The following market trends reflect the main opportunities and threats the Bouwinvest Dutch Institutional Residential Fund will take into account as it seeks to meet its strategic objectives in the period ahead.
Housing market remains under pressure
The forecast growth in the number of households (+800,000 households through to 2040) will remain a major long-term factor in the increasing demand for homes. And as new housing developments are still failing to keep pace with the increase in demand, the pressure on the residential market is only likely to increase. This will not be helped by the restrictive environmental measures related to nitrogen emissions and PFAS levels. As the forecast residential demand will be very much focused on the largest cities in the Randstad urban conurbation and other large cities, this pressure is becoming increasingly uneven across the Netherlands.
Increasing competition and a lack of product
It is still unclear how the government will deal with the above-mentioned restrictions, but investor demand for residential property will remain high in 2020 and beyond. Although 2019 investment volumes were lower than in 2018, this was mainly due to a lack of product. Yields remained stable in the major cities but yields in second tier cities have compressed. We expect this to continue in 2020.
The pressure on this market and the resultant high pricing is making it increasingly difficult to find and acquire residential property in the largest cities. Institutional investors have therefore increased their focus on new-build residential projects and second tier cities and we expect this continue and possible increase in the period ahead.
Focus on quality, sustainability and affordability
In light of the above developments, the Fund will continue to increase its focus on the three pillars of our dynamic investment strategy - quality, sustainability and affordability - to realise our targeted controlled growth. We will optimise our portfolio by acquiring only top-quality assets and by disposing of assets that no longer match our vision of the three pillars. And we will optimise the standing portfolio through active asset management and continuous investments to keep our homes up-to-date and fit-for-purpose.
In the period ahead all new homes will be highly sustainable, with reduced energy use and lower carbon emissions. Using innovative technology, homes will increasingly generate their own energy and have near zero (or zero) GHG emissions. As part of our climate change ambition, we are targeting a near energy neutral and resilient portfolio by 2045. We have set out clear targets for the reduction of the environmental footprint of our portfolio and improving the positive social impact of our assets.
To meet the growing demand for affordable homes, the Fund will focus even more on the mid-rental segment of the Dutch rental market, or homes in the € 737 - € 1,027 price range. In a fiercely competitive market, the Fund will have to pull out all the stops to make mid-rental projects in good locations cost-effective. However, we believe we are in an excellent position to continue to acquire the right assets to optimise our financial and social returns in the long run.
Political, economic and pandemic developments create uncertainty
Bouwinvest has noted that new (local) policies related to the mid-rental segment are having an ever-increasing impact on new acquisitions. Additional requirements are all having an impact on investment cases and the feasibility of any targeted returns. On the other hand, we do expect the mid-rental segment to have a low-risk profile in view of the strong and stable demand.
Global tensions (for example in the field of trade or in the Middle East), the effects of Brexit, pandemic developments and any changes in the ECB's monetary policy (and potential rate hikes) are among the biggest risks for the economy and are therefore also potential threats for the residential market.
The construction and real estate markets, especially the residential market, are currently being hampered by recent rulings concerning nitrogen and PFAS levels within the Netherlands. Recently, temporary legal exemptions have been introduced in order to prevent construction coming to a halt, however, political and environmental debates are ongoing, and it remains unclear how this debate will turn out.
The continued spread of the coronavirus across the world is affecting the global real economy. Tourism has been and will continue to be badly affected. Due to government policies and quarantine measures, international journeys are being postponed and airlines are drastically cutting the number of operational flights. Trade is subdued, as factories across the world have shut down, impacting global logistics. Experts are currently unable to predict the duration and severity of the pandemic, let alone the overall economic impact it could have. Additionally, central banks are working in tandem to tackle the economic threat of this global crisis.
The impact of the coronavirus will affect our organisation and the Fund’s results and forecasts. In the coming period, we will be monitoring the impact on our organisation and the Fund closely and will inform our investors about the effects of this pandemic and actions taken to mitigate the related risks among others in our quarterly reports and investor calls.
Amsterdam, 23 March 2020
Bouwinvest Real Estate Investors B.V.
Dick van Hal, Chief Executive Officer and Statutory Director
Rianne Vedder, Chief Financial & Risk Officer and Statutory Director
Allard van Spaandonk, Chief Investment Officer Dutch Investments
Stephen Tross, Chief Investment Officer International Investments