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Tuesday, 26 July 2011

Latest figures from the CRE and RRE market show that the situation in The Netherlands remains… terrible.

New figures have been published on the markets for Commercial Real Estate (CRE) and Residential Real Estate (RRE). Both results were as surprising as the end buzzer in a basketball match: the figures were terrible.
Commercial Real Estate
The Dutch association for real estate agents NVM issued a press release on the Dutch market for office space. I show here the pertinent snips of this report, accompanied by my comments.
The Dutch market for office space is still quite negative. During the first six months of 2011, the supply of office space-for-rent increased by 4% to a record height of 7.03 mln sqr mt (75.67 mln sqr feet). Due to this increase in supply, 14.4% of all Dutch office space was for rent halfway this year.
Also at the demand side of the market, business was little inspiring, but a slightly increased transaction volume was a positive outlier. Although 505,000 sqr mt (5.43 mln sqr ft) was rented and sold, the realized volume was far from the normal level.
The increase in supply during the first half of 2011 was almost exclusively existing office space. In the newly built-segment only 10.000 sqr meter (107,000 sqr ft) was added. Although the increase in supply occurred at all regions of the country, the increase was most visible in the region South. This was caused by a expansion of the available square meters in cities like Breda, Den Bosch, Eindhoven and Maastricht. In the centres of these cities several buildings became available for the market. Also the middle of the country suffered from an increased supply.
Although the rental market for office space in region South was quite vivid, in the regions West-North and North the market suffered from a decrease in demand during the first six months. Rental and sales of office space in Amsterdam decreased yet again and in Groningen the demand for office space was virtually nil.
In spite of the further deterioration of the proportion between supply and demand on the Dutch office-market and the general drop of investments in CRE, the share of office space-investments in the average CRE portfolio remained fairly stable.
Investors invested a total amount of €420 mln in Dutch office space. Dutch investors had a share of €200 mln in investments. These were mainly private investors; institutionalized investors, like pension funds, insurance companies and CRE-funds stepped away from the office space-market and aimed mainly at shops and shopping centres.
I declared the Dutch CRE-market being in a coma at many occasions (for other articles, please use my search engine) and I have no reason whatsoever to change my tune. The aforementioned press release proves that I’m right.
The structural vacancy of office buildings is like a scar on the face of many cities and there is no reason to believe that this will change soon. The best thing that could happen is when structurally vacant office buildings are refurbished to student housing, social renting-houses or even condo’s for the free renting sector. This would meet the large demand for affordable rental housing in cities like Amsterdam, Rotterdam, The Hague and other cities with many students and office employees.
Residential Real Estate
Just like the market for CRE is still terrible, the RRE-market is still terrible too. The CBS issued its monthly report on the Dutch housing market:

Drop in house prices unchanged

Prices of existing owner-occupied houses were on average 1.9 % lower in June 2011 than in June 2010. According to the price index of existing residential property – a joint publication by Statistics Netherlands and the Land Registry Office – the price drop is about the same as in April and May.
All types of dwellings were cheaper in June 2011 than one year previously. Prices of flats dropped most (2.4 %). With 0.9 %, prices of detached houses fell the least.
Prices fell in all provinces. With 3.7 %, residential property prices declined most in Friesland. Prices in Groningen and Gelderland were 3.4 % down on one year previously. Prices of residential property in Zeeland remained almost stable (– 0.1 %).
Prices of existing residential property units dropped by 0.1 % compared with May 2011. The price drop was somewhat less substantial than in the two preceding months.
Around 9,500 existing owner-occupied houses changed hands in June, almost 13 % fewer than in June 2010. In the first half of 2011, nearly 58,000 houses were sold, a decline by 3 % compared with the same period in 2010.
Prices of existing own homes
The change of housing prices as a percentage Y-on-Y
At the beginning of this month, two third of the 6% conveyance duty on housing sales in The Netherlands was abolished. This triggered optimistic feelings among all people that were dependent from a free-flowing housing market:
·    Real estate agents (represented by the aforementioned association NVM)
·    The houseowner association Vereniging Eigen Huis.
·    The Dutch banking and mortgage industry
·    The government.
I gave my take on this government measure in the article: Dutch Finance Minister De Jager partially cuts conveyance duty….
The results on housing sales during July 2011 will be presented at the end of August. In advance, I doubt if these will be much better than the previous months.
The results for June were at least no surprise for me and will not be for my regular readers. You might want to check out the previously mentioned links here or you can use my search engine for further articles.
The good thing is that the mechanism of price destruction in the Dutch housing market is still in place. And price destruction is the only thing that can truly unlock the Dutch housing market. As bad news as this might seem for the current houseowners with their skyhigh mortgages, in the end it is the best solution for everybody.
Politics should worry about how to help mortgage-owners that are underwater, instead of keeping the housing prices artificially high. But that is a message that politics doesn’t want to hear.

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