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News Release

MIPIM, Cannes & Amsterdam

A number of peripheral office parks in The Netherlands are likely to be blackspots

Jones Lang LaSalle Office Market Outlook highlights importance of Dutch Crisis and Recovery Act

MIPIM, Cannes & Amsterdam 16th March 2010 – Jones Lang LaSalle has launched its Randstad, (Holland) Office Market Outlook, an annual report that examines the latest developments in Randstad’s core office markets. According to the report’s authors, the main obstacles to further spatial development in the Randstad area are congestion and lack of space, combined with the shutdown of area development projects and projects to improve the quality of the living and working environment. In the report, Jones Lang LaSalle points to the need for urban redevelopment and restructuring, improved infrastructure and sustainability in order to ensure that the Randstad office market remains attractive for occupiers and to avoid the peripheral office parks in the Randstad becoming potential ‘blackspots’.
Jones Lang LaSalle’s report emphasises the importance of the introduction of the Dutch ‘Crisis and Recovery Act’. This law is intended to shorten procedures for a selective number of major construction and infrastructure projects in particular, as well as accelerating the implementation of plans and therefore maintaining jobs. Above all, these measures will give a major boost to the construction sector. Productivity in this sector is currently falling and unemployment and the number of bankruptcies will increase sharply, whilst the Randstad becomes less attractive for occupiers as a result of insufficient spatial investments. One of the challenges is to maintain the level of investments in the housing stock. The housing stock has made the Randstad significantly more attractive as an office location in recent years.
Marijn Snijders, Chairman of Jones Lang LaSalle Netherlands, said: “The greatest challenge is to ensure that office areas do not become these ‘blackspots’. Structural vacancy levels will continue to increase if the government and the private sector does not join forces to restructure current locations and invest significant amounts in spatial quality.”
Market outlook:
Investment market
In 2009, a total of approximately €1.65 billion was invested in the Dutch office market, which was a decrease of almost 70% compared with 2008 (€5.2 billion). It is expected that investments will increase slightly in 2010 and that the total amount of investment transactions in the office market will be just under €2 billion. German investors in particular are currently showing interest in good-quality office buildings at prime locations.
A total of approximately €685 million was invested in the office markets in the Netherlands’ four largest cities in 2009, which corresponds to about 40% of the total amount invested in the Dutch office market. Although this investment was less than half the investment volume in 2008 (€1.5 billion), it can now be seen that the Randstad is not suffering as badly from the lack of movement on the Dutch office investment market.
The upward trend in initial yields implies a price adjustment of about -34% since the highest point in mid-2007. However, at the end of 2009 the renewed interest from investors led to stabilisation of initial yields for prime offices on good locations with long-term lease contracts. In the period 1999 - 2008, the average total annual return – i.e. the sum of the net operating result and the capital growth – was 9.2% for offices in the Randstad. A positive total return is still expected for this year, even though capital growth in 2010 is forecast to be negative as a result of further write-downs.
Occupiers’ markets
The occupiers’ market is recovering very slowly. Take-up in the office market fell once again in 2009 and was down 35% in the Dutch Randstad. Take-up in the Randstad in 2009 totalled 676,000 m² of lettable floor area whilst take-up at prime locations was 144,000 m². Take-up figures in 2010 are expected to reach similar levels.
At the same time, the market for metropolitan construction projects has clearly collapsed. Ambitious property developments are not deemed feasible anymore, and it is no longer realistic to buy land based on increases in its value. In addition, investors and lenders are exercising extreme caution, while property developers have few financial options to fund their projects. As a result, many project developers have shut down their projects or have changed them substantially in terms of the level of ambition and scale. When building output stops, this can lead to an upward pressure on prices as soon as the market starts to recover. Last week the Dutch Ministry of Economic Affairs decided that developers are eligible for the Business Loan Guarantee Scheme in a move designed to revive lending and boost building output.
The general trend in supply within the Dutch office market is a 40% increase compared to the end of 2008 to approximately 6.7 million m² lfa (a 14.7% vacancy percentage). Approximately 50% of the total supply in the Netherlands involved locations in the Randstad. Supply at prime locations in the Randstad increased by 34% to approximately 636,000 m² (a vacancy percentage of 10.6%).
Rental levels
Compared to prime locations in other core office markets, rents remained relatively stable at prime locations in the Netherlands last year. Schiphol Centrum commands the highest current prime rents (€365 per m² per annum), representing a decrease of 3% compared to the end of 2008. Other prime locations also showing a falling trend are Centre of Amsterdam, Centre of Rotterdam and Kop van Zuid in Rotterdam. Prime rent on the Amsterdam Zuidas is at the end-of-2008 level (€335 per m² per annum). While rents at prime locations stabilise, the end of the downturn at secondary locations is not yet in sight. The limited demand for these locations is causing rent levels to fall and incentives to continue increasing.
Sustainability has become a critical factor in occupiers’ decision-making processes and it is expected to become even more essential over the coming years, offering letting opportunities to parties, which gear their portfolio policy accordingly. According to the Association of Institutional Property Investors in the Netherlands (IVBN), if policy remains unchanged, the Dutch office market will face a vacancy level of 14 million m² lfa by 2020. Sustainable re-development of offices will drastically reduce this level.
Adapting to changing occupier demands
“Due to the fact that office occupiers move and restructure their business activities, office markets are in a constant state of flux. In addition, organisations have different approaches to occupying their premises”, said Snijders.
Snijders concluded: “Against that background, the ‘New Way of Working’ initiative is an interesting development, because it will affect the need for space – and therefore also future take-up levels. A requirement for new build offices will remain to ensure that supply meets the changing demands of occupiers and in order to facilitate flexibility in organisations’ need for space. However, new developments should only be allowed on a very selective basis, and should be carried out in phases and closely coordinated with changes in market demand. If not, developers and investors will run the risk of creating vacant premises for the future. The government will also have to decide where new build is still allowed. Overall control should be in the hands of central government, with the provinces being responsible for implementation in a particular area. Municipal authorities must also learn how to work together more effectively and efficiently, because without regional consultations and specific agreements between municipalities, office blocks will continue to shoot up at undesired locations. At the same time, a significant portion of stock at the bottom end of the market will have to be removed, by demolishing buildings, transforming them or changing their designated purpose.”