The Dutch office market experienced something of a revival in 2016 after years of declining values. Falling vacancy rates, selective new construction and a substantial number of demolitions and transformations restored the market balance somewhat. We note, however, that this positive change is concentrated in locations with a number of specific characteristics. A large amount of office space in less high-potential areas will need to be repurposed.

  • A record amount of office space (1.08 million square metres) was withdrawn from the market in 2016, due to transformation among other factors. The majority of these office properties are located in the major cities, Arnhem, Amstelveen, Hilversum and Eindhoven. We note that more properties were withdrawn from the market in Rotterdam and The Hague last year than in Amsterdam.
  • Investment in transformation has also increased in other areas. Around 40% of the properties withdrawn from the stock were located outside the Randstad metropolitan area of major cities in the west of the Netherlands. In terms of square metres, this concerned nearly 30% of the stock. This means that the size of the office buildings being demolished and converted is generally smaller outside the Randstad metropolitan area.
  • The potential for conversion in homogeneous office locations is lower. In addition, demand for alternative uses such as residential, educational (including higher education institutions) and hotels is lower in many smaller cities with large office markets. This calls for a more customised approach and more targeted marketing strategies.
  • The amount of new construction increased by one-third between 2015 and 2016 to approx. 200,000 square metres, driven in part by the completion of several larger office buildings in the Randstad metropolitan area. It is worth noting that the largest office buildings are not located in Amsterdam, but rather in Utrecht (WTC) and Breda (District Court Building).

  • Supply has taken a hit as a result of the large number of withdrawals. Approximately 7 million square metres of office space was available in early 2017, 9% less than in the equivalent period in 2016.
  • However, the long-term supply (3+ years) has remained stable at 30% of the total supply. 
  • Take-up remained stable at 1.2 million square metres. Economic growth had positive effects on the demand for office space, although office relocations tend to involve downsizes rather than upsizes.
  • In the larger office markets, flexible office concepts are generating higher demand. This market has doubled to approximately 500,000 square metres over the past five years. The upshot is that a portion of the market demand is no longer automatically visible in the statistics.

  • Average office rental value fell by 3.1% in 2016, to €117 per square metre (source: Calcasa). The average rental value is calculated by linking reference rents for each period to all office properties in the Netherlands.
  • We are seeing a decline in rental value, particularly in areas showing a consistent imbalance between supply and demand. There are still many locations in the Netherlands where this situation applies and where transformations may be subject to delays or complications. 
  • In a limited number of office areas, by contrast, we are seeing moderate rent increases – this includes various locations in the Amsterdam area. Record rents were likewise reached in various locations in Rotterdam, Utrecht and Breda; these are higher than in previous years. In locations where the market is genuinely tight, e.g. the Amsterdam Zuidas business district and the central area in South East Amsterdam, rents are even rising sharply.
  • The types of leases being signed are changing due to the growing demand for shorter leases, adaptable use of space, and offices offering higher service levels. Leases are becoming more operation-driven as a result.

  • Accounting for approximately €6.6 billion in investments, offices represented the largest investment category last year. Various portfolio deals and several single-asset deals generated strong growth. The largest single-asset transactions completed last year included the Piet Heijn Buildings office complex in Amsterdam and First Rotterdam in the eponymous city.
  • Many office owners have sold office space in order to be able to take advantage of the lower transfer tax rate, which will end on 1 January 2018.
  • The four largest Dutch cities accounted for the largest amounts in investments. Initial yields in these areas fell to 5.25% (net). In the Zuidas business district, initial yields even fell below 4.5%. Initial yields outside the major cities have stabilised.

Sector forecast

  • The economic upturn will cause employment to increase by approximately 2% in 2017. Strong growth is anticipated in sectors and industries that use office space, including the business services and IT industries. Government agencies and financial services companies are cutting down on staff. With the employment market growing tighter, it is likely that employment growth will start tapering off after 2017.
  • Based on these healthy developments, we expect office take-up to increase slightly from 2016. However, on account of the high level of availability, this is largely offset by the existing office supply. A lack of office space is visible only in certain locations affected by extreme tightness, such as Amsterdam’s Zuidas business district and city centre and the area around Rotterdam’s central railway station.
  • Owing to the demand for flexibility in use and the automation and digitalisation of operating processes, demand for office space will fall consistently in the coming years. We therefore do not expect use of the amount of office space to increase, even though the number of office jobs continues to grow.
  • The markets hit hardest by the lower demand for offices are smaller office markets characterised by a large amount of standardised office work. Transformation and/or demolition is more about necessity than utility in these markets. We continue to see a fair number of properties in many cities with unused potential for transformation and a growing interest among market players to invest in areas outside the main office destinations.

  • The level of potential in the Dutch office market is skewed, with only a limited number of high-potential areas and many areas with below-average expectations.
  • This is mainly because office users tend to be concentrated in more urban areas. They attract each other, and the presence of talent and human capital is a key factor.
  • The outlook as far as the investment in and financing of office buildings is concerned is most favourable in the 15 major cities – in the Randstad metropolitan region and North Brabant – and strong provincial cities such as Groningen and Arnhem.

  • After property values plummeted more than 40% during the outbreak of the most recent economic crisis, the tide has begun to turn. Values increased for the first time in years in 2016.
  • The main driver behind this trend is the sharply falling vacancy rates due to a combination of relatively little new construction and a substantial number of demolitions and transformations. The lower vacancy rates have a positive effect on the value of office properties. We expect that the large number of conversions will continue to significantly exceed the amount of new construction in the coming years, causing stock to decline further.
  • Economic conditions are another major factor. For example, the job growth we saw last year and which is set to continue in the next few years will create a stronger basis on the demand side of the market.
  • We expect investment in offices to fall after the record year 2016, due to the lack of core investment real estate. We do expect investments to rise above the historical average. We anticipate a moderate increase in property values in the coming years, barring any unforeseen developments. e.g. if interest rates were to unexpectedly increase sharply or in case of a scenario resulting in a fast destabilisation of the European Union.