Demand for rental homes continues to rise, with demand in urban areas being particularly high. Investors were keen to get in and invested a record amount in rental homes in 2016. Initial yields are consequently low. Conversion and new construction should bridge the gap between supply and demand, although the rental home market is set to remain tight in the immediate future.

  • The rental home market is popular with both tenants and investors. The limited number of new homes built in the past decade, coupled with a rising demand for housing, has created a shortage of rental homes. This shortage has arisen, in part, because the majority of new homes constructed were for-sale homes.
  • While the stock of rental homes in the private market has increased over the past few years, it is insufficient to keep up with demand, as the number of households in urban areas continues to increase.
  • Transformation provides a – to some extent forced – solution by developing new homes in the existing built environment. Around 26,000 homes were developed in recent years as a result of conversion, a large number of which were previously used as office space (source: Statistics Netherlands/CBS). In addition to offices, other types of real estate (including vacant retail properties and buildings used for social purposes) are eligible for transformation.

  • The rental home market is popular with both tenants and investors. The limited number of new homes built in the past decade, coupled with a rising demand for housing, has created a shortage of rental homes. This shortage has arisen, in part, because the majority of new homes constructed were for-sale homes.
  • While the stock of rental homes in the private market has increased over the past few years, it is insufficient to keep up with demand, as the number of households in urban areas continues to increase.
  • Transformation provides a – to some extent forced – solution by developing new homes in the existing built environment. Around 26,000 homes were developed in recent years as a result of conversion, a large number of which were previously used as office space (source: Statistics Netherlands/CBS). In addition to offices, other types of real estate (including vacant retail properties and buildings used for social purposes) are eligible for transformation.

  • The high demand for rental homes is causing prices in the private market to rise. Average rents of rental homes offered by private landlords in the Netherlands have increased by nearly 25% since 2013. At 13.7%, the increase was highest in 2016, bringing average rents to €12.8/sq. m. at the end of 2016 (source: Calcasa).
  • There are sharp regional differences: average apartment rents are highest in Amsterdam by some distance (€22.2/sq. m.), followed by Utrecht (€15.5/sq. m.), The Hague (€15.4/sq. m.) and Rotterdam (€14.4/sq. m.) (source: Calcasa).
  • Although the private market is also gaining territory in other cities and areas, the rental market has less potential there in terms of both demand and in terms of rent increases. Other types of households and less pressure on the for-sale market are creating lower demand in this market.

  • Another record amount (nearly €4 billion) was invested in the purchase of rental homes in 2016. The five largest portfolios accounted for roughly one-quarter of the total volume. This includes residential portfolios acquired by Round Hill Capital, Patrizia and Orange Capital Partners/Heitman.
  • The overheated housing market and substantial investor interest in rental homes are driving down initial yields. In Amsterdam and, to a lesser extent, Utrecht, returns have all but bottomed out. Investors are therefore shifting their focus to other cities where higher returns are possible.
  • New construction and conversion projects accounted for roughly 20% of investments in 2016.
  • A portion of the investment potential appears to be untapped. For example, housing associations are relatively unwilling to sell more expensive rental homes, on account of the more favourable returns from which they benefit. We are, however, witnessing a marked shift in governments that are increasingly adapting their housing policies to flexible housing types and offering market players more room for investment.

Sector forecast

  • Up to 2020, the number of households will outpace the housing stock and, accordingly, the potential housing shortage, particularly in urban areas. 
  •  The number of planning permissions granted for rental homes rose sharply in 2016. However, it is almost certain that more homes are needed in order to be able to meet future demand, in addition to addressing the current shortage. This creates considerable room in the market for conversion projects.
  • A key focus in the currently overheated housing market is on quickly eliminating shortages. However, more steady new development and a focus on quality is more sensible than flooding the market with rental and other homes.

  • A significant number of areas across the Netherlands show potential for the financing of rental homes. The northern section of the Randstad metropolitan area (extending all the way into the Veluwe nature reserve, the cities of North Brabant province, and Groningen) show the most potential.
  • Various criteria such as population growth, the quality of life in residential areas and the level of urbanisation all have a favourable effect on the market for rental homes. With for-sale homes scoring low on affordability, residents are looking to move into rental homes.
  • On the peripheries of the Netherlands, in the areas with diminishing populations that have also been hit hard by demographic ageing, prospects are not nearly as bright. Nevertheless, in adopting a more customised approach, suitable accommodation can be created for specific populations such as senior citizens. Large swaths of the country show average potential in this area.

  • The rental home market lost more than 15% of its value during the economic crisis, until the tide began to turn in 2014.
  • In recent years, capital growth has been on a sharp upward trend, increasing by approximately 10%. Particularly in cities where demand outstrips supply in the market, valuations are back at – or have even surpassed – 2008 levels. Value increases have been less pronounced in the peripheral areas.
  • We expect that the significant demand for rental homes coupled with the more limited supply will cause an increase in prices over the next several years. For years to come, we anticipate a solid foundation beneath the rental home market and continued interest among both private and institutional investors.