From bricks to clicks; from bricks to the internet. That is one of the most prominent real estate trends since the 2008 credit crisis. “People have increasingly been buying more online and less in stores ever since,” says Foortse. “That means less turnover for retailers and therefore less ability to pay the rent, which is at the expense of the attractiveness of physical stores as an investment.” In the Dutch housing market, developments also followed each other in rapid succession, resulting in opportunities as well as uncertainty for investors.
Currently, the housing shortage in the Netherlands is as severe as it was just after World War II. That is why (the now outgoing) Minister De Jonge unfolded ambitious building plans earlier. Does this mean golden times are ahead for a housing investor like APG?
“We are eager to contribute to this housing challenge on behalf of our pension fund clients. So the fact that we will focus more on the Netherlands in the coming years also means that we are looking explicitly at investments in housing. But don’t forget: we have already invested EUR 2.5 billion in Dutch rental housing in the middle rental segment. That could still increase, but we can also invest in retirement centers, starter houses or care homes. We are now at the drawing board for the how and what. We are emphatically doing the same with other parties in the Netherlands, to see what works for them and what works for us, in order to achieve both the financial and social return that our clients are looking for. Due to the fall of the government, however, it is uncertain whether outgoing Minister De Jonge’s plans will go ahead, either in their current or amended form.”
The point system that currently applies to the social rental sector will also be applied to homes with rents of up to 1,000 euros starting next year. This means that the rent of some 300,000 homes will go down by an average of 190 euros. Does this make investing in Dutch rental housing less attractive for APG?
“Regulating a housing market does not necessarily affect its attractiveness. Investors do struggle when the rules change every year. That creates uncertainty, which leads to higher required returns. Incidentally, we understand the political desire to keep housing affordable; that is our desire as well. However, we see in other countries that more regulation usually leads to fewer new homes. And I think everyone agrees that we actually need more new housing. So amended regulation can lead to increasing affordability in the short term, but in the longer term it leads to less new supply, which in turn will drive prices up. For APG, the Dutch housing market remains just as attractive in the longer term. In the shorter term, the situation is somewhat more challenging due to higher inflation, higher interest rates, higher construction costs and falling house prices. As in any cycle, this will also create opportunities for us, and we are specifically active in identifying those opportunities.”
Now that the Covid crisis has been behind us for a while, and the days of free shipping and returns also seem to be over, physical shopping is becoming more popular again. Does that match the picture you have as an investor?
“Yes, we are seeing that too. E-commerce grew very fast for a long time. When Covid broke out, that growth happened even faster, and everyone thought that the e-commerce share would stay that big. Now that the Covid crisis is over, the growth of online shopping seems to be back to the long-term growth rate previously predicted. The underlying trend toward more e-commerce is still there, but it is currently doing somewhat better in the shopping mall. People have spent two years ordering everything on their computers and can now go back to a store to touch or try on the product. That proves that visiting a mall or a downtown is also a form of leisure activity. So, the physical store is not dead. But consumers do have demands. They want the fullest possible range of brands, the latest collections and somewhere to eat and drink while shopping.”
How do current economic conditions like inflation and rising interest rates affect real estate?
“Part of the attractiveness of real estate investments is that there is some correlation with inflation: in fact, rents are usually indexed when there is some form of inflation. On paper this works, but there is always the risk that the tenant may not be able to pay the increased rent. This is why we look for sectors where there is a high probability that tenants will not have payment problems. In the logistics sector, for example, the rent of a building is only a limited part of the operating costs. So there is room there to bear the rent increases. In contrast, it is impossible to raise the rents of Dutch homes as much as an inflation rate of about 10 percent. For hotels, on the other hand, it can be done. After the Covid crisis, people started traveling en masse again, and we expect this trend to continue this year as well. Because of Covid, hotels took a big hit, but the recovery is shaped like a very steep ‘V’, while the trend for other sectors is more like a ‘U’.”