Holding Pattern
by Xavier Zoutu
The Best in 2019
Amsterdam logistics is expected to post the strongest total return at 7.50%, followed by Brussels and Rotterdam logistics
The best capital growth is in Amsterdam offices at 2.77%
The Benelux markets we cover can expect no compression in yields but no expansion either. The lowest yield is Amsterdam retail at 3.25%
Amsterdam logistics will generate the best rental growth of 2.5%
The Benelux investment market can be best described as being ‘in a holding pattern’, neither generating significant growth nor loss in performance measures.
Both the investment and occupational transaction markets are likely to see some fallback over 2019, which is inevitable after recent highs. This is especially true of Brussels with its record occupation and investment in 2018.
Amsterdam offices will post prime total return of 5.4% in 2019 and, unusually among European offices, this will increase to 6.3% in 2020. It is expected to stay over 4% for the remaining three years of the forecast giving an average of 5.1% pa. Brussels will run slower, with prime total returns averaging at 2.9% pa across the 2019-2023 forecast period.
Market total returns for both cities are stronger still. Amsterdam will post double-digit returns of 10.8% in 2019 and 7.6% pa on average across 2019-2023, while Brussels will see 5.6% pa over the same period. These are driven by market income return that is running close to 6% pa over the forecast period for both Amsterdam and Brussels. Market capital growth is weak and negative over the latter part of the forecast. Prime capital growth for Amsterdam, by contrast, stays positive at an average 1.5% pa over 2019-2023.
Amsterdam has the lowest prime yields in 2019 at 3.50% which will be stable from 2018. We expect prime yields to expand from 2020 onwards by around 25 bps. Of all the Benelux sectors, prime rental growth will be most robust in Amsterdam offices at 2.88% over the forecast period. In contrast, we anticipate almost no growth in Brussels office prime rents over 2019-2023.
The major markets all posted double-digit returns in 2018 and for 2019 we are expecting positive, albeit single-digit, returns. Amsterdam logistics at 6.30% pa on average from 2019 to 2023 is the best prime total return in the Benelux logistics market.
While all markets will be positive in prime total returns, the same cannot be said for prime capital growth, where Brussels and Amsterdam stay positive on average over the period whereas Rotterdam, Venlo and Breda will all experience falls.
The outcome is that yields will remain stable from 2018 to the end of 2019, then expand by between 25 to 35 bps depending on market. Prime rental growth for logistics in Benelux will probably stay low at below 1% pa for most markets, with Amsterdam the strongest at 2.2% pa over 2019-2023.
Amsterdam retail (3.25% in 2019) will see the weakest prime return outcome in the region at 1.9% on average over the forecast. The capital growth expectations for Benelux retail are also subdued: 0% in 2019 and 2020 and negative over the remaining years of the forecast.
Yields will stable until the end of 2020 before expanding by around 25 bps. It is perhaps not unsurprising to see weakness in the retail sector, given that Benelux sits in one of the world’s best-connected regions for logistics. The consequence of that for prime rental performance is no growth for the entire forecast period.
Risk to the Forecast
The Benelux region consists of small, open economies that are particularly exposed to global trade effects. Here, there is both the risk of Brexit, as the UK is a strong and particularly close trading neighbour, and the wider downturn in the global economy from trade disputes
We are not expecting either to impact our forecast for the region but there remains potential for greater downside effects, particularly in the logistics market which is sensitive given Benelux ‘s global presence