Calm and Consistent
Key Messages
Venlo logistics may post the strongest prime total return at 8.2%.
The best capital growth is in Amsterdam prime offices at 4.3% in 2020
The lowest yield in 2020 is Amsterdam offices at 3.10%. Yields have potential for more compression in this market
Amsterdam offices may generate the best rental growth of 4.3%
Three years of historically high investment volumes may dampen across the forecast horizon of 2020 -2024 as activity becomes more restrained. Nonetheless, volumes will still sit above long-term median (around 5% above in the Netherlands and 20% above in Brussels, which will make for a healthy transaction market. The occupational sector of Benelux is also likely to demonstrate good demand with average take-up over the forecast horizon to be similar to the long-term average. This will be good performance, particularly for Brussels, which witnessed second record high in take-up in 2019 at 514.000 sqm.
Amsterdam is the leading city in Benelux for prime total return with 15.3% in 2020, one of the few showing double-digit growth, although it falls away rapidly by 2021 at 4.8%. The last year of double-digit growth for Brussels occurred in 2018, and returns may shrink from 8.9% in 2019 to 6.8% in 2020. Both Brussels and Amsterdam have prime returns between 1% and 5% across the forecast period of 2020 to 2024. Market total returns may be stronger than prime in both Amsterdam and Brussels in 2020 (10.4% and 6.8% respectively) and are higher over 2020-2024 due to better income performance.
Prime capital growth at 12.3% is primarily responsible for Amsterdam’s strong prime total return in 2020. Capital growth is front loaded and will turn negative midway through the forecast for both cities. Rental growth of 8.7% in 2020 will fade to below 1% by 2024 for Amsterdam with vacancy around 6%. Vacancy in Brussels of 7.1% in 2019 (low historically) is likely to expand to 8% by 2024 as developments feed through. It will take the edge off prime rental growth in Brussels that is likely to struggle to go over 0.5% over the forecast period.
Prime net initial yield are at 3.1% for Amsterdam and 3.9% for Brussels. The compression phase has ended and yearly yield increases of 5 to 10 to 15bps will occur from 2022.
All the major markets of the region may post positive total return across the whole forecast period. Venlo leads at 10.62% followed by Amsterdam at 9.2%. It will be the last year of double-digit returns for logistics anywhere in Benelux; subsequent returns may average around 5% in most markets.
The strongest market at the end of the forecast is still Venlo, being the only one to sustain positive capital growth across the whole period, albeit 0.3% by 2024. Brussels may see the steepest decline in capital growth of 1% in 2022 to 2% in 2023 and 2024. There may be a final year of compression in prime yields of 10 bps in 2020 for Amsterdam and Venlo.
Venlo may show the strongest rental growth in 2020 at 3.8% followed by Amsterdam and Rotterdam (2.2%). Venlo is the most consistent and strongest market for rental growth at over 2.5% for the forecast period.
As with other European city centres, prime total return is limited over 2020 to 2024. Amsterdam may post returns of 1.8% in 2020 that rise to 3.3% in 2021 before falling away again to 2024. Capital growth is negative across most of the period so returns are being generated by income growth.
There is no thrust to property from rental growth that is likely to be flat across the period. In this situation, prime net initial yields may expand by around 25bps over the horizon in Amsterdam.
Risk to the Forecast
The Benelux region is relatively small but due to its significant commercial port role is therefore sensitive to global trade turmoil. Although diminished, this risk remains a threat but unless it grows it is unlikely to impact the forecast above the general effects from global economy cooling down
Greater activity from public sector demand in the office segment may act as a balancer on price movements and alter outcomes for rents more positively than currently anticipated
Xavier Zoutu