Mirjam Bani, an economist, outlines the impact of escalating interest rates and the shifting risk perceptions of investors on the Dutch real estate market. The anticipation is that these factors will exert a downward force on property prices in the Netherlands until the middle of 2024. After this period, demand is expected to resurge, although the recovery’s timing and velocity are predicted to vary across residential, retail, office, and logistics sectors.
The Dutch real estate market has been significantly affected by the surge in capital market interest rates in 2022, resulting in a more than 60% reduction in investment volume in the first half of 2023 compared to the previous year. Investors have become hesitant to engage in the commercial real estate market at current prices due to the heightened interest rates and prevailing economic uncertainties. This hesitancy is expected to lead to further price reductions until investor demand rebounds.
The Forecast for the First Half of 2024
The first half of 2024 is likely to witness continued price drops in the commercial real estate market. Although there might be a slight relief from potentially lower interest rates, three main factors will continue to exert downward pressure: reluctance of investors to meet current prices due to higher interest rates and uncertainties, the delayed economic slowdown becoming more evident, and increasing refinancing issues, although these are expected to be contained to some extent by lenders’ conditions designed to absorb economic shocks.
Despite the anticipated cooling of the market in early 2024, structural scarcity in the rental housing and logistics real estate markets is expected to alleviate some of the downward pressure on prices. Sustainable offices in prime locations are likely to maintain their demand due to their limited availability, which should result in relatively minor price declines in these segments.
The projection is that the commercial real estate market will bottom out in price levels in the latter half of 2024, assuming that capital market interest rates will have decreased slightly and the Dutch economy avoids a prolonged recession. Recovery rates are expected to differ among the various real estate segments due to distinct structural trends.
Residential Real Estate: A Policy-Driven Outlook
The residential real estate segment’s recovery is contingent on clarity regarding future policies, especially those related to the regulation of the middle rental sector by the Dutch government. Policy uncertainties are likely to dampen investor demand and increase the supply of residential properties as expected returns on housing investments decrease. However, the structural scarcity in the housing market is anticipated to limit further price devaluations, and the scarcity is expected to intensify as new construction fails to keep up with projected household growth.
The demand for office space is expected to decline due to the consolidation of service sectors and the economic downturn, compounded by the increasing trend of working from home post-pandemic. However, sustainable offices in prime locations are predicted to experience the least impact from this decline due to their scarcity and future-proof characteristics.
The non-food retail sector faces a bleak short-term outlook with expected declines in sales due to the slowing economy and high inflation, leading to increased bankruptcies and vacancies. Conversely, the logistics sector, while impacted by global economic slowdowns, may benefit from companies increasing buffer stocks and the ongoing low supply relative to demand, which supports the prices of logistics real estate in the Netherlands.