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Amsterdam Residential Market AN INSIDER’S VIEW contents | AMSTERDAM RESIDENTIAL MARKET Contents amsterdam residential market introduction | amsterdam residential market 5 Amsterdam in a wider context | The metropolitan region Amsterdam 7 Demographics | Pressure on the inner ring city 9 Market structure | scarcity is growing rapidly 11 Market structure | REGULATORY REFORMS PRESENT LARGE CHANGES 12 Market structure | RESIDENTIAL DEVELOPMENTS and RESIDENTIAL leasehold 13 Residential projects in Amsterdam | A SELECTION OF RECENT & FUTURE DEVELOPMENTS 15 Finance Market | RESIDENTIAL FINANCE 17 Market Dynamics | RESIDENTIAL RENTS & INVESTMENTS 19 Outlook | FUTURE POTENTIAL OF AMSTERDAM 21 contact | CBRE RESIDENTIAL TEAM 22 3 introduction | AMSTERDAM RESIDENTIAL MARKET introduction amsterdam residential market Hot Topics Increasing popularity Amsterdam Long-term population growth Housing shortage increasing Skewed distribution of stock presents opportunities in favour of unregulated housing High demand creates upward pressure on prices Lack of residential developments strengthens shortage Opportunities for financing 4 At the moment, the Dutch residential market is evolving rapidly. For decades, the market has been a closed playing field, with large owneroccupier and social housing sectors. Governmental policies were predominantly focussed on the owner-occupier market and provided an active stimulation of the ownership of dwellings, for example by the mortgage-interest deductibility scheme. On the other hand, the subsidising of the strongly expanded social housing sector left little room for commercial investors. This has eventually led to an unsustainable and undesirable market structure, which was exposed by the economic crisis and has meanwhile urged the government to impose a number of regulatory changes. These reforms are effectively repositioning and stimulating the market for commercial and unregulated rental housing, for which a growing demand and a growing shortage can be seen. This development is creating attractive investment opportunities for investors. As the capital and largest city in the Netherlands, Amsterdam is the main focus for economic and employment growth and the city is seeing a continuous influx of young, highly-educated people. As a result, the demand for, and the shortage of, unregulated housing is the highest in the country. Meanwhile, a number of new development schemes have been started to cater for this demand. Opportunities for investors are increasing rapidly, making the residential market of Amsterdam the perfect subject for this report. 5 The metropolitan region Amsterdam | Amsterdam in a wider context Amsterdam in a wider contexT The metropolitan region Amsterdam Amsterdam 5th most important region The Amsterdam Metropolitan Area (MRA) is considered the 5th most important economic region in Europe (MRA, 2014). Consequently Amsterdam is listed amongst the most attractive cities for business activity in Europe. Almost 2,500 foreign companies are located in Amsterdam, of which more than 460 international HQs. About 20% of Amsterdam’s population is employed by an international employer (DRO, 2012). The second largest internet hub, the AMS-IX is located in Amsterdam and attracts many TMT-companies* and employees. About 17% of the Dutch GDP is generated in the MRA The MRA roughly covers the Midwestern part of the Netherlands and includes 36 municipalities. The region inhabits 2.4 million people and has witnessed an above average economic growth compared to the national average in 2013. With a 100 billion euro economy in 2013 (GDP), the region contributes about 17% to the national total. A vast majority of GDP is generated by Business Services (ca. 14.5%), Wholesale (ca. 11%) and Financial Services (ca. 9.5%) in 2011. Also of importance are Schiphol International Airport and the Port of Amsterdam, which contribute largely to the success of the region. The major importance of the City of Amsterdam The importance of the City of Amsterdam is strengthened by the fact that the city contributes about 40% per year to the total GDP of the MRA. The adjacent Schiphol Airport (Municipality of Haarlemmermeer) further supports Amsterdam’s business activities. The importance of Amsterdam has created an appealing environment for young highly educated talent (as can be seen in figure 2). The cultural environment, the high quality liveability and the large pool of amenities are all mentioned in the Economist paper on quality of life in cities, where Amsterdam ranks 2nd (The Economist, 2012). Figuur 2 *TMT companies: Technology, Media and Telecommunications Figuur 1 MRA City of Amsterdam Paris Vilnius Sofia Tallinn Stockholm Amsterdam Copenhagen Helsinki Brussels Nicosia Luxembourg London Riga Madrid Budapest Bratislava Athens Dublin Berlin Ljubljana Warsaw Lisbon Vienna Rome 0 Figure 1 Amsterdam in The Netherlands 6 10 20 30 40 50 60 Figure 2 Higher Educated per city - Source: Urban Audit 7 Pressure on the inner ring city | Demographics Demographics Pressure on the inner ring city More than 100,000 new inhabitants expected by 2040 Figuur3 3 Figuur 85e.o. + 85 2030 2013 80-84 80-84 2030 More than 12.5% Growth in Population by 2040 Growth of 12.4% in single person households The attractiveness of Amsterdam has already created a scarcity of housing, especially within the inner ring city (the area within the A10 ring road). Forecasts indicate more than 12.5% growth in population by 2040, increasing the current population of about 800,000 to more than 900,000 inhabitants (Amsterdam Statistics Bureau). The attractiveness of the city for young people is strengthened by the fact that the age group 20-34 years represents the largest group in both 2013 and 2030. Another growing age group is the group of elderly (65+). As the population continues to grow, another important change can be observed. Due to changing lifestyles more single households are expected, as young people tend to live together in a later stage of life. Also, elderly will increasingly represent a single household as the population ages. It is expected that the number of single households will increase by 12.4% in 2035, while the number of cohabiting households will increase only by 9.8% and the number of couples with children and ‘other’ will increase by 10.3%, as is visualised in figure 4. 2013 75-79 75-79 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 12.4% 9.8% 10.3% 28,540 18,731 45,982 20-24 20-24 15-19 15-19 10-14 10-14 5- 99 50- 44 0100000 100000 80000 50000 60000 40000 0 20000 0 20000 100000 40000 50000 60000 80000 100000 Figure 3 Population/age distribution - Source: Amsterdam O+S 8 Figure 4 Growth in Single, Double and Multiple person households to 2035 - Source: Amsterdam O+S 9 scarcity is growing rapidly | Market Structure Market Structure scarcity is growing rapidly Large Share of Regulated Housing Currently the housing stock consists of about 400,000 units in the city of Amsterdam. The largest shares of this total are owned by Social Housing Corporations (46%) and owner occupiers (32%). A small share of the housing stock is let by private investors (22%). The share of private rent includes ‘regulated rent’, so on an aggregate level only 10% of the current rental stock is non-regulated. Compared to other European cities, this is a rather small share of the housing stock. As can be derived from figure 6, within the regulated sector two segments can be distinguished; a mid-liberalised sector, with rents between € 700- € 1100 and a higher liberalised sector with rents above € 1100 per month. The current division of the rental sector is considered Figuur 5 to be undesirable as many higher income households occupy social sector housing. The regulatory reforms will alter this distribution in favour of the unregulated sector as will be described in the following paragraphs. The increasing popularity of mid-liberalised rental homes The economic importance of Amsterdam, the high quality liveability and many amenities (particularly the cultural environment) attract many (foreign) highly educated young people. This group predominantly seeks housing in the mid-liberalised segment. A segment which, as previously described, is relatively small. The sector is expected to become increasingly tighter as (all other things equal) the high income occupiers of social housing are stimulated to move to the unregulated segment. Figuur 6 5% 10% Rent Regulation Regulated rents are all rents below the so called ‘maximum reasonable rents’ which are based on a housing valuation system, known as the ‘points system’ or WWS. A maximum rent can be charged based on a certain number of points corresponding with the location and quality of the dwelling. Each year the rent cap for regulated rents is determined by the government and is currently set at (€699.48 per month). Resulting in a relatively inexpensive occupation. As a consequence, households with an high income (annual household income of above €34,678) did not receive incentives to move up to more expensive (commercial rental) housing, thus blocking natural movement within the regulated rental market. Until recently, no governmental interventions were implied to cope with this side-effect of social housing. Since 2013, however, additional income related rental increases are set for these households, up to 6.5% depending on the height of the household income. 10 Social Housing Corporations 46% Owner Occupier 32% Low regulated segment (Up to €561) Low regulated segment (Up to € 575) Mid regulated segment (€561 - €681) Mid regulated segment (€ 575 - € 700) 11% 128,000 186,000 Mid liberalised segment (€681 - €1077) Mid liberalised segment (€ 700 - € 1100) Private Rent 22% 74% 88,000 Figure 5 Distribution of Stock - Source: Amsterdam O+S, Figure 6 Distribution of Rental Stock - Adjusted Price Levels by CBRE Source: Amsterdam O+S Higher liberalised segment (€ 1100) higher liberalised segment (>€1077) 11 Market Structure | REGULATORY REFORMS PRESENT LARGE CHANGES RESIDENTIAL DEVELOPMENTS | Market Structure Market Structure Market Structure REGULATORY REFORMS PRESENT LARGE CHANGES Changing policy scheme Traditionally the non-regulated rental market has been small due to the fiscal incentives in the owner-occupier sector and subsidizing of the social housing sector. Recent market developments and regulatory reforms are likely to change this structure substantially, eventually leading to a more equitable distribution of the housing stock, and thus creating market potential for the commercial / non-regulated rental market. Regulated Rental Market Reforms In order to opt for social housing a maximum annual household income applies. As previously mentioned, higher income tenants occupying social housing are facing significant rent increases up to 6.5% per annum (in 2014). The rent increase is expected to lead higher income households out of the social housing market. LARGE MUNICIPAL OWNERSHIP OF LAND Home Ownership Market Reforms Home owners will be confronted with several initiatives which will affect the net housing costs. The traditionally high loan-to-values of more than 106% in the recent past will be lowered to 100% by 2018. Additionally, limitations in the fiscal deductibility of mortgage interest and mandatory amortisation are examples that create barriers for new home ownership. More so, financial institutions remain restrictive in financing home owners, especially for people with limited equity, fixed-term contracts or self-employment. Forced to non-regulated sector “Only 10% of housing stock Figuur Figuur Figuur Figuur Figuur 77777 non-regulated” RESIDENTIAL DEVELOPMENTS and RESIDENTIAL leasehold It is expected that the reforms in both the owner occupier and regulated rental market will generate a significant inflow towards the non-regulated rental market. The average costs of home-ownership and the maximum rents for social housing taken in consideration, it is believed demand will substantially increase in the mid-liberalised segment (with rents roughly between € 700 and € 1 100 per month). Land costs are currently calculated by the residual value method with a Gross Initial Yield of 5.25%, which has lowered the land value. This decrease has had a large impact on the land costs: from about € 60,000 per mid-liberalised rental dwelling to about € 21,750 – € 32,500 per dwelling. In Amsterdam ca. 80% of all the plots are owned by the municipality and largely distributed on leasehold conditions. The ownership rights are kept by the municipality. In return, a canon or ‘ground rent’ is paid. This rent can be redeemed for a fixed period of time (mostly 50 years) or can be paid annually. The annual ground rent is indexed with the inflation (CPI) minus 1 percentage point or can be secured for 10 or 25 years. Currently annual indexed canon rents (AB 2000, Q1 2014) are set at 2.53% of the ground value. The fixed leasehold cannot be reviewed within the set period. It is possible to prematurely renegotiate and renew a leasehold 12 to 4 years before the end of the term. Currently many investors choose to pay the annual canon instead of redeeming it for multiple years due to the historically low ground rent percentages. In those cases paying annual ground rents instead of buying it off increases the net return on the investments. CHANGING LOCAL LAND POLICY Previously land costs were derived from 92.5% of the market value for owner-occupied housing, thus holding back development for mid-liberalised housing. In order to stimulate the development for mid-liberalised rental housing, the municipality of Amsterdam has recently changed the land costs policy for certain parcels. Large shortage of Midliberalised housing stock in Amsterdam Figuur 10 8 2 Development Other/Withdrawal 12 Increase 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 -2 -4 Figure 7 Visualisation of the pressure on the non-regulated rental market Demolition 0 1994 32% 32% 32% 32% 32% 1993 10% 10% 10% 10% 10% 4 1992 58% 58% 58% 58% 58% 6 1991 rental market Regulated rental market • Lower loan-to-values • Increasingly limited fiscal deductibility of mortgage rents • Flexible labormarket • Restrictive banks • Ownership not the focus 1990 Non-regulated x 1000 dwellings Regulated rental market • Maximum household income of € 34,678 to apply for social housingg • Income related rent increases(4 - 6.5%) in regulated rents • Limited development schemes by housing corporations Figure 10 Construction Volumes in Amsterdam - Source: DBI/Amsterdam O+S 13 A SELECTION OF RECENT & FUTURE DEVELOPMENTS | RESIDENTIAL PROJECTS IN AMSTERDAM RESIDENTIAL PROJECTS IN AMSTERDAM A8 A10 A SELECTION OF RECENT & FUTURE DEVELOPMENTS Completed Developments 1 Wicherskwartier 2 Amstelkwartier 8 3 Argentinië 4 Amstel Live 5 De Zee Arend 6 Miles 7 Andreas Ensemble 8 Samos 9 De Europa 10 Django A5 2 5 10 9 85 4 1 9 A10 3 1 2 3 4 5 6 7 8 9 10 10 8 3 Units: 135 Units: 109 Units: 108 Units: 56 Units: 22 Units: 71 Units: 56 Units: 187 Units: 79 Units: 74 2016 2015 2015 2014 2014 2014 2014 2014 2014 2014 Units: 130 Units: 31 Units: 200 Units: 173 Units: 38 Units: 118 Units: 46 Units: 88 Units: 62 Units: 101 Zuidschans n.a. AmstelTower 2017 Amstelkwartier 3A n.a. Kop van Zuidas n.a. Summertime ca. 2016 Gershwin Zuidas 11/12 n.a. Gershwin Zuidas 9/10 n.a. Fountainhead n.a. Food Center A1 Pontsteiger 2017 Units: 158 Units: 192 Units: 130 Units: 29 Units: 198 Under Construction 8 6 9 7 2014 2013 2013 2013 2012 2011 2011 2011 2010 2010 900 Mahler IJ4YOU King & Queen Hasselaerhof Noordertoren Kwintijn OpZuid De Halve Maen Oostpoort 3 De Smaragd Future Developments 2 1 5 4 A4 10 1 2 3 4 5 6 7 8 9 10 A10 1 7 6 7 6 A10 2 4 3 South axis 14 A9 Units: 2000 Units: 450 15 RESIDENTIAL FINANCE | THE FINANCING MARKET THE FINANCING MARKET RESIDENTIAL FINANCE Increasing foreign financing Although the domestic debt market is still functioning well, new sources of debt are provided by ‘pfandbrief banks’, international insurance companies and debt funds. The combination of the pricing of financing and the expected improvement of market conditions have triggered an increased interest in the Dutch market. Most Dutch parties are still served by the traditional Dutch lenders ABN-AMRO, FGH and ING, but attractive structures and pricing are more often offered by international players. The availability and terms of financing are largely influenced by two aspects: the total overall volume of financing and the financing volume per complex. Portfolios with many small complexes for example are slowly raising more interest although still mostly served by traditional Dutch parties. Knowledge of local market conditions and the scale of these projects are named as difficulties by international financiers. Another complicating factor for financing is the share of control in the homeowner’s association. When the share of individually sold units in a complex increases, the possibilities for financing decrease, due to a diminished decision power in the association. 16 The pricing and structure of financing differs largely. Currently the traditional players are overtaken by international players in terms of pricing, amortisation, and terms of contracts. On the other hand, domestic players are better suited for dealing with smaller volumes as already mentioned. Margins for high quality prime assets can vary between 170 to 200 bps (for a LTV of 60-65%). These margins are under pressure and some financiers are offering higher LTVs or longer terms to remain attractive. Stability of income returns, increasing shortage and BOTTOMED-OUT PRICE LEVELS raises much international attention 17 RESIDENTIAL RENTS & INVESTMENTS | MARKET DYNAMICS MARKET DYNAMICS RESIDENTIAL RENTS & INVESTMENTS Increasing market rents in Amsterdam In the past years the rents in Amsterdam have increased disproportionally compared to the other major cities. Utrecht, The Hague and Rotterdam have witnessed a stable rental development as did the national average. Rents in Amsterdam are by far the highest in the Netherlands, with approx. € 18.60 per sq m per year (Pararius, 2014). Large share of investment in Amsterdam Investor appetite for residential real estate in Amsterdam is large, as is supported by the volumes presented in figure 9. In Q1 about 15% of the total volume in residential real estate in the Netherlands is invested in residential projects in Amsterdam. It is expected that this share will increase substantially as many projects are about to be sold. Yields for residential real estate sharpening In line with the recent investment volumes and interest in residential real estate have sharpened. Currently net initial yields for (prime) single family housing indicatively move around 4.5%. Net initial yields for multi family housing are slightly higher (4.7%) Figuur 9 Figuur 8 Figuur 8 € 21 180 160 € 19 € 21 140 € 17 € 19 Figure 8 Rental Prices in G4 - Source: Pararius 18 2013 Q1 2014 Q4 2013 Q3 2013 Q2 2013 2012 Q1 2013 Q4 2012 Q3 2012 Q2 2012 2011 Q1 2012 Q4 2011 0 Q3 2011 20 Q2 2011 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010 Q2 2010 Q4 2013 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010 Q1 2010 Rotterdam Q2 2010 €7 Utrecht Q1 2010 €7 €9 40 2010 Rotterdam The Hague €9 € 11 60 Q1 2011 Utrecht Amsterdam Q4 2010 € 11 € 13 80 Q3 2010 The Hague Dutch Average Q2 2010 Amsterdam € 13 € 15 100 Q1 2010 Dutch Average € x 100,000 120 € 15 € 17 Figure 9 Residential Investments in Amsterdam - Source: CBRE 19 RESIDENTIAL RENTS & INVESTMENTS | MARKET DYNAMICS oUTLOOK FUTURE POTENTIAL OF AMSTERDAM Although development volumes are increasing, the shortage of affordable unregulated rental housing in Amsterdam is large. The increasing demand for this type of housing is predominantly caused by the growing number of single person households, often young and highly-educated people. The shortage is also strengthened by the historically large share of social housing in Amsterdam. Based on the so-called “points” system, however, a large share of this social housing stock can be considered ‘liberalisable’, or transferable to the unregulated stock. Both this latent pool of unregulated rental housing and the increasing number of new development schemes are providing strong purchasing opportunities for investors. The bottoming out of the house price levels can be added to this, providing the right momentum to enter the market at the bottom of the cycle. 20 21 MARKET DYNAMICS | RESIDENTIAL RENTS & INVESTMENTS CONTACT CBRE RESIDENTIAL TEAM Machiel Wolters Msc MRICS Director Research and Consulting T: 020 626 2691 E: [email protected] Alexander Buijs MSC MRE Research and Consulting Associate Director Residential Capital Markets T: 020 626 2691 E: [email protected] David Vos MSC Consultant Capital Markets T: 020 626 2691 E: [email protected] + Follow us @CBRENederland linkedin.com/company/cbre-nederland www.cbre.nl Global Research and Consulting This report is prepared by the Research and Consulting team at CBRE Netherlands, part of CBRE Global Research and Consulting - a network of leading market researchers and consultants who work closely together to deliver real estate market research, forecasting and strategic advice to investors, financiers and end-users worldwide. Disclaimer Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE. 22 NO ONE KNOWS AMSTERDAM QUITE LIKE