With the majority of votes counted in the Dutch election and reports that a coalition government is likely to be formed, M&G Real Estate, one of the world’s largest property investors, predicts positive prospects for Dutch real estate.
The Dutch election marks the start of a busy and important year in European politics and follows the UK’s EU Referendum, the Italian referendum and Donald Trump’s victory in the US.
However, the economic outlook for the fifth-largest economy in Europe remains one of relative health. GDP is expected to reach 2% in 2017 (according to Consensus Forecasts), remaining well above the Eurozone average of 1.6%, while an unemployment rate of 5.3%, currently remains one of the lowest in Europe.
Dutch manufacturing output has also gathered pace in recent months, boosted by increasing export orders. Given that Dutch exports account for a third of its GDP, this news is particularly welcome. With 75% of these goods destined for EU markets, maintaining a strong trading relationship with Europe is equally paramount.
Positive prospects for Dutch real estate
M&G Real Estate believes that the country’s strong economic prospects have added to its appeal, and real estate investors remain undeterred by any political headwinds.
It notes that investment volumes reached €13.5 billion in 2016 (according to CBRE), a record high and up 11% on 2007. The weight of capital flowing into the market helped to compress prime office yields in Amsterdam by 50bps over Q4 2016.
However, even with this latest shift, M&G Real Estate believes that the spreads above 10-year government bonds remain particularly attractive, with investors now offered a significant premium of up to 360bps for prime offices in Amsterdam.
M&G Real Estate forecasts that this should be sufficient to deal with any further outward shift in bond yields resulting from any political headwinds, whilst the extension of the European Central Bank’s quantitative easing programme to the end of 2017 should help to suppress bond yields in the short term.
It believes that significant repricing of Dutch core property yields is unlikely and that investors should not be dissuaded from allocating capital to real estate in the Netherlands.
Tony Brown, Chief Investment Officer at M&G Real Estate, said: “As long-term real estate investors, we remain particularly positive about the Dutch market and do not expect the election to alter this position.
“Amsterdam continues to be one of the most liquid markets in Europe, benefiting from a supply-constrained central business district and stable office employment growth.
“We equally expect to see further opportunities in the logistics market, which remains one of the most mature in Europe. The country’s well-developed infrastructure and strategic geographical position make it well placed to service the core consumer markets in Europe.”
As long-term real estate investors, we remain particularly positive about the Dutch market and do not expect the election to alter this position.
Tony Brown,
Chief Investment Officer