result of a revival of larger transactions. For example, a total of 54,000 m² is included in the category above 5,000 m². A survey among NVM Business members revealed striking differences between the Randstad and other regions. Amsterdam – where a number of large transactions took place on the Zuidas in the third quarter – takes the cake. Nearly 90,000 m² have been taken up in the capital, which amounts to almost a third of the national take-up volume. The supply volume of office spaces has fallen again (-13 percent) compared to the same period a year earlier. A survey among NVM Business members shows that this decline is partly due to the lack of suitable supply: outdated offices have been vacant for a long time and the market is shrinking further due to the transformation of offices into homes. NVM members also notice that it is becoming more difficult to rent out large offices unless they are immediately ready for use.
Funda users in business search less for offices, shops and business premises
The data from funda in business – which are included for the first time in the quarterly report of NVM Business – generally show a declining interest in real estate objects. “Search traffic on our platform serves as a valuable indicator of trends in the commercial real estate market, as many companies start their orientation here. Although there is a seasonal effect in the third quarter due to the summer holidays, leading to a decrease in searches, it seems that users of our platform are searching noticeably less for offices, shops and industrial space. This can ultimately result in a decrease in rental and purchase transactions,” says Joost Dop, CEO of funda.
More and more offers in shopping areas
Despite increased costs for retailers and lower consumer confidence, uptake in m2 of retail spaces (+19 percent) and the number of transactions (+31 percent) increased significantly compared to last year. South Holland in particular stands out, with a doubling of retail take-up to almost 30,000 m². An increase in take-up volumes is also visible in Overijssel and Limburg, especially in retail spaces in prime locations. At the same time, sentiment in this segment is negatively affected. For example, retailers may see their turnover increase as a result of price increases, but sales volumes and high personnel, rental and energy costs are putting pressure on margins. The reimbursement of corona support also has consequences for the continuity of retailers and the increase in online shopping also means that more and more shops are disappearing from the streets. This sum of factors leads to an increase in supply and to long-term vacancy in shopping areas. Small-scale retail spaces are better marketed, while larger shops and shops above 500 m2 remain difficult to rent out. Although there is interest in retail spaces at prime locations or locations with lower rents, there are also vacancies here.
Investors take pause
Although interest in industrial spaces and logistics continues, a shortage of immediately available industrial spaces and usable building land is increasing the mismatch between supply and demand. At the same time, the options for expanding industrial estates and logistics real estate are limited due to high construction costs and increased interest rates. This is made even more difficult by the pressure on the electricity grid. This makes it difficult, especially for companies in Limburg and Brabant, to get a power connection. Investors’ search is therefore shifting to other regions, especially in the north and east of the Netherlands, or to existing properties, where redevelopment and sustainability are regularly taking place. Due to higher capital market interest rates and sales prices that exceed investors’ return requirements, investors are still cautious. According to NVM members, the supply has increased, resulting in more choices, but transactions are still lagging behind. Smaller transactions that require less debt do take place, especially in small and medium-sized enterprises.
Irene Flotman, chair of the NVM Business group, about the figures for the third quarter of 2023: “Our data analysis and sentiment among our members show that the commercial real estate sector continues to face complex market conditions. For example, the increased transfer tax puts a brake on transactions, which in turn leads to uncertainty, a lower willingness to invest and falling prices. We therefore call on the government to create conditions to stimulate market activity. For example, focusing on redevelopment and new construction is crucial to get the market moving again. But we also see reason for moderate optimism. For example, investors are indeed interested in high-quality office spaces, industrial spaces and logistics real estate, but transactions are coming to a standstill because a price equilibrium has not yet been achieved. Investors who are dependent on real estate financing in particular are still taking stock due to the current high price level and high interest rates. We expect that the interest rate increase will eventually level off, allowing market activities to pick up again.”
Office market
- The five major cities account for more than half of the take-up of office space in the Netherlands. Take-up was highest in Amsterdam (88,700 m²) and Rotterdam (18,600 m²). In both Utrecht and Eindhoven, take-up is 15,800 m², while take-up in The Hague (11,300 m²) is lower.
- The number of office spaces offered fell again in the third quarter (-5 percent) compared to the same period a year earlier.
- The median rent for offices increased to €134 per m² in the third quarter. The increase is partly due to the higher transaction volume in larger cities where higher rents apply.
Shopping market
- Challenging conditions on the retail market resulted in an increasing supply (+3 percent) in m2 compared to the same period a year ago. The number of available spaces increases by no less than 7 percent to 4,406.
- According to NVM members, vacancy in shopping areas is still an important issue. The combination of declining spending, high costs and the reimbursement of corona support means that shops are closing or selling off space.
- Small-scale retail spaces are relatively popular on the market; the poor rentability of shops above 500 m² remains stable.
- Rental prices continue to fall due to price pressure. There is a downward trend, especially in stores above 100 m².
Industrial property market and logistics
- The supply volume of industrial properties fell again in the past quarter. For example, the volume (6.79 million m²) was one percent lower than in the third quarter of 2022. The number of available spaces, on the other hand, increased by no less than 11 percent to 4,666.
- The withdrawal volume is lower this quarter (-18 percent) compared to last year because larger transactions have disappeared, small withdrawals predominate and are still progressing very well
- Despite the continued demand for logistics real estate, NVM members are less positive than last year, especially for floor areas above 25,000 m².
- Prices appear to be under some pressure, because the supply in surface volume is decreasing less sharply compared to last year. Yet many members see price increases for areas up to 25,000 m². This is also because tenants and buyers are willing to pay more for (high-quality) objects in good locations.
*Real estate recording is the rental or sale of an available property/space. This is expressed in the number of m² traded in the transactions