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Report of the Board of Directors

Market developments 2017

The global economy continued its growth last year and in the early part of 2018. This growth is being driven by improved business and consumer confidence, stronger industrial production and growing employment and trade. In 2017, the global economy grew by an average of 3.5%. And the OECD (Organisation for Economic Cooperation and Development) is expecting economic growth to be even higher in 2018. However, growth is varying per continent. The US and European economies recorded growth of around 2% last year. In China, GDP growth flattened out to 6.8% in 2017, while Japan saw GDP growth of 1.6%.

Despite the economic growth, the European economy for one is faced with a number of uncertainties. The uncertainty being created by the impending Brexit extends way beyond the borders of the United Kingdom, and it is still unclear what impact the UK exit from the EU will have on markets elsewhere in Europe. This uncertainty is being exacerbated by the increasing fragmentation in the political landscape, the continuing threat of refugee flows in the direction of Europe and increasing tensions in Turkey. Plus a global economy that is highly sensitive to tensions in the likes of Asia and the Middle East.

The abundance of capital earmarked for real estate investments has created a favourable climate on international real estate markets. The persistent low interest rate environment, the low returns from bond investments and fluctuating stock markets make real estate a safe haven that is highly attractive for (institutional) real estate asset managers. As a result, we are seeing the supply of good investment opportunities lagging demand. This is creating increasing investment pressure and a search for alternative investment categories.

The Netherlands has now recovered from the economic crisis and the outlook is fairly positive. Unemployment has dipped even further. And the housing market, for one, has already recovered the the level prior to the crisis. That said, there are still marked differences between urban areas and the countryside. For instance, in Utrecht and Amsterdam the very tight housing markets are showing signs of overheating. In more peripheral regions, the recovery has barely reached pre-crisis levels, while in some places the recovery still has some way to go to reach those levels.

Bouwinvest’s Dutch funds are affected by more than just the domestic economic recovery. We cannot ignore development at a European level. Nor is it entirely clear what impact the potential changes in the ECB’s monetary policy will have. The installation of a new coalition government in the Netherlands also has its shadow side. The plans unveiled by the Rutte III cabinet include a corporate income tax obligation for Fiscal Investment Institutions (FIIs) from 2020. That could mean that our investment funds will be liable for the payment of corporate income tax on their entire investment result. Bouwinvest is currently investigating the potential impact of these measures on its investment funds. We are also looking at alternative structures to minimise the fiscal consequences for the investors in these funds.

The Dutch real estate market remains highly popular. Not only are domestic institutional investors looking to expand their allocation to real estate; more and more foreign investors have also set their sights on the Dutch market. Compared with London or Paris, the Holland Metropole region is still favourably priced. Foreign players are now active in all Dutch real estate sectors. And these days it is not just residential that is popular, but also offices, retail, hotels and healthcare real estate. The increasing demand has resulted in yield compression.

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