Investing in the Netherlands

Investing in the Netherlands

From wind farms to hotels and from highways to promising start-ups, we are committed to investing in the Netherlands. Where do we invest? And why? Read more on this page.

Theme
Long-term investment
Collection Contents
6 Publications

Support measures and vaccines guideline for investors

Published on: 22 February 2021

Despite the corona crisis, the investment year 2020 was not bad for APG. However, the outlook for 2021 is uncertain. With booming financial markets, increasing inflation risk and worry about the speed of the vaccine roll out. What does this mean for APGs investments? Peter Branner, Chief Investment Officer of APG Asset Management, looks back and takes a bird's-eye view ahead on the basis of ten themes.

 

2020

"Despite all the turmoil, we've had a very decent year in terms of both absolute and relative investment results. Our pension fund clients achieved a return of around 7% in 2020, which is in line with our average over recent years. After the severe price falls in March, stock prices rose sharply before the summer and continued to  the year. For our two largest clients, ABP and BpfBOUW, we achieved an average additional return in 2020 compared to the market of 0,90% due to broad range of  active management decisions in several sub asset classes within both fixed income and equity.

 

Central banks

“The 2021 investment year will be largely determined by the way central banks are going to balance their strong support to financial markets with ultra low interest rates and buying up financial assets, thereby justifying the low risk premia investors accept. I expect this support to continue and it will be the single most important area to follow closely. Any changes in actions - or even rhetoric - could be very bad news for financial markets. The better news is that central banks are rational people – they look at inflation and unemployment. The question is how soon the economy will recover and how elegantly the central banks will be able to unwind the support without jeopardizing financial market.”

 

Corona crisis

The media continues to drive a lot of attention to the implications of the lockdown and the delay in vaccination of the population. Listening to the experts I sense  that the virus and the mutants can be around for longer than we all hope. The economic impact will be challenging for many sectors and at the same time provide growth for others. Active management of assets will be important in this climate.

 

Consumer behavior

"For the Netherlands, I don't see consumer spending rising much in the first six months. As long as the uncertainty about employment is high this will have a dampening effect on consumption. At the same time the attribution of consumption is important to follow and what people save on travel they probably will continue to spend on house improvements, electronic equipment and similar stuff.

It's also somewhat questionable whether we'll pick up our old life again, so work full-time in the office, fly a lot, you name it. At the same time, policymakers will use fiscal policy to stimulate consumer behavior. Examples include taxes on polluting , such as air passenger tax, but also the coming CO2 levy for businesses. For the time being, consumers will remain very uncertain about the economy, their purchasing power, and how to keep their jobs. We see this uncertainty reflected in the financial markets, especially in the VIX, the indicator of investor unrest. The VIX peaked at more than 80 last year and has now settled at a somewhat elevated level around 20 due to fear, but probably also some speculative market participants. Still higher than longer term average and I can see that going on for a while." 

 

Financial policy support

"Policymakers in both the US and the eurozone have set up massive fiscal stimulus programs over the past year. This is good news and could work very well but it is complex to implement unlike interest rate stimulus from central banks that is much more simple and proven concept with immediate impact. Financial policy support will pick up in 2021 and what we will follow closely is how the actual allocation of support is going to practically handled, be absorbed in the economy and showing effect. This is not trivial, it will take time and maybe requires another type of politician like Mario Draghi to succeed. For Italy specifically, this is going to be crucial.

 

Joe Biden

"The election of Joe Biden as the new president has far-reaching consequences. For the global approach to the climate problem in any case, it's good that Biden immediately ensured that the US rejoined the Paris Climate Agreement. The world's largest economy has a major influence on the pace of the necessary sustainability movement. I also assume that trade relations between the US and the EU countries will improve with positive effect on some parts of the economy even if there are still important bottlenecks in relationship to how we tax tech giants in Europe. Biden might provide more fiscally stimulating than his predecessor, but let’s not forget that Trump gave huge tax reliefs to the wealthy. Somehow Biden will have to finance the recovery plan so I do expect a tax policy to address social unrest. This is not necessary good news for financial markets in the shorter term, regardless of the sympathy I have for the rationale. I don't see much improvement in the relationship between the US and China. Biden's ideas about the interpretation of the trade relationship with China do not differ much from those of Trump and let’s be realistic. The global encounter for superpower between China and the US has just begun.”

 

Sectors

"These political and macroeconomic trends obviously have consequences for the sectors in which we invest. I think the tech sector will continue to perform well in 2021, and so will online retailers. This is not a revolutionary view. The consensus is that physical stores, shopping centers, but also businesses in the travel industry, will have tougher times in 2021. As a diversified investor, these trends were already part of our investment process before the pandemic. In practice, this means that our different investment teams have a risk/return view on both companies and sectors when we build portfolios. Digitalization and robotization are also a theme under which we select our investments. With our broad mandates this allows us to invest in the most lucrative parts of value chains as well as the most interesting part of the capital structure."

 

Fossil fuels

"We've been in dialog with the oil and gas companies we invest in for years now. As a committed shareholder, you can influence these companies to make the transition towards generating sustainable energy, so that their CO2 emissions are reduced. We should invest in companies that best implement this transition; who have successfully switched from the extraction of energy from oil and gas, to wind farms at sea and solar energy.

 

Emerging markets

"The corona pandemic has resulted in negative growth figures in most countries worldwide. Except in China and some emerging markets, especially in Africa. . For the long term, I do regard the advancing robotization in Western countries as a risk for Emerging markets.. We have also seen fright rates sky rocket in the last year. These dynamic factors together with the focus on climate will change the emerging market story gradually as these fragile economies will have to rely more on inland consumption. This will work out in China, less so elsewhere. And we might need to reclassify our mindset about China as an emerging economy. In many ways China has surpassed Europe and the US in its way of using modern technology.  

 

Infrastructure

"In addition to investing in shares, bonds and real estate, we invest directly in infrastructure. Examples include wind farms, ports, airports, highways, bridges and toll roads. These investments make a stabilizing positive contribution to our returns and contribute to the energy transition. These are often complex investments and therefore deselected by most other investors – benefit being that we get a slightly higher return. Worldwide, investment in infrastructure is going to pick up strongly, partly due to all the stimulus measures from governments. I don’t expect us to 'compete' with public money in interesting infrastructure investment projects. Rather I expect some government money to find comfort in investing together with us due to the know-how we have built to facilitate complex investment analysis, partnerships and platform investments (investments where we gradually can expand our interest).”

 

Bitcoin

"Yes, bitcoin is the current hype for some more speculative money, digital front runners such as Elon Musk and now also some of the larger transaction banks. I admire the blockchain technology behind Bitcoin but I worry about the actual value of Bitcoins. I don’t  see it as a new asset class but I do see the massive energy consumption it took to “mine” the digital currency. I also struggle with the fact that Bitcoins are not backed by central banks. Central bank backed digital currency is being rolled out and this I would support big time. In a country like Sweden tax fraud has become much harder as they see the use of physical notes and coins diminishing. Central bank backed digital currency is hopefully the future in all countries. But not bitcoins.”

Volgende publicatie:
"We need a different definition of a good life"

"We need a different definition of a good life"

Published on: 22 February 2021

Two economists on a different form of economic growth

 

Economic growth is beginning to take its toll on people and the environment. Nature has reached its limits and people are rebelling against the unequal distribution of wealth. According to economists Hans Stegeman of Triodos Investment Management and Charles Kalshoven of APG, we need a drastically different way of thinking. "People are getting a different sense of what is valuable."

 

Hans Stegeman is a Chief Investment Strategist at impact investor Triodos Investment Management. He regularly publishes about the boundaries of the current economic system. Charles Kalshoven is a macro-economist and senior strategist at APG. In his columns, he discusses economic developments and how they affect our daily lives.

 

Hans, as an economist, you regularly publish about your belief that the current system of striving for endless economic growth is no longer sustainable. What do you mean by that?

"I'm not against economic growth, but it does have major negative consequences for the planet: climate change, increasing social inequality and the drastic decline in biodiversity. Some say that new technology can solve those problems, but I haven't seen any convincing evidence for that. I sincerely hope technologies such as CO2 capture (capturing CO2 as soon as it is released during combustion and thus preventing it from entering the air, ed.) will help, but I have my doubts. I really think we need to move to a different form of growth. Incidentally, I think economic growth is a limited concept for measuring progress. Growth doesn't always equate to happiness or well-being."

 

Charles: "Classic economic theory sees economic growth as the outcome of capital and labor. But since the industrial revolution, an important factor has been added, namely energy. And so far, this has mainly been fossil energy. This comes at a price, in the form of damage to people and planet. But it's not or insufficiently passed on in the price of products."

 

Still, poor countries need economic growth to get out of poverty.

Charles: "That's a dilemma. If you want to fight poverty, you need economic growth. And that in turn leads to a greater demand for energy. On the other hand, you want to limit the use of energy to combat climate change. So we have to look for a different kind of growth that requires less energy and makes more use of renewable energy. We need to handle raw materials more carefully and reuse them; we have to transport less stuff and people all over the world. What helps is that economic development usually leads to smaller families and thus lower population growth. And that benefits the climate."

 

Hans: "The boundaries of our ecosystem are rock-hard. There's only one planet earth. That can't be changed. We'll have to find a way to create prosperity for everyone within these limits. Prosperity is very unevenly distributed. The richest 10% of the world - and that includes most of the Dutch - are buying more and more stuff, without really being happy about it. While at the same time, there are billions of people who are starving and barely have a roof over their heads. This should be fairer."

 

How do we get such a sustainable, fair form of economic growth off the ground?

Hans: "We have to think differently in the West. We live in a competitive world where everyone wants to race to the top. With an expensive watch or designer clothing as a status symbol. But do they really make us happy? Or are they values such as togetherness and being satisfied with what you have? To achieve such a change in thinking, all parties involved must cooperate, the government, businesses, consumers and investors. You have to play chess on all boards. And each game starts from a different point. That's very complex."

 

Charles: "We need a different definition of 'a good life'. Currently, it's mass consumption. And status. But the things that bring status can change. The younger generation no longer thinks it's 'cool' to work 80 hours a week, and attaches importance to other things than making a lot of money. The government also has a role to play in this. It has to create a remote prospect, something we all want to aim for. And then stimulate this with laws and regulations. For example, by including the costs of CO2 emissions in the prices of products."

    Hans Stegeman (left) and Charles Kalshoven

 

Has 'corona' changed our way of thinking? Has it brought a sustainable economy closer?

Hans: "People are getting a different sense of what is valuable. For example, I asked if this interview could start 15 minutes earlier, because I wanted to pick up my son from school on the sleigh. What I've learned is that people are motivated by positive rewards, not by the deterrent effect of a negative outlook. If we want to change something in our economic thinking, we achieve the most by inspiring with positive examples. In particular, indicate what is possible and how this can contribute to our well-being."

 

Charles: "I've noticed that corona has had an influence on politics. In Europe, corona has really given a boost to green initiatives, such as the Green Deal (an action plan to make the economy of the European Union sustainable, ed.). The attitude of governments has also shifted from austerity and financial discipline to investing in society and supporting affected people and businesses. Increasing public debt is no longer as taboo as before.

 

Hans: "The virus has made us more aware of our relationship with nature. I do think that the government has missed an enormous opportunity by not attaching any conditions to support for businesses, such as Schiphol. This would have been a great opportunity to accelerate the sustainability of Schiphol. Maintaining something that isn't sustainable is actually a waste of money."

 

What role can pension funds and investors play in making the economy more sustainable?

Charles: "We play an important role with the money we manage on behalf of our pension funds. And that goes beyond excluding producers of bad products. We talk to businesses. For example, about how they can make the switch from fossil to sustainable energy. Or because we think they're doing very well and we want to share their example with other businesses we invest in. One example is Arcadis, which started to report on how they contribute to the Sustainable Development Goals, partly through discussions with us. The challenge is that there's still far too little information about the sustainability of businesses and projects. We therefore press businesses about it and contribute to the development of sustainability standards, so that as many investors as possible speak the same language."

 

Hans: "As an investor, you need to know where you want to go. And contribute to that. That goes much further than a CO2 footprint that's lower than the market. The market as a whole is a reflection of the world and the world is far from sustainable. At the start of our investment process, we determine which positive developments we want to contribute to and that's what we invest in. Examples include micro-finance, solar panels or online platforms where you can buy food products directly from the farmer. Things like nuclear weapons and fossil energy are not part of that."

 

Triodos Investment Management has customers who consciously opt for a 'green' investor; APG serves pension funds which participants must be affiliated to. Does that make a difference in the way you can implement responsible investment?

Hans: "Triodos once started excluding certain investments on ethical grounds, and that has evolved towards a focus on positive impact. APG naturally has to deal with the expectations of participants in the pension funds for which it works. APG is given a specific mandate from the pension funds and this involves a specific policy. But it could be stricter, as far as I'm concerned. There has to be a lower limit. If the core of a business isn't sustainable and improvement discussions come to nothing, you have to leave. APG could also explain in more specific terms what positive impact it wants to achieve."

 

Charles: "We believe in the power of engagement (improvement discussions with businesses, ed.). If you sell all fossil energy companies, it won't make the world any greener. By talking to them, you can bring about positive changes. Companies such as Shell and BP understand very well that we have to move to a different form of energy. There's a lot of knowledge and money in the energy sector. We must take advantage of that. With assets of over € 500 billion, we can also take relatively large stakes in companies, which allows us to exert influence. But we also sell a company if engagement doesn't work in the end."

 

Hans: "There are fossil companies that are switching to green energy. Ørsted from Denmark, for instance. But the real change isn't going to come from the big oil companies. Most still want to milk their oil supplies for as long as possible. Rather, change comes from small businesses with smart, new ideas. We take relatively large stakes in these types of start-ups and non-listed companies. This allows us to exert influence right from the start."

 

Is investing in a sustainable economy at the expense of the returns you can achieve?

Hans: "Not in the longer term. Of course, in a year of rising oil prices, we won't benefit from it. But we won't be bothered by this in the longer term. Also, sustainability information provides additional insight into a business. It's a persistent myth that sustainability comes at the expense of returns. There are numerous studies that indicate that this is not the case."

 

Charles: "I agree. Responsible investing not only tackles financial risks, but also other types of risks, such as the risk that your real estate properties will flood due to climate change. If you know exactly where this is happening and take preparatory measures, you actually reduce the risk of your investments. Unsustainable investment, now, that's a risk."

Volgende publicatie:
“There are certainly possibilities in the Netherlands, albeit on a smaller scale”

“There are certainly possibilities in the Netherlands, albeit on a smaller scale”

Published on: 12 February 2021

Jeroen Schreur on investing in the Dutch energy transition

 

From smart batteries to innovative charging technologies for electric vehicles: These are some of the initiatives through which fledgling companies are contributing to the Dutch energy transition. APG invests in these start-ups on behalf of ABP through Rockstart, an initiative that specializes in selecting and supporting promising young companies. The first companies selected to participate in this program were announced today. “We expect that Rockstart will help several of these companies to grow into leading players in the field of energy,” says Jeroen Schreur, in charge of investments in the energy transition at APG.

To facilitate ABP’s investments in the Dutch energy transition through relatively small and innovative projects and companies, APG established ANET (“the ABP Dutch Energy Transition Fund”) at the beginning of 2019. The fund invests in projects and companies that focus on the generation, storage, distribution, and conservation of energy. Schreur explains: “Pension funds often rely on larger companies and projects worldwide to invest their considerable assets. Although it is difficult to find them in the Netherlands, there are certainly opportunities here – albeit on a smaller scale. Ignoring this would be a great pity, because it is an interesting, dynamic market that offers attractive opportunities. By investing in a broadly diversified portfolio of promising young companies, we expect to achieve good returns at an acceptable risk.”

Follow-on capital
Apart from Asper (smart heating grids), Rockstart is one of the specialized investors with whom ANET is seeking to collaborate. Rockstart is what is referred to as a “start-up accelerator”: an initiative that offers promising young companies support and extensive guidance. Schreur explains: “Rockstart provides them with support to further develop their business, marketing, and funding plans. The initiative has been conducting programs like this in various branches of industry, such as the healthcare, agri-food, and ICT sectors ever since 2012. Through Rockstart, participating start-ups will be given access to relevant networks that will put them in contact with people, organizations, knowledge, expertise, and experience. In addition to the accelerator program, once the participating start-ups have produced successful results, they will also be given access to the necessary follow-up capital to secure their further growth. After all, finding funding for further growth is a difficult task, particularly for start-ups. Rockstart has developed a specific approach for the agri-food sector, which has already helped many companies reach the next phase in their development. It is doing this for ANET as well, where it will be applied to companies that promote the energy transition in the Netherlands through innovative technology.”

Attractive partnership
APG is an attractive partner for investors such as Rockstart and for businesses with clear growth ambitions. Schreur says: “Strategic partners such as Rockstart contribute knowledge, expertise, and experience. On top of that, APG offers the benefits of a long-term investment horizon, as we have more time to enable an investment to reach full maturity than venture capital associations, who tend to pull out after five years or so. This proposition is particularly attractive to companies looking for funding to secure further growth.”

The first start-ups selected for ANET are Advanced Infrastructure, Bia, Helio, Klimate, OKTO, Soolutions, Starke Energy, and eDRV. They all contribute, in one way or another, to solutions that make the Dutch energy system more sustainable. Starke Energy, for example, is preparing to install a smart battery in the office building of the Parteon housing corporation in Wormerveer. The technology linked to this battery allows the corporation to make use of the generated power when needed or, if there is a surplus, for it to be fed into the power grid in return for cash. Through this trial, Starke aims to explore the possibility of applying this technology to affordably enhance the sustainability of rental homes, in which the Dutch housing corporations – who manage over 2.4 million rental properties – could serve as a key enabler. This would result in a wonderful opportunity to grow for Starke Energy and is one of the reasons why this originally Spanish company decided to relocate to the Netherlands.

Power grid overload
Bia Power is also among the selected start-ups. The software developed by this company offers a solution for the strongly growing demand for power in response to the increasing number of electric vehicles (EVs). This can cause the power grid to overload at peak moments. Bia Power’s software identifies peaks and troughs on the power grid in terms of supply and demand. This facilitates optimum recharging, enabling the power grid to retain a perfect balance and batteries to last longer. Bia Power also has Spanish roots and is currently in the process of establishing itself in the Netherlands.

ANET currently has 250 million euros at its disposal for investment in start-ups and is managed by a team of four investors from APG. In addition to fund investments such as Rockstart, the team focuses on direct investments in companies and projects in their scale-up phase (companies with a proven technology that are ready to scale up for commercial applications). Companies that have already made a bit more headway in this respect are also eligible for funding via ANET.

Future leading players
Through Rockstart, ANET is building up a portfolio of fifty start-ups, who will be selected during the following five-year period. Eight to ten start-ups are added to this each year, on average. A second round will be held at the end of 2021. Schreur says: “Our selection process is very strict and takes several days of intensive screening to complete. Out of the fifty companies that were selected, perhaps ten to twenty will qualify for follow-up funding to help them grow further. Thanks to its accelerator model, Rockstart is more than capable of mitigating the risks commonly faced by young companies like these. A number of them will not be able to survive, but we expect that Rockstart will help some of them develop into future leading players in the field of energy.”

Volgende publicatie:
Everyone thinking about sustainable digitization

Everyone thinking about sustainable digitization

Published on: 29 January 2021

Digitization can contribute to a sustainable world. Examples include working online, with less commuting and decreasing CO2 emissions as a result. But the use of robots, artificial intelligence and online services also has its drawbacks, such as job losses or energy-guzzling data centers. Sustainable digitization is possible, but only if government, businesses and (pension) investors work together.


This was the conclusion of an online event organized by ABP and APG, entitled 'Making investments in SDGs work: sustainable digitization'. Digital technology is claiming an increasingly important place in the investments that APG makes for its pension fund clients. Not least because digital solutions can help with the major challenges faced by people and the environment, such as climate change or the COVID-19 pandemic.


For example, on behalf of its pension fund clients, APG invests in Moderna, a producer of a vaccine against COVID-19. "This biotechnology company had a vaccine design ready within a few days using digital design methods," says Ronald Wuijster, board member of APG and CEO of APG Asset Management. "Another example of an investment in digital solutions is Remote, in which we invest through private equity firm Inkef. This platform makes it possible for employees all over the world to work together and it handles the associated administrative matters for the company."


Downsides

But there is another side of the coin. Robotization is accompanied by job losses and the need for retraining. Data centers gulp energy - they are expected to account for 80% of the global energy demand within 20 years. The raw materials for computers, chips and other hardware are often extracted under difficult circumstances. Half of all cobalt, an indispensable raw material for batteries and accumulators for electric cars, comes from the Democratic Republic of the Congo. There are many instances of human rights violations and child labor in that country. Closer to home, the position of power of major platforms such as Facebook, Twitter and Google raises questions about data privacy.


In 1986, the Dutch government set up an institute to investigate the impact of technology on our lives: the Rathenau Institute. Among other things, this institute conducts research into how you can match the supply of and demand for energy with the help of digital technology. Melanie Peters, director of the Rathenau Institute: "Energy from sources such as wind, water and combined heat and power is generated locally. We want to find out how to match this supply as closely as possible to the demand of people and businesses, with as little waste as possible."

Circular entrepreneurship must pay off and digitization can play a role in this

Control over your own energy

Major platform companies in the United States and China are already measuring people's energy needs through their thermostats. This way, they can predict when energy demand will peak and respond to this. "Convenient," says Peters, "but you don't want large businesses or other countries to determine when the energy supply in the Netherlands is switched on or off. This means you shouldn't only invest in the large technology companies, but also in smaller, innovative companies in the Netherlands or Europe. And talk to them about control."
Maurice van Tilburg is familiar with these kinds of start-ups. He is a director at Techleap.nl, an interest group for Dutch start-ups. "One of those start-ups, for example, has designed a smart tool that can save a lot of energy," says Van Tilburg. "With the help of their software, which uses artificial intelligence, among other things, you can plan better and therefore energy consumption in logistics can be drastically reduced."


All hands on deck

Digitizing in a way that contributes to sustainability is a complex issue for which there is no single solution. "Collaboration is crucial," says Van Tilburg. "For example, it is still often cheapest for businesses to throw away goods that they no longer use. Circular entrepreneurship must pay off and digitization can play a role in this. For example, the government can factor in the costs of waste processing. But there is also an important role for pension investors such as APG and its pension fund clients. Investors who are able to hold out for a long time, who think along with a business. International cooperation is essential in this respect, so that we do not all invent the wheel individually."


"ABP is already taking steps with investments in start-ups via the ABP Netherlands Energy Transition Fund (ANET) and Inkef," says ABP CEO Corien Wortmann. "But we want to do more. I call on the government to create more opportunities for public-private partnerships, so that government and (pension) investors can pool their money and expertise to make sustainable digitization possible."

Volgende publicatie:
Pension Pro Awards for BPF Schoonmaak and BpfBOUW

Pension Pro Awards for BPF Schoonmaak and BpfBOUW

Published on: 11 December 2020

BpfBOUW has won the silver Pension Pro Award for Best large pension fund. BPF Schoonmaak won the Pension Pro Award Diversity & Inclusion.

BpfBOUW won this high award in the pension sector because it was the only one of the major pension funds to be able to increase their pensions in 2020 - for the third time in a row. The professional jury praised BpfBOUW for its good strategy in difficult times - "the highest funding ratio of the large funds, a real long-term investor". Furthermore, the jury report praised the great attention to sustainability and “the eye for human capital of the participants”.

Award for BPF Schoonmaak

BPF Schoonmaak received the prize for Diversity and Inclusion for its courage to raise the importance of diversity and ethnicity. The pension fund says about this on its own website: "Wherever you come from and whether you are male or female, old or young: everyone deserves a place". BPF Schoonmaak not only propagates this conviction: they also show it convincingly in the composition of their board.
​​​​​​​

Best Communication Initiative

Finally, the Pension Checker emerged as the best communication initiative. The Pension Checker is a mobile app that allows participants to quickly find out how much net pension they can expect. The tool is the product of a collaboration between different pension funds, led by the Pension Federation. The ABP / APG Experiments Team developed the prototype. The jury praised the fact that several parties from the pension sector have worked on this. The Pension Checker previously also won the Pensioen Wegwijzer Award 2020.

The prizes were awarded online to the winners on Thursday evening, December 10, after the Pension Pro Annual Congress. Readers and listeners of Pension Pro, the Financieele Dagblad and radio station BNR could vote for the public award.

Volgende publicatie:
“We are seeing opportunities in affordable rental housing in cities”

“We are seeing opportunities in affordable rental housing in cities”

Published on: 1 December 2020

Robert-Jan Foortse, Head of European real estate at APG, about the post-corona investment strategy

 

For real estate investors, 2020 is also a very turbulent year.  Offices are standing empty because employees are working from home, consumers are increasingly shopping online, store owners are having a hard time paying their rent. How does a big real estate investor like APG deal with this?  By becoming much more flexible, says Robert-Jan Foortse, Head of European real estate at APG. “The time when you could buy an office building as an investor, get someone in there on a 10- or even 25-year lease and then sit back and just send an invoice every quarter has definitely passed.”

 

The real estate market is super-hectic right now. To what extent does that impact your investment strategy?

“Part of our real estate is listed on the stock exchange, we can quickly move     that if we want to have other emphases; for example, invest more in data centers and less in stores. But our investment strategy will not change substantially as a result of the corona crisis. We want to build and manage a portfolio of global real estate investments that offers a predictable dividend and grows in value over the long term. That is what our clients want from us. Return on investment is paramount, so that members are assured of an affordable pension. In addition, the sustainability of our real estate is at the top of our agenda; it really is a top priority.”   

 

In what regions do you invest and what do you invest in?

“Worldwide, we invest about 42% in Europe, 30% in North and South America, and 28% in Asia. In Europe it is mostly investments in the Netherlands, England, Germany and France. Out of our total investments, about 535 billion Euros as of mid-November, more than 42 billion Euros is in real estate. We invest not only in houses, stores, outlet centers and offices, but also in logistics, i.e. warehouses, and distribution centers. We invest a smaller portion in hotels, student housing, data centers and other things. In short, we have a very diverse real estate portfolio and our risks are spread out very well.”

 

Does this diverse approach work during a mega-crisis like the corona pandemic? 

“We will probably also have a negative return in 2020. That is certainly something we are not used to. The last fifteen years we have had an average return of 8.7% a year. And please note: that average includes the consequences of the financial crisis in 2008, when things were really bad too. Offices and stores are currently under a lot of pressure, but at the same time, we are seeing that the housing portfolio is stable and that data centers and logistics real estate are doing very well. That also applies to outlet centers like Batavia Stad Fashion Outlet in Lelystad, which are scarcely seeing any decline in the number of visitors. So, yes, this confirms the wisdom of a diversified portfolio all the more.”

 

The rental incomes will be under pressure for a while yet. How is APG dealing with that? Selling stores probably doesn’t pay much right now...

“The time when you could buy an office building as an investor, get someone in there on a 10- or even 25-year lease and then sit back and just send an invoice every quarter has definitely passed. And the certainty that a tenant will always pay their rent is also wobbly right now. This makes sense during a time when incomes have come to a standstill. But despite the fact that they have a contract, some tenants reasoning is now: if my neighbor stopped paying rent, why should I pay mine? Plus, governments in some countries are more or less advising store owners to postpone paying their rent. This makes it seem like suddenly it is socially acceptable to ignore a rental agreement. We have no control over these kinds of developments, so that means that we have to spend time on complying with contracts, oddly enough. But above all, it means that we have to set ourselves up to be much more flexible.”

 

How?

“You need to be much closer to your tenant to be able to get the most return out of your building. That is why we are increasingly opting for investments where we have more control and can work more closely with the operational, local partner that really manages the building. No, we don’t do that ourselves; we don’t have the manpower for that. Take, for example, our investment in The Student Hotel, a Dutch provider of student housing in Europe, with branches in Amsterdam, Rotterdam, The Hague, Eindhoven, Maastricht, Groningen and Delft. Students reside in The Student Hotel on the Wibautstraat in Amsterdam, in the former offices of Parool and Trouw, and hotel guests can book a room and flex-workers can have a quiet place to work during the day as well. There is a restaurant and there are all kinds of sports facilities. In the basement, where the printing presses used to be, there is now a swimming pool where you can take swimming lessons from Johan Kenkhuis, a former Olympic swimmer. It is a lively building with all kinds of functions. A great example of how you can be flexible and creative with the spaces in a building.”

 

What about office buildings?

“I would like to see the same flexibility there too: many tenants really don’t know long they want to be there now and with how many employees. So, it’s better to not pin them down for a long-term lease. For example, you could rent one floor to flex-workers temporarily. As a landlord or owner, you should be close to your tenants, so you know what they want.”

 

Another example is hotels that are renting out rooms by the day to flex-workers, now that hotel guests are staying away. Does APG see opportunities there too?

“Yes, that is a good example of flexible thinking. We already got into CitizenM, entrepreneur Rattan Chadha’s successful hotel chain, back in 2008. They have now launched two options: in their hotels, you can now buy a subscription for a workspace. And you can buy a ‘global passport’ that you can use to rent a room in any CitizenM-hotel in the world for a month, for the equivalent of about 50 Euros a night. We are certainly looking for new opportunities in that vain.”

 

Apart from the current corona crisis, what long-term mega-trends are you influenced by in the selection of investments?

“For example, through the demographic and social changes. Every generation, from baby boomers to millennials to generation Z, has its own preferences, wishes and needs. People are getting older and living at home longer. In addition, people will increasingly be moving to cities in the next few decades, even though we are currently in a period where people are fleeing from some cities. Those trends mean that there are opportunities in care real estate, and affordable rental housing in cities. For example, we are investing in Australian senior real estate through an investment in the Australian Lendlease. These are villas for retired people in separate villages that are geared entirely to their needs. In Europe, we are still searching for something similar. And in London, we are currently investing in constructing and renting out affordable housing, which will be very much in demand in the coming years. In addition, the demand for, for example, distribution centers and data centers is also greatly increasing due to technological trends like digitalization and the growth in e-commerce.”

 

And what about the sustainability trend?

“That trend is our number one priority. In 2008, we were one of the founders of "GRESB", the Global Real Estate Sustainability Benchmark. Almost all parties in the real estate sector now follow this guideline, with which you can measure the sustainability performance of real estate investments very accurately. Over the years, the bar has been raised ever higher. Every year our real estate portfolio scores well above the average; more than 65% of our investments score four or five stars, the highest categories in GRESB. And with every new investment, we obligate the parties involved to not only participate in GRESB, but also to commit themselves to come to a 4-5 star rating in consultation with us.”


In addition, APG announced in May that it is committed to CRREM, de Carbon Risk Real Estate Monitor. Why?
“This Monitor clarifies for various types of real estate how much CO₂ per square meter they are allowed to emit annually until 2050 to stay within the Paris Climate Accord goals. In this way, we can make it measurable to what extent we are providing a contribution with our real estate investments. And we can call real estate managers and listed real estate companies to account if, in our view, they do not sufficiently contribute to the goals of the Climate Accord.”

I don’t suppose they will always be happy about that. Because making things more sustainable means substantial investments...
“Yes, sometimes it requires a discussion. But fortunately, everyone knows about the need of sustainability these days. It gets tricky sometimes when you start to look at the numbers. But don’t forget that sustainability can also result in making money. Think of substantially lower energy costs. Or the higher rent you can ask for as a building owner if you are offering a very sustainable building to potential tenants. In addition, more and more tenants only want to rent responsible buildings, because they want to be more environmentally friendly in their own activities.”

Is sustainability happening fast enough for you in the real estate sector?
“Instinctively I’d say: we are still going too slow. I dare say that APG is in the lead in the real estate world in that aspect. That is why we get together with other big investors whenever possible. Because together you can accomplish more.”

We are having this conversation, each from our own house right now. Will people continue to work from home, entirely or partially after the corona crisis? Or will everybody return to the office?
“The answer depends partially on the culture you work in. Our coworkers in Hong Kong often have smaller homes and really want to get back to the office full-time. I do too, to tell you the truth, because I miss the contact with my team. But other people want to keep working from home, at least partially. It will be interesting to see what kind of permanent impact the corona crisis is going to have on our real estate investments.”