Dear stakeholders,
The Dutch office market is currently bouncing back strongly, something that is clear from the total return of 13.1% the Fund recorded in 2017. This was mostly thanks to a strong indirect return, as the direct return is still being dampened by a number of ongoing redevelopments. The solid indirect return is a clear sign that we are on the right track with our core regions and locations with excellent transport connections, in combination with multi-tenant, multi-functional assets.
The recovery of the Dutch economy and the steady rise in employment – together with the ongoing redevelopment of office space for other purposes - has helped take office vacancy to its lowest level in 10 years. In fact, we are now seeing a distinct shortage of office space in certain places, most notably in popular locations like Amsterdam’s Zuidas business district. We are also seeing increasing demand for good office space in the likes of Utrecht, Rotterdam and The Hague. This is clear confirmation that we are on the right track with our current strategy and the focus on our core regions.
In the light of these developments, we have a very promising portfolio. We saw occupancy increase markedly in 2017 – to 86%, from 81% in 2016 - and given ongoing redevelopments there is good potential for further increases in the period ahead. Our investments in WTC The Hague are now paying off, while the ongoing upgrade of WTC Rotterdam and the redevelopment of Building 1931 and Building 1962 in Amsterdam are attracting a lot of interest. Hourglass in Amsterdam’s Zuidas is expected to be fully let when it is completed in late 2019. Plus the next 10 years will see the completion of the link between the two sides of the A10 motorway, the expansion of the Station Zuid rail link and improvements to local amenities and public spaces, putting Hourglass at the heart of one of the country’s hottest multifunctional office locations. Also on a very positive note, we agreed a new contact for a minimum of five years with the Dutch Government Real Estate Agency for Centre Court in The Hague.
Given these developments, plus the arrival of the prestigious European Medicines Agency in 2019, it is hardly surprising that the Amsterdam city council is looking to boost supply in the area. Quite rightfully, the council is taking a very cautious approach, as they do not want to repeat the mistakes of the past. After all, the impact of surprises is still apparent in certain areas and certain kinds of assets. Which is why we will continue to focus on the Amsterdam and Utrecht city centres and the Schiphol region, together with the area around WTC Rotterdam and the Beatrixkwartier in The Hague. Because we are convinced that the highest demand in the future will be for adaptable multi-tenant offices in multi-functional areas with good transport links.
So while we may currently have a relatively small number of assets they are all well prepared for this future. Investors share our faith in this strategy, as we have more investors in addition to our anchor investor bpfBOUW and we expect to welcome new investors in the future. Along with the continued commitment of our anchor investor, this will give us the financial resources to invest in top class assets, both new-build and redevelopment opportunities. Even if investors have to wait a couple of years to see cash out, assets of this quality are well worth the wait. We have already managed to attract high-profile tenants for Building 1931 and Building 1931, adding gloss to the area as a whole.
We have not yet achieved an optimal balance in terms of our distribution across the four main cities, but we are aiming to correct that balance, potentially via acquisitions in the burgeoning Utrecht market, as we are still committed to increasing the size of our portfolio to € 950 million by year-end 2020.
We should also mention the Holland Metropole initiative, in which the four top Dutch cities have joined forces with investors and other private players to promote and improve transport links across the entire the 4-city region. This initiative fits well with the Office Fund strategy, as the aim is to create urban centres between the major cities, relieving pressure on those cities and creating a truly liveable environment, all without damaging the green heart of the region.
All that is left now is for me to thank our investors for their continued faith in our strategy and all our employees for their hard work and commitment to Bouwinvest in 2017.
Dick van Hal, Chairman of the Board of Directors